Digital Transformation. The Realignment of Information Technology and Business Strategies for Retailers in South Africa
©2017
Textbook
185 Pages
Summary
Remaining competitive in the retail industry of South Africa in the digital age is a major business concern. In the age of „digital natives”, people are well-connected on various digital technology platforms and are digital consumers. Digital technologies offer retail organizations new innovative ways to create value by utilizing digital business strategies, processes, and products. This qualitative research study explores the perception of retail strategy experts and decision-makers toward realignment of IT and business strategies considering digital transformation in South Africa.
Based on interviews with seven managers and decision-makers in the retail industry, the study reveals that digital technologies have disrupted traditional ways of doing business. The study proposes eight major recommendations, in which retail traders could innovate their business strategy to enhance value creation beyond traditional approaches to retailing. It provides a good starting point for academic research in a domain that is deficient in theoretical and empirical research on the South Africa retail sector, and offers retailing managers a conceptual model to guide them toward a digital business strategy for transient competitive advantages.
Based on interviews with seven managers and decision-makers in the retail industry, the study reveals that digital technologies have disrupted traditional ways of doing business. The study proposes eight major recommendations, in which retail traders could innovate their business strategy to enhance value creation beyond traditional approaches to retailing. It provides a good starting point for academic research in a domain that is deficient in theoretical and empirical research on the South Africa retail sector, and offers retailing managers a conceptual model to guide them toward a digital business strategy for transient competitive advantages.
Excerpt
Table Of Contents
4
Review of Literature ... 27
Literature review on digital technologies. ... 27
Social Media, Mobile, Analytics and Cloud. ... 28
Corporate Strategy and Competitive Advantage ... 41
Business Modeling ... 44
IT and Business Strategy Alignment ... 48
Digital Transformation in the South African Retail Sector ... 53
South African Cultural Dimensions and Shopping Preferences ... 56
Findings of Literature Review ... 63
Summary ... 64
A Presentation of a Conceptual Model for Realignment of IT and Business
Strategies ... 66
Chapter 3
.
Methodology ... 70
Research Design ... 70
Research Questions ... 76
Population and Sampling Strategy ... 76
Demographics Statistics ... 78
Research Instrument ... 80
Potential Bias ... 81
Reliability and Validity ... 81
Instrument Validation ... 82
Credibility and Utility. ... 82
Data Collection Procedures ... 83
Ethical and legal considerations. ... 86
5
Data Analysis ... 87
Linking interview questions to the research questions. ... 88
Open coding. ... 91
Data presentation strategy. ... 93
Methods of Validation (Trustworthiness) ... 95
Delimitations and Limitations ... 96
Summary ... 96
Chapter 4
.
Analysis and Presentation of Results ... 98
Results of the Research Interviews ... 99
Demographic Statistics ... 101
Details of Analysis and Results ... 103
Research Question 1: How have retailers in South Africa recognized that a
digital business strategy can create differential business value and strategic
differentiation? ... 103
Research Question 2: How do organizational executives incorporate digital
transformation in corporate strategy formulation that drives competitive
advantage? ... 111
Summary ... 124
Chapter 5
.
Conclusions and Recommendations ... 128
Summary of the Results ... 129
The research journey. ... 129
Learning points and key findings. ... 129
The Proposed DBS Model in Action ... 132
Discussion of the Results ... 137
6
Discussion on first research question results. ... 137
Discussion on second research question results. ... 139
Conclusions and Practical Recommendations ... 140
Summary ... 145
Recommendations for Further Research ... 147
References ... 149
Appendices ... 159
7
List of Figures
Figure 1. The process evolution of social media in sales. ... 30
Figure 2. Positioning business models. ... 46
Figure 3. Comparison between the world of traditional and modern digital business. . 47
Figure 4. Information System strategy model. ... 48
Figure 5. The seven dimensions of an e-commerce strategy. ... 51
Figure 6. Average digital mastery of industries. ... 55
Figure 7. Digital mastery levels. ... 56
Figure 8. Hofstede 6-D Model© Tool on cultural dimensions. ... 58
Figure 9. The omni-channel customer journey. ... 62
Figure 10. The Integrated Architecture Framework. ... 65
Figure 11. The role of the Integrated Architecture Framework. ... 66
Figure 12. The DBS Realignment of IT, digital and business strategies model. ... 67
Figure 13. Research design. ... 72
Figure 14. Example of Open Coding using Mind Map. ... 92
Figure 15. Example of Axial Coding. ... 93
Figure 16. Example of selective coding. ... 94
Figure 17. The high-level DBS model for realigning IT and business strategies ... 100
Figure 18. The enhanced DBS model for realigning IT and business strategies . ... 134
8
List of Tables
Table 1 Top 10 IT Management Concerns, 2003-2012 ... 32
Table 2 Top Application and Technology Developments, 2003-2012 ... 36
Table 3 Digital Examples by Industry ... 37
Table 4 Three Organizational Value Models ... 39
Table 5 Corporate Roles of the Interviewed Executives ... 79
Table 6 Highest Education Levels of Interviewed Executive ... 79
Table 7 Interviewed Executives Table ... 80
Table 8 Relationship of Interview Questions to Research Questions. ... 88
Table 9 Demographic Statistics of Participants ... 102
Table 10 Interview responses ... 104
Table 11 Interview responses describing IT and business strategy realignment ... 120
9
List of Abbreviations and Acronyms
API
Application Programming Interface
B2B
Business-to-Business
B2C
Business-to-Consumer
B2D
Business-to-Device
BM
Business Model
BPM
Business Process Management
CA
Chartered Accountant
CEO
Chief Executive Officer
CFO
Chief Financial Officer
CIO
Chief Information Officer
CPSS
Cyber-Physical Service Systems
CRM
Customer Relationship Management
CSR
Corporate Social Responsibility
DBD
Digital Business Design
DBS
Digital Business Strategy
DoDAF
DoD Architectural Framework
EBL
Electronic Book Library
ERP
Enterprise Resource Planning
FINSAP
Financial Sector Adjustment Program
FMCG
Fast-Moving Consumer Goods
GDP
Gross Domestic Product
IAF
Integrated Architecture Framework
IoS
Internet of Services
IoT
Internet of Things
10
IS
Information Systems
IT
Information Technology
MBL
Master of Business Leadership
MIS
Management Information System
ROSC
Report on the Observance of Standards and Codes
RQ
Research Question
SA
South Africa
SAP
Systems Applications Products
SIM
Society for Information Management
SIS
Strategic Information Systems
SMAC
Social Media, Mobility, Analytics and Cloud Computing
SMC
Swiss Management Center
SPSS
Statistical Package for the Social Sciences
SWOT
Strengths, Weaknesses, Opportunities and Threats
11
Chapter 1
Overview
The alignment of IT and business strategies still remains a business concern for firms to be
competitive although new digital technologies must be considered for this to happen in the
digital economy. With the exponential increase in digital technology in the global economy,
the need for empirical evidence on digital transformation strategies has consequently
increased during the past decade (Day, 2007; Mintzberg, 2004).
