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This is the PREPRINT of the article available at:
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Danuso, A., Giones, F. and Ribeiro da Silva, E. (2021) ‘The digital transformation of industrial players: A guide’,
Business Horizons. doi: 10.1016/j.bushor.2021.04.001.
The digital transformation of industrial
players, a guide for a long journey
Anna Danuso (anna.danuso@marsh.com)a
a Marsh Italia S.p.A, Viale Luigi Bodio 33, 20158, Milano, Italy
Ferran Giones (ferran.giones@eni.uni-stuttgart.de) b, c *
b University of Southern Denmark, Alsion 2, 6400-DK, Sønderborg, Denmark;
c University of Stuttgart, Pfaffenwaldring 19, 70195, Stuttgart, Germany
*Corresponding author
Elias Ribeiro da Silva (elias@iti.sdu.dk) b
b University of Southern Denmark, Alsion 2, 6400-DK, Sønderborg, Denmark
Abstract
Digitization is transforming the industrial landscape. Smarter products, data-based
services, and new business models promise to reshape the whole manufacturing industry.
However, below the visible excitement, unexpected tensions and challenges make the digital
transformation an excruciating journey for industrial companies. In this article, we decipher
the digital transformation strategy choices of leading industrial firms in a highly innovative
country. We identify four dominant tensions that managers need to sort out to advance in their
digital transformation. We introduce a framework to help managers navigate through the
choices in their industrial digital transformation strategy.
Keywords
Digitalization, Digital Transformation, Tensions, Industrial firms, Business Model
This is the PREPRINT of the article available at:
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Danuso, A., Giones, F. and Ribeiro da Silva, E. (2021) ‘The digital transformation of industrial players: A guide’,
Business Horizons. doi: 10.1016/j.bushor.2021.04.001.
1
1. THE ELUSIVE DIGITAL TRANSFORMATION OF INDUSTRIAL
PLAYERS
The promise of the digital transformation of industrial players has captured headlines
during the last years. It pledges to create new market opportunities, drive new product
innovations, improve flexibility in production processes, and overall efficiency (Vial, 2019).
However, managers reported that more than 70% of digital transformation projects fail
(Saldanha, 2019). Even more, we observe with surprise that iconic industrial companies are
struggling to find a path. The excruciating digital transformation at General Electric (GE) is
probably one of the most notorious cases (Lanzolla et al., 2020). In 2010, the large industrial
conglomerate was expecting to become a software giant, in the words of their CEO, by 2020
(Giones, 2018; Moazed, 2018). They buffed up a new business unit, GE Digital, with some of
the best software developers in Silicon Valley. GE Digital wanted to push forward their Predix
software platform. Predix was expected to be the generative core of the digital transformation,
not only across GE business units but beyond, it was meant to drive “the industrial internet” in
all the verticals where GE was active (Lohr, 2018). Instead, GE Digital became a black hole
that absorbed resources (with over 2,000 developers and expenses above $2 billion in 2018),
created internal tensions, and ended up being a massive public failure for the company (Lohr,
2016, 2018).
Fortunately, not all industrial giants have had such painful journeys, for instance,
Siemens AG is touted as a successful case of digital transformation (Denton, 2021). The
German industrial conglomerate built a “Vision 2020” with the ambition to redefine the whole
customer’s value chain, integrating new operating modes and a new ownership culture in the
emerging digital industrial markets (Collis & Junker, 2018). Their vision aimed for an internal
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Danuso, A., Giones, F. and Ribeiro da Silva, E. (2021) ‘The digital transformation of industrial players: A guide’,
Business Horizons. doi: 10.1016/j.bushor.2021.04.001.
2
transformation paced alongside the transition of their industrial manufacturing clients into a
digitalized context.
So, a puzzling question emerges, what is unique about the digital transformation that
explains such divergent paths and outcomes? Most industrial players have the opportunity to
leverage their strong market positions, limited competition, and technology knowledge. It is
not clear whether this is a problem of the internal capabilities of the company, their logics and
routines (Hinings et al., 2018), or their inability to respond to market and technology changes
(Lucas & Goh, 2009). To address the existing paradoxes in the digital transformation of
industrial actors we explore the following question: What are the tensions that industrial players
need to solve in their digital transformation strategy?
