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Innovation Management, Entrepreneurship and Sustainability (IMES 2018)
Miroslava Boneva
Abstract
Purpose: This paper aims to discuss the challenges, which the companies clash with in relation with the digital
transformation and to propound a model to overcome them.
Design/methodology/approach: The literature review of scientific papers is used for researching the essence of
the digital transformation, the reasons which engender it and the challenges related to its implementation in the
business companies.
Findings: As a result of the discussion: (1) the challenges which are related to the digital transformation have been
systematized and (2) it has been adduced, that the digital transformation is implemented according to an algorithm,
that starts with a digital audit, continues with developing of a strategy, setting of measurable aims, prioritization,
assessment of the effect achieved by measuring the results and it “concludes” with proposals of improvements.
Research/practical implications: The types of challenges of digital business transformation have been
established and a grounded sequence of processes for accomplishment of digital transformation has been presented.
When the managers know potential dangers, they could avoid or neutralize the unfavourable consequences. The
algorithm for the implementation of digital business transformation could support the participants in this
undertaking. Further research has been suggested, through which to validate the algorithm for digital business
transformation in companies of different sectors.
Originality/value: A systematization of challenges, faced by the business companies in the course of the digital
business transformation has been made. A theoretical model of the algorithm for digital business transformation
has been developed.
Keywords: Digital transformation, types of challenges of digital transformation, algorithm for digital business
transformation.
JEL Codes: M10, L15, D89
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Innovation Management, Entrepreneurship and Sustainability (IMES 2018)
Introduction
The business companies are facing inevitable digital business transformation in the era of the
digital economy, Industry 4.0 and innovations in different point of views: dynamic capabilities
in e-business transformation (Daniel & Wilson, 2003), digital convergence (Jeon, Park, &
Digman, 2008), peculiarities of digital business and e-commerce management (Chaffey, 2015),
in terms of macrocontext and microfoundations (Coviello, Kano, & Liesch, 2017), regardless
of the sector: building industry (Vlachos, 2016), photovoltaic plants (Kirova & Velikova, 2016),
knitwear industry (Mihaylova, Papazov & Kirova, 2016), courier services (Otsetova, 2017),
consulting industry (Nissen, 2018), as well as the level of innovation (Kirova, 2010) and
decision-making (Kirova, 2012).
“The Internet of everything (IoE) is having a profound effect on how organizations and
industries are transforming.” (Wade, 2015)
This paper has an aim to discuss the challenges, which the companies encounter in relation with
the digital transformation and to propound a model to overcome them.
This aim is attainable trough the accomplishment of the following research tasks: (1) to
investigate the essence of the digital transformation and the preconditions, which impose it; (2)
to research and systematize the challenges, which accompany the implementation of digital
transformation in business organizations; (3) to develop a theoretical model of the algorithm
for digital business transformation.
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Innovation Management, Entrepreneurship and Sustainability (IMES 2018)
The follow definitions express the essence of the notion “digital transformation”.
Fundamental importance for the digital business transformation have: the adoption of e-
business technologies in enterprises; the use of cloud computing services, the e-sales, the
information security and the “disruptive technologies”.
The information and communication technologies have fast become an integral part of
enterprise functioning and its extensive and intensive use, combined with new ways of
accessing and using the internet efficiently, characterise what is refers the digital economy (e-
economy) – (Fig. 1) (Eurostat, 2016).
In the EU-28, during the period 2008 to 2016, the percentage of enterprises that had e-sales
increased by 7 percentage points and the enterprises' turnover realised from e-sales increased
by 6 percentage points. During 2016, 44 % of large enterprises made e-sales corresponding to
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Innovation Management, Entrepreneurship and Sustainability (IMES 2018)
26 % of total turnover in this size class. Similarly, 29 % of medium sized enterprises made e-
sales corresponding to 13 % of total turnover in this size class. By contrast, 18 % of small
enterprises engaged in e-sales, corresponding to only 7 % of the turnover of such enterprises
(Eurostat, 2018).
Fig. 2: Use of cloud computing services, by purpose, 2014 and 2016 (% of enterprises using
the cloud)
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Innovation Management, Entrepreneurship and Sustainability (IMES 2018)
Construction (20 %), Real estate (25 %) and Transportation and storage (26 %) (Eurostat,
2016).