Research in this area in South Africa has been extremely limited although it was
found that the rising middle class in Africa has contributed to the modernization of retailing
and greater consumer market opportunities (Deloitte Touche Tohmatsu Limited, 2015).
Moreover, Africa has become the surprising laboratory for experimentation in mobile
commerce, which is one of the modern digital technology trends to be explored in this
qualitative research.
The qualitative study will focus on the problem that competitive advantage is
challenged by low prioritization of information technology (IT) and business strategies
alignment in the form of a digital business strategy by South African retailers. A challenge is
brought about by the digital economy and failure by strategists to centrally include the digital
economy in their current and future corporate strategies. In an industry survey of 832 large
companies on digital transformation in South Africa, only 43.9% of the respondents indicated
that in the future, the digital economy will be central to enterprise strategy (Craffert, Ungerer,
Visser, Morrison, & Claassen, 2014).
Problem Statement
Sustainable competitive advantage is severely challenged by low prioritization of IT strategy
and business strategy alignment by South African retail enterprises in the digital economy.
Competitiveness is affected by missed opportunities associated with the digital economy not
12
reflected in the retail organizations' current and future corporate strategies. Nugent (2003)
asserts that business inflection points can be assessed to expose the business entity in relation
to the profitability of its operating environment. Nugent (2003) also suggests that a company
that has 15% of its customers providing 85% of the sales revenue may develop an offensive
strategy utilizing digital capabilities to keep closely connected to these customers, therefore
protecting them from competitors. Inflection point analysis is best explained in a plot of price
verses volume (typically the number of units sold of a firm's product). As the unit price of the
product decreases, the sales volume increases slightly until a sharp bend in the curve is
encountered, at which point the sales volume increases significantly with decreasing prices.
The point where the curve bends is referred to as the inflection point and gives insight into
how profitable the market place will be (Nugent, 2003). Digital transformation can lead to
positive impacts on inflection points for businesses, for example, increasing sales online as a
primary supplement to existing channels. In this digital economy, if digitalization is not
leveraged, it will lead to business decline and loss of market share. South African firms that
do not use it to offer new products and access to their evolving product lines are
uncompetitive, as they fail to realize digital opportunities. Uncompetitive retail firms in South
Africa lag behind other retailers who open up new revenue streams and digital products.
Compared to western markets, online retail has been relatively slow to catch on in South
Africa (PricewaterhouseCoopers, 2016).
IT strategy has a greater role in business as financial losses rise due to failure in
selecting technologies that can best support and drive a retail organization to compete in the
marketplace. During the last decade, business infrastructure has become digital with
increased interconnections among products, processes, and services (Bharadwaj, El Sawy,
Pavlou, & Venkatraman, 2013). According to Baptista and Hembrow (2015), on average,
82% of IT budgets are allocated to mandatory operations needed to run the business, leaving
13
just 18% for improving business processes due to rising costs, as per data from across 10
industries and 17 countries from North America, Europe, and Asia.
Failure to leverage IT digital capabilities through digital transformation may lead to
loss of important opportunities for South African retailers in developing tradditional
competitive advantages such as (1) customer loyalty, (2) location, (3) human resource
management, (4) distribution and information systems, (5) unique merchandise, (6) vendor
relations, and (7) customer service. Levy and Weitz (2004) assert that those are the seven
most important areas in which retailers can develop competitive advantages coming from
more merchandise sales, reduction of operating costs, and ability to offer favorable pricing.
According to Baptista and Hembrow (2015), executives share a business imperative to
deliver more value through digital transformation which includes connecting with all their
stakeholders to become digital enterprises. Hirt and Willmott (2014) asserts CEOs can choose
to "own" and direct the digital agenda personally, from the top down. The perspectives of
retail executives about their organizational environment will provide information regarding
prioritization of digital business transformation leadership.
Increasing customer expectations, globalization, and consolidation combined with
challenging economic times are pressuring retail consumer services organizations to rethink
how they do business in the retail industry of South Africa. In an effort to become more
globally competitive, retailers in South Africa must embrace innovation. It was found that the
retail industry is in a period of unprecedented disruption and change driven by mobile and
digital technologies; moreover, Africa has become a surprising laboratory for
experimentation in the mobile commerce area (Deloitte Touche Tohmatsu Limited, 2015).
Nonetheless, the problem identified by Chen, Mocker, Preston, and Teubner (2010)
that information systems (IS) strategy is viewed at a function level by business and IS
executives rather than at a strategic level may still be present in South Africa. New
14
managerial requirements, new capabilities, and responsiveness in an organization's ability to
provide services required by internal and external customers justify the need for change
(Pierson, 2010). South African retailers are not ready for the evolution of tech savvy
customers or millennials as compared to their Western competitors, this due to slow
investment in IT and being slow to adapt strategies that integrate digital business. While most
retailers already have some form of e-commerce offering, bricks-and mortar is expected to
dominate for the foreseeable future, which gives companies adequate time to streamline their
online strategies (PricewaterhouseCoopers, 2016).
Purpose of Research
The purpose of this qualitative study is to provide insight into the perceived role of digital
IS/IT strategy and how it influences the corporate strategy in modern-day organizations from
an executive management's perspective. Respondents will be asked to indicate how
opportunities associated with the digital economy are reflected in their current and future
corporate strategies. The executives are the architects and designers of corporate strategy, and
it would be important to recognize their views on digital transformation. The senior
management team, chief executive officer (CEO) and chief information officer (CIO), must
work together to see that the firm executes its digital business strategy (Mithas & Lucas,
2010). This confirms that digital business strategy is the next step after aligning IT and
business strategies to increase business performance and competitive advantage.