We combine insights from the extreme cases of digital transformation at industrial giants
(namely GE and Siemens), with interviews and observational data from a multiple-case study
on industrial players at one of the most innovative countries of the world. The result is the
identification of four key tensions that define a framework with different possible
configurations for the digital transformation strategy. The framework provids useful insights
to companies embarking on such initiatives, helping to potentially avoid falling into the same
traps that others have experienced in recent years.
We start the article with a short review on the background concepts that help to
understand the tensions behind the digital transformation; we continue with a description of
the study cases and of the dimensions that define the framework, we end with a discussion on
the implications for managers with specific suggestions for further action.
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Danuso, A., Giones, F. and Ribeiro da Silva, E. (2021) ‘The digital transformation of industrial players: A guide’,
Business Horizons. doi: 10.1016/j.bushor.2021.04.001.
3
2. DIGITALIZATION AND DIGITIZATION IN THE INDUSTRIAL
CONTEXT
The term digitalization is used to describe the increased use of digital technologies and
how they permeate across the firm’s products and activities (Björkdahl, 2020). Not to be
confused with digitization, the process by which information gets encoded in a digital
representation that allows for analysis and algorithmic manipulations (Adner et al., 2019).
Although both processes have paved the scenario in which industrial firms operate right now,
they are the source of distinct challenges.
Digitization has made the headlines with the disruptive impact of new entrants in
industries such as music (e.g., Spotify) and entertainment (e.g., Netflix), those new entrants
have not only increased rivalry but accelerated the transition to the digital production and
consumption of music and entertainment products. However, in the industrial manufacturing
context, digitalization, more than digitization, has been in the spotlight (Björkdahl, 2020). In
the last years, manufacturers have been experimenting with the integration of digital
technologies such as IoT, automation algorithms, cloud computing, or software-as-a-service
(SaaS) in their internal production processes, products, and/or services (Isaksson et al., 2017).
So far, the lessons learned show that digitalization in the industrial context is a synonym
of disruption of existing business models, puzzling new management challenges, and a myriad
of complex internal and structural changes, affecting the whole organization and its operations
(Urbach & Röglinger, 2018). Again, the case of GE is a warning for oversimplistic or over-
optimistic views on the digestion of a complex transformation process.
To summarize, the excitement around digitalization opportunities does not have a
straightforward translation into executable strategies. The big question is how innovating with
This is the PREPRINT of the article available at:
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Danuso, A., Giones, F. and Ribeiro da Silva, E. (2021) ‘The digital transformation of industrial players: A guide’,
Business Horizons. doi: 10.1016/j.bushor.2021.04.001.
4
digital technologies can contribute to strengthening the competitive position, and at the same
time move forward in the digital transformation ambitions.
3. CAPTURING VALUE IN THE INDUSTRIAL DIGITAL
TRANSFORMATION
Little can be argued against the idea of introducing digital technologies to create new
products and/or services. The new smarter and connected products can generate, capture, and
share data; opening opportunities for new capabilities and functionalities, potentially creating
added value to the customers and users of such products (Porter & Heppelmann, 2015). Plus,
including services to otherwise transactional products is an attractive option for industrial
players to respond to competition (Porter & Heppelmann, 2014). This has however
implications that go beyond the sphere of product innovation. Taking the perspective of the
business model, it requires to find how new potential benefits (e.g., predictive maintenance,
intelligent detection of efficiency gains in operations management or assets management)
strengthen the customer relationship or reinforce existing value propositions. Finally, this shift
also entails broadening the value creation and capturing perspective to consider how the whole
ecosystem reorganizes its activities in this new scenario (Cennamo et al., 2020; Urbach &
Röglinger, 2018).
Thus, in this potentially unbounded transformation, how can established players steer the
transformation to remain competitive? In general, we would expect that established
incumbents, in our case industrial actors, would have an advantage vs. new entrant, they should
be better positioned than new entrants to capture the additional value that the new technological
innovation could create (Markman et al., 2019). Building upon prior research on innovation
value appropriation, we would anticipate that firms that control the customer relationship, the
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Danuso, A., Giones, F. and Ribeiro da Silva, E. (2021) ‘The digital transformation of industrial players: A guide’,
Business Horizons. doi: 10.1016/j.bushor.2021.04.001.
