When Elephants Turn into Gazelles: How Companies Change Skin

There is a great deal of hype these days about "digital transformation", which is fueled by stories of firms that have made disruptive innovations in their industries. Many of these popular stories involve digital start-ups or high-tech firms such as Amazon, Apple, UBER or Google. However, seen from the perspective of traditional companies these examples are somewhat hollow. Big traditional companies, with decades of history and legacy, are simply different from these newer digital entrants. The digital start-ups may be triggers for other companies to take action towards a digital transformation, but they give no advice on how to do so.
There is no doubt that we in these years see a number of digital technologies that are maturing to a point where the combination of all these technologies create the basis for a digital transformation towards smart connected products (as outlined by Michael Porter). The key in this transformation is connectivity and a convergence between physical and digital technologies. The connectivity paves the way for big data analytics, internet of things and the like, while the new interface between the physical and digital value chain enables the application of new business models in many industries. The point here is that the digital transformation does not imply that all the value chain is going to be digital, but rather that the interface between the physical and digital value chain activities will change.

UBER might serve as an illustrative example: It has no doubt disrupted the traditional taxi business, but not by removing the physical taxi, rather by using private cars instead and adding a digital interface with customers (that apply big data analytics etc.) on top of the physical delivery. The same is true in many other industries. The physical accommodations are not going away because AirBnB is entering the market, the physical products are not disappearing when Amazon sets up new distribution system etc. However, the newcomers have challenged the traditional business model in their industries by changing the interface between the physical and digital value chain and, in so doing, they have created a new business model with a new value proposition to the customers that has allowed them to appropriate part of the value that were previously acquired by the traditional companies. More specifically, extant literature on business models have shown that these new entrants have changed the logic of competition by making two complementary innovations: reshaping the customer value propositions and transforming the operating models using digital technologies for greater customer interaction and collaboration. While the literature has highlighted the agility and different mindset of these digital start-ups, less is known about the how traditional firms or incumbents - with established business models and path dependencies - might innovate their business models. One first research question is to what extent traditional firms might be able to appropriate the benefits and opportunities derived from the digital transformation through their scales and network's advantages.

In this sense, one may say that the general directions of the digital transformation are becoming clearer, but defining and making the successful transformation throughout the organization is far more uncertain. Many issues are popping up as how should the customer experience be transformed, what customers are willing to pay for, what are the implications for the operating model etc.
This is particularly true for traditional companies that are embedded in an existing business model that have served them well. Should they just fade-out the old business model where they currently earn the money for a potentially new business model where it is still unclear who will appropriate the value? Therefore, a second research question is related to the type of tensions incumbents face between keeping the exploitation of their existing business models and exploring new ones. A common temptation is to implement the digital initiatives in silos or through a technology centric approach. When organizations implement disconnected digital initiatives across functions, there often arises a competition for resources resulting in inefficiencies and inter-departmental conflicts.
In many industries like mobile telephony, auto, financial services, home security and heating etc. we see that the business model of the traditional players is challenged by new digital start-ups. Some of the traditional players are more proactive than others, but they are all struggling with how they can convert themselves from being a big elephant to a nimble and agile gazelle.