To enable mitigating actions to be taken by firms in order to improve their ability to
leverage digital capabilities, the research focus of this study:
· complements the work of Maes (2000), Pierson (2010), Mithas and Lucas (2010),
Bharadwaj, et al. (2013), and Lerner (2015);
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· assesses digital transformation by conducting a literature review of current research
on alignment of IT and business transformation strategy;
· conducts interviews of leading retail industry executives to assess how well South
African firms implement digital capabilities, since, potentially, they may not be
gathering and assessing information as effectively as they could be doing;
· assesses current industry reports on disruptive technologies encountered in the digital
economy; and
· makes a practical recommendation regarding the actions executive managers can take
to improve the alignment of IT and business strategies via a digital business strategy
at their firms.
For the purpose of this study, the researcher will follow the qualitative case study
approach. This will be done in order to understand individuals' experiences of the
phenomenon and collect rich qualitative data based on words from a small number of
individuals so that the participants' views are obtained (Yin, 2013).
Significance of the Study
Inflection points are points in time where a major change occurs (Nugent, 2003). Digital
business strategy (DBS) must consider where the inflection points are and adjust their
business strategies accordingly. Retail trends have been shaped by the disruptive changes
impacting the marketplace (Deloitte Touche Tohmatsu Limited, 2015). This qualitative
research effort focuses on how a sample population of 30 networked organizations in the
South African retail sector perform and compete in the digital economy. For South African
retailers to overcome market challenges caused by the digital transformation gains of their
competitors, they need to adopt digital business strategies tailored to their unique
marketplace. In the Global Retail Top 250 rankings the Africa/Middle East region is
16
represented by seven retailers, of which five are South African retailer industry (Deloitte
Touche Tohmatsu Limited, 2015). It is advised that in order to grow revenue and defend their
market positions, companies will need to create new competitive frontiers using software,
including intelligent and connected applications for business (Accenture Technology, 2015).
A study by Mukherjee (2009) showed an epochal change that has made business
networks today's single most important organizational innovation. In South Africa, retail
firms are becoming networked in the global economy due to increases in international
business where sourcing and selling products are done across borders. South African retail
chains were among the world's 50 fastest-growing retailers between the year 2008 and 2013
(Deloitte Touche Tohmatsu Limited, 2015). Steinhoff International Holdings grew 31.5% in
net revenue of US$m 8.217 ranked at number eight. Woolworths Holdings grew at 13.4% to
a net revenue of US$m 3.834 and is ranked at number 43. SPAR Group Limited SA was
ranked at number 47 with growth of 12.1% in net revenue of US$m 5.175. Finally, Shoprite
Holdings was ranked at number 50 with a retail revenue growth of 11.5% to US$m 9.869 for
2008 to 2013.
This qualitative study will be of interest to large retailers in the South African market
which are competing globally for market share and customer loyalty. The research revealed
the views of retail executives in South Africa regarding business strategy, that is,
(1) going beyond the traditional view and thinking of IT strategy as a mere function;
(2) recognizing strategic digital resources in other functional areas such as operations,
purchasing, supply chain, and marketing;
(3) linking digital business strategy to creating differential business value that drives
competitive advantage and strategic differentiation (Bharadwaj, et al., 2013); and
(4) ascertaining how a retailer's view on corporate governance can benefit from the use of
digital tools such as social media. Disclosure of information on corporate governance
17
and sustainability reporting via social media, mobility, analytics and cloud computing
(SMAC) technologies will strengthen the relationship among stakeholders and build
competitive advantages (Thecka, 2014).
Research Design
This qualitative study provides insight into the perceived role of IT strategy and how it
influences the business strategy and competitive advantage in the digital era from an
executive management's perspective. Each interview took approximately 45-60 minutes and
be digitally recorded to ensure that participants' perspectives were captured accurately. The
seven participants were carefully selected to share experiences in strategy formulation and
digital transformation strategy in the South African retail industry. The interviews took place
in an office room at the organizations' head offices and or over the telephone. The interview
involved an informal, interactive process and utilized open-ended comments and questions.
Transcripts of the interview recordings were written and verified within a few days of the
interview. The demographic questionnaire, open-ended interview questionnaire transcripts,
and interview recordings will be maintained in secure, locked files and destroyed 360 days
after the study is completed.
Research Questions
The research questions pertaining to this study are as follows:
Research Question 1: How have retailers in South Africa recognized that a digital
business strategy can create differential business value and strategic differentiation?
Research Question 2: How do organizational executives incorporate digital
transformation in corporate strategy formulation that drives competitive advantage?
18
Assumptions and Limitations
The following assumptions is outlined in Chapter 2: methodological assumptions, theoretical
assumptions, topic-specific assumptions, and assumptions about instruments. In qualitative
research study, such as this dissertation, there is a challenge to balance the personal
perspectives and perceived realities of the participants. But Slevitch (2011) infers that the
ultimate difference between quantitative and qualitative approaches lies in the logic of
justification, not methods. The data collected assumes honesty, integrity, and a willingness to
participate from the interviewees. For this qualitative study, the cultural aspects of
digitalization are limited to the impact of culture in terms of shopping preferences and
technology in the South African retail sector.
Operational Definitions
The following are the operational definitions of common terms and concepts used throughout
this study:
1. Digital transformation--the process, or coevolution, of IT and business coming
together (Hellbe & Leung, 2015)
2. Center-Edge digital transformation--digital transformation that involves creating
value-multiplying business models in customer-centric industries, such as financial
services, real estate, travel, entertainment, and retail (Gray, El Sawy, Asper, &
Thordarson, 2015)
3. Digital Business Strategy--organizational strategy formulated and executed by
leveraging digital resources to create differential value (Bharadwaj, et al., 2013)
4. E-commerce--"electronic commerce pertaining to the Internet and on prior
technological innovations arising from the combination of telecommunication and
organizational computing" (Wu & Hisa, 2008, p. 95)
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5. E-readiness--the "state of play" of a country's information and communications
technology (ICT) infrastructure and the ability of its consumers, businesses and
governments to use ICT in commerce (Economist Intelligence Unit [EIU], 2008)
6. Enterprise Architecture Infrastructure--all supportive resources to getting the job
done: people, processes, and technology (Nebert, 2004)
7. Cloud--software running on remote internet servers (Porter & Heppelmann, 2015)
8. Value Proposition--overall value proposition is a final good and/or service which has
undergone multiple value-adding stages (Pagani, 2013)
9. M-Commerce--mobile commerce is based on developments in technological
innovations arising from a combination of telecommunication and organizational
computing (Wu & Hisa, 2008)
10. I-Commerce--internet-enabled commerce pertaining to the Internet (Wu & Hisa,
2008)
11. Center to Edge--Center is the enterprise, its tight core supply chain, and its set of
enterprise, and the Edge of an enterprise is its customers, community and loosely
coupled ecosystem, together with their digital connection systems and technologies
(Gray, El Sawy, Asper, & Thordarson, 2015)
12. Business Model (BM)--BM has risen to prominence as a conceptual tool of
"alignment" to fill the gap between corporate strategy and business processes,
including their IS, and to provide a crucial harmonization among these organizational
layers (Al-Debei & Avison, 2010).
