Eindhoven University of Technology

MASTER

Innovating business capabilities

diffusing digital transformation strategy into process developments

de Wit, W.

Award date:
2016

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Innovating Business
Capabilities
Diffusing Digital Transformation
Strategy into Process
Developments

By Wouter de Wit

Supervisors
Dr. Ir. B. Walrave TU/e ITEM
Dr. T.J.G. Peeters TU/e ITEM
T. Offerman MSc

TU/e School of Industrial Engineering

 Eindhoven, October 2016

Innovating Business Capabilities

Diffusing Digital Transformation Strategy into
Process Developments

by Wouter de Wit

BA Liberal Arts & Social Sciences

Student number: 0853235

in partial fulfilment of the requirements for the degree of

Master of Science
in Innovation Management

Supervisors:
Dr. Ir. B. Walrave, TU/e, ITEM
Dr. T.J.G. Peeters, TU/e, ITEM

Company Supervisor
T. Offerman MSc.
TU/e School of Industrial Engineering

Series Master Theses Innovation Management

Subjects: Business Strategy, Enterprise Planning

“Direction is more relevant than speed.

Many are going nowhere fast.”

ii
Management Summary

Due to the beneficial aspects of digital technologies, organizations are transforming themselves
digitally (Berman, 2012; Westerman, Bonnet, & McAfee, 2014). The digital transformation is explained
as the implementation of digital technologies to improve the customer experience, operational
processes and the business model. (Matt, Hess, & Benlian, 2015; Westerman et al., 2014). For each
organization, the digital transformation is different. Westerman et al. (2014) argues that the types of
digital transformation strategies depend on the digital and leadership proficiencies of an organization.
Improving the digital proficiency is achieved by integrating technologies into the daily operations. The
leadership proficiency is strengthened by establishing a clear vision and governance structure within
the organization. Combining the digital and leadership proficiencies, organizations can be classified
according to four levels of digital mastery: Beginners (low levels of digital and leadership proficiencies),
Conservatives (low levels of digital proficiency, high levels of leadership proficiency), Fashionistas (high
level of digital proficiency, low level of leadership proficiency) and Digital Masters (high levels of digital
and leadership proficiency). While a lot is known about the digital transformation, further research
needs to be performed to understand how digital transformation strategies translate into a structured
development process (Matt et al., 2015). Using an explorative multiple case study research, this study
investigates how business capabilities diffuse digital transformation strategies into process
developments.

Business capabilities are defined as the ability of an organization, system or person to generate a
defined output (Fleischer, Herm, & Ude, 2007). Business capabilities could facilitate the translation of
digital transformation strategies as they are generic across companies, stable across time (Beimborn,
Martin, & Homann, 2005) and facilitate the development of a common language across the
organization (Scott, 2009). An example of a business capability is: The management and development
of human capital (APQC, 2016). Using this example, stability is explained by arguing that in the past
century, every organization was required to hire and develop their employees. Due to the level of
abstraction of business capabilities, they are generic across all firms. Every firm for example manages
their product development, procurement and sales strategies. This allows for a generic and common
understanding when using the business capability concept. The advantage this develops is that it
facilitates the strategic discussions between the business and IT, and at different levels across the
organization (Brits, Botha, & Herselman, 2007; Scott, 2009).

Business capabilities are classified according to their level of uniqueness and collectiveness (Hafeez,
Malak, & Zhang, 2007). Uniqueness is explained as the extent to which a capability is distinctive

iii
compared to the competition. It can be measured through the level of imitability, substitutability and
transferability (Barney, 1991). Collectiveness is explained as the extent to which the capability is
integrated across the organization (Hafeez et al., 2007). These measures include the implementation
across functions, across products and across the business. Classifying the business capabilities
according to uniqueness and collectiveness allows the research to develop business capability
classification matrix (Figure 1) consisting of four distinct categories: core, strategic supporting,
business essential and business necessity business capabilities (Scott, Cullen, & An, 2010).

Figure 1 - Business Capability Classification Matrix

To obtain a better understanding how the digital transformation strategies diffuse into business
capabilities, the research decomposed a business capability into four distinct domains, namely:
organizational, process, data and technology (Iyer & Gottlieb, 2004). Using these business capability
domains allows the research to report the development changes for each specific business capability.

Using a multiple case study approach (Eisenhardt, 1989), the research depicts the digital
transformation strategies across 7 cases using the business capability classification matrix. For the four
levels of digital mastery, the analysis sketches digital transformation strategies using the current
situation, the desired situation and the areas of improvement using business capability classification
matrix. Afterwards, the areas of improvement for the business capability managing information
technology are diffused into the four distinct business capabilities domains.

