At the moment Digital Transformation (sometimes also called Digitalization or just Digital) is a prevalent term used on the Internet, in research and various industries. The behemoths of the consulting business have shaped offerings around Digital Transformation (e.g. Accenture, PWC, CapGemini, McKinsey) and established research organizations have embraced the theme (e.g. MIT Center for Digital Business, Digital Business Initiative of Stanford Graduate School of Business). Of course, the big IT research and advisory companies picked up the topic too (e.g. Gartner, Forrester).
In essence, all the fundamental ideas, concepts and approaches of Digital Transformation can be summarized as follows:
- The leverage of technologies like cloud computing, data analytics, mobile apps, APIs, social media platforms, machine learning, Internet of things, smart & connected devices, etc.
- The leverage of concepts and approaches like DevOps, agile software development, pace layering, bimodal IT, etc.
- The usage of those technologies, concepts and approaches to design and implement new business models.
Although the term is used on a widespread scale, I’m amazed that it isn’t put into some kind of perspective and therefore often conveyed and hailed as a new concept.
When I was reading various books, articles and posts on the topic, the idea struck me that Digital Transformation is essentially a just specific pattern of business and IT alignment and therefore isn’t a new concept. Hence, I revisited the fundamentals of strategic business and IT alignment to verify my idea.
Eventually, I contend that the concept of Digital Transformation isn’t fundamentally new. It is a just specific perspective of the problem how to align strategic choices of the business and IT domain effectively. This can be proved by mapping the ideas, concepts and approaches of digital transformation to the Strategic Alignment Model of J.C. Henderson and N. Venkatraman – a model that is nearly 24 years old and still valid.
Introduction of the Strategic Alignment Model
J. C. Henderson and N. Venkatraman developed the Strategic Alignment Model to support the strategic management of evolving IT in 1993. It consists of four fundamental parts: Business Strategy, IT Strategy, Organizational Infrastructure and Processes, and IT Infrastructure and Processes. The parts are discrete and contain categories of strategic choices.
The Business Strategy and IT Strategy make up the external domain: An outward-oriented view on how the organization differentiates from its competitors. The Organizational Infrastructure and Processes, and IS Infrastructure and Processes represent the internal domain: An internal view on the set strategic choices that can be leveraged within the organization.
In addition, the Business Strategy and Organizational Infrastructure and Processes are focusing on the business and thus represent the business domain. The IT Strategy and IT Infrastructure and Processes zoom in on IT aspects and therefore represent the IT domain.
Although the domains and parts of the model are self-contained, they interrelate with each other. In fact, the effective management of business and IT requires to balance all strategic choices within each part. In particular, the alignment of the external and internal domains is called strategic fit and the alignment of the business and IT domains is named functional integration.
Each part of the model contains three categories of strategic choices. Although some of the names seem to be odd today, the scope and contents of each category are still consistent.
The Business Strategy groups strategic choices with respect to the scope and distinctive competencies of the business, and the Business Governance. The former deals with all aspects of a business model for example this includes customer segments, value propositions, channels, customer relationships, etc. (cp. with the Business Model Canvas from A. Osterwalder and Y. Pigneur). The latter category called Business Governance is quite confusing: It deals with make-or-buy choices as part of the business strategy – an aspect that could also be included in a business model today.
The IT Strategy is similar to the Business Strategy part but it has a distinct focus on the IT domain. The Technology Scope deals with the deliberately-defined compilation of information technologies which support current and future business strategies. The Systemic Competencies are the IT-related capabilities that support the business strategy by contributing a distinctive, competitive advantage to the organization.
As part of the internal and business domain, the Organizational Infrastructure and Processes define how the business should work and what business-related skills are required within the organization. This part consists of administrative functions, (business) processes and (business) skills. Today the term business architecture could be a more appropriate name for this part.
The last part is the internal and IT-related domain called IS Infrastructure and Processes. It consists of (IT) Architectures, (IT) Processes and (IT) Skills, and essentially describes how the IT should work, what applications and infrastructure components are deployed and which skills are required in the internal IT-related domain.
In order to effectively manage business and IT coherently, an organization has to balance all strategic choices within each category, part and domain. As there are a lot of combinations across all strategic choices possible, J. C. Henderson and N. Venkatraman postulate to focus on the cross-domain relationships. Particularly, they suggest four common patterns which describe the fundamental sequence in which the four parts should be aligned:
- Strategic Execution: Business Strategy → Organizational Infrastructure and Processes → IS Infrastructure and Processes
- Technology Transformation: Business Strategy → IT Strategy → IS Infrastructure and Processes
- Competitive Potential: IT Strategy → Business Strategy → Organizational Infrastructure and Processes
- Service Level: IT Strategy → IS Infrastructure and Processes → Organizational Infrastructure and Processes
Of course, those patterns just represent general guidelines of how to align all strategic choices according to the defined sequence. Actually, a lot of other dependencies and trade-offs between the strategic choices have to be considered.