Summary
The key theoretical concepts which this study was grounded in are addressed. According to
Slywotzky, Morrison, and Weber (2001), a digital enterprise uses digital technologies to
devise entirely new value propositions for customers and for the company's own talent for
20
profit and ultimately pursue the goal of strategic differentiation. DBS is the part of an
organizational strategy formulated and executed by leveraging digital resources to create
differential value (Bharadwaj, et al., 2013). According to Krcmar (2015), leadership in digital
transformation is the ability of an organization to create a DBS by first understanding the
technology to invest in for digital capabilities. Secondly, it includes understanding the nature
of business model competition and providing vision and governance.
According to Nugent (2003), a business inflection point illustrates the business entity
in relation to its operating environment. Digital technologies (viewed as combinations of
information,
computing, communication, and connectivity technologies) are transforming
business strategies, business processes, firm capabilities, products and services, and key inter-
firm relationships in
extended business networks (Bharadwaj, et al., 2013). One recent
research report found that two-thirds of business executives believe their organization is
currently being disrupted by IT and 72% agree that they will be disrupted over the next 12
months (Accenture Technology, 2015).
Digital capabilities can determine methods of providing greater access to raw
materials between countries by utilizing practices that will optimize efficiency through
effective global supply chain management (Pierson, 2010). Currently, digital architectures
and web technologies constitute new phenomena that IS research has hardly taken into
account, namely, recursivity, scalability, and flexibility (Tilson, Lyytinen, & Sørensen, 2010).
IT trends and web technologies driving the digital transformation are as follows:
· Social media
· Mobility and Consumerization
· Analytics/Big data
· Cloud Computing
21
· Internet of Things or (IoT)
· Cyber-Physical Service Systems (CPSS)
· Platform-Based Ecosystems
By using technologies such as mobile, social media, mobility, analytics, and cloud, also
known as SMAC, businesses can now interact and collaborate across their internal and external
channels of operations. This collaboration gives South African retail chains competitive
advantages of strong customer loyalty and IS over competitors who are not networking across
firm channels (Bharadwaj, et al., 2013; El Sawy ,2014).
Networking involves communication and information exchange for mutual benefit,
while collaboration is a process in which entities share information, resources, and
responsibilities to jointly plan, implement, and evaluate a program of activities to achieve a
common goal (Camarinha-Matos, Afsarmanesh, Galeano, & Molina, 2009). Accordingly,
Bharadwaj, et al. (2013) argue that the time is right to rethink the role of IT strategy from that
of a functional-level strategy aligned with, but essentially always subordinate to, business
strategy to one that reflects a fusion between IT strategy and business strategy. Bharadwaj, et
al. (2013) and Lerner (2015) refer to this fusion as DBS. At the strategy level, "strategic"
alignment basically concerns decisions affecting variables such as mission, scope (boundaries
and granularity), governance, and core capabilities (Maes, Rijsenbrij, Truijens, & Goedvolk,
2000).
The next chapter will be a review of literature relevant to this study. A literature review
will be conducted for digital business strategy and related topics. The potential for developing
sustainable South African business by leveraging social media, mobile technologies, data
analytics, and cloud computing will be evaluated. Development of competitive advantage
through alignment of IT infrastructure and business strategy will also be investigated.
22
Chapter 2
Literature Review
The previous chapter provided an introduction and background to the study. The literature
review in this chapter provides the theoretical basis of the study and outlines the relevant
research theories on digital business strategy. As research topics that are relevant to
formulating digital business strategy are identified, they are categorized under review of
literature.
The traditional alignment of Information technology (IT) strategy and business
strategy has been disrupted by new technologies with the need for further study on
realignment and inclusion of digital strategies in business strategy formulation. Traditionally,
IS strategy literature justified information systems strategic alignment with business
performance (Jardim-Goncalves, Agostinho, & Steiger-Garcao, 2012). A review of the
history of IT management concerns based on the technology that businesses were utilizing in
supporting their processes at the time is used to demonstrate the relevance of the difficulty in
aligning IT and Business strategies. The focus on alignment of IT and business strategies
remains a business concern although new digital capabilities have to be considered in order
for this to happen in the digital economy. Liu, Zhang, Radhakrishnan, and Tu (2008) inferred
that customer demand for fast delivery and high-quality functionality has increased
considerably since the explosion of information system usage in enterprises in the 1990s. A
survey conducted by Harvey Nash in 2012 showed that 74% of CIOs believed that to achieve
business-related objectives set by their CEO, technology innovation must be at the heart of
the company's strategy (Luftman & Derksen, 2012).
A change in the general operating environment of business demands that firms re-
evaluate the products and services they offer, and how they offer them. This is particularly
necessary in the retail sector because of intense competition for customer loyalty,
23
improvements in IS and supply chain distribution. There are both opportunities and threats to
market positions due to new digital capabilities provided by expanded digital architectures.
This calls for a realignment of business strategies with digital IT strategies.
The survey of research literature begins immediately after the following discussion on
research paradigm assumptions in accordance with the following chapter structure:
· Discussion of the research paradigm assumptions
· Discussion on the theoretical orientation for this study
· A review and critique of previous research presented in the fields of digital
technologies, strategy, digital business strategy, and business modeling
· A discussion on the findings of the literature research and a presentation of the
realignment of IT and business strategy toward digital business strategy model
· A summary of the entire chapter
Research Paradigm Assumptions
This section addresses the philosophic paradigms researchers use to conduct research. Several
categories of assumptions that establish a foundation for this research are evaluated and
discussed next.