The phenomenon digital transformation has been causal from multitude preconditions, which
represent an aggregate of (1) key factors for change achievement (Chaffey, 2015) and (2) the
novelties, which are developed with the advance of information and communications
technologies, the so-called „disruptive technologies“ (World Economic Forum, 2016). The
synergy between the two groups of factors has been presented in the Figure 4.
Source: adapted from (Chaffey, 2015) and (World Economic Forum, 2016)
The numerous components, which cause the digital transformation, are indicative of the
difficulties which the organizations encounter while implementing the digitization process.
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Innovation Management, Entrepreneurship and Sustainability (IMES 2018)
For companies, founded before the digital age, the fundamental problem is the change, and the
real place to look for change is not on the Internet, but inside your company - in the
organizational culture and in the attitude toward change (Kanter, 2001).
In order to make a change, it is necessary to become aware of the need for it and to assess the
resources by which it can be realized. With regard to this, Sanchez (2017) has developed a
framework for assessing the readiness of the organizations for the digital transformation, which
aims to define resources, opportunities and management solutions for responding to the new
reality.
Research papers dedicated to investigating the challenges that the companies from different
sectors and countries need to overcome in carrying out the digital transformation have been
studied. They have made it clear that the business organizations are confronted with: political
and structural challenges (Jaing, 2015); scale, scope, regulation (Midtun & Piccini, 2017); lack
of spatial-temporal statistical models for efficient business data processing in order to optimize
product placement, analyze customer transaction and market structure, develop customized
product systems, manage risks and support timely business decisions. (Yang, Huang, Li, Liu,
& Hu, 2017). Yang аt. аl (2017) describe the relationship between the challenges of big data
(storage, transmission, management, processing, analyses, visualization, integration,
architecture, security, privacy, quality, and others) and cloud computing for innovation in
different fields of activity.
In „Communication of the E-skills for the 21st century“ (Commission of the European
communities, 2007) it has been established that for the European Union and its Member States
to remain successful in a global economy characterised by rapid technological change, more
efforts will be needed to raise and widen the level of e-skills of the workforce and the citizens,
which is one of the foundations of a knowledge-based society (Commission of the European
Communities, 2007). Nevertheless more than two fifths (41 %) of large enterprises recruited or
tried to recruit personnel for jobs requiring specialist ICT skills in 2015, while 20 % of large
enterprises reported that they had hard-to-fill vacancies for jobs requiring specialist ICT skills.
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Innovation Management, Entrepreneurship and Sustainability (IMES 2018)
Because the business organizations have to overcome many different challenges in the course
of their digital transformation, a systematization has been developed with the purpose of
defining the challenges (Table 1). The systematisation of difficulties is founded on the 7S model
of the consulting group „McKinsey“, later elaborated by Chaffey (2015) and the transformation
categories of the “digitization piano”, classified by „Global Center for Digital Business
Transformation“ (Wade, 2015). The problems presented above find their place among the
challenges categorised in Table 1.
Some questions have also been included in Table 1. with the presumption, that the challenge is
overcome in a half, when the correct questions have been asked and the exact answers have
been sought.
Besides, the questions can be used to provide a roadmap of the need of transformation, i.e. the
current status and the digital transformation aims to be defined (Wade, 2015).
The challenges, which the business organizations should be overcome in the course of their
own digital transformation can be integrated in the following directions:
x Consequences from the IT sector development and the influence of the latter on the
strategies and business models in the remaining sectors;
x The need for modification of organisational structure to make it suitable for digital
business management;
x The need for development of specific processes, procedures, information systems,
computing models for processing large volume of data for Internet marketing support;
x Changes in key skills and abilities, leadership style of managers etc.;
x Development of shared values, channels, and approaches to interact with customers,
vendors, and partners.
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Innovation Management, Entrepreneurship and Sustainability (IMES 2018)
Element Transfor-
Challenges - relevance to
of 7S mation
digital business Questions for overcoming challenges
model category
management (Wade, 2015)
(Chaffey, (Wade,
(Chaffey, 2015)
2015) 2015)
What are your routes to market? How relevant is
digitallyenabled commerce, i.e. e-commerce, m-
commerce?
The contribution of digital
Where does most of your revenue and profit come
Business business in influencing and
Strategy from?
model supporting organizations’
What are your main customer segments? Do these
strategy.
need to change?
How are you differentiated from your competition?
How relevant is this for the future?
What type of organizational structure do you have?
What is the balance between local and global decision
The modification of making?
