Characterizing Approaches for the Implementation of Digital Business Strategies

Summary

During the last decade digitalization has changed the economy with enormous pace. Various improvements in information and communication technologies have led firms to adapt their business models to the new digital era. The traditional business models of almost all industries are challenged.  This thesis is about the challenges companies face with growing digitalization in every country and industry. Even well-managed companies have problems innovating entire business models and keep pace with traditional and new competitors. The digitalization requires companies to not just add new products but also to change their organization to become more flexible in adapting to changing market environments. This raises the research question "how to implement new products and services of a digital business strategy".

The figure illustrates and summarizes the research process and the results of the different steps to answer the research question. In step one a literature review were conducted to find definitions for IT organization, IT governance, business incubators and corporate incubators. In step two the results from the literature review were used to develop 41 characteristics out of the 78 found articles. From the 41 characteristics 21 are about IT governance and 20 are about corporate incubators. In the third step the characteristics were used to develop 18 hypotheses about the digital implementation capabilities of internal and external IT organizations. In the fourth step a questionnaire with 18 questions was used to evaluate the developed hypotheses. In interviews with eight professionals eleven out of 18 hypothesis could be supported. Form the eight interview partners four are from internal and four are from external IT organizations. The interviews were conducted by phone or in person to ask about reasons behind answers.

The following hypotheses are supported based on the interviews and give first answers to the research question “How to implement new products and services from a digital business strategy”. When implementing within an internal IT organizations it is important to consider that they might be too slow to compete with the market (H5) and are more business driven (H9). Implementing new products and services using an external IT organization the new business ideas need to fit to the strategy (H1), the incubator´s parent has to enables employees to join the incubator (H6) and the business model needs potential for high revenue growth (H10). Both organizations have in common that an entrepreneurial orientation of the entrepreneurs and employees is important for the speed to the market (H3), company´s growth is the main reason behind corporate incubators and the IT organization (H15) and the implementation requires top-management involvement (H18). Differences between both organizations are that incubators are better suited to implement new non-core products and services (H8), incubator´s management is better suited to recognize the potential of new technologies (H16) and new ventures in incubators implement new products and services faster (H11).

Additionally the thesis found the need for small empowered teams that are outside the traditional governance and therefore have a faster time to market and enable companies to quickly test innovative products and services. After successfully testing a new business model, start-ups as well as cross functional internal project teams will nonetheless face challenges with hierarchical structures and standardized IT infrastructure which will slow them down similar to traditional companies. Companies can either internally implement a digital business strategy or outsource the task to a corporate incubator. Independently from the taken approach companies have to alter their internal structures to enable self-organized and self-responsible entrepreneurs to join a cross-functional team or an incubator. About the applicability of one approach or another, the conducted interviews showed that for example banks have strong regulations which slow down their processes and limit the options to alter their governance structure which would suggest to use incubators in the banking industry. Another approach explained by one interviewee was to implement mature business ideas tested from competitors instead of strongly investing in testing themselves. An example for the applicability of empowered internal teams are companies that have to change their businesses periodically as it has been the case in the retail industry. It would not be productive for them to launch a corporate incubator because trends like e-commerce or smartphones disruptively change their business model and therefore have to become a competence inside the company.

Furthermore, the interviews showed that the digitalization affects every industry but this manifests itself in different maturity stages in the digital transformation. For example in the logistics industry the digital market is yet to be shared and every company tries to establish themselves as one of the leaders in the market. Therefore, those companies invest in getting market shares and not to directly increase their revenue. In the retail industry the digitalization is more mature and new products and service are supposed to contribute by generating increased revenue or a competitive advantage. Finally, due to the fundamental changes it is important that the top management of companies is involved in the strategy implementation. Only the top managers have the resources to alter the existing governance and empower cross-functional teams or launch an incubator.