Ontological assumption.
According to Slevitch (2011), ontology refers to the study of reality or things that comprise
reality. Guba and Lincoln (1995) used basic beliefs such as positivism, post-positivism,
critical theory, constructivism, and participatory. On explaining positivism, Denscombe
(2014) advises that only phenomena that one can prove with their senses, for example, smell
or sight, can produce "knowledge." Constructivism is described by Denscombe (2014) as
being the opposite of objectivism, where thinking is objective rather than constructed by
experiences and socialization and "constructed" in the minds of people. Therefore, the
24
ontological assumption of this research is that reality is discovered through situations that can
be talked about and organizing the information by making an assumption about the nature
and structure of the world's reality. This is equivalent to the expectation that the expressions
by the seven respondents about their experiences with IT and business strategy formulation is
how retail firms formulate and implement strategy in South Africa.
Epistemological assumption.
Slevitch (2011) finds that qualitative methodological foundations lie on the following
epistemological premise: an inquirer can only offer his or her interpretation (based on values,
interests, and purposes). The qualitative methodology views objectivity and generalization as
unattainable, and only requires a small sample population size for study. From an
epistemological perspective, things cannot be described as they really are, but only how they
are perceived or interpreted (Guba & Lincoln, 1994). The researcher did not participate in
any digital transformation strategy implementation at any of the firms in this qualitative
study. The epistemological assumption, therefore, gives a good basis for unbiased approach
to the study and increases the level of neutrality and openness.
Axiological assumptions.
The axiological assumption concerns the question and place for values, both those of the
researcher and of the researched topic, in the research process (Ray, 2014, p. 55-56).
According to Creswell (2012), researchers make their values known in the study and actively
report their values and bias as well as the value-laden nature of information gathered from the
field. The axiological assumption for this qualitative research is that certain values are
excluded from the research process being considered problematic variables that could
potentially distort the view of reality.
25
Rhetorical assumptions.
Creswell (2012) suggests writing general qualitative research papers in a personal form and
that they should incorporate the use of "I" as a pronoun. Academic research described in
studies, on the other hand, typically requires more formality than general research papers and
further qualifies the rhetorical assumption. Studies should be prepared in an impersonal tone
that includes carefully citing academic studies (SMC University, 2010). This study defaults to
the SMC University's guidance to use an "impersonal tone" (Ray, 2014, p. 56).
Methodological assumptions.
Methodology refers to a set of tools and study techniques (Slevitch, 2011). The use of focus
groups, observations, field notes, and recordings are examples of methods in the qualitative
research approach. In this research effort, recordings of the interviews with retail industry
executives will be the main method with field notes to highlight keynotes during the
interview sessions. Slevitch (2011) concludes that validity in qualitative approach is
substituted by transferability of findings based on the richness and interpretation of data.
Theoretical Orientation
This chapter helps the reader gain an understanding of the theoretical and analytical debates
that are prominent within published research on IT and business strategy alignment, digital
disruption, digital transformation, and business process management. The studies and
theories related to IT, digitalization, and strategy are included next.
Research orientation.
This qualitative research effort made use of online research databases and electronic libraries
which were searched through the use of keywords. The databases that were searched for this
research effort included:
26
· EBSCO Host Research database (www.search.ebscohost.com)
· Swiss
Management
Center
(SMC)
University
electronic
library
(http://www.swissmc.eblib.com/)
· Google (www.google.com)
· Google Scholar (https://scholar.google.co.za/)
· Social Sciences Research Network (www.ssrn.com)
The EBSCO Host research database was the primary tool for searching research
literature. When topics were thought to be too current or EBSCO Host failed to yield any
results, then the Google Scholar search engine was engaged, providing a range of academic
papers and e-books on strategy, IT and business strategy alignment. The Harvard Business
Review provided academic papers on strategy and business competitive advantages.
Keywords used to search the aforementioned resources included terms such as:
· Digital Business Strategy
· Strategic Management
· IT Strategy
· IS Strategy
· Digital transformation
· IT trends
· Retail strategy
· Business process model
The study utilized the Electronic Book Library (EBL) which provided eBooks on
strategic management and qualitative research methods.
27
Review of Literature
This section consists of a literature review in the fields of digital technologies, strategy,
digital business strategy, and business modeling. The fields are relevant for this study in order
to understand the evolution of business and IT strategies to eventually merging to become a
digital business strategy. This involves new concepts such as digital business design (DBD),
digital business modelling, and a chronological review to understand the origins of the
importance of IT strategies to business. The review encompasses the evolution of
technologies and business merging to form e-commerce and e-business with literature from
the late 1990s which fundamentally proves the importance of IT and business strategy
alignment.
Literature review on digital technologies. "
Electronic commerce (E-commerce), Internet-enabled commerce (I-commerce) and mobile
commerce (M-commerce), are "based on developments pertaining to the Internet, and on
prior technological innovations arising from the combination of telecommunication and
organizational computing" (Wu & Hisa, 2008, p. 95). A multichannel digital revolution with
evolving digital technologies, virtualization, peer-to-peer networks, cloud computing, Internet
of Services (IOS), and other IT developments, "is changing the rules of the game in many
industries through disruptions of business models" (Pangani, 2013, p. 611). According to
Gray, et al. (2015), IT professionals and business executives are used to thinking about
enterprise-centric Enterprise Resource Planning (ERP) systems as the IT center of gravity,
but increasingly the focus of IT activity is shifting from the enterprise center to the edge of
the enterprise, as consumers are digitally connected and activated.
Gray, et al. (2015) advise that Center-Edge digital transformation involves creating
value-multiplying business models in customer-centric industries such as financial services,
real estate, travel, entertainment, and retail. The Center is the organization's IT architecture,
28
for example, the ERP system where the business functions (finance, supply chain, marketing,
and human resources) processes are supported. The digital edge is the internet-enabled
capabilities where new value co-creation can be generated. Some ERP systems offer
connected applications with internet connectivity. Systems Applications Products (SAP), for
example, offers e-recruitment via a web portal with a human resources business suite under it.
Digital transformation is the shift by businesses from center to digital edge technologies such
as social media, mobility, analytics and cloud computing and is described next.
Social Media, Mobile, Analytics and Cloud.
