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Eindhoven University of Technology

Eindhoven University of Technology MASTER Innovating business capabilities diffusing digital transformation strategy into process developments de
Eindhoven University of Technology MASTER Innovating business capabilities diffusing digital transformation strategy into process developments de

MASTER

Innovating business capabilities diffusing digital transformation strategy into process developments

de Wit, W.

Award date:

2016

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By Wouter de Wit Innovating Business Capabilities Diffusing Digital Transformation Strategy into Process Developments Supervisors Dr.
By Wouter de Wit
By Wouter de Wit
By Wouter de Wit Innovating Business Capabilities Diffusing Digital Transformation Strategy into Process Developments Supervisors Dr.

Innovating Business Capabilities

Diffusing Digital Transformation Strategy into Process Developments

Supervisors Dr. Ir. B. Walrave TU/e ITEM Dr. T.J.G. Peeters TU/e ITEM T. Offerman MSc

TU/e School of Industrial Engineering

Eindhoven, October 2016

Innovating Business Capabilities

Diffusing Digital Transformation Strategy into Process Developments

by Wouter de Wit

BA Liberal Arts & Social Sciences Student number: 0853235

in partial fulfilment of the requirements for the degree of

Master of Science in Innovation Management

Supervisors:

Dr. Ir. B. Walrave, TU/e, ITEM Dr. T.J.G. Peeters, TU/e, ITEM

Company Supervisor T. Offerman MSc.

TU/e School of Industrial Engineering

Series Master Theses Innovation Management

Subjects: Business Strategy, Enterprise Planning

“Direction is more relevant than speed. Many are going nowhere fast.

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Management Summary

Due to the beneficial aspects of digital technologies, organizations are transforming themselves digitally (Berman, 2012; Westerman, Bonnet, & McAfee, 2014). The digital transformation is explained as the implementation of digital technologies to improve the customer experience, operational processes and the business model. (Matt, Hess, & Benlian, 2015; Westerman et al., 2014). For each organization, the digital transformation is different. Westerman et al. (2014) argues that the types of digital transformation strategies depend on the digital and leadership proficiencies of an organization. Improving the digital proficiency is achieved by integrating technologies into the daily operations. The leadership proficiency is strengthened by establishing a clear vision and governance structure within the organization. Combining the digital and leadership proficiencies, organizations can be classified according to four levels of digital mastery: Beginners (low levels of digital and leadership proficiencies), Conservatives (low levels of digital proficiency, high levels of leadership proficiency), Fashionistas (high level of digital proficiency, low level of leadership proficiency) and Digital Masters (high levels of digital and leadership proficiency). While a lot is known about the digital transformation, further research needs to be performed to understand how digital transformation strategies translate into a structured development process (Matt et al., 2015). Using an explorative multiple case study research, this study investigates how business capabilities diffuse digital transformation strategies into process developments.

Business capabilities are defined as the ability of an organization, system or person to generate a defined output (Fleischer, Herm, & Ude, 2007). Business capabilities could facilitate the translation of digital transformation strategies as they are generic across companies, stable across time (Beimborn, Martin, & Homann, 2005) and facilitate the development of a common language across the organization (Scott, 2009). An example of a business capability is: The management and development of human capital (APQC, 2016). Using this example, stability is explained by arguing that in the past century, every organization was required to hire and develop their employees. Due to the level of abstraction of business capabilities, they are generic across all firms. Every firm for example manages their product development, procurement and sales strategies. This allows for a generic and common understanding when using the business capability concept. The advantage this develops is that it facilitates the strategic discussions between the business and IT, and at different levels across the organization (Brits, Botha, & Herselman, 2007; Scott, 2009).

Business capabilities are classified according to their level of uniqueness and collectiveness (Hafeez, Malak, & Zhang, 2007). Uniqueness is explained as the extent to which a capability is distinctive

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compared to the competition. It can be measured through the level of imitability, substitutability and transferability (Barney, 1991). Collectiveness is explained as the extent to which the capability is integrated across the organization (Hafeez et al., 2007). These measures include the implementation across functions, across products and across the business. Classifying the business capabilities according to uniqueness and collectiveness allows the research to develop business capability classification matrix (Figure 1) consisting of four distinct categories: core, strategic supporting, business essential and business necessity business capabilities (Scott, Cullen, & An, 2010).

compared to the competition. It can be measured through the level of imitability, substitutability and transferability

Figure 1 - Business Capability Classification Matrix

To obtain a better understanding how the digital transformation strategies diffuse into business capabilities, the research decomposed a business capability into four distinct domains, namely:

organizational, process, data and technology (Iyer & Gottlieb, 2004). Using these business capability domains allows the research to report the development changes for each specific business capability.

Using a multiple case study approach (Eisenhardt, 1989), the research depicts the digital transformation strategies across 7 cases using the business capability classification matrix. For the four levels of digital mastery, the analysis sketches digital transformation strategies using the current situation, the desired situation and the areas of improvement using business capability classification matrix. Afterwards, the areas of improvement for the business capability managing information technology are diffused into the four distinct business capabilities domains.

Matt et al. (2015) states that further research is necessary to understand how digital transformation strategies can be translated into process developments. To answer this question, the research explores how business capabilities enable the transition from a digital transformation strategy to process developments. By conducting this research, it can be argued that business facilitate the transition from a digital transformation strategy towards development processes. Using the business capability classification matrix, made it possible to identify the areas of improvement through the current and

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desired situation. Using the areas of improvement it became possible to assign the improvement activities to the different business capability domains. The research identifies that the uniqueness and collectiveness of a business capability varies over time. Results indicate that the uniqueness of a business capability dependents on external and internal factors like market competition, new trends and technological developments. The level of collectiveness is largely reduced by internal factors. These factors include acquisition, rapid growth or due to long periods of stability. To investigate how the business capabilities are diffused into the process development, the research used the four business capability domains. Based on the results, diffusing the generic business capabilities into specific business capability domains is related to the shifts in uniqueness and collectiveness. Central in development of uniqueness is the technology domain. For collectiveness, the developments are mainly located within the organization and process domains. While technology can help increase the collectiveness, its impact is of less relevance.

Through the research, several practical implications were generated. During the digital transformation, organizations classified as Beginners should stay aware of industry changes and market trends to maintain a stable position. In terms of their information technology business capabilities, beginners can start their digital transformation by focusing on their organizational and technology domain. Conservatives are recommended to start developing the information technology business capability to support their customer experience and operational process developments for the core business by redesigning their organization, process, data and technology domains. The research recommends that Fashionistas use their information technology business capability to improve the collectiveness for specific business capabilities. Using the information technology business capability to develop collectiveness is likely to facilitate the flow of information and the cooperation between the distinct business capabilities. To achieve this, Fashionista are recommended to restructure their organizational and process domains. Once an organization has successfully undergone the digital transformation, the next step should focus on sustaining the digital mastery status. By establishing a proactive approach towards further digital innovations, Digital Masters are recommended to further develop their core business capabilities themselves by experimenting with new methods and adapting the successful technologies. To achieve this, digital masters should develop the organizational and technology domain and make it flexible for experimentation.

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Preface

December 2015 I had my first encounter with the concept of business capabilities. In the most basic form business capabilities describe what an organization is capable of. Examples of business capabilities are the management and development of human capital and the management of new product development. An important aspect to understand about business capabilities is that they are stable over time. After hearing this, things got interesting. During the problem generation I was asked to provide an answer to the ultimate philosophical research question one could think of: How do you innovate something that cannot be changed over time? To simplify the arguing for myself, I translated the concept of business capabilities into human capabilities. Every human being has a similar set of human capabilities which cannot be changed. Examples of human capabilities are arms, legs, ears, brains and so on. Using this thought I asked myself: How have I innovated my human capabilities over time to achieve a certain goal?