Structure Structure organisational structure to Does this make sense for the future?
support digital business. Where do different aspects of ‘digital’ sit in your
organization?
Are they effective?
How effective is your IT infrastructure: core systems,
networks, databases. Is it able to support your digital
ambitions?
How effective is your forward facing IT:
The development of specific websites,mobile sites, social media?
IT processes, procedures or How effective is your customer relationship
Systems
capability information systems to management system?
support Internet marketing. Do you have a clear IT strategy linked to your
corporate strategy?
Are your “dark assets” connected so you have all the
data you need?
Are you deriving value from your data?
The breakdown of staff in
terms of their background,
age and sex and
Staff
characteristics such as IT vs
marketing, use of
contractors/ consultants. How digitally savvy are your employees across
Includes both the way in different parts
which key managers behave of your organization?
People
in achieving the How digitally savvy are your leaders?
Style
organisation’s goals and the What new capabilities are required? How will you
cultural style of the acquire them?
organisation as a whole.
Distinctive capabilities of key
staff, but can be interpreted
Skills
as specific skill- sets of team
members.
Engage- How strong is your relationship with customers?
The guiding concepts of the
ment model How many customer touch-points do you have, i.e.
e-commerce organisation
web, mobile, mail, face to face? How often do you
which are also part of shared
engage with them?
Super- values and culture. The
How loyal are your customers?
ordinate internal and external
Processes To what extent are your processes automated and
perception of these goals
digitized?
may vary.
To what extent are your processes consistent across
your organization?
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Innovation Management, Entrepreneurship and Sustainability (IMES 2018)
A theoretical algorithm has been developed for fulfilment of digital business transformation
(Fig. 5). It has a goal to support of the participants in a real process of organization
transformation and adapting the company in present conditions, which have been raised from
the dynamic technology development, intersectoral competition, changing consumer`s needs
and behavior.
The logical sequence of the key aspects in accomplishing the digital transformation resemble
the Plan-Do-Check-Act Cycle (Deming, 2000), since the transformation is not a one-time act,
but a process for adaptation of the organization to the dynamic environment and continuous
need of improvements.
Measurement of Setting
achieved results measurable aims
Prioritization
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Innovation Management, Entrepreneurship and Sustainability (IMES 2018)
1) Conducting a digital audit – it is the first stage, because the status diagnostics is
necessary before continuing to other actions.
2) Creating a digital transformation strategy – based on the current status, a strategic
framework describes the desired business development.
3) Setting measurable objectives – according to the strategic framework, objectives are
set, which are defined over time, measurable and valuable.
4) Prioritization – ranking of the priorities by degree of importance and task assignment.
5) Assessment of results achieved – after the execution of the assignments, they are
checked and assessed, compared to the indexes of the relevant objective to assess the
extent of its achievement.
6) Applying improvement measures – depending on the results achieved and the
disparities with the objectives set, as well as according to the changes that have
occurred in the meantime in the external environment, recommendations for
improvement are proposed and a new transformation cycle begins again.
Conclusion
In conclusion of this paper could be established the following inferences and contributions:
It has been proved that the digital transformation in business companies is an organizational
change through the use of digital technologies and business models in order to improve
economic indicators and respond to the changing consumer behavior and the intersectoral
competition.
The types of challenges during the digital transformation in business organisations have been
determined and systematised on the basis of the area of their manifestation.
It has been proved and justified that the digital transformation is implemented in an algorithm,
that starts with a digital audit, continues with the developing of a strategy, setting of measurable
aims, prioritization, assessment of the effect achieved by measuring of results and, finally, it
“concludes” with proposals for improvements and a theoretical model of an algorithm for
implementation of the digital business transformation.
Further research is recommended, to validate the algorithm for digital business transformation
in companies from different sectors. There will be continued consultations with representatives
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Innovation Management, Entrepreneurship and Sustainability (IMES 2018)
Acknowledgment
The study was supported by contract of University of Ruse “Angel Kanchev”, №
BG05M2OP001-2.009-0011-С01, "Support for the development of human resources for
research and innovation at the University of Ruse “Angel Kanchev”. The project is funded with
support from the Operational Program „Science and Education for Smart Growth 2014 - 2020"
financed by the European Social Fund of the European Union.
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Contact
Miroslava Boneva
“Angel Kanchev” University of Ruse
Faculty of Business and Management, Department Management and Business Development
8 Studentska Str., 7017, Ruse, Bulgaria
mboneva@uni-ruse.bg
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