Sustainable businesses may be developed by the application of SMAC technologies. Porter
developed an integrated framework that highlights the benefits of disclosing information with
the objective of increasing productivity, innovativeness, and competitiveness (Porter, 1990,
1998). Despite the framework of Porter (1990) on competitive advantages being dated, it
outlines the fundamental aspects of a business competitive advantage by stating that the
environment in which the business entity operates offer both opportunities and threats and
must be investigated. Porter and Heppelmann (2014) examined the implications external to
firms, looking in detail at how smart, connected products affect rivalry, industry structure,
boundaries, and strategies. Digital innovation furthermore requires a firm to revisit its
organizing logic and its use of corporate IT infrastructures (Yoo, Henfridsson, & Lyytinen,
2010).
Disclosure of information on corporate governance and sustainability reporting via the
SMAC technologies will strengthen the relationship among stakeholders and build
sustainable competitive advantages (Thecka, 2014). This is achieved by competitively
differentiating the business from the rest on the digital platform, by keeping stakeholders and
sponsors informed about corporate and social responsibility.
29
With time, new digital capabilities in e-commerce were developed from the period
between 2000 and 2015 and with the prevalence of SMAC technologies. Tilson, et al. (2010)
stated that digital architectures and web technologies constituted new phenomena that IS
research has hardly taken into account, namely, recursively, scalability, and flexibility.
Social media.
Andzulis, Panagopoulos, and Rapp (2012) maintain that among the functional areas of
firms that have witnessed the potential impact of social media, the sales function has the
potential to be one of the most dramatically changed by these technological advancements.
Not limited to just the technologies available for public consumption (e.g., Facebook,
LinkedIn, MySpace, Twitter, Spotify, Google+, Pinterest), social media also includes
networking tools being offered by companies such as Salesforce.com (i.e., Chatter). The
South African Social Media Landscape 2016 study of the population that utilizes social
media conducted by World Wide Worx and Fuseware has revealed that in South Africa there
are
· 13 million Facebook users;
· 7.4 million Twitter users;
· 8.28 million YouTube users; and
· 2.68 million Instagram users.
The aforementioned study was conducted on seven major social networks and data
collected from a corporate survey among more than a hundred of South Africa's leading
brands (World Wide Worx & Fuseware, 2016).
Tilson, et al. (2012) reviewed the impact of social media on the sales function and
stated that the sales function would evolve as social media and big data evolve. Sharma
(2015) states that due to the Internet and social networking, the sales process has accelerated
30
to the point where the sales funnel is no longer relevant. Andzulis, et al. (2012) and Sharma
(2015) argue that the sales process is greatly changed with the advent of the Internet and
social networks offered by digitalization.
According to Andzulis, et al. (2012), social media has a place in the organization in
the marketing or sales department or sales business unit. The product/service strategy is a
beneficiary of the social media push because customers are now provided with one more
mechanism, or channel (perhaps the most responsive), for direct interaction with the firm
when it comes to issues related to what they purchase. Figure 1 depicts a four-phased process
for transforming a firm's sales function to one that fully integrates social media.
Figure 1. The process evolution of social media in sales. Source: Andzulis, et al. (2012).
The social media trend has customers more and more connected to third-party information
providers, through a variety of product reviews and price comparison services. This created
transparency in the marketplace increases the relevance of customer satisfaction and can
provide better insight into "best value" to customers (Galavan, Murray, & Markides, 2008).
Andzulis, et al. (2012) infer that social media brings agility to typical strategies related to
relationship, product/service, customer, and price, which are not mutually exclusive. The
sales and operations planning of businesses are affected by digital technology capabilities and
enhancements offered; businesses need to incorporate them into their strategy for competitive
success.
31
Another function leveraging the Internet and networking is the procurement (of goods
and services) function. According to Kalakota and Robinson (1999), corporations with
substantial buying power created private portals for the procurement of both production-
related goods and other goods with the vision of sharing information, executing transactions,
and collaborating on strategic and operational planning with suppliers. The Ariba Network
enables companies to locate new suppliers, streamline transaction processes, and realize
savings with cloud-based procurement software (SAP, 2015). "The profits and competitive
advantages of participation in a given value network reside dynamically within the chains,
accumulating at the positions of greatest value and/or power (control points)" (Pagani, 2013,
p. 617).
Mobility.
According to Shelton (2013), mobility is almost as essential to the new productivity
equation as social media. Mobility provides solutions in expanding the possible number of
people that can answer a question (social media) and increases the likelihood that the right
person is available to answer from any location (mobility). Mobility is one of the IT trends
that is seen as a strategic digital asset by retailers in their strategy to increase customer
loyalty. Mobile shopping applications for phones and tablets have been developed for
customers to connect with retail companies. Research on customer competitive advantage
benefits was investigated and found to determine if it was included in retailers' strategy.
Mobility provides access to product information, shopping platforms from any location where
there is a mobile network, and has become part of consumers' purchasing journey.
According to Luftman and Derksen (2012), the Society for Information Management
(SIM) listed the top 10 management concerns highlighting that IT business alignment,
business process reengineering, IT strategic planning, and security are to be prioritized by
organizations that intend on profiting from IT and digital capabilities. These are shown in
32
Figure 2. The survey was on U.S.-based organizations focusing on leveraging IT to reduce
business and IT expenses, and also to generate revenues from IT innovations. This shows the
priority IT and business strategy alignment have with regard to formulating management
strategy between the year 2003 and 2012. Currently, digital transformation is an IT trend
which follows the evolution of IT and business realignment in formulating a digital business
system.
Table 1 Top 10 IT Management Concerns, 2003-2012*
Source: Luftman and Derksen (2012)
In Table 1, from 2003 to 2012, it is shown that IT and business alignment has been at the
forefront of the IT management agenda, having held the number one position for a number of
years. This reflects the challenge that IT and business strategy alignment has presented for
organizations.
Analytics/Big data.
The realignment of business processes and information systems is a critical factor for
both business process management (BPM) and ERP system efficiency. According to Ridge,
Johnston, and O'Donovan (2015), tools such as big data analytics can be applied in the retail
sector to assist with analyzing unstructured data through customer sentiment analysis,
optimizing prices and managing inventory. Data and analytics will also be increasingly
33
deployed not just to provide transparency into the past and the present but to predict the
future in a way that drives new business growth (EIU, 2015).