While my human capabilities have seen little change, I challenged my human capabilities every day put them to use in a better or different way to achieve a desired goal. Overall the research allowed me to improve my planning, communication, reasoning and writing skills. To achieve my desired goal, I was required to innovate several human capabilities, and of course this would have not been possible through the help of some people. Tyron, thank you for the open and enjoyable feedback sessions and continuously challenging me to take the research to the next level. Bob & Katrin, thank you for accepting the challenge and guiding me through the research process. Staying motivated and feeling challenged throughout the time in Eindhoven would have not been possible without the help of some friends. First I would like to thank Arvid, Do, Koen and Tijmen for the memorable days and evenings. Thank you Stacy, Mary and Celia for the enjoyable late night philosophical discussions. Thank you @OfficialGA18 for making me feel at home in Eindhoven and last but not least, a big thank you to the family for providing me with the necessary support.

Overall, for anyone in the same situation, the best advice I can offer you is: The race is long, keep it fun and diverse by doing one thing every day that scares you.

Wouter de Wit Eindhoven, October 2016

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Table of Content

Management Summary

iii

Preface

vi

  • 1. Introduction .........................................................................................................................................

1

  • 2. Theoretical Background

4

2.1.

Classifying Business Capabilities

5

2.2.

Business Capability Domains

7

2.3.

Business Capability Conceptual Framework

8

2.4.

Business

Capability

Modeling .....................................................................................................

10

Methodology

  • 3. .....................................................................................................................................

11

3.1.

Initial Sampling

11

3.2.

Data Collection

12

3.3.

Case Selection

12

3.4.

Case Descriptions

13

3.5.

Data Analysis

14

  • 4. Results

17

4.1.

Beginners ....................................................................................................................................

18

4.2.

Conservatives

22

4.3.

Fashionistas

26

4.4.

Digital Masters

30

  • 5. Discussion

34

5.1.

Theoretical Implications

34

5.2.

Managerial Implications

35

5.3.

Limitations

and Future Research ................................................................................................

37

5.4.

Conclusion

38

  • 6. References

39

Appendix A APQC Cross-Industry Classification Framework

42

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1. Introduction

Business in every industry are influenced by the rise of digital technologies (Andal-Ancion, Cartwright, & Yip, 2003; Berman, 2012; Westerman et al., 2014). Due to the high availability of technologies, a well-planned digital transformation is necessary to remain competitive (Lanzolla & Anderson, 2008). The digital transformation is defined as the implementation of digital technologies to improve the customer experience, operational processes or the business model (Matt et al., 2015; Westerman et al., 2014). During the introduction of the digital technologies, firms were capable of investing in most digital opportunity like websites, software and mobile communication (Andal-Ancion et al., 2003). As the availability of the digital technologies grew exponentially, organizations were unable to afford all the developments, requiring them to be selective during their planning and development activities, (Andal-Ancion et al., 2003; Matt et al., 2015; Westerman et al., 2014).

To remain competitive and achieve higher levels of profit, productivity and performance through a digital transformation, Westerman et al. (2014) proposes that organizations need focus on the development of their digital and leadership proficiencies. Digital proficiency of an organization are related to the integration of digital technologies, while leadership proficiency relates to executing a digital vision (Figure 2). Combining the digital and leadership proficiencies, organizations can be classified according to four levels of digital mastery: Beginner, Conservatives, Fashionistas and Digital Masters.

1. Introduction Business in every industry are influenced by the rise of digital technologies (Andal-Ancion, Cartwright,

Figure 2 - Digital Mastery Classification (Westerman et al., 2014)

While Westerman et al. (2014) proposes that digital and leadership proficiencies are required for a successful digital transformation, Matt et al. (2015) states that due to the recent appearance of digital transformation strategies, further research needs to be performed to translate the digital transformation strategies into a structured development process for both the business and IT. To translate a digital transformation strategy into a structured development process, this research proposes to use the business capability concept as a mediating tool to translate the strategic objectives into structured development processes.

Business capabilities, defined as the organizations capacity to successfully perform a unique business activity to achieve a specific outcome (Beimborn et al., 2005; Merrifield, Calhoun, & Stevens, 2008), is a relevant concept used to link a strategy to process developments (Long & Vickers-Koch, 1995). Business capabilities could be an ideal mediator between strategy and process as they are stable across time (Beimborn et al., 2005) and built a common language across the organization (Scott, 2009). The stability of a business capability benefits the transition between strategy and process as an organization is perceived from what it does, instead of how. For example, the management of human capital is considered a business capability (APQC, 2016). Over the next years, every organization will continue to manage its human capital. Changes within the business capabilities are found in the underlying process of the business capabilities (Barroero, Motta, & Pignatelli, 2010; Mani, Barua, & Whinston, 2010). The stability of a business capability allows for stable performance measures across time, making it possible to objectively measure the digital implications (Scott, 2009; Stalk, Evans, & Shulman, 1991).

In order to uncover the benefits of introducing business capabilities as a mediator between digital transformation strategies and process developments, the research explores how the digital transformation translates into business capabilities and business capabilities domains. More specifically, using the digital mastery classification framework of Westerman et al. (2014), the research identifies how the four distinct levels of digital mastery impact the business capability differently. To achieve the research objectives, the following main research question is proposed:

How do business capabilities diffuse digital transformation strategies into process developments?

To systematically answer the research question, the research is split up into three sub-questions:

  • 1. How do the digital transformation strategies diffuse into business capabilities?

  • 2. How do the business capabilities diffuse into process developments?

  • 3. How does the business capability understanding provide support to managers during a digital transformation?

To answer the research question, the structure is as follows: The first part of the research is dedicated to the theoretical background. This section elaborates on the business capability concept. Using this knowledge, the research continues to elaborate on the methodological approach used during this study. In the results, the findings are discussed according to the four levels of digital mastery originating from the theoretical background. Finally, the paper analyses, discusses and summarizes the results within the discussion and conclusion.

2. Theoretical Background

The theoretical background aims at sketching a solid picture of the concept and functioning of the digital transformation strategies and business capabilities. Developing a concise definition and understanding of the business capabilities is essential for developing a conceptual framework. The business capability framework is built by combining the business capability classifications and domains. Business capabilities differentiates themselves from other methods through their stability, providing managers with insights into the performance changes based on their strategic decisions (Beimborn et al., 2005; Stalk et al., 1991). To get a better understanding of how business capabilities work, the chapter elaborates on the relevant aspects for modeling an organization according to the business capabilities.

Starting with the digital transformation strategies, Westerman et al. (2014) argue that the types of digital transformation strategies depend on the digital and leadership proficiency of an organization. For an organization to improve their digital proficiency, technologies should focus integrated into the daily operations. Organizations with strong digital proficiencies have integrated digital technologies to improve their marketing and drive their sales. Digital technologies have furthermore made it possible to automate core processes, and analytics are used to depict a better understanding of the customer and market trends (Westerman et al., 2014). Developing a digital proficiency helps organization in many way. Reed & DeFillipi (1990) identify three enablers for firms with strong information technologies: Rapid identification and development of application, information sharing possibilities across products, services and locations, and implementing common processes across business units, functions and products (Reed & DeFillipi, 1990). The leadership proficiency is defined as the strength of the vision and the governance within the organization. As argued by Westerman et al. (2014) an organization can increase its profitability by building a common digital vision and develop a strong business-IT relationship. From a practical perspective this suggests that senior management is willing to invest in digital skills and promote necessary digital culture changes.

To link the digital transformation strategy to business capabilities, the next step consists of decomposing the business capabilities into their most basic form. A capability is composed of multiple resources (Barney, 1991; Grant, 1991; Wernerfelt, 1984). Resources within a firm are defined as tangible and intangible assets semi-permanently tied to the firm (Caves, 1980; Wernerfelt, 1984). Examples of individual resources include equipment, skills of individual employees, patents and brand names (Barney, 1991; Grant, 1991). While most resources are bought (or hired), other resources need to be built over time (Dierickx & Cool, 1989). Examples of these resources are corporate reputation

and skills. A characteristic of a resource is that it requires other resources to function. For an organization to compete with resources, a strategic intent (direction and goal) needs to assigned (Javidan, 1998; Mahoney & Pandian, 1992). An example of a bundled resource is CRM software joint with skilled employees used for targeting customers.

