Preface and Acknowledgments

As consumers, we take digital technologies for granted. No longer are we impressed that anytime, anywhere, we can shop, hire a ride, reserve a table at a restaurant, pay our bills, view a favorite movie, find a new recipe, or learn popular remedies for our latest ailment. We don’t wonder why these things are possible; we simply expect them.

If you’re working in a big, old company, you know that the adoption of digital technologies in business doesn’t come as naturally. Inserting digital technologies to enhance operations and create new value propositions has proven extremely challenging. This raises the question: If digital technologies are consistently making our consumer lives easier, why aren’t they making it easier to succeed in business? Why are business leaders anxious about digital disruption rather than marveling about how quickly they can provide new, exciting, and ever-improving digital solutions to their customers?

Five years of research have led us to believe that the answer to these questions is this: Big, old companies are simply not designed for digital.

Business leaders have long taken responsibility for defining strategy, establishing structures, and measuring outcomes to make their companies successful. They are less likely to own responsibility for designing the interactions among their people, processes, and technology to ensure their companies can execute new digital strategies. We argue that business leaders cannot just hope that all the activities in their companies will coalesce in ways that will enable them to figure out how to solve customer problems and rapidly deliver new, digitally inspired value propositions. They must design their companies for digital success.

That is why we wrote this book. In our research at big companies, we found that, although digital is all about speed, a digital transformation is a long journey. That’s because it requires you to (re)design how your company works. While no company has completed the entire journey, a small number of companies are leading the way. By sharing their combined stories and analyzing their experiences, we hope to provide some direction for your journey.

Digital technologies are game changing. Leaders of big, old companies cannot rely on old rules to play this new game. The talents, skills, processes, systems, and roles that made your company successful in the past are quickly becoming irrelevant. If your big old company is going to compete in the digital economy, you must redesign for digital. Nobody says it’s easy. But now is the time to get started.

The Research

We were driven to this research by our fascination with enterprise architecture—how companies are designed to execute their strategies. Although most IT leaders have embraced enterprise architecture as a way of mapping a company’s IT investments and business process changes, other leaders have been less interested in the topic. We expected that the dawn of digital businesses would lead to widespread embrace of enterprise architecture as a critical senior management tool. We set out to study that phenomenon.

To be honest, that’s not what has happened. At least, that’s not what happened at most companies. We started the research in 2014 with interviews at 40 large companies about how they were approaching business architecture. Invariably, we were directed to business architects in the IT unit, not a member of the top management team. The most telling finding from that first phase of the research was how hopeful the architects were—and how common it was for them to feel their efforts were not having a significant impact on their companies.

We followed up that set of interviews with mini case studies conducted at 27 companies in 2015 and 2016. Working with the Boston Consulting Group (BCG), we conducted three interviews at each of these companies—usually with a senior business executive, a senior IT executive, and a third person who was engaged in implementing digital strategy. Most of the companies involved in this phase of the study were starting to articulate digital strategies and taking some initial steps to implement them. In the summer of 2016, we conducted a survey of 171 business leaders to better understand the state of the art.

In 2017 and 2018, we took an in-depth look at companies that were making progress on their digital journeys. We developed case studies describing some of these companies’ journeys, including Royal Philips, LEGO, Schneider Electric, AUDI AG, Principal Financial Group, and Northwestern Mutual. We supplemented those written cases with additional interviews at the case study sites and a number of other companies, including CarMax, Toyota, DBS Bank, and USAA. In the summer of 2018, we conducted a survey of 150 senior executives at big old companies to again, better understand the state of the art relative to what we’d seen at our research sites and to gauge how much things had changed since 2016.

Our in-depth case studies and survey reports are available as working papers from the MIT Sloan Center for Information Systems Research (CISR). This book represents a synthesis of all the research over the last five years.

To prepare you for what’s to come, we want to note that many companies are going through two transformations: one that digitizes the company (i.e., uses digital technologies to enhance operational efficiencies) and one that pursues new digital value propositions (i.e., uses digital technology to rapidly innovate new digital offerings—the focus of this book). This dual transformation appears to be a requirement to compete in the digital economy. It also makes the challenge of organizational redesign that much harder.

To help you apply what we’ve learned about digital transformations, this book shares both our key findings and our in-depth stories. We hope you find them useful.

Who Should Read This Book?

This book is written for executives in established (what we call big, old—or we could say successful) companies who want to disrupt rather than be disrupted by digital offerings, and who are seeking a better understanding of how to do exactly that.

We describe the building blocks for a company’s digital transformation: from creating a vision for new digitally inspired value propositions, to generating insight about what digital offerings customers are willing to pay for, to delivering the technology and process platforms that power digital offerings, to designing an accountability framework that enables employees to achieve all of this.