5
intellectual property, and the complementary assets would profit from new technology
innovations effectively retaining and consolidating their market position (Jacobides et al.,
2006; Teece, 2018).
This should be the situation for many of the global industrial players (e.g., GE, Siemens,
ABB, Honeywell, Bosch…). Instead, their digitalization (or failed attempts) has been one of
the most fascinating management stories, captured in study cases (see Collis & Junker, 2018)
and making newspapers’ headlines (see Lohr, 2018). Most of these large players struggled to
find how to navigate this new context (Moazed, 2018). What was expected to be a new revenue
source for the large industrial players has become a battlefield where new entrants have found
and exploited new markets. Companies like UpTake or C3.ai have proven that they could
outplay some of these large players offering predictive maintenance solutions to large utilities
or oil & gas companies (Giones, 2018). These new entrants have been able to quickly deliver
nimble digital tools addressing clear business problems, something essential in a digital
innovation context (Davenport & Westerman, 2018) where size and structure do not always
contribute to advance in the digital transformation process (Björkdahl, 2020).
In short, the digital transformation of industrial players can be an exciting journey, it
opens a unique opportunity to transform the organization, internally but also externally.
However, the absence of references or guideposts on how to approach this process can be
daunting given that most past journeys have failed to reach their destination (Davenport &
Westerman, 2018; Saldanha, 2019). Our ambition is to provide some guidance by identifying
the tensions that need to be solved to progress in the digital transformation, and the
consequences of the choices made to overcome each of the tensions.
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Danuso, A., Giones, F. and Ribeiro da Silva, E. (2021) ‘The digital transformation of industrial players: A guide’,
Business Horizons. doi: 10.1016/j.bushor.2021.04.001.
6
4. DIGITAL TRANSFORMATION IN INDUSTRIAL PLAYERS: TENSIONS
THAT REQUIRE CHOICES
Undoubtedly, digital transformation is a global phenomenon, however, to extract unique
insights on how industrial players are approaching this process, we chose to narrow down our
perspective and study the intricacies of the strategy choices behind this process. We decided to
engage a group of leading industrial actors in a small but very innovative country. We
approached Danfoss, Grundfos, and Linak in Denmark; the three firms combine for a total of
12 bn USD in revenues and over 50,000 employees in 2019. Although different in size, each
company is specialized in a global industrial market, covering from power to water
management. The three are market leaders in their core business segment; Danfoss in the
control devices of electric motors and hydraulic systems, Linak in electric linear actuators, and
Grundfos in water pumps. They are at the forefront of the Danish industry digital
transformation, a region that has consistently been ranked among the top-10 innovative
countries in the world
1
. We assume that these firms’ global exposure and high regional
innovativeness will uncover insightful paths for the digital transformation of industrial players.
We collected data from financial reports, news articles, company visits, and interviews
with managers involved in the digital transformation at different management levels (from top
management to digitalization project leaders). We built company cases with the data and
extracted the more prevalent tensions across the cases. After discussing the preliminary
findings with other researchers and contrasting the insights with the managers, we abstracted
four dominant tensions that shaped the digital transformation strategy: (1) the clash between
the hardware and the software logic, (2) the depth and intensity of the business model change,
1
https://www.weforum.org/agenda/2020/02/most-innovative-economies-global/
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Danuso, A., Giones, F. and Ribeiro da Silva, E. (2021) ‘The digital transformation of industrial players: A guide’,
Business Horizons. doi: 10.1016/j.bushor.2021.04.001.
7
(3) the desired outcome dichotomy: efficiency vs. business transformation, (4) the
transformation scope: broad vs. narrow focus. Each of the tensions presents a duality, the
response (choice) to each duality shapes the direction of the overall transformation process.
Next, we describe and illustrate with selected quotes from the interviews each of them.
4.1. The clash between the hardware and software development logics
Digital technologies are strongly associated with the software development logics,
programmability and mutability are natural aspects. Rooted in the socio-materiality
perspectives (Orlikowski, 2010), these technologies often find their most valuable applications
through cycles of iterations and refinement of their function. This working logic is the anthesis
of the hardware engineering principles that are engraved in the pillars of industrial players. The
engineering hardware development builds around having a finished product with the quality
and reliability standards that reinforce the market position of the company. The software logic
antagonizes these principles giving priority to speed to market and incorporates upgrades as a
normal correction mechanism for underperforming features when the product is already in the
hands of the customer.
