Digital Transformation: How to Scope and Execute Strategy

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5 key steps to a successful business transformation

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Digital transformation success: Best practices in strategy and execution

Download the Gartner IT Roadmap for Digital Business Transformation for your guide to:

  • Best practices based on the experience of thousands of organizations across industries and sectors
  • The sequence of objectives and desired outcomes
  • Five key phases of transformation: Ambition, design, deliver, scale and refine.

Also scroll down for instant insights on targeting digital transformation vs. digital optimization, digital strategy and business models.

How to plan and execute digital transformation

To deliver financial outcomes from digitalization, define your digital ambitions and use a rigorous framework to plan and execute strategy.

Define your digital ambition with the optimal mix of digital initiatives

Digitalization isn’t a monolithic strategy. The executive team must frame its digital ambitions to set strategy — defining the type and extent of desired business outcomes. This is what drives investment priorities and the relative timing of digital initiatives.

Outcomes from digitalization fall into two broad categories:

  • Digital optimization outcomes from improving existing processes and customer experiences

  • Digital transformation outcomes from reinventing how the organization serves its market through net-new products, services or business models

Optimization and transformation do not present a binary choice. The most successful digital ambitions and their resulting digital strategies include an optimum mix of both types of initiatives across functions and business units. Despite the hype about “digital transformation,” it is rare for a traditional enterprise to fully transform. Wholesale attempts to do so often fail.

A more successful digitalization strategy pursues transformation and optimization in parallel: Focus on digital business transformation initiatives in a small number of high-potential product/service lines, business units or corporate functions; and digital business optimization initiatives to achieve nearer-term benefits in complementary functions.

How heavily a given organization weighs each depends on a number of factors, including the state of disruption in that industry and on the organization’s culture.

For instance, those operating in stable industries without signs of imminent disruption should prioritize optimization, as transformation risks becoming an expensive distraction too far ahead of customer adoption. By contrast, those operating in disrupted sectors must prioritize transformation in key business areas, as waiting risks irrelevance, leading to the erosion of revenue and margin. 

Enterprise culture also influences the mix of optimization and transformation initiatives. More aggressive companies often select a bolder digital transformation path because they want to be early adopters — about 30% of CEOs push this approach, according to the 2020 Gartner CEO and Senior Business Executive Survey. Average companies may instead pursue an optimization path. 

Late-adopter companies may do neither, and instead take the approach of digital technology enablement by implementing digital technologies such as cloud, SaaS, APIs or digital channels. This approach results in more IT capability without true optimization or transformation.

Leverage digitalization to improve or optimize the business

Digital business optimization involves improving or optimizing current revenue streams, operations or customer experiences without changing the organization’s core value proposition or business models. Optimization initiatives can provide significant near-term benefits, which can be as valuable as digital transformation initiatives with less risk.

Most enterprises weigh their digitalization mix in favor of optimization, which creates a foundation for future digital transformation.

  1. Improve existing revenue streams or citizen value. Examples include analytics and AI initiatives aimed at helping organizations to improve their demand/supply forecasts, and optimize prices and promotions. Digital marketing and sales technologies can also encourage larger or more frequent purchases or contract values. Digital customer service initiatives can lower the costs of delivering service while improving retention.

  2. Improve operating margins. Internet of Things (IoT) technologies can improve asset productivity. Augmentation and automation can improve employee productivity.

  3. Improve the workforce. Technologies like robotic process automation (RPA) can take on standard, repetitive tasks so that employees can spend more of their time on higher-value activities, thus allowing the organization to deliver more value with the same headcount.

  4. Improve CX. Digital technologies offer both customer-facing and back-office opportunities to improve CX. Digital customer channels, for example, enable self-service, which can increase speed and convenience for customers. IoT technologies that track the length of queues or the estimated time until a desired product is restocked on the shelves also provide more visibility into the issues customers care about. AI-based virtual assistants can also enhance how customers use a product — one of the primary factors contributing to customer satisfaction.

  5. Improve asset utilization and yields. Managing and getting the most out of physical assets can benefit from integrating operational systems with newer IoT technology and advanced analytics. Benefits include increased uptime, greater energy efficiency and predictive maintenance that extends the life of an asset. Financial assets can also perform better when enterprises leverage advanced analytics and AI to find opportunities that achieve higher yields from the same risk profile.