The resource-based view assumes that each firm owns different resources which enable them to develop different strategies (Javidan, 1998). This means that by identifying the resources of a firm, enables the firm to get a better understanding of their current and missing resources for deploying a certain strategy. Visualizing a firm from its resource perspective gives managers different insights into the strengths and weaknesses compared to looking from a product perspective. Hence, a resource overview give insights to what specific resources lead to high or low profits (Wernerfelt, 1984). Increasing the value of resources within a firm is achieved by shaping them to become unique (efficient and effective) and collective (Barney, 1991; Hafeez, Zhang, & Malak, 2002). By building resources with a unique and collective characteristics allows organizations to develop a competitive advantage (Priem & Butler, 2001). Building unique resources is achieved by focusing on the inimitability (difficult to replicate), non-substitutable (no other resources fulfill the same task) and non-transferable (not purchasable across the industry)(Priem & Butler, 2001). Collectiveness focuses on introducing it across the organization. This is achieved by implementing it across the business, across-products and across- functions (Hafeez et al., 2007).

2.1. Classifying Business Capabilities

The business capability classification characteristics consist of uniqueness and collectiveness. Within this context, uniqueness is defined as ‘the extent to which a capability is distinctive among competitors’ (Hafeez et al., 2007) Collectiveness is described as the ability of a firm to develop new patterns and products by integrating the business capability throughout the organization (Hafeez et al., 2007). Using these two measures allows an organizations business capabilities to be plotted on a 2X2 business capability matrix map (Figure 3). The matrix contains four different classifications defined as the core (high uniqueness, high collectiveness), essential (low uniqueness, high collectiveness), strategic support (high uniqueness, low collectiveness) and business necessity (low uniqueness, low collectiveness).

Figure 3 - Business Capability Classification Matrix Business necessity capability are classified as capabilities with a

Figure 3 - Business Capability Classification Matrix

Business necessity capability are classified as capabilities with a low level of uniqueness and collectiveness. These business capabilities are important for an organization to operate, but they do not distinguish themselves from the competitors. Examples of common business necessity capabilities are the financial account management or the human resource management. These are crucial for supporting the daily operations, but do not deliver a competitive advantage. As they do not differentiate an organization, a common strategy for these capabilities is to outsource them for efficiency (Calhoun, Dowling, & Lynch, 2009). The essential business capabilities operate throughout the organization. While they are spread across business units and products, they are not unique compared to its competitors. These capabilities use best practices to assure efficiency, but are no different from the competitors (Scott, 2014). Manufacturing is commonly used example for this capability. The equipment used to produce the product is not different compared to the competitors, but is essential for the survival of the business. Strategic supporting capabilities differentiate themselves from the competition, but are not collectively integrated across the organization. The main goal of the capabilities is to provide support to the core business capabilities (Fleischer et al., 2007). Hence, when the core business capabilities change, supporting capabilities will need to adapt. Core business capabilities are the business capabilities which have a high level of uniqueness and collectiveness. Hence, core business capabilities are integrated across multiple business units and products, while being rare and difficult imitate (Hafeez et al., 2002). These capabilities have a high importance to the firm, as they sustain the competitive advantage (Prahalad & Hamel, 1990). Core

business capabilities are established within the organization and are often connected to intellectual property and patents (Merrifield et al., 2008). Furthermore, Leinwand and Mainardi (2010) mention that the core is composed of three to six business capabilities, allowing a firm to differentiate itself.

2.2. Business Capability Domains

Diffusing business capabilities into domains allows for the organization to be decomposed into individual layers and components (Ross, Weill, & Robertson, 2006). Each domain has its own responsibilities, differentiating between the flows of distinct resources (Iyer & Gottlieb, 2004). A solid understanding of the business domains enables organizations to make smarter rather than more investment decisions, decreasing costs and increasing efficiency (Ross et al., 2006).

This research proposed to make use of the Four-Domain Architecture by Iyer and Gottlieb (2004) as it covers every aspect of the business. The Four-Domain Architecture originates from the enterprise architecture and proposed four domains: Organization, process, data and technology (Figure 4). The organization domain is the inter and intra-relationship between people across the organization (Iyer & Gottlieb, 2004). The artifacts for this domain is focused on defining the roles and responsibilities and how cooperation with customers and suppliers (Winter & R. Fischer). The process domain is described as the formal and informal rules and routines of an organization (Iyer & Gottlieb, 2004). Typical artifacts within the process domain are the organizational units, responsibilities and performance indicators. The organization of the process domain focuses on developing effectiveness and efficiency across a business capability (Winter & Fischer, 2016). The data domain focuses on enabling the flow of information. Typical artifacts are described to be business rules, business data and information of any type. The domain strives to decrease costs and increase the speed at which data is delivered (Winter & Fischer, 2016). The technology focuses on integrating software and hardware across the organization. The primary goal is to support the activities and processes of the other domains (Iyer & Gottlieb, 2004).

Figure 4 - Enterprise Architecture Domains (Iyer & Gottlieb, 2004) 2.3. Business Capability Conceptual Framework Both

Figure 4 - Enterprise Architecture Domains (Iyer & Gottlieb, 2004)

2.3. Business Capability Conceptual Framework

Both the resource based view and enterprise architecture support the development of a solid foundation for business capabilities. The resource based view identifies the characteristics of resources that generate the competitive advantage of an organization. The enterprise architecture view decomposes an organization into four different domains. By combining the two perspectives and relating them to the business capabilities, it becomes possible to assess and distinguish different business capabilities according to the characteristics and domains.

Combining the findings of the literature, a conceptual framework (Figure 5) was developed to clarify the concept of business capabilities from an abstract perspective. The framework argues that a business capability is a bundle of resources directed through a strategic intent. In addition, multiple business capabilities create a competence (Javidan, 1998). Business capabilities are decomposed into four different domains: people, process, data, and technology (Iyer & Gottlieb, 2004). Addressing these four domains covers the abilities entailed within a business capability.

Continuing with the characteristics, (Hafeez et al. (2007); Priem and Butler (2001)) argue that resources deliver value to an organization when they are characterized as unique and collective. The framework argues that since a business capability is a bundle of resources, they can be characterized and classified according to uniqueness and collectiveness. To be more specific, business capabilities the unique characteristics assessed based on its substitutability, inimitability and transferability. Collectiveness is assessed based on the extent to which the capability is integrated across the business, products and functions.

Figure 5 - Business Capability Conceptual Framework 9

Figure 5 - Business Capability Conceptual Framework

2.4. Business Capability Modeling

Modeling an organization through business capabilities provides clear insights on the performance and importance of a capabilities within an organization (Beimborn et al., 2005). Identifying business capabilities from scratch is a time consuming process, nevertheless since the business capabilities are stable across time (Scott, 2009), APQC (2016) have developed a list of generic business capabilities across multiple industries (Appendix A). The cross-industry APQC framework is used to illustrate the functioning of the business capability model.

Business capabilities consist of both horizontal and vertical relationship (Freitag, Matthes, Schulz, & Nowobilska, 2011). This means that business capabilities are composed of multiple levels (vertical relationships). At the most abstract level (level 1), every organization has between the 10 to 15 distinct business capabilities (APQC, 2016). An example of the cross-industry business capability map of level 1 is shown in Figure 6.

2.4. Business Capability Modeling Modeling an organization through business capabilities provides clear insights on the performance

Figure 6 - Level 1 Business Capability Model (APQC, 2016)

Each business capability level can be decomposed into a lower (more specific) level. At level 2, the average amount of business capabilities range between the 80 and 120 distinct business capabilities (see Appendix A). Splitting business capabilities into more specific capabilities can continue for as long as necessary. Moreover, Scott (2014) mentions that after level 3, a business capability is likely become company specific and turn into a business process.