Over time, IT departments progressed into "make or break" units for a company's
success. Top-level management strategizes with IT specialists daily, and in some cases, IT is
the driving force behind the strategy (Lerner, 2015). Examples of such companies are
Amazon and Apple which have incorporated IT in the way they deliver products and
services, through digitization of physical products (music, books, videos and games). This is
relevant to this qualitative research, as the participants are top-level executives who will
provide their perspectives on digital business strategy formulation through digital
transformation. Materializing the vision is a difficult task, and many organizations struggle
with the complexity of realigning the business and IT strategies.
A published report indicates that over the past four years, executives have not only
become better educated about the technology behind big data but have also fully embraced
the relevance of data to their corporate strategy and competitive success (EIU, 2015).
Research has indicated that the majority of retailers in South Africa are not analyzing big
data, since they could not find a use case to support it (Ridge, et al., 2015). This indicates
lack of inclusion of big data strategies by retailers in South Africa.
As part of a digital business system, big data analytical tools could be strategically
utilized to ascertain changes in the operating environment, such as a change of customers'
product preferences. According to Pierson (2010), rapid and continuous change creates a
challenging environment for senior managers and the teams that support them, and changes
that were traditionally handled through manual decision-making processes have proven to be
unreliable and ineffective. One survey points to a clear correlation between managing data
strategically and achieving financial success (EIU, 2015). Companies with a well-defined
data strategy are much more likely to report that they financially outperform their
34
competitors. Furthermore, this suggests an opportunity for development of big data
algorithms to support decision-making when implementing business strategies because big
data supports analyzing huge amounts of structured and unstructured data.
Cloud.
For business productivity and cost reduction, for example, CIOs use enterprise
architecture as a vehicle to help guide successful development efforts; in general, there are
tools such as the Zachman Enterprise Architecture and the DoDAF Enterprise Architecture
that assist an organization in developing the enterprise architecture. From the enterprise
architecture, an IT platform and security that will support the business processes is designed
and implemented. Hardware subsystems, components, and software modules are assigned
functional responsibilities within an architectural structure (Ray, 2016). This is especially
true with the attention on virtualization and the iCloud; it can assist organizations by reducing
the cost of on-premises hardware as the storage of data becomes virtualized in the cloud.
There is an argument that this cost reduction will have a positive impact on a firm's budget
and can be channeled into business productivity through IT developments for the business.
Cost reduction, productivity gains, improved customer communication and a flexible
workforce are desired improvements (SAP, 2015).
By 2016, 30% of enterprise architecture efforts will be supported via collaboration
between business and IT, up from 9% percent in early 2011 (Gartner, 2016.). A system
architecture is used to do the following (Kerzner, 2009):
1. Discover and refine operational and functional requirements
2. Drive the system to a specific purpose
3. Discriminate between options
4. Resolve to make/buy decisions.
35
Shelton (2013) infers that IT is becoming substantially more critical to all business
processes while also becoming more accessible and comprehensible to all business users. IT
is going mainstream, and the cloud is the place it is happening. According to Porter and
Heppelmann (2015), cloud-based applications provide connectivity to products and services
called smart connected products, allowing companies to make product changes and upgrades
easily.
Internet of things (IoT) and Internet of Services (IoS) platform offers connectivity for
manufacturers and retailers of products and software. Porter and Heppelmann (2015) assert
that the earliest form of IoT was the smart connected products in logistics, which involves the
movement of production inputs, outputs, and products. Currently, smart connected products
can include product clouds which comprise software running on a manufacturer or third-party
server containing the product database (Porter & Heppelmann, 2015). Burkitt (2015) states
that IoT incorporates other major technology industry trends such as cloud computing, data
analytics, and mobile communications, but also that it goes beyond them.
A 2012 survey found more cautious increases in IT spending, with a new focus on
deploying revenue-generating products and services. This is indicated in Table 2 showing the
Top Application and Technology Developments between the year 2003 and 2012 according
to Luftman and Derksen (2012).
36
Table 2 Top Application and Technology Developments, 2003-2012*
Source: Luftman and Derksen (2012)
The combined impact of the prolonged economic conundrum, in concert with new
technology investment opportunities in cloud computing, business intelligence, social
networking, big data and collaborative software for mobile devices, results in a more
complex IT management environment (Luftman & Derksen, 2012). This complexity tends to
limit the success of new investment projects although it is imperative that organizations in the
customer-centric industries such as retail deploy revenue-generating products and services
that their customers are demanding, in most cases becoming digital businesses offering
digital products and services.
Examples of how digital technologies impact different industries are provided in
Table 3 (Accenture Technology, 2013). The data depicts the impact digital technologies have
on different industries, more significantly an example of the retail industry, as it is the focus
37
of this qualitative research in the South African retail sector. The digital solution example in
Table 3 gives Walmart as an example for inventory optimization due to digitized demand
forecasting and supplier integration in the value chain. Walmart is a global retail supermarket
chain that is also present in South Africa.
Table 3 Digital Examples by Industry
Source: Accenture Technology (2013)
Table 3 shows digital solutions that the retail industry giant Walmart utilizes, that is, the e-
commerce platform which grows revenue through utilization of a digital sales channel while
optimizing the inventory due to an analytically driven demand forecast and a supplier
collaboration value chain. This results in greater sales while reducing inventory costs; web
portals also offer a platform for crafting product to customer specifications. The example in
Table 3 on the retail industry is a business-to-business (B2B) solution, but digitization has
also opened access to digital consumers. These are consumers who are connected by
38
applications directly to businesses, and they may demand digital products in business-to-
consumer (B2C) solutions, not in Table 3.
Porter and Heppelman (2015) infer that a company must choose a set of capabilities
that deliver customer value and define its competitive positioning. Gray, et al. (2015, p. 41)
recommend that IT and business executives whose organizations have large ongoing IT
deployments and who want to realize more strategic value from digital edge technologies use
the following three value models:
1. Value chain
2. Value shop
3. Value network.
The foregoing is done by transforming the Center-Edge relationship and changing the
dynamics of interacting with consumers and the deployment of IT infrastructures and
systems. Examples of this are applied to the retail industry in Table 4. It shows the three
value models' impacts at Center and Edge below (Gray, et al., 2015, p. 41).
· Value chains are a common organizational model used to describe an end-to-end
horizontal business process in which value is created by transforming inputs into
products over a chain of sequential processes.
· The value shop model is based on recursive feedback learning loops delivered by self-
service systems.