This is a clash of working logics that illustrates the need to resolve this tension by
establishing transition periods, safe experimentation spaces, and tolerance boundaries where
the two logics can co-exist while embedding software in the hardware. In the words of one of
the managers that had already been working for more than a year at the Digital Transformation
Office in Grundfos “I think there are a lot of issues to solve like changing the technology and
hardware foundation to a software and user-experience-driven company”.
4.2. High or low? Adjusting the depth and intensity of the business model change
Similar to the challenge of adjusting the thermostat to make sure everyone is comfortable
in the office, finding the right intensity on the business model shift requires the same dynamic
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Danuso, A., Giones, F. and Ribeiro da Silva, E. (2021) ‘The digital transformation of industrial players: A guide’,
Business Horizons. doi: 10.1016/j.bushor.2021.04.001.
8
balance. The challenge is how to transition from the industrial product paradigm to the new
service-based business models without alienating your customers or your organization. Some
of the organizations decide to run these alternative business models in parallel, see for instance
how Rolls-Royce has been offering their power-by-the-hour service
2
, other organizations chose
to still keep the different business models inside the same business division. For instance,
customers from Grundfos can now contract “pump-as-a-service” or “water-as-a-service”, but
also still purchase and own their water pumps and service maintenance from Grundfos.
Interestingly, trying to switch to fast to the digital model is what, at least for some
industry insiders, ended up putting the whole GE Digital project in danger (Lohr, 2018). Try
to move the organization too fast to the new service models and it can crack, go too slow, and
your risk having competitors or new entrants stealing part of your business.
The leader of one of the business units at Danfoss explained their approach to find an
equilibrium: “we started thinking of business models in terms of what we provide as a service
to the customer on top of the physical product that we sell”, being aware that “we have a lot of
data that we can convert into valuable insights, which can be used as a value proposition for
the customers”, but understanding that there is a need for an initial common ground “the
ambition (is) connecting products and solutions”, to then slowly introduce, and hopefully
exploit, the service-oriented business models.
4.3. Defining the outcome: efficiency vs business transformation
One of the most surprising aspects of digital transformation is that is a journey without a
fixed destination. It is different from digitization projects like implementing an enterprise-wide
ERP. The absence of a clear end, make this journey challenging for those overseeing it, how
do you manage this process when the destination is not fixed, and the metrics are hard to define?
2
https://www.rolls-royce.com/media/our-stories/discover/2017/totalcare.aspx
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Danuso, A., Giones, F. and Ribeiro da Silva, E. (2021) ‘The digital transformation of industrial players: A guide’,
Business Horizons. doi: 10.1016/j.bushor.2021.04.001.
9
While most of the digitization initiatives have had a target to introduce digital technologies that
can help to save costs and improve overall operating efficiency (Saarikko et al., 2020), the
current digitalization wave proposes to open up for a broader business transformation.
As a result, there is a tension between the alternative possible end goals of the digital
transformation process. Should the organization give priority to digital innovations that
generate productivity improvements? Or, should the organization prioritize projects that
imagine new possible business opportunities where the organization takes a different role in
their ecosystem leveraging the data that the devices in their products collect?
In the cases we studied, we observed significant differences in how to deal with this
tension. On one extreme, Linak was focused on efficiency, as one of their managers clearly
expressed: “a top goal for Linak is to be more cost-effective and that is why we do
digitalization, … there's a huge potential within digitalization that we need to unlock”. On the
other extreme, the Digitalization leader at Grundfos explained how they were stepping up their
role as responsible for the water supply of a city in collaboration with the municipal utility
company. While both future outcomes are non-exclusive, in the short-term, they might be
incompatible for most organizations, forcing the desired outcome choice between efficiency
and transformation.
4.4. Calibrating the organizational scope: broad vs narrow focus
The perception of what digital transformation means for an industrial organization is
behind the distinctly visible responses. Some companies see it as a broad organizational
change, others see it as a business unit or division challenge. As a result, for some of the
industrial players, the digital transformation means to rethink the future of their production and
operations management, see for instance Linak’s approach “we have a new strategy called
digital production where the aim is to digitalize to reduce operating costs”, this is part of
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Danuso, A., Giones, F. and Ribeiro da Silva, E. (2021) ‘The digital transformation of industrial players: A guide’,
Business Horizons. doi: 10.1016/j.bushor.2021.04.001.