Using the knowledge collected during the development of the conceptual framework, the data collection and analysis focuses on investigating how the digital transformation strategies can be diffused into business capabilities and the distinct domains.

3. Methodology

For this research the aim is to understand how business capabilities facilitate the development coordination during a digital transformation. To answer this question, the study used the building theories from case studies methodology developed by Eisenhardt (1989). The method is defined as a comparative method combining the grounded theory of Corbin & Strauss (1990) and the case study methodology of Yin (1984). The approach is relevant for this research as it focuses on generating theory from case study evidence. The steps taken to perform this research (Figure 7) consist of initial sampling, data collection, data analysis and reaching closure by combining the findings with literature.

3. Methodology For this research the aim is to understand how business capabilities facilitate the development

Figure 7 - Research Methodology

3.1. Initial Sampling

The initial sampling focused on determining the research scope and the initial constructs. Due to the limited resources available, the initial scoping allowed for a focused approach with a predetermined direction. The sampling consists of an extensive literature review combined with expert opinions. Through these findings, it became possible to develop the priori constructs. The sampling was a very iterative process as the literature and expert opinions had strong influences on the research scope. The final constructs, identified through the initial sampling, consist of the four business capability

classifications: ‘core business capabilities’, ’strategic supporting capabilities’, ‘business essential capabilities’ and ‘business necessity capabilities’. The research included the four enterprise domains:

organization, process, data and technology.

  • 3.2. Data Collection

The overall result of the data collection resulted in 7 case studies (Table 1) developed through documentations and semi-structured interviews. The data was collected over a period of two months. After respondents accepted the interview invitation, they were informed about the topic of the research through an introductory document, including the research direction and some broad questions. The preparation before each interview consisted of collecting company documents to facilitate the conversation. For each case one semi-structured interview was performed, lasting on average 40 minutes. To assure validity, the interviews were recorded and transcribed. After each interview, field notes were developed focusing on the experience obtained from the company visit. These notes also included new findings and points of attention for new interviews and further research. Relevant statements and strategies of the respondents were confirmed through internal documents. In the case of confusion about the data, a follow-up conversation was planned either via phone or email.

  • 3.3. Case Selection

For this research, the case study research focused on large multinational organizations going through a digital transformation. To assure this, the case selection focused on organizations with more than 1000 full time employees, a revenue of at least €1 billion and in-house IT departments. To assure consistency across each of the cases, the participants were required to understand the current and desired state of the organization. Ideally, participants were also recommended to understand the process or strategic developments for the desired situations. Within the sample, the job functions of the participants ranged from innovation managers, vice presidents, process consultants to new business developers.

Overall, a wide variety of cases have been selected. In total, the seven case studies address six distinct industries. By using cases that are most different from each other, allows for a greater generalizability. Through greater variation, the research aims to confirm that business capabilities are an accepted tool across different industries. Furthermore, to test whether the business capability concept is applicable for both the business and IT side of an organization, participants from different sides of the business have taken part in the research.

3.4. Case Descriptions

International Beer Brewery (IBB): IBB is a beer producing company with a large product portfolio, focusing on a wide range of premium local and international. Most of their sales originate from markets where they hold the number 1 or 2 position. During the time of the data collection, a new CEO was appointed. As a result, a new corporate strategy was developed, where the digital transformation had high strategic importance. While their product cannot be digitalized, transforming digital may enrich their marketing and sales strategies as their target market is digitalizing.

Consumer & Corporate Insurance (CCI): CCI is a large insurance organization throughout Europe. CCI is specialized in life and damage insurances and capable of providing loans. Due to the financial crisis and low interest rates, CCI is in a challenging position where efficiency is a strong determinant for survival. As the years before the crisis were fruitful and little change was necessary, the digital transformation needs to update the IT systems to support an efficient organization and an active online presence.

Construction & Service Company (CSC): CSC is a specialized construction, real estate and engineering group within the Netherlands. In the past couple of years, CSC has faced difficulties due to the financial crisis, requiring the CSC to invest in a reorganization. As the current real estate market is regaining power, the digital transformation focuses on implementing technologies that avoid delays and stimulate effective communication.

Information Technology Consultant (1) (ITC1): ITC1 is a global information technology consultant focusing on the system integration and outsourcing. Being a young organization (±40 years), ITC1 is active in many distinct markets ranging from health to space agencies. Overall, ITC1 has seen a rapid growth by acquiring large competitors. While their systems are highly up to date, their digital transformation aims to remain a role model in terms of IT. Therefore, ITC1 needs to assure a proactive attitude towards the latest developments.

Information Technology Consultant (2) (ITC2): ITC2 is a global information technology strategy and transformation consultant. Specialized in the advising and supporting of organization, ITC2 can consult a broad range of markets, for example governmental, consumer products and health. The focus of the digital transformation is directed to improve internal processes and stimulate knowledge sharing across the organization.

Public Transport (PT): PT is a Dutch railway company for which the shares are held by the Dutch government. As the Netherlands has one of the busiest railways of the world, PT is put in a responsible position where stakeholder management (governments and other transportation organizations) is

crucial for the survival. The digital transformation of PT focuses on reliability, where digital technologies across products and employees need to avoid delays and unexpected scenarios.

Corporate Bank (CB): CB is one of the largest financial services established within the Netherlands. Within CB, IT plays a leading role. As customers often prefer online and mobile banking compared to the traditional banking. To assure customer satisfaction, the digital transformation strategy of CB is focused at delivering a modern and secure platform for all their customers.

3.5. Data Analysis

The data analysis consists of two parts. The first part consists of a within-case analysis. Here the digital and leadership proficiency is assessed and the digital transformation strategy is mapped. The second part consists of the cross-case analysis. Here matching cases are compared against their areas of improvement and their business capability domain developments.

During the within-case analysis, the aim was to clarify the digital transformation strategies for each organization individually. The first step of the analysis consisted of classifying the cases according to their digital and leadership proficiency. This was achieved through a predeveloped questionnaire developed by Westerman et al. (2014) consisting of 10 questions for each proficiency. Each question was assessed through a Likert scale (1 low proficiency, 7 high proficiency). Next, the analysis moved on to describing the relevant business challenges, current situation and desired situation for each of the cases individually. Using this information, the research used the business capability classification matrix to generate the current situation, desired situation and the areas of improvement. For this research, the level 2 business capabilities (APQC, 2016) were positioned into the business capability classification matrix. The business capability modeling meant that each level 2 business capability (total of 66 business capabilities) were individually positioned into one of the four classification (core, strategic supporting, business essential, business necessity). This was done by relating quotes originating from the transcribed text and organizational documents to a specific business capability. For the cross-case analysis, the four levels of digital mastery were analyzed. The research also includes the analyses the business capabilities shifts of digital masters. This was is relevant for the research understand how development activities differ after a digital transformation. The aim of the cross-case aim analyses to compare and identify the business capability movements for the four levels of digital mastery. To achieve this, the level 2 business capabilities of each level of digital mastery was compared against each other. The comparison was done by using a heat map. The heat map depicts the average percentage of level 2 business capabilities present with the specific classification. Since the level of detail for the level 2 was too high, the results are presented using the level 1 business capabilities (total of 13). The second part of the cross-case analysis consisted of diffusing the development strategies

into the business capability domain developments. Since the research focuses on the digital transformation strategies, the choice was made to solely look at how the domain developments of the manage information technology business capability. For each individual domain, the results demonstrate how the distinct levels of digital mastery are planning on developing their information technology business capability.

During the data analysis, validity was established through expert opinions and reducing the data through modeling (Whittemore, Chase, & Mandle, 2001). Expert opinions consisted of discussions with company and university supervisors, who were familiar with the research topic. These discussions consisted of weekly sessions, were the results were presented and discussed. These meetings made it possible to strengthen the findings and identify new relationships. The data reduction was achieved by classifying organizations using level 2 business capabilities obtained from the cross-classification process framework (APQC, 2016) and plotting them according to their uniqueness and collectiveness. This allowed each case study to be modelled according to the same characteristics.