· The value network model is based on creating value by facilitating a network
relationship and interactions among the customers or partners of an enterprise through
a mediating technology.
39
Table 4 Three Organizational Value Models
Organizational
Value Model
Source of Value
Highlighted by
Model
Operational
Impacts at Center
and
Edge
(1
st
Order
Role
Reconfiguration
Impacts at Center
and Edge (2
nd
Order)
Transformational
Impacts at Center
and Edge
(3
rd
Order)
Value Chain
Sequential
horizontal
processes
()
Improving the
effectiveness of
IT-enabled
supply
chain
management
through
e-
procurement
The use of self-
service through
direct
digital supplier
connection
Scale
and
standardization
impacts:
Cost
savings,
efficiencies
in
administration,
speed, reduced lead
times
Improvement in
quality
of
purchasing
services
and
product
satisfaction:
repeated use,
collaboration,
retention
New self-service
roles for personnel
in product catalogs,
viewing new
New competencies
for providers, to
offer
digital
product
catalogs
and
customized
products
and
services
From paper-based
to real-time supply
chain management of
procurement,
for
example,
increased use of
remote
digital
buyer/seller
interaction
Value Shop
Recursive
learning loops
()
Better
mobilization
of IT-enabled
resources,
knowledge and
expertise
to
resolve
specific
healthcare
problems for
members,
including
the
use
of
coaching,
learning,
and
knowledge
creation
Increased customer
education and
learning through
repeated access
Faster mutual
learning loops
between retailer
and customer
Faster resolution of
customers'
inquiries
and
service
dissatisfactions
Enhanced roles
for
better
connected
customers, as
innovators
IT functionality
enables
a
connection
to
consumers to a co-
creation
and
learning connection
with
consumers
and devices
Involves
customer
co-creation
and
device co-creation
There is a shift from
not
traditionally
connected
to
customer via B2C
and
business
to
device (B2D)
Value
Network
Relationship
and community
networks
()
Building more
effective
facilitative
exchanges
through
IT-enabled
relationship
networks
among customers,
community
groups,
including the use
of social capital
and
relationships
Social network
formation among
customers
on
online shop
Active
product
information
and
promotions
Customers act as
self- help group
leaders in online
settings
Networked
knowledge
repositories
enhance
a
collaborative
role between
customers
and retailers on
product
preferences,
Using
mobile
applications
with input from
customers as a basis
for information
hub for customer
data for customer
loyalty and rewards
Integration of retail
products and logistics
services
40
Organizational
Value Model
Source of Value
Highlighted by
Model
Operational
Impacts at Center
and
Edge
(1
st
Order
Role
Reconfiguration
Impacts at Center
and Edge (2
nd
Order)
Transformational
Impacts at Center
and Edge
(3
rd
Order)
demand, location
and logistics
2
nd
Value Chain
Sequential
horizontal
processes
()
Improving the
effectiveness of
IT-enabled
human resource
management
through
e-
recruitment
The use of self-
service through
direct
digital candidate
connection
Scale
and
standardization
impacts:
Cost
savings,
efficiencies,
speed
Improvement in
quality
of
recruitment
services
Prospective
candidate
satisfaction:
Repeated use,
delight, retention,
and referral
New self-service
roles for personnel
in appointments,
viewing new talent
and candidate
careers
New competencies
for providers to
offer
digital
recruitment
From paper-based
to real-time human
resource management
of personnel, for
example,
leave
applications, benefits
calculation, and talent
management
Increased use of
remote digital
HR
practitioner/candidate
and personnel
interaction
Note. The table uncovers Center-Edge impacts in the South African retail industry using the
three organizational value models adapted from Gray, et al. (2015).
The three organizational value models by Gray, et al. (2015) elaborates on the business model
that customer-centric organizations can develop depending on the anticipated value created
by each value model. It shows the operational, human resources, and business
transformational impacts of each organizational value model. This center-to-edge
transformation involves digital transformation of IT enterprises and focuses on innovation on
the IT edge, thus allowing enterprises to build on their core technologies and reaching out to
the digital ecosystems which comprise customers, suppliers, and communities. This access to
the digital ecosystem allows the organization to offer and innovate on new value propositions
in the form of products and services arising from connecting with the organization's
stakeholders. Table 4 presents the organizational value models adapted for the retail
industry.
41
The three organizational value models indicated in Table 4 can be applied to the
South African retail industry and the significance of center-to-edge digital transformation
(Gray, et al., 2015). It is useful to ascertain the operational, role reconfiguration, and
transformational impacts on the center and digital edge of proposed architectures for the
retailers summarized for each example. El Sawy (2014) deduces that the emerging digital
enterprise will be connected to the community ecosystem. The community ecosystem
consists of customers, crowds, competitors, citizens, and collaborators.
The center technology, which is the ERP systems, connect the internal organizational
departments and functions, creating integrated business processes, while the IT edge or
digital edge technologies provide a platform for two-way communication with digital
customers, crowds, and suppliers. The IoT also opens a range of new business opportunities
for a variety of players. These opportunities tend to fall into three broad strategic categories,
each reflecting a different type of enterprise:
· "Enablers" that develop and implement the underlying technology
· "Engagers" that design, create, integrate, and deliver IoT services to customers
· "Enhancers" that devise their own value-added services, on top of the services
provided by Engagers, that are unique to the Internet of Things (Burkitt, 2015, p. 2)
Corporate Strategy and Competitive Advantage
According to Moore (1996), companies need to co-evolve with others in the environment, a
process that involves cooperation as well as conflict. It takes generating shared visions,
forming alliances, negotiating deals, and managing complex relationships, all which may be
handled digitally. Porter (1979) defined a model of five competitive forces that shape
competition. These forces may face a digital shift where the competitive forces are viewed in
the light of the new digital economy and customers. Grundy (2006) states that Porter's five
Details
- Pages
- Type of Edition
- Erstausgabe
- Publication Year
- 2017
- ISBN (PDF)
- 9783960676140
- ISBN (Softcover)
- 9783960671145
- File size
- 16.2 MB
- Language
- English
- Institution / College
- Swiss Management Center University
- Publication date
- 2017 (June)
- Grade
- 3.8
- Keywords
- digital transformation strategy retail South Africa Interview Corporate strategy Business strategy Retailer Competitive advantage DBS model Digital Business strategy