Matt et al. (2015) states that further research is necessary to understand how digital transformation
strategies can be translated into process developments. To answer this question, the research explores
how business capabilities enable the transition from a digital transformation strategy to process
developments. By conducting this research, it can be argued that business facilitate the transition
from a digital transformation strategy towards development processes. Using the business capability
classification matrix, made it possible to identify the areas of improvement through the current and

iv
desired situation. Using the areas of improvement it became possible to assign the improvement
activities to the different business capability domains. The research identifies that the uniqueness and
collectiveness of a business capability varies over time. Results indicate that the uniqueness of a
business capability dependents on external and internal factors like market competition, new trends
and technological developments. The level of collectiveness is largely reduced by internal factors.
These factors include acquisition, rapid growth or due to long periods of stability. To investigate how
the business capabilities are diffused into the process development, the research used the four
business capability domains. Based on the results, diffusing the generic business capabilities into
specific business capability domains is related to the shifts in uniqueness and collectiveness. Central in
development of uniqueness is the technology domain. For collectiveness, the developments are mainly
located within the organization and process domains. While technology can help increase the
collectiveness, its impact is of less relevance.

Through the research, several practical implications were generated. During the digital transformation,
organizations classified as Beginners should stay aware of industry changes and market trends to
maintain a stable position. In terms of their information technology business capabilities, beginners
can start their digital transformation by focusing on their organizational and technology domain.
Conservatives are recommended to start developing the information technology business capability to
support their customer experience and operational process developments for the core business by
redesigning their organization, process, data and technology domains. The research recommends that
Fashionistas use their information technology business capability to improve the collectiveness for
specific business capabilities. Using the information technology business capability to develop
collectiveness is likely to facilitate the flow of information and the cooperation between the distinct
business capabilities. To achieve this, Fashionista are recommended to restructure their organizational
and process domains. Once an organization has successfully undergone the digital transformation, the
next step should focus on sustaining the digital mastery status. By establishing a proactive approach
towards further digital innovations, Digital Masters are recommended to further develop their core
business capabilities themselves by experimenting with new methods and adapting the successful
technologies. To achieve this, digital masters should develop the organizational and technology
domain and make it flexible for experimentation.

v
Preface

December 2015 I had my first encounter with the concept of business capabilities. In the most basic
form business capabilities describe what an organization is capable of. Examples of business
capabilities are the management and development of human capital and the management of new
product development. An important aspect to understand about business capabilities is that they are
stable over time. After hearing this, things got interesting. During the problem generation I was asked
to provide an answer to the ultimate philosophical research question one could think of: How do you
innovate something that cannot be changed over time? To simplify the arguing for myself, I translated
the concept of business capabilities into human capabilities. Every human being has a similar set of
human capabilities which cannot be changed. Examples of human capabilities are arms, legs, ears,
brains and so on. Using this thought I asked myself: How have I innovated my human capabilities over
time to achieve a certain goal?

While my human capabilities have seen little change, I challenged my human capabilities every day put
them to use in a better or different way to achieve a desired goal. Overall the research allowed me to
improve my planning, communication, reasoning and writing skills. To achieve my desired goal, I was
required to innovate several human capabilities, and of course this would have not been possible
through the help of some people. Tyron, thank you for the open and enjoyable feedback sessions and
continuously challenging me to take the research to the next level. Bob & Katrin, thank you for
accepting the challenge and guiding me through the research process. Staying motivated and feeling
challenged throughout the time in Eindhoven would have not been possible without the help of some
friends. First I would like to thank Arvid, Do, Koen and Tijmen for the memorable days and evenings.
Thank you Stacy, Mary and Celia for the enjoyable late night philosophical discussions. Thank you
@OfficialGA18 for making me feel at home in Eindhoven and last but not least, a big thank you to the
family for providing me with the necessary support.

Overall, for anyone in the same situation, the best advice I can offer you is: The race is long, keep it fun
and diverse by doing one thing every day that scares you.

Wouter de Wit
Eindhoven, October 2016

vi
Table of Content
Management Summary ...........................................................................................................................iii

Preface..................................................................................................................................................... vi

1. Introduction ......................................................................................................................................... 1

2. Theoretical Background....................................................................................................................... 4

2.1. Classifying Business Capabilities................................................................................................... 5

2.2. Business Capability Domains ........................................................................................................ 7

2.3. Business Capability Conceptual Framework ................................................................................ 8

2.4. Business Capability Modeling ..................................................................................................... 10

3. Methodology ..................................................................................................................................... 11

3.1. Initial Sampling ........................................................................................................................... 11

3.2. Data Collection ........................................................................................................................... 12

3.3. Case Selection............................................................................................................................. 12

3.4. Case Descriptions ....................................................................................................................... 13

3.5. Data Analysis .............................................................................................................................. 14

4. Results ............................................................................................................................................... 17

4.1. Beginners .................................................................................................................................... 18

4.2. Conservatives ............................................................................................................................. 22

4.3. Fashionistas ................................................................................................................................ 26

4.4. Digital Masters............................................................................................................................ 30

5. Discussion .......................................................................................................................................... 34

5.1. Theoretical Implications ............................................................................................................. 34

5.2. Managerial Implications ............................................................................................................. 35