Table 1 - Case Study Descriptions

Date of Case Study

Reference

Company Description

Industry

N# of Employees

Net Revenue (€)

Adjust Net Profit (€)

22-6-2016

IBB

International Beer Brewery

Consumer Staples

> 40,000

> 7.5bn

> 500 mln

15-6-2016

CCI

Consumer & Corporate Insurance

Insurance

> 10,000

> 7.5bn

> 1.0bn

7-7-2016

ITC1

IT Consultancy

Consultancy

> 50,000

> 10.0bn

> 750 mln

24-6-2016

ITC2

IT Consultancy

Consultancy

> 150,000

> 10.0bn

> 1.0 bn

13-7-2016

CSC

Construction & Service company

Construction

> 5,000

> 1.0bn

> 1.0 mln

27-7-2016

PT

Public Transport

Public Transport

> 25,000

> 5.0bn

> 100 mln

25-6-2016

CB

Corporate Bank

Financial Services

> 50,000

> 10.0bn

> 2.0 bn

4. Results

The first part of the analysis consists of assessing each case according to their digital and leadership proficiency. The results (Table 2 and Figure 8) show that for each of the levels of digital mastery is related to two cases, except for the Beginners, which consists of one case. Classifying the cases according to their level of digital mastery enables the research to perform a cross-case analysis.

Table 2 - Digital Mastery Assessment

Case

IBB

CSC

CCI

ITC1

ITC2

PT

CB

Digital Proficiency

2.0

2.0

3.0

5.2

4.3

4.7

5.2

Leadership Proficiency

2.4

4.3

4.8

5.0

3.0

2.2

5.0

Digital Mastery Classification Current Situation

PT CB ITC1 ITC2 CCI IBB CSC Digtial Proficiency
PT
CB
ITC1
ITC2
CCI
IBB
CSC
Digtial Proficiency

Leadership Proficiency

Figure 8 - Case Studies Organized According to their Digital Mastery

4.1. Beginners

4.1. Beginners Figure 9 – Heat Map Current Situation - Beginners Within the current situation of

Figure 9 Heat Map Current Situation - Beginners

Within the current situation of the Beginners (Figure 9) the core business capabilities consists of acquiring and managing of assets (10.0), their sales strategies (3.4) and their product development (2.0). For the business essential capabilities, a collective, but non differentiating approach is used to deliver their physical products and services (4.0 & 5.0). IBB differentiate themselves through marketing and sales activities (3.0) and external relation management (12.0), but the approach is not collectively executed. Finally, the business necessities consist of managing of their customer services (6.0), information technology (8.0), financial resources (9.0) and enterprise risk (11.0).

Figure 10 – Heat Map Desired Situation - Beginners Looking at the desired situation (Figure 10),

Figure 10 Heat Map Desired Situation - Beginners

Looking at the desired situation (Figure 10), the goal is to develop a collective organization. In terms of capabilities, the product development (2.0), marketing & sales (3.0) and the delivery of the products (4.0) need to coherently operate within the core.

‘If you look at the other beer brewers, they are all going in the same direction. And one of the things is the mastering of value management, meaning that you focus on earning more per

liter beer.’ [IBB]

The essential capabilities focus on unrolling a collective vision and strategy (1.0) in combination with the service delivery (5.0). Within the strategic supporting capabilities the innovation activities focus on developing and implementing new strategies and technologies. Introducing social media within the marketing, is an example of an organizational and technological innovation.

Figure 11 – Areas of Improvement – Beginners For IBB, the areas of improvement (Figure 11)

Figure 11 Areas of Improvement Beginners

For IBB, the areas of improvement (Figure 11) are focused on building a coherent global sales and marketing process (3.0). This means that at the point of sale, the brand is present. To tackle the digitalization of consumers, their marketing capability has to adapt to the digital environment.

“We are developing ourselves in terms of digital marketing through the integration of technologies.” [IBB]

By developing the uniqueness and collectiveness of their asset management (10.0) and physical product delivery (4.0) the aim is to increase the profits through a high efficiency.

“There is little change within the production process. The most important thing is that you

develop an efficient production process. Factories need to operate at their maximum capacity. Technology will not solve this challenge, but the closing of factories. However, the trade-off is

that you get higher transportation costs.” [IBB]

Figure 12 - Manage Information Technology Business Capability Domains - Beginners Using the reported areas of

Figure 12 - Manage Information Technology Business Capability Domains - Beginners

Using the reported areas of improvements, it becomes possible to diffuse these improvements into

the four distinct business capability domains for the ‘manage information technology’ business capability (Figure 12). Within the organization domain, the focus is to develop a digital mindset. By developing an IT strategy that identifies how IT can provide added value, the digital journey can be

triggered.

“For each of the business capabilities, there is a strategy. Someone needs to make a plan, collect knowledge, and spread knowledge.”[IBB]

There is little change within the process domain. The main focus of the process is to assure efficiency and that the business is not impacted by these changes.

“In terms of product there is not that much change. There, the most important factor is that you develop an efficient production process.” [IBB]

Developing the data domain is achieved through developing performance indicators which provide insights into the added-value of the technologies. Within the technology domain, the development actions are focused on improvements related to proven technologies. This could include digital marketing technologies such as social media tools.

“We are developing ourselves in terms of digital marketing through the integration of technologies.” [IBB]

4.2. Conservatives

4.2. Conservatives Figure 13 – Heat Map Current Situation – Conservatives Within the current situation of

Figure 13 Heat Map Current Situation Conservatives

Within the current situation of the Conservatives (Figure 13), most business capabilities are located within the business essential, strategic supporting, and business necessity capabilities. Within the core business capability, the customer service (6.0) capability is the only differentiating capability. The explanation, as provided by the participants, is due to a lack of organizational development in the past years due the financial crisis.

“In the past years, the focus of our organization was mainly focused on restructuring and keeping ourselves alive, since there were very little opportunities available in the construction market [CSC]

The strategic supporting capabilities are allocated to the development (2.0), marketing and sales capabilities (3.0) and service delivery (5.0). The business essential capabilities are composed of a vision development (1.0) product development (2.0) and product and service delivery (4.0 & 5.0), customer service (6.0) and the management of IT (8.0). The business necessities consist of the management and development of their human capital (7.0), information technology (8.0), financial resources (9.0), asset management (10.0), enterprise risk (11.0) and external relations (12.0).

Figure 14 – Heat Map Desired Situation – Conservatives Within the desired situation of the Conservatives

Figure 14 Heat Map Desired Situation Conservatives

Within the desired situation of the Conservatives (Figure 14) the goal is to bring the management of information technology to the core business capability. By combining it with marketing, sales (3.0), delivery of products (4.0) and a customer service (6.0), the Conservatives hope become more effective and efficient.

Within the strategic supporting capability, the development of human capital (7.3., 7.5, & 7.6) requires special attention. Functions relating to customer service and construction engineers will need to adapt to the new technologies. Hence, new skills and employees are needed to develop and maintain the IT systems. Furthermore, by implementing new IT systems, a specific amount of employees will need to be retired.

Figure 15 - Areas of Improvement - Conservatives For the Conservatives, the current development activities (Figure

Figure 15 - Areas of Improvement - Conservatives

For the Conservatives, the current development activities (Figure 15) are focused on the management of information technology (8.0). Their strategy is to build a solid IT infrastructure that provides support to the core business capabilities. For the construction company, information technology (8.0) will improve the alignment of supply chain resources (4.1), material procurement (4.2), delivering of products (4.3) and the management of logistics (4.4). For the insurance company the information technology will cooperatively work with the marketing and sales of products and services (3.0) and the customer service (6.0).

‘We strive to become personal through chats and big data to assess what somebody really needs. Someone who for example does make large trips, could get an adjustment on their travel insurance[ICC]

Furthermore, the management of human capital (7.0) also needs improvement. Integrating new technologies and processes will require new skills and functions.