Limitations

This thesis has some limitations because it tried to representatively characterize two areas of research on a strategic level. Due to the strategic focus and the small but profound interviews some results can only hold as a first attempt to understand the impacts of digital business strategies in companies. The interviewed “incubator” employees are from two incubators, a business angel and a venture capitalist. The interview partners provided a good overview about the business of supporting start-ups and could all contribute to the hypothesis evaluation. Nonetheless this thesis focused on corporate incubators and had only one interview partner working in one. This influenced for example the evaluation of statement 13 “The organization´s main purpose is to increase the company´s growth” because the corporate incubator and traditional companies agreed to the statement while others disagreed. Therefore, the hypothesis can be supported but needs further research with more corporate incubators. Furthermore, the differences between business angel, incubators and investor affected the rating of statement 7 “Building new capabilities for business ideas outside the company’s primary business is challenging” because the incubators agreed while the others disagreed to the statement. All agreed that understanding new business ideas is their daily business but rated their ability to build capabilities differently. The incubators agreed because they support start-ups in a different way than business angel and investor which requires a more profound understanding of the business and therefore better capabilities. Those differences give a good overview about the business models of incubators, business angels and venture capitalists but prevented in some cases a clear evaluation.

One limitation arose due to the used Likert scale because the interview partners could have tried to portray themselves or their organization in a light that they believe the examiner or society to consider more favorable than their true beliefs. This phenomenon is called “social desirability responding” (Robinson et al. 1991) and has to be considered when further using the results. Also there might exist more differences between industries in the maturity or approaches taken in the digital transformation that were not revealed in this thesis.

Future Research

The conducted interviews serve the purpose of creating an initial understanding of the effects of digital business strategies on companies. An online survey which refines the presented hypothesis in this master´s thesis would be the next scientific step to gain more reliable data and further insights into the effects of digitalization. More data could for example clarify whether the average or mode rating for statement 5 “The organization is too slow to implement a digital business strategy” is correct. In case of statement 5 the average suggested neither agreement nor disagreement while the mode rating suggested an agreement to the statement.

As mentioned earlier the digitalization changes every industry but is in different stages and has different impacts. For example in the retail industry digital technologies have been affecting them for the last two decades and the current new technologies are only the next step. In the banking industry the changes are more fundamental and banks are at an early stage to adapt their whole organization to the new requirements. For future research it would be interesting to define the different stages of digitalization and to correlate them with industries. More specifically a case study about a banking institute could reveal how they try overcome challenges due to strong regulations and complex legacy systems.

The ratings of business angel, investor and incubators also suggest differences between them which affected some ratings and the evaluation of hypotheses. Future research could on the one hand define the differences between companies associated with supporting start-ups. On the other hand interviews with solely corporate incubators could be used to reevaluate the presented hypotheses.

The interdependencies between internal IT governance and successful strategy implementation should be further researched to more clearly define the necessary prerequisites to the internal or external realization of a digital business strategy. This research could then give companies a guideline what to consider when investing in digital business models. Moreover, it could provide companies with concrete steps for a successful implementation. One possible suggestion for companies could be to give cross-functional teams the implementation responsibility and empower them to develop independently.

While some hypothesis need further responses with for example an online survey, others could be analyzed more deeply by conducting a case study. The following statements seem interesting for a case study due to their ratings:

• Q3: Entrepreneurial orientation benefits the speed to the market for new products and services.
• Q4: Digital initiatives face, due to their potential disruptiveness, huge internal barriers in the company.
• Q12: The standardization of IT infrastructures and business processes negatively affects the strategy implementation.

Case studies could for example show how companies try to increase the entrepreneurial orientation or explain the benefits on the time to market in a successful case. For disruptive technologies a case study with a corporate incubator could explain the barriers the initiative would have faced internal of the company and how the technology is nurtured and tested within the incubator. Furthermore, it could show a successful technology which is introduced into the operational division of the company after successful incubation. Finally, a case study could exemplify the importance of well standardized software as basis for the strategy implementation.

Lastly further research in combination with industry specifics should elaborate when it is better to implement a digital business strategy with an internal team and when it is more advisable to choose a corporate incubator. For instance, the results of this thesis point to the suggestion that in a strongly regulated environment like the banking industry an incubator is more likely to succeed because the unchangeable regulations slow down the implementation.

Keywords: digital business strategy, innovation, IT governance, corporate incuabtors, product and service implementation