To get started with digital business optimization, select two to three outcomes from these focus areas at a time to prioritize. Many B2C and public-sector enterprises, for example, choose “improve customer experience” as their priority outcome, whereas industrials have “optimize physical assets” as theirs.

Digital transformation means entirely new business models or products

Organizations that embrace transformation want to do more with digitalization than just build a better version of their current selves. They want net-new opportunities — and possibly to disrupt the status quo — through new revenue streams, new digital products/services and new business models.

The emergence of a disruptive technology often triggers the need to prioritize transformation over optimization. Think of those disruptions as new market paradigms unfolding along an S-curve. At the bottom of the curve, a new technology or a major advance makes a new product, service or business model possible. That innovation experiences a stable period of growth until a still newer technology disrupts it, initiating a new paradigm and starting the cycle over again.

A good example of this dynamic is the music industry, which was one of the first markets forced to transform when Internet 1.0 enabled digital music, changing  listeners’ habits and annihilating the market for physical cassettes and CDs. Within 10 years, music consumers were primarily downloading MP3s in an a la carte business model that allowed for the economically viable sale of the whole (an entire album) and of its component parts (individual songs). When streaming capabilities emerged years later, listeners began consuming music and other audio products — like podcasts — through subscription-based businesses like Audible and Spotify.

Digital transformation initiatives aim to capitalize on that S-curve progression by capturing new revenue or value through:

  • Net-new digitally enabled products and services.

    Digital products
    allow established organizations with an existing installed base to add or capitalize on existing digital capabilities that transform their value proposition. For example, a white-goods manufacturer may develop a connected version of their washing machine that allows an owner to remotely adjust the water temperature or receive a notification when a cycle has finished. In commerce, a farm equipment manufacturer may add IoT sensors that analyze soil moisture, pH or mineral balance.

    Digital services
    may emerge as revenue opportunities after the business has connected its products. The same farm equipment manufacturer, for example, could develop a new revenue stream of data insights as value-added services. For example, by offering customized yield improvement analytics that marry details like local soil profile data (from the IoT sensors) with third-party climate data and proprietary yield patterns.

    Revenue-generating digital services aren’t just limited to physical products. Financial services such as wealth management leverage roboadvisors and other technologies to deliver a digitally enabled, low-fee alternative to one-on-one advising. In the public sector, mobile parking payment systems are automating the collection of government revenues while improving efficiency and convenience for users.

New digital business models

Digital technologies make new business models technically possible and financially viable, such as:

  • Metered, subscription or as-a-service models, such as pay-as-you-drive insurance or power-by-the-hour commercial equipment contracts.

  • Platform business models at which digital giants excel (e.g., Amazon Marketplace, Uber, Apple App Store) exist in many industries, including in finance and insurance models, that leverage P2P approaches (e.g., Prosper, Lemonade, Friendsurance) and industrial marketplaces (e.g., StationOne, the railway supplies marketplace).


Digital business models aim to capture novel value opportunities

Seventy-nine percent of strategy leaders expect their business models to fundamentally change as a result of digital technologies. Digital business models reflect how an organization creates, delivers and captures value based on four key dimensions:

  1. Value proposition. The value customers derive from a product or service.

  2. Customers. The customer segment served by the product or service.

  3. Capabilities. The physical and digital assets, people, culture, information sources and strategic partners that deliver the value proposition

  4. Finance. The revenue and cost models that capture economic value.

Yet few organizations perform business model assessments as a regular management exercise. Instead, they wait until major economic changes or disruptive competitors force change. In the context of digital transformation, it’s better to conduct a business model analysis to identify strengths, weaknesses and opportunities, and from them explore more effective strategies to create value.

As part of the analysis, assess gaps in the existing business model in core and noncore markets; assess environmental shifts likely to drive major industry changes; prioritize the most promising opportunities to develop future capabilities, leverage firm assets or to build technological capabilities.

Twelve digital business value model:

Examples of digital business models that may enable the organization to capture identified sources of value include the following:

Subscription model
Build a repeat customer base by charging a subscription fee for continued access to a product or service that is traditionally purchased ad hoc (e.g.,, Netflix, Ipsy, Dollar Shave Club).

Razor and blades model
Sell the base product at low cost while selling add-on or complementary components at a higher margin (e.g., Amazon Kindle, Nespresso, Sony PlayStation).

Ecosystem model
Sell an interconnected and interdependent suite of products and services that increase in value as more participants (buyers and sellers) engage with them (e.g., Apple, Google, Samsung and their app developer communities).

