ELEMENTS OF A SUCCESSFUL DIGITAL TRANSFORMATION: THE APPLICATION BY HAIER GROUP.

• Author: Lui, Gladie

INTRODUCTION

The COVID-19 pandemic has reshaped the retail industry, forced closures of physical stores, and created uncertainty about the future of in-store experience. The growth in e-commerce caused by the pandemic has set a high bar for what is now considered baseline growth. According to the U.S. Census Bureau's 2020 Quarter 2 report, U.S. retail e-commerce reached $211.5 billion, up 31.8% from the first quarter, and 44.5% year-over-year. E-commerce also accounted for 16.1% of total retail sales in the second quarter, up from 11.8% in the first quarter of 2020 (Perez, 2020).

In the wake of the pandemic, the ability of an organization to quickly adapt to supply chain disruptions, time-to-market pressure, and rapidly changing customer expectation has become critical. For online retailers to remain competitive in this new business and economic environment, providing a seamless shopping experience is the most important factor affecting business performance (Briedis et al., 2020). Thus, improving customer experience has become a crucial goal, and a crucial part of digital transformation. Faced with the COVID-19 crisis, the most likely reason for taking on digital transformation is that it is a survival issue.

Digital transformation is critical for all businesses, from small firms to large enterprises, because the world becomes increasingly digital. However, research on digital transformations shows that the success rate for these efforts is consistently low. Several studies find that only 1520% of projects in digital transformation succeed (Talin, 2021) and only nine percent (9%) of these projects enable the organizations to sustain changes over the long term (Martin, 2018).

The primary purpose of this study is to review and analyze what elements are needed to succeed at digital transformation. The second objective is to apply these components for success to the digital transformation journey of Haier Group, a consumer electronics and home appliances company, to validate the best practices for digital transformation.

BACKGROUND OF THIS STUDY

Digital Transformation

Technology disrupts the business world endlessly. The key for companies to remain viable is to keep moving forward. However, while technology changes quickly, organizational change is much slower. Westerman (2019) argued that digital transformation is less of a digital problem than it is a transformation problem, and less a technology problem than it is a leadership problem. In addition, the prerequisite for technology to provide value to an organization is that the organization must change the way it works to make that happen (Westerman, 2019). In general, digital transformation is the integration of digital technology into all areas of a business, fundamentally changing how the company delivers value to customers (What is Digital Transformation, 2021). There are three phases of digital transformation: digitization, digitalization, and digital transformation (Verhoef et al., 2019).

Digitization is the process of converting analog information into a digital (i.e. computerreadable) format. The digitized data are in a numeric format, which facilitates processing by computers and transmitting of information (Dougherty & Dunne, 2012; Loebbecke & Picot, 2015; Tan & Pan, 2003; Yoo, Henfridsson, & Lyytinen, 2010). Digitalization is the use of digital technology to change business models. It is the process of applying digital technologies to optimize existing business processes to achieve more efficient coordination between processes and to create additional customer value through enhanced user experience (Pagani & Pardo, 2017).

Digital transformation describes a company-wide change that alters business activities, processes, and products, leading to the development of new business models (Iansiti & Lakhani, 2014; Kane et al., 2015; Pagani & Pardo, 2017) that create and capture value (Pagani & Pardo, 2017; Zott & Amit, 2008). It utilizes digital technologies to enable cross-border interactions with suppliers, customers, and competitors (Singh & Hess, 2017). Consequently, a firm can gain a competitive advantage by transforming the organization to leverage existing core competencies or develop new competencies (Liu, Chen, & Chou, 2011).

Approaches of Digital Transformation

There are basically two approaches of digital transformation: (1) Technology-driven approach, and (2) People-driven approach.

1. Technology-driven approach

   This approach is the most common framework for how companies execute digital transformation. An organization is drawn to the features of the software or technologies and try to implement them in its operations. The drawback of this technology-driven approach is that it is a top-down approach that focuses on features rather than solutions. The organization does not engage employees in the digital transformation process. Furthermore, the organization does not collaborate with employees in designing and developing digital services aimed to improve customer experience (Talin, 2021).

2. People-driven approach

   This approach is the complete opposite of the technology-driven approach. It puts software and technology in the background, focusing on getting people to explore possible solutions and empowering employees to rethink the organization's digital transformation process. The essential features of this approach are education of workers and their freedom to express their thoughts. It is also a cultural approach where the organization focuses on changing the culture to accommodate new technologies (Talin, 2021; Bonnet & Westerman, 2020).

   Impact of COVID-19 on Digital Transformation

   According to a global survey of executives conducted by McKinsey & Company (LaBerge et al., 2020), the COVID-19 crisis sped up the change in the way companies across industries and regions do business from years to just a few months. During the pandemic, consumers shifted dramatically to online channels, and companies responded accordingly. McKinsey's findings also show that the pandemic accelerated global digital transformation by three years. Even more surprising is the speed at which digital or digitally enhanced offerings can be created. The results reflect an average of a seven-year increase in the rate at which companies develop their products and services.

   In addition to the customer-facing elements of organization operating models, respondents to the McKinsey survey reported similar accelerations in the digitization of their core internal operations such as back-office, production, research and development processes and interactions in the supply chain. Companies reacted to a range of COVID-19-related changes much faster than the digitalization across the business (LaBerge et al., 2020). Respondents were asked how long it would have taken them to implement the changes and how long it actually took. Table 1 shows that, for many of these changes, companies responded 18 to 25 times faster than expected (acceleration factor). In the case of remote work, it is not surprising that companies reacted 43 times faster than they thought possible before the pandemic (LaBerge et al., 2020).

   The McKinsey survey also reported the acceleration factor for some industry-wide changes affected by COVID-19 (LaBerge et al., 2020). Table 2 shows that increasing customer demand for online purchases or services was 27 times faster than expected before the pandemic. Changing customer expectations was 24 times faster and increasing use of advanced technology in business decision making was 23 times faster.

   While respondents to the McKinsey survey implemented changes as a response to the pandemic, they took a long-term view when making these crisis-related changes. For retail companies in particular, the need to work and interact with customers remotely requires investments in data security and accelerated migration to the cloud. Because those investments have been made, these companies permanently shifted to virtual interactions. Respondents also expected such technology-related changes, along with remote work and customer interactions, would continue in the future (LaBerge et al., 2020).

   ELEMENTS OF A SUCCESSFUL DIGITAL TRANSFORMATION

   Most organizations need to have proper digital...