Figure 16 - Manage Information Technology Business Capability Domains - Conservatives Using the areas of improvement

Figure 16 - Manage Information Technology Business Capability Domains - Conservatives

Using the areas of improvement of the Conservatives, developing the manage information technology business capability (Figure 16) focuses on reforming the business through new technologies. Within the organization domain, the development activities are focused on matching the IT with the business strategy. This includes implementing functionalities that improve business execution. To match the organizational needs, employees will need to adapt to the modifications provided by the IT.

“With the new technologies, the market segments are much stronger refined so that you don’t have to try to score everywhere. That’s the strategy that we currently have[CCI]

After matching the IT with the business strategy, the process domain needs to adopt to the changes in workflow. This includes implementing new job functions and business units, but at the same time laying of people

Yesterday they announced that a new department will be introduced. Across the insurance departments they’ll introduce a new customer service department […] Implementing new systems often means that you will need to educate people, but at the same time this also means that a lot of people will have to leave[CCI]

The developments within the data domain across focused on implementing process and product monitors that provide employees with the latest information and the organization with performance .

measures.

“By introducing new technologies to our engineers enables us to provide them with the latest information during the service delivery[CSC]

For the technology domain, the development actions relate to deploying new technologies and discontinuing technologies which are outdated. Nevertheless, during the development actions, the business should not be hindered.

4.3. Fashionistas

4.3. Fashionistas Figure 17 – Heat Map Current Situation – Fashionistas Within the current situation of

Figure 17 Heat Map Current Situation Fashionistas

Within the current situation of the Fashionistas (Figure 17) the business capabilities are scattered across the different classifications. The core business capabilities consist management of marketing and sales (3.0), delivery of products (4.0) in combination with IT (8.0) and stakeholder management

(12.0)

‘Things like our white papers relating to leadership, demonstrate that we are aware of the changes happening in the market place, this fits in with the marketing.’ [ITC2]

Essential capabilities are focused on the delivery of products and services (4.0 & 5.0) customer service (6.0) and maintaining the IT systems (8.0). The strategic supporting capabilities consist of the development and marketing of products and services (2.0 & 3.0) in combination with some stakeholder management (12.0). The business necessities consist of the secondary business capabilities like management of human resources, finances, risk and assets (7.0, 9.0, 10.0, and 11.0).

Figure 18 – Heat Map Desired Situation - Fashionistas Within the desired situation of the Fashionistas

Figure 18 Heat Map Desired Situation - Fashionistas

Within the desired situation of the Fashionistas (Figure 18), the roles, responsibilities and processes are better defined. For the core business capabilities, the focus is directed at a unique and collective marketing, sales (3.0) and product or service delivery (4.0 or 5.0). The strategic supporting capabilities for Fashionistas consist of the product development (2.0) combined with human capital development (7.0). For example, ITC2 mentioned within the desired situation, the product development capability (2.0) consist of a core team, who is familiar with a specific way of working.

‘There should be a core team [for the proposal and product development], who perfectly understand the requirements. […] This would allow the quality to be increased’ [ITC2]

In terms of business essentials capabilities, Fashionistas have classified their information technology (8.0), their vision and strategy (2.0) and their customer service (6.0) as business essential capabilities. Within the business necessities, the management of financial resources (9.0), assets (10.0) and enterprise risk (11.0) are present.

Figure 19 - Areas of Improvement - Fashionistas The main areas of improvement for Fashionistas (Figure

Figure 19 - Areas of Improvement - Fashionistas

The main areas of improvement for Fashionistas (Figure 19) are focused within the core business capabilities and are focused on the development (2.0), marketing, sales (3.0) and delivery of the product and service (4.0 & 5.0). Fashionistas realize that most of their initiatives have limited effect due to a lack of cooperation. ITC2 for example noticed how every business unit in the organization is independently developing their proposals and offerings. Hence, the areas of improvement for ITC2 consist of a stronger cooperation in the product development (2.0) and create a coherent way of delivering services (5.0).

‘The basics needs to be structured, employees need to know which product will be developed by whom. And the way it is tested. The whole concept, from vague idea to minimum viable product, to scaled up product, that process needs to be thought through first[ITC2]

As the competition within the public transport industry is limited, the division of the business capabilities remains the same. The areas of improvement of PT are to develop the maturity of their business capabilities. This mean reducing the errors through updated IT systems (8.0) and increasing the reliance of their product delivery (4.0).

Figure 20 - Manage Information Technology Business Capability Domains - Fashionistas Diffusing the areas of improvements

Figure 20 - Manage Information Technology Business Capability Domains - Fashionistas

Diffusing the areas of improvements into the manage information technology business capability domains (Figure 20), shows that the development actions are focused on developing a coherent structure across the organization. Within the organization domain, the development actions relate to identifying the long-term IT needs together with the business. Within the process domain, the primary goal is to achieve a consistent method of delivering a services. These developments can originate from best practices and existing methods.

For the product ideation phase for example, there are enough metrics and benchmarks available. You will not need to invent that yourself.” [ITC2]

The data domain plays an important role in reducing complexity. The development actions should focus on facilitating the access to data and information, allowing for a stronger cooperation.

“We current keep a lot of information for ourselves. If a different country would perform the same job elsewhere, they need to re-perform out analysis. That being said, if you facilitate that data throughout project, you can basically perform project much faster[ITC2]

Developing the technology domain can be achieved by deploying experimental and proven technologies depending on the importance of the technology.

‘If the customers want internet in the train, it is our job to get it to them as soon as possible[PT]

4.4. Digital Masters

4.4. Digital Masters Figure 21 – Current Situation Heat Map – Digital Masters The current situation

Figure 21 Current Situation Heat Map Digital Masters

The current situation of the digital masters (Figure 21) the core business capabilities are focused around the service delivery (5.0), customer service management (6.0) and the management of information technology (8.0).

When clients see us, it is really not a question about quantity over quality. It might come across as Utopian, […] but we have been given the flexibility because of our company structure. [ITC1]

The business essential capabilities are focused around the vision (1.0), product development (2.0), marketing and sales (3.0) and the delivery of the physical product (4.0). The strategic supporting capabilities have a high variety. They consists of the development and management of products (2.0) and marketing and sales (3.0). Other strategic supporting capabilities are customer service (6.0), human capital (7.0) and IT (8.0) management. The business necessities consist of the development and management of human capital (7.0), financial resources (9.0), enterprise risk (11.0) and external relations (12.0).

Figure 22 – Heat Map Desired Situation – Digital Masters The desired situation for the digital

Figure 22 Heat Map Desired Situation Digital Masters

The desired situation for the digital masters (Figure 22), the core business capabilities are focused around the service delivery (5.0) and the management of customer services (6.0). Furthermore, the core business capabilities consists of the development and management of products (2.0), human capital (7.0) and the management of information technology (8.0). Within the business essential capabilities, the development of a vision and strategy (1.0) and delivery of physical product (4.0) are dominant. Other essential capabilities are the development and management of products (2.0), marketing and sales (3.0), management of customer services (6.0), information technology (8.0) and the acquisition, construction and management of assets (10.0). The strategic supporting capabilities consist of many distinct capabilities. These consist of product development (2.0), marketing and sales (3.0), service delivery (5.0), customer service (6.0), human capital management (7.0) and the management and development of information technology (8.0). Finally, within the desired situation, the business necessities consist of the development and management of human capital (7.0), management of financial resource (9.0), enterprise risk (11.0) and external relations (12.0).

Figure 23 - Areas of Improvement - Digital Masters The areas of improvement for the digital

Figure 23 - Areas of Improvement - Digital Masters

The areas of improvement for the digital masters (Figure 23) is focused around the core business capabilities. As the matrix shows, the development and management of products and services (2.0) is moving from a business essential to the core business capability. Even though the delivery of services (5.0) and the management of information technology (8.0) is currently classified as a core business capabilities, these capabilities will be improved to strengthen the competitive advantage. As the digital masters are integrating more technologies across the firm, the development and management of human capital (7.0) is moving from a business necessity to the strategic supporting capability.