10
upgrading their production capabilities: “the goal is to take the company to the next level being
inspired by what is happening with industry 4.0”. This leaves out, or at least in a second level,
to invest in exploring what digitalization means for the products or services their customers are
using.
On the opposite side, Danfoss took a much holistic approach. The company has already
been battling through the implementation of a shared ERP system for the whole organization,
these first steps in digitizing processes might have contributed creating a digital vision as
discussed by one of their senior Digitalization Managers: “the topic came for the whole group
about three years ago (2016) when the former CEO put it on the agenda in one of the Global
Management meetings”. Since then, the company has pushed all business units and divisions
to explore how the digital transformation can and should change their business.
5. A CONFIGURATION FOR DIGITAL TRANSFORMATION
As we took a step back from the studied cases, we realized that interestingly each
organization had made slightly different choices that configured their approach to digital
transformation. So, instead of insisting on the importance of considering and engaging in this
change process, as it is already evident that this is on the table for most managers of industrial
manufacturing firms (Björkdahl, 2020; Butschan et al., 2019; Cennamo et al., 2020; Saarikko
et al., 2020), we choose instead to propose an identification of possible strategies that could all
work, but that needs to fit with the overall strategy of the company.
Combining the insights from both the cases we reviewed as part of our initial exploration
on the topic (General Electric and Siemens), and the data from the case studies we presented
(Grundfos, Danfoss, and Linak), we identified four different strategies to approach the digital
transformation of industrial players (see Figure 1).
Figure 1. Choices that solve the tensions and shape the Digital Transformation strategy
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Danuso, A., Giones, F. and Ribeiro da Silva, E. (2021) ‘The digital transformation of industrial players: A guide’,
Business Horizons. doi: 10.1016/j.bushor.2021.04.001.
11
The visual representation of the choices illustrates the differences in the industrial actors’
approach to their digital transformation, and how those result in substantially different
strategies. For instance, the explosive approach seems to be working well for ABB as it had
already in place the software baseline that allowed it to take an aggressive approach that did
not bode well for GE (at least until now). Similarly, the decisive vision of Grundfos has helped
to mobilize the company around a digital transformation office that is meant to disappear once
the whole company has been permeated with the new logic, but the flexible roll-out has helped
to mitigate the hardware vs software clash. Interestingly, companies like Siemens and Danfoss
seem to have found that a distributed approach had a better fit with their organizations,
probably avoiding the problems that an explosive adoption could have created in their rather
heterogeneous portfolio of products and services. Finally, the reactive strategy adopted by
Linak fits well in a context where the market is still cost-driven, serving mature markets where
users are not yet pushing for digitalized solutions.
Our results highlight that there is not only one path towards digital transformation. Thus,
we propose to move below the surface to encourage managers to consider how to navigate the
transformation process taking into account the company position, resources, and market
Scope
Distributed
Reactive
Dominant logic Busines Model
change
Priority
outcome (goal)
Narrow
Broad
Hardware
Software
Low intensity
High intensity
Cost Efficiency
Business
Trans for mat ion
•Internal transformation as initial focus, focus on
data and connectivity within the company and the
existing products.
•Exploration of alternative business models as
response to customer demands
Case: Linak
•Embraces the whole company.
•Pushes digital platform for all the units.
•Fast transition expected but with a period of
weak revenues and high costs for the new BMs.
Cases: General Electric
•Embraces the whole company but flexible roll-out.
•Prioritizes shared platform for all products and
services.
•Aggressive exploration of new digital BM.
Case: Grundfos
•Responsibility at business unit level
•Each unit developed its own strategy and transition,
sharing some common digital a ssets.
•Business Model co-evolves with customer demands.
Cases: Siemens, Danfoss
Explosive
Decisive
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12
dynamics. We suggest that by understanding the different types of underlying tensions,
managers will be better equipped to make the necessary choices (and adjust them) as they set
the direction of their digital transformation. Given that this is likely to be a long transformation
process, predicting the final destination might not be as important as making sure that the
organization finds a balance to overcome the inherent tensions that will emerge in the journey.
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