What is digital transformation? Core tensions facing established companies on the global stage

Abstract

Research summary

Digital transformation is a dominant theme in the global economy, but what it means for established companies remains perplexing for both academics and practitioners. As digital erases familiar geographic, industrial, and organizational boundaries, it has led to simplistic characterizations such as “digital changes everything.” Yet while digital changes some things, others remain the same. Here, we identify three core tensions at the heart of digital transformation—products vs platforms, firms vs ecosystems, and people vs tools—and describe their underlying economics, driving forces, and countervailing forces. These tensions frame a concrete discussion of strategic alternatives for global companies. Overall, we emphasize that digital transformation is not an objective state, but rather a strategic choice by executives from an array of alternatives.

Managerial summary

Digital transformation is a dominant theme in the global economy, but what it means remains perplexing for executives and academics. Pundits claim that “digital changes everything” and that leaders must “disrupt or be disrupted,” but is this really true for established companies serving robust customer needs on the global stage? Understanding what digital transformation means can be challenging as it breaks down familiar geographic, industrial, and organizational boundaries, creating new opportunities and threats. In this paper, we explore three key tensions at the heart of digital transformation—products vs platforms, firms vs ecosystems, and people vs tools—and enumerate their enabling and constraining forces. Building on these concrete constructs provides effective foundations for formulating digital transformation strategy.