Access-over-ownership model
Provide temporary access to goods or services for participants in the rental and sharing economy (e.g., Airbnb, Spinlister).

Free model
Provide a product or service to users for free and earn revenue by monetizing user data through advertisements and insights (e.g., Facebook, Google, Snap Inc.).

Freemium model
Provide the basic version of a product or service for free and charge users for advanced features (e.g., LinkedIn, Dropbox, Hootsuite, AWS).

Digitalization model
Offer a traditionally physical product in a digital form (e.g., Spotify, Wikipedia).

Servitization model
Transform the product into a service and/or sell ongoing services in addition to the core product (e.g., Salesforce, Microsoft).

Online retailer model
Sell products or services directly to customers through a digital-only channel (e.g., Shutterfly, Ally Bank, Asos, Shopify).

Marketplace model
Bring buyers and sellers together in return for a transaction fee or commission (e.g., Amazon, Uber, Airbnb).

Custom supplier model
Design, produce and distribute customized products and services (e.g., Shutterfly, Skin Inc.).

Gamification model
Use game mechanics and experience design to digitally engage with customers (e.g., Fitbit)


  1.  Evaluate results to assess whether the results appropriately support the original vision. The results may begin a new cycle of execution that should begin by validating that the digital strategic vision is still appropriate for the needs of the organization. The evaluation should include program portfolio progression, program investment (financial), program objectives and program performance (e.g., value realization, end-state metrics).
  2. Learn what has worked and what needs adjustment. Change plans or outcomes accordingly. Capture new opportunities for development and improvement and establish targets for them.

Ensure minimum viable outcomes with agile digital execution

Success with digital business transformation demands a more agile mindset, since more traditional models often smother digital initiatives. An adaptive program management framework allows execution teams to deliver transformation-level planning and control while prioritizing speed and adaptability.

Six steps to digital business execution

  1. Envision the end state of the program by developing a shared vision, establishing sponsorship, communicating a transformation message and preparing a blueprint of the end state.

  2. Sequence the priority initiatives and the order in which they will get done. Include how far and how fast your enterprise can move by understanding the environment, establishing program support, defining a program governance framework, determining financial delegation authority (FDA) structure for transformation.

  3. Create/build the transformation or complete the initiative through a set of iterations led by program officers and project leaders who conduct program risk assessments, review program oversight and initiative assessments and review predictive measures.

  4. Engrain change in the organization with each create/build iteration in order to ensure adoption and overall success of the program. To do so, review the organizational change management strategy and plans, monitor enterprise performance and transition services to new service providers, where relevant.

5. Evaluate results to assess whether the results appropriately support the original vision. The results may begin a new cycle of execution that should begin by validating that the digital strategic vision is still appropriate for the needs of the organization. The evaluation should include program portfolio progression, program investment (financial), program objectives and program performance (e.g., value realization, end-state metrics).

6. Learn what has worked and what needs adjustment. Change plans or outcomes accordingly. Capture new opportunities for development and improvement and establish targets for them.


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Frequently asked questions on digitalization

Digital is the representation of physical items or activities through binary code. When used as an adjective, it describes the dominant use of the latest digital technologies to improve organizational processes, improve interactions between people, organizations and things, or make new business models possible.

Digitization (vs. digitalization) is the process of changing from analog to digital form, also known as digital enablement. In short, digitization takes an analog process and changes it to a digital form without any different-in-kind changes to the process itself.

Digitalization (vs. digitization) is the use of digital technologies to change a business model and provide new revenue and value-producing opportunities; it is the process of moving to a digital business.

Digital optimization is the process of using digital technology to improve existing operating processes and business models.

Digital business is the creation of new business designs by blurring the digital and physical worlds.

Digital transformation can refer to anything from IT modernization (for example, cloud computing), to digital optimization, to the invention of new digital business models. In public-sector organizations, digital transformation is often used to refer to modest initiatives such as putting services online or legacy modernization in a move toward digital government.” (This is more like “digitization” or “digital optimization” than “digital business transformation.”)

Digital business transformation is the process of exploiting digital technologies and supporting capabilities to create a robust new digital business model.

Digital commerce enables customers to purchase goods and services through an interactive and self-service experience. It includes the people, processes and technologies to execute the offering of development content, analytics, promotion, pricing, customer acquisition and retention, and customer experience at all touchpoints throughout the customer buying journey.

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