Figure 24 - Manage Information Technology Business Capability Domains - Digital Masters For the business capability

Figure 24 - Manage Information Technology Business Capability Domains - Digital Masters

For the business capability manage information technology (Figure 24) the Digital Masters are proactively improving their IT by experimenting with new technologies. To achieve this, the organization domain focuses on collaborating with the business. This could be achieved by introducing an innovation technology lab central within the organization.

“We have a whole facilitate that have been given to innovative projects [

...

]

here we display

what we are working on in terms of gadgets. The second room is, is what we have already

established, and then the third is a presentation where we bring in our clients.” [ITC1]

In the process domain, digital master seem to promote a digital culture, where implementing a (lean) startup process is recommended.

“Internally we have started setup some startups which are experimenting and testing new products and technologies[CB]

To avoid scattered technologies and startups across the organization, it is of importance that the data domain is developed to monitor the success of the new (and old) technologies to assess the add-value for each. The technology domain should be developed to allow new technologies to be tested and deployed. Implementing these technologies at larger scale becomes possible after they have proven to be of added value.

“Due to the rise of Fintech startups, we need to actively develop new ways of delivering our product. However, compared to the Fintech’s, our technologies and products are much more concentrated on reliability and security[CB]

5. Discussion

During a digital transformation, development activities are focused on integrating digital technologies to improve the customer experience, operational processes and business models (Andal-Ancion et al., 2003; Berman, 2012; Matt et al., 2015; Westerman et al., 2014). Matt et al. (2015) states that further research is necessary to understand how digital transformation strategies diffuse into process developments. Answering this question, strengthens our understanding since business capabilities focus on what changes, whereas a strategy and processes are derived by why and how (Brits et al.,

2007).

5.1. Theoretical Implications

The research argues that business capabilities ease the transition from a digital transformation strategy towards process developments. Using the business capability classification matrix, it becomes possible to show the areas of improvement by comparing the current situation against the desired situation. Having identified these areas, it became possible to diffuse these improvement activities to the business capability domains.

While designing digital transformation strategies, earlier research indicated that digital technologies are important determinants for the digital customer experience and improved operational processes (Berman, 2012; Matt et al., 2015). To clarify how integrating digital technologies impacts business capabilities, the research analyzed how the importance of the information technology business capability changed. The findings confirm that the information technology business capabilities fulfill an important function across the organization. Results illustrate that an IT business capability is likely to operate as a core or essential business capability after the digital transformation. Therefore, during the digital transformation the aim should be to incorporate the IT collectively across the organization, meaning the organizations has a shared IT vision incorporated across products and functions. Firms can individually decide whether (and to what extend) they wish to uniquely develop their IT business capability.

By diffusing the digital transformation strategies into business capabilities, the results indicate that, apart from the information technology business capability, two or three other business capabilities are empowered and given a different role within the organization. These business capabilities are empowered since the information technology business capability enables new possibilities in terms of customer experience and operational processes. While individual cases identified how their customer experience and operational processes are affected through a digital transformation, no clear

conclusions can be made as to what specific business capabilities relate to customer experience or operational processes. Nevertheless, while business capabilities are identified as stable over time (Beimborn et al., 2005), the research identifies that the uniqueness and collectiveness of a business capability varies over time. Results indicate that the uniqueness of a business capability dependents on external and internal factors. In terms of external factors, uniqueness is reduced by market competition, new trends and technological developments. Internal factors that impacts the uniqueness are caused by a reduction in strategic importance and financial attention. The level of collectiveness is largely reduced by internal factors. These factors include acquisition, rapid growth or due to long periods of stability. As an organizational structure changes internally, the collectiveness of a business capability reduces over time. This means that parts of the organization independently develop and deploy methods for similar business capabilities.

To investigate how the business capabilities are diffused into the process development, the research used the four business capability domains. Based on the results, diffusing the generic business capabilities into specific business capability domains is related to the shifts in uniqueness and collectiveness. Business capabilities that increase in uniqueness develop across all four domains. Central in development of uniqueness is the technology domain. By implementing suitable technologies, the organizational and process domain can design an effective workflows. For collectiveness, the improvements also affect all four domains, but the process and organizational domains are most relevant. Within these domains, clear roles and responsibilities are recommended combined with performance indicators. While technology can help increase the collectiveness, its impact is of less relevance.

5.2. Managerial Implications

Using the business capabilities to direct the digital transformation strategies benefits organization by providing stable performance measures and a common language across the firm (Long & Vickers-Koch, 1995; Scott, 2009). Combining the findings, the result suggest that each level of digital mastery requires a different development approach (Figure 25) since some organizations focus on developing their digital proficiency, while other organizations need to improve their leadership proficiency. Based on the findings, development suggestions are made for each of the four levels of digital mastery.

Figure 25 - Development Trends - Digital Mastery During the digital transformation, organizations classified as Beginners

Figure 25 - Development Trends - Digital Mastery

During the digital transformation, organizations classified as Beginners should remain aware of industry changes and market trends to maintain a stable position. In terms of their information technology business capabilities, beginners can start their digital transformation by focusing on their organizational and technology domain. Within this domain, the relevance of IT should be established. Since beginners have yet to develop a digital mindset, the technology domain can focus on implementing proven technologies. Through a reactive approach, beginners become capable of following and reacting towards industry changes, focusing on implementing proven technologies.

During the digital transformation of Conservatives, the research recommends that Conservatives start by developing the information technology business capability to support their customer experience and operational process developments for the core business capabilities. To achieve this, Conservatives are recommended to redesign their organization, process, data and technology domains. During the redevelopment of all four business capability domains should focus on deploying and removing functionalities with minimal distraction and risk to the business. Over time, these development activities are likely to facilitate and stimulate the digital proficiency developments.

During the digital transformation of Fashionistas, the research recommends to use the information technology business capability to improve the collectiveness for specific business capabilities. Using the information technology business capability to develop collectiveness is likely to facilitate the flow of information and the cooperation between the distinct business capabilities. To achieve this, Fashionista are recommended to restructure their organizational and process domains. Within the organizational domain, a clear vision and strategy needs to be established that matches the needs of the other business capabilities. Within the process domain, the research recommends to set up

guidelines for deploying and removing functionalities. Using this approach, Fashionistas could improve their delivery of a coherent digital customer experience and over time strengthen the operational processes through an improved flow of information.

Once an organization has successfully undergone the digital transformation, the next step should focus on sustaining the digital mastery status. By establishing a proactive approach towards further digital innovations, Digital Masters are recommended to further develop their core business capabilities themselves by experimenting with new methods and adapting the successful ones. To achieve this, digital masters should develop the organizational and technology domain and make it flexible for experimentation. By facilitating the experimentation, organizations can outperform their competition through innovations and sustain their competitive advantage. Overall, through future developing business capabilities, digital masters can secure profits through a first mover advantage.

5.3. Limitations and Future Research

Reflecting on the explorative research, the research has several limitations. As with theory building studies, the intensive use of empirical data may cause overly complex theories (Eisenhardt & Graebner, 2007). While this research attempted to develop simplicity of the overall perspective, the vast amount of data, combined with a bottom-up approach, made it difficult to capture the real essence of the research. To develop a simplistic and solid theory, replication of the research is necessary. Further research should specifically focus on an industry or a certain level of digital mastery.

Evaluating the overall results, the research may contain a certain bias from both the researcher and the respondent side. Within the current sample, respondents may have experienced the digital transformation differently, due to their involvement in certain business capability improvements. Therefore, for the case studies, more respondents are needed to strengthen the argumentation and researchers should reconsider which participants across the organization help develop the entire picture. We propose that the ideal participants are the executive leaders of the firm such as chief executive officer, chief innovation officer, chief information technology officers and the chief experience officers. From the researcher point of view, the bias may have been (indirectly) present during the data analysis. While the classifications are based on quotes from the participants, the interpretation may resulted in misplaced results.