While this book is about digital, it is not a technology book. So if you are a manager in marketing, sales, finance, strategy, operations, or HR, this book is for you. You will not be able to delegate digital transformation to your IT colleagues!

If you are an IT architect or other IT leader, we encourage you to read this book and use it to spread the concept of business design inside your company (we think this book makes an excellent gift for your non-IT colleagues!).

For simplicity, we have adopted the word company in this book. However, our comments apply equally to all types of organizations—whether they are for profit, not for profit, or public sector.

Digital technologies are disrupting all industries. The companies we studied in the research for this book come from very different industries. And we aim to inspire and enable executives operating in any industry to design their business for digital.

Whom We Would Like to Thank

Our research would simply not be possible without the support of MIT CISR’s patron and sponsor firms. We gratefully acknowledge the support, ideas, and camaraderie you have provided not just for this book, but also for 44 years of MIT CISR research.

During the five years of research for this book, we had the privilege to learn from truly inspirational leaders who shared their stories in our case studies. These leaders include: Bernard Gavgani (BNP Paribas); Lucille Mayer (BNY Mellon); Shamim Mohammad (CarMax); Dave Gledhill, Bidyut Dumra, Paul Cobban (DBS Bank); Pablo Ciano (DHL); Federico Flórez (Ferrovial); Mihir Shah (Fidelity); Enrique Avila (ING Direct Spain); Henrik Amsinck and Anders Lerbech Vinther (LEGO Group); Karl Gouverneur (Northwestern Mutual); Edgar van Zoelen, Jeroen Tas, and Frans van Houten (Philips); Gary Scholten, Juan Manuel Vega, and Pedro Atria (Principal Financial); Michael Nilles (Schindler); Hervé Coureil, Alfons Marquez, and Cyril Perducat (Schneider Electric); Anders Ivarsson (Spotify); Zack Hicks (Toyota Motor North America).

Other business executives who have inspired and challenged our thinking include Tom Bayer (CSBS), Shawn Broadfield (Allstate Insurance Company), Rickey Burks, Leonides De O’Campo (McKinsey), Matt Haigh (Westpac), Brad Fedosoff (CIBC), Luis Hernandez (CEMEX), Craig Hopkins (City of San Antonio), Ken Johnsen (Caterpillar), John Kreul (Bemis), Suresh Kumar, Sue Jean Lin (Alcon), Danial Llano (ING-DiBa), Erwin Logt (FrieslandCampina), Meg McCarthy (Aetna), Mark Meyer (TetraPak), Kal Ruberg (Teck Resources), Rob Samuel (Aetna), David Saul (State Street), Greg Schwartz, Joe Spagnoletti, Mattias Ulbrich (Porsche), Christian Umbach (XapiX.io), and Werner Zippold.

We’d like to thank members of BCG’s Technology Advantage Practice, who worked with us in securing and developing a number of our early case studies and then debated the findings from those cases. Stuart Scantlebury, Massimo Russo, and Benjamin Rehberg were instrumental in that work.

We also want to thank the hundreds of managers who participated in case study interviews, took the time to answer our many survey questions, and challenged our thinking in interviews, presentations, and executive education sessions.

We are fortunate to have outstanding colleagues at MIT CISR. Nils Fonstad and Kate Moloney participated in much of the research and worked on case studies important to this research. Ina Sebastian joined the team early and has been instrumental in collecting and analyzing data and in writing up research findings. This book would not be possible without her efforts. Lipsa Jha, while a master’s student at MIT Sloan, contributed statistical analysis. We’ve also benefited a great deal from research discussions with MIT CISR colleagues, Kristine Dery, Wanda Orlikowski, Joe Peppard, Nick van der Meulen, Peter Weill, Barb Wixom, and Stephanie Woerner. MIT CISR colleague Cheryl Miller edited every single case study—and made each of them better.

We’d like to thank MIT CISR visiting scholars, who have stimulated our thinking, introduced us to interesting companies, and challenged our ideas: Peter Andersen (Aarhus University), Abayomi Baiyere (Copenhagen Business School), Daniel Beimborn (Frankfort School of Finance and Management), Siew Kien Sia (Nanyang Technological University), Monideepa Tarafdar (Lancaster University), and Eric van Heck (Rotterdam School of Management).

In addition, we have benefited from the research and feedback of John Mooney at Pepperdine University, Ulrike Schultze at Southern Methodist University, and Christina Soh and Soon Ang at Nanyang Technological University

We are indebted to the individuals who have read and provided feedback on the manuscript at various stages of completion. Thank you to our three anonymous reviewers and to Peter Coffee at Salesforce, as well as MIT CISR colleagues S. K. Sia, Daniel Beimborn, Leslie Owens, Joe Peppard, and Peter Weill. We hope you see evidence of your feedback in the final work. And a special thank you to Emily Taber, our editor at MIT Press, who appeared to thoughtfully consider every single sentence we wrote. You forced us to understand and articulate things we’d taken for granted—or didn’t realize we knew.