Mapping of the Digital Transformation Concepts to the Strategic Alignment Model
The essential ideas, concepts and approaches of Digital Transformation can be mapped to the Strategic Alignment Model as shown in the following figure.
If an organization wants to leverage technologies like cloud computing, data analytics, mobile apps, APIs, etc., the Technology Scope of the IT Strategy is the main category to start with. Essentially, the technologies which are available in the market have to be identified, analyzed and evaluated. Any technology that supports the current business strategy or could potentially shape the design of a new business strategy (or business model) should be included within scope of technologies.
The idea to leverage concepts and approaches like DevOps, agile software development, pace layering, bimodal IT, etc. can be assigned to the category Systemic Competencies of the IT Strategy. Along the lines of the Technology Scope, any IT-related capability that supports the current business strategy or could potentially enable a new business strategy should be a strategic competency of the organization.
Of course the selection of strategic technologies and capabilities is only a starting point. If an organization wants to embrace and master a technology, a change activity is required to learn the new technology, build up the skills and make the technology generally available within the organization. Analogous IT-related capabilities have to be build up or enhanced by implementing a change process within the organization. Think of both categories as the initial trigger on the strategic level to introduce a specific technology or capability to the organization.
The usage of technologies and capabilities to design and implement new business models is clearly related to the part Business Strategy. The Business Scope, Distinct Competencies and Business Governance (that is to say the business model) should consider and work with all technologies and capabilities defined within the IT Strategy. Of course, as with the IT Strategy, this is just the starting point and a business model has to be implemented eventually.
The latter aspect of Digital Transformation also indicates the primary pattern of aligning all the strategic choices: Competitive potential. The IT Strategy including the Technology Scope and Systemic Competencies is the enabler for the business: IT could enhance or facilitate business models and thus the Business Strategy.
Certainly there are a lot of other dependencies in relation to the IS Infrastructure and Processes that is to say the internal, IT-related part but the pattern prescribes the fundamental sequence in which the parts should be aligned.
Conclusion
The concept of Digital Transformation isn’t fundamentally new. It is a specific perspective of strategic business and IT alignment. The ideas, concepts and approaches of Digital Transformation smoothly fit into the components of the Strategic Alignment Model – a model which is nearly 24 years old. Therefore, within any conversation you should pay attention to the way Digital Transformation is explained and positioned. In either case challenge your interlocutor (or the book, article or post you’re reading) by simply asking: What is essentially new to the concept of Digital Transformation?
In addition, there are further implications that should be considered. Firstly, as Digital Transformation is fundamentally just a specific perspective of strategic business and IT alignment, all the existing concepts, frameworks and tools could (and actually should) be considered and reused. Thus, if you have to deal with Digital Transformation, you should have a look at the fund of knowledge that is already available. The following figure illustrates some building blocks that could be leveraged to support the effective alignment of business and IT.
Please note that further sources in relation to the shown concepts, frameworks and tools are available on the following knowledge base pages: Business Strategy and Business Models, IT Strategy and Governance, Enterprise Architecture Management, Pattern and Good Practices.
Secondly, if there is anything new to the concept of Digital Transformation, it is related to new combinations of technologies, capabilities and business models that enable an organization to accomplish a goal that wasn’t possible before. A new and effective combination can be considered as a pattern of specific, strategic choices and their successful implementation. Therefore, if you have to deal with Digital Transformation take a deeper look after those patterns and try to figure out whether you could reuse a specific one. A good example is the book by G. Westerman, D. Bonnet and A. McAfee: Leading Digital – Turning Technology into Business Transformation. Although they aren’t describing those patterns explicitly, the book contains some interesting case studies about organizations and companies successfully implementing those combinations. The authors were also involved in several empirical studies verifying the effectiveness of implementing ‘digital pattern’. Nevertheless, the concept and approach for analyzing and implementing those patterns aren’t new – it is essentially business and IT alignment.
Thirdly, the methods for delivering the pattern are available but what’s currently unavailable is an approach for documenting the ‘digital pattern’ in a structured and detailed way. I’m thinking of a structure which has to be described up to the level of an enterprise architecture model (see for example the ArchiMate standard) and that elaborates on the objectives and trade-offs of each pattern.
Fourthly, it is amazing to see that the Strategic Alignment Model – which was developed by J. C. Henderson and N. Venkatraman nearly 24 years ago – is still valid and thus can be used today. Some names sound odd but the semantics and logic are still substantive.
What do you think about Digital Transformation? Do you know common ‘digital pattern’? Did you already find the pattern that supports your organization effectively?
Sound off in the comments!
References
Henderson, J.C.; Venkatraman, N. : Strategic alignment – Leveraging information technology for transforming organizations. In: IBM Systems Journal, Vol. 32, No. 1, 1993.
Osterwalder, A.; Pigneur, Y.: Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers. John Wiley & Sons, 2010.
Westerman, G.; Bonnet, D. ; McAfee, A.: Leading Digital – Turning Technology into Business Transformation. Harvard Business Review Press, 2014.
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