While analyzing the vast amount of data, several interesting further research opportunities arose. To strengthen the research argumentation, that business capabilities are a useful tool for diffusing a strategy, future research could investigate how strategies are ideally translated into business capabilities. The same applies for the process developments, future research should look into a supportive method or tool to diffuse business capability domains into specific process developments.

This could be achieved by connecting the business capabilities to the capability maturity model. Performing the research would allow us to develop a stronger understanding of the recommended levels of maturities for each business capability classification.

To increase the long-term benefits of using business capabilities within an organization, future

research should look into the business capability ‘Develop & Manage Business Capabilities’ (13.0)

(APQC, 2016). The business capability consists of managing business processes, capability portfolios and the maintenance of enterprise quality. For this research, the business capability was excluded because respondents could not directly relate this business capability back into their organization. Further research should therefore clarify how the business capability is best implemented across an organization and how the business capability is applicable for long-term developments like a digital

transformation.

5.4. Conclusion

Concluding this research, business capabilities facilitate the transition from digital transformation strategies to process developments. Overall, the business capabilities facilitate strategic discussions and enables a common language between the business and IT, due to their level of abstraction. Hopefully, the research inspires researchers to further investigate the potential of business capabilities. Within a world where organizations are continuously transforming themselves, a stable tool, like business capabilities, could facilitates many digital journeys.

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Appendix

A

Framework

APQC

Cross-Industry

Classification

 

1.1

Define the business concept and long-term vision

 

1.0 Develop Vision And

1.2

Develop business strategy

 

Strategy

1.3

Execute and measure strategic initiatives

 
 
 

2.1

Govern and manage product/service development program

  • 2.0 Develop and Manage

2.2

Generate and define new product/service ideas

 

Products and Services

2.3

Develop products and services

 
 
 

3.1

Understand markets, customers, and capabilities

 

3.2

Develop marketing strategy

 
  • 3.0 Market and Sell

3.3

 

Products and Services

Develop and manage marketing plans

 

3.4

Develop sales strategy

 
 

3.5

Develop and manage sales plans

 
 
 

4.1

Plan for and align supply chain resources

 
  • 4.0 Deliver Physical

4.2

Procure materials and services

 

Products

4.3

Produce/Manufacture/Deliver product

 

4.4

Manage logistics and warehousing

 
 
 

5.1

Establish service delivery governance and strategies

 
  • 5.0 Deliver Services

5.2

Manage service delivery resources

 

5.3

Deliver service to customer

 
 
 

6.1

Develop customer care/customer service strategy

 

6.2

Plan and manage customer service contacts

 

6.0 Manage Customer

6.3

Service products after sales

 

Service

6.4

Manage product recalls and regulatory audits

 

6.5

Evaluate

customer

service

operations

and

customer

satisfaction

 
 

7.1

Develop and manage human resources planning, policies, and strategies

7.2

Recruit, source, and select employees

 

7.3

Develop and counsel employees

 
  • 7.0 Develop and Manage

7.4

Manage employee relations

 

Human Capital

7.5

Reward and retain employees

 

7.6

Redeploy and retire employees

 

7.7

Manage employee information and analytics

 

7.8

Manage employee communication

 

7.9

Deliver employee Communications

 
 

8.1

Manage the business of information technology

 

8.2

Develop and manage IT customer relationships

 

8.3

Develop

and

implement

security,

privacy,

and

data

8.0 Manage Information

protection controls

 

Technology (IT)

8.4

Manage enterprise information

 

8.5

Develop and maintain information technology solutions

8.6

Deploy information technology solutions

 

8.7

Deliver and support information technology services

 
 
 

9.1

Perform planning and management accounting

 

9.2

Perform revenue accounting

 

9.3

Perform general accounting and reporting

 

9.4

Manage fixed-asset project accounting

 

9.0 Manage Financial

9.5

Process payroll

 

Resources

9.6

Process accounts payable and expense reimbursements

 

9.7

Manage treasury operations

 

9.8

Manage internal controls

 

9.9

Manage taxes

 
 

10.1

Plan and acquire assets

 

10.0 Acquire, Construct, and

10.2

Design and construct productive assets

 

Manage Assets

10.3

Maintain productive assets

 

10.4

Dispose of assets

 
 
 

11.1

Manage enterprise risk

 

11.0 Manage Enterprise Risk,

11.2

Manage compliance

 

Compliance, Remediation, and

11.3

Manage remediation efforts

 

Resiliency

11.4

Manage business resiliency

 
 
 

12.1

Build investor relationships

 

12.0 Manage External

12.3

Manage relations with board of directors

 

Relationships

12.4

Manage legal and ethical issues

 

12.5

Manage public relations program

 
 
 

13.1

Manage business processes

 

13.2

Manage portfolio, program, and project

 

13.3

Manage enterprise quality

 

13.0 Develop and Manage

13.4

Manage change

 

Business Capabilities

13.5

Develop

and

manage

enterprise-wide

knowledge

management (KM) capability

 

13.6

Measure and benchmark

 

13.7

Manage environmental health and safety (EHS)

 

APQC Cross-Industry Classification Definitions

1.0 Develop Vision And Strategy

Establishing a direction and vision for an organization. This involves defining the business concept and long-term vision, as well as developing the business strategy and managing strategic initiatives. Processes in this category focus on creating a vision, a mission, and strategic objectives, and culminate in creating measures to ensure that the organization is moving in the desired direction.

2.0 Develop and Manage Products and Services

Detailing practices and procedures related to the concept of developing and managing products and services. These are reflected in the process groups Govern and manage product/service development program, Generate and define new product/service ideas, and Develop products and services.

 

Outlining process groups related to understanding markets, customers, and capabilities; developing marketing strategies;

  • 3.0 Market and Sell

executing marketing plans; developing sales strategies; developing

Products and Services

and managing marketing plans; and managing sales partners and alliances.

  • 4.0 Deliver Physical

Performing supply chain activities. Refers to the process groups plan for and align supply chain resources, procure materials and

Products

services, produce/manufacture/deliver product, and manage logistics and warehousing.

 

Offering services to customers. This is the act of providing service delivery as a core business practice and covers identifying strategies

  • 5.0 Deliver Services

for performing service delivery, managing resources, and delivering services to the customer.

6.0 Manage Customer Service

Managing customers before and after the delivery of services. This includes developing and planning customer service practices with an eye on steering processes relating to inquiries after sales, feedback, warranties, and recalls.

7.0 Develop and Manage Human Capital

Delivering processes traditionally defined as human resources. Process groups include those related to developing and maintaining workforce strategy, recruiting employees, developing and counseling employees, managing employee relations, rewarding and retaining employees, redeploying and retiring employees, managing employee information, and managing employee communications.

8.0 Manage Information Technology (IT)

Managing process groups relevant to the business of information technology within an organization. The process groups include manage the business of information technology, develop and manage IT customer relationships, develop and implement security, privacy, and data protection controls, manage enterprise information, develop and maintain information technology solutions,, deploy information technology solutions, and deliver and support information technology solutions.

9.0 Manage Financial Resources

Overseeing key back-office processes for organizations. This category includes process groups related to planning and management accounting, revenue accounting, general accounting and reporting, fixed-asset project accounting, payroll, accounts payable and expense reimbursements, treasury operations, internal controls, tax management, international funds/consolidation, and global trade services.

10.0 Acquire, Construct, and Manage Assets

Relating to the design, construction, acquisition, and management of both productive and non-productive assets.

11.0 Manage Enterprise Risk, Compliance, Remediation, and Resiliency

Ensuring that an organization effectively manages its risk. Process groups are aligned with traditional risk management activities.

12.0 Manage External Relationships

Fostering external relationships with stakeholders of the entity, including investors, government and industry, the board of directors, and the general public. This is not related to customer management.

13.0 Develop and Manage Business Capabilities

Performing activities by an organization that is fundamental to the successful operation of the organization, even across functions in a business. Capabilities defined in the PCF include business process management; portfolio, program, and project management; quality management; change management; benchmarking; environmental health and safety management; and knowledge management.