A huge thank you to MIT CISR’s associate director, Chris Foglia, for your patience, creativity, and dedication. Chris has been on a journey with us as we’ve gradually envisioned research findings in figures and graphics. It was Chris who brought all the pieces together to deliver the final manuscript.

We appreciate all that Amber Franey and Aman Shah do as they work behind the scenes at MIT CISR to keep the train on the tracks. It is a joy to work with you. And thanks to Paul Michelman at MIT Sloan Management Review for believing in us and encouraging MIT Press to publish this book.

A Personal Note from Jeanne

I first want to thank three people who have been extraordinary blessings in my research career. Jack Rockart brought me to MIT CISR 25 years ago and taught me how to communicate research findings to a practitioner audience. I miss him dearly. Peter Weill reimagined MIT CISR in 2000 and opened a world of research opportunities that I never could have imagined. He has also been a constant source of support, feedback, and enthusiasm. I am immeasurably better at what I do because of Peter. Finally, Leslie Owens came to MIT CISR as Executive Director in 2015 and immediately nourished my passion for doing research. She has given me the gift of time, and wrapped it in encouragement, good humor, and great insights.

My greatest blessing is my husband, Dan. Thank you for your patience and understanding, for taking care of the home front and planning occasional vacations, for reading every word in versions of this book that were too early to be interesting (and thanks for pretending that they were!). Thank you for encouraging me to be the best I can be. Our 41 years have been a fabulous journey. Thanks, too, to my three amazing children, Adam, Julie, and Steffie, and the wonderful people they’ve added to our family, Kaitlin, Kyle, Ollie, and Sam. You are a constant reminder that there’s so much more to life than writing a book!

And thanks to two wonderful friends, researchers, and coauthors. I have thoroughly enjoyed our marvelous adventure.

A Personal Note from Cynthia (aka Boo)

Many thanks! First and foremost, I would like to thank my husband, Denny McCoy. Thank you, Denny, for not trying to fix my creative challenges for me and for just empathizing with me. Thank you for helping me to be less afraid of the blank page and also more willing to say, It’s done. Thank you for helping me appreciate how important it is to see both forests and trees. Thank you for demonstrating to me what it means to be disciplined while being creative. And I should thank you for persuading me to buy a smartphone and to try social media. I also must thank Dolly Mama for listening uncritically as I babble on our walks, and I sincerely thank my coauthors—to whom I will be indebted forever—for including me on this glorious journey. Finally, many thanks to the universe for giving me everything in life I could ever want.

A Personal Note from Martin

A terrific journey started for me in February 2017 when Jeanne asked whether I’d like to join her and Boo in writing this book. More than 2,000 emails, over 50 video conference calls, 2 unforeseen case studies including trips to Amsterdam and Santiago de Chile, a survey, and uncounted magic moments later, I am sitting at the kitchen table writing these lines. What a ride!

I dedicate this book to my wonderful wife Yvonne—I’d have to write another book for all the things I want to thank you for; you mean the world to me!—and to my parents Ursula and Uwe—thank you for teaching me how to learn and for always being there for your children.

I’d also like to thank a number of other special people: The entire MIT CISR team: Aman, Amber, Barb, Cheryl, Chris, Dorothea, Ina, Jeanne, Joe, Kristine, Leslie, Nick, Nils, Peter, and Stephanie. You’ve created a truly unique place—thanks for letting me be part of this family for over seven years now. Also, my colleagues at Reutlingen University’s ESB Business School, especially the International Business study program team that keeps attracting students who make it so much fun to teach about digital; Ainara Novales and Jana Röcker for accepting all the delayed and postponed meetings because Martin is working on the book. Edgar van Zoelen of Royal Philips and Werner Zippold, formerly of ING Direct Spain: I owe you a lot for introducing me to truly fascinating transformation stories.

Finally, my coauthors, Jeanne and Boo: I wish everyone could have the experience I had. And I hope our readers get as much learning and fun out of reading the book as I had when working on it with you.

1 Digital Business Design

Welcome to the digital economy! If you’re reading this book, you are well aware that companies are being bombarded with digital technologies: social, mobile, analytics, cloud, the Internet of Things, all represented aptly by the acronym SMACIT (pronounced smack it to reflect how we experience this attack). SMACIT is just the beginning. Biometrics, robotics, artificial intelligence, blockchain, 3D printing, edge computing, and a steady procession of future technologies all have the potential to disrupt your business.

Digital technologies are game changing because they deliver