5.3. Limitations and Future Research ................................................................................................ 37

5.4. Conclusion .................................................................................................................................. 38

6. References ......................................................................................................................................... 39

Appendix A – APQC Cross-Industry Classification Framework .............................................................. 42

vii
1. Introduction

Business in every industry are influenced by the rise of digital technologies (Andal-Ancion, Cartwright,
& Yip, 2003; Berman, 2012; Westerman et al., 2014). Due to the high availability of technologies, a
well-planned digital transformation is necessary to remain competitive (Lanzolla & Anderson, 2008).
The digital transformation is defined as the implementation of digital technologies to improve the
customer experience, operational processes or the business model (Matt et al., 2015; Westerman et
al., 2014). During the introduction of the digital technologies, firms were capable of investing in most
digital opportunity like websites, software and mobile communication (Andal-Ancion et al., 2003). As
the availability of the digital technologies grew exponentially, organizations were unable to afford all
the developments, requiring them to be selective during their planning and development activities,
(Andal-Ancion et al., 2003; Matt et al., 2015; Westerman et al., 2014).

To remain competitive and achieve higher levels of profit, productivity and performance through a
digital transformation, Westerman et al. (2014) proposes that organizations need focus on the
development of their digital and leadership proficiencies. Digital proficiency of an organization are
related to the integration of digital technologies, while leadership proficiency relates to executing a
digital vision (Figure 2). Combining the digital and leadership proficiencies, organizations can be
classified according to four levels of digital mastery: Beginner, Conservatives, Fashionistas and Digital
Masters.

Figure 2 - Digital Mastery Classification (Westerman et al., 2014)

1
While Westerman et al. (2014) proposes that digital and leadership proficiencies are required for a
successful digital transformation, Matt et al. (2015) states that due to the recent appearance of digital
transformation strategies, further research needs to be performed to translate the digital
transformation strategies into a structured development process for both the business and IT. To
translate a digital transformation strategy into a structured development process, this research
proposes to use the business capability concept as a mediating tool to translate the strategic objectives
into structured development processes.

Business capabilities, defined as the organizations capacity to successfully perform a unique business
activity to achieve a specific outcome (Beimborn et al., 2005; Merrifield, Calhoun, & Stevens, 2008), is
a relevant concept used to link a strategy to process developments (Long & Vickers-Koch, 1995).
Business capabilities could be an ideal mediator between strategy and process as they are stable across
time (Beimborn et al., 2005) and built a common language across the organization (Scott, 2009). The
stability of a business capability benefits the transition between strategy and process as an
organization is perceived from what it does, instead of how. For example, the management of human
capital is considered a business capability (APQC, 2016). Over the next years, every organization will
continue to manage its human capital. Changes within the business capabilities are found in the
underlying process of the business capabilities (Barroero, Motta, & Pignatelli, 2010; Mani, Barua, &
Whinston, 2010). The stability of a business capability allows for stable performance measures across
time, making it possible to objectively measure the digital implications (Scott, 2009; Stalk, Evans, &
Shulman, 1991).

In order to uncover the benefits of introducing business capabilities as a mediator between digital
transformation strategies and process developments, the research explores how the digital
transformation translates into business capabilities and business capabilities domains. More
specifically, using the digital mastery classification framework of Westerman et al. (2014), the research
identifies how the four distinct levels of digital mastery impact the business capability differently. To
achieve the research objectives, the following main research question is proposed:

How do business capabilities diffuse digital transformation strategies into process developments?

To systematically answer the research question, the research is split up into three sub-questions:

1. How do the digital transformation strategies diffuse into business capabilities?

2. How do the business capabilities diffuse into process developments?
3. How does the business capability understanding provide support to managers during a digital
transformation?

2
To answer the research question, the structure is as follows: The first part of the research is dedicated
to the theoretical background. This section elaborates on the business capability concept. Using this
knowledge, the research continues to elaborate on the methodological approach used during this
study. In the results, the findings are discussed according to the four levels of digital mastery
originating from the theoretical background. Finally, the paper analyses, discusses and summarizes the
results within the discussion and conclusion.

3
2. Theoretical Background

The theoretical background aims at sketching a solid picture of the concept and functioning of the
digital transformation strategies and business capabilities. Developing a concise definition and
understanding of the business capabilities is essential for developing a conceptual framework. The
business capability framework is built by combining the business capability classifications and domains.
Business capabilities differentiates themselves from other methods through their stability, providing
managers with insights into the performance changes based on their strategic decisions (Beimborn et
al., 2005; Stalk et al., 1991). To get a better understanding of how business capabilities work, the
chapter elaborates on the relevant aspects for modeling an organization according to the business
capabilities.

Starting with the digital transformation strategies, Westerman et al. (2014) argue that the types of
digital transformation strategies depend on the digital and leadership proficiency of an organization.
For an organization to improve their digital proficiency, technologies should focus integrated into the
daily operations. Organizations with strong digital proficiencies have integrated digital technologies to
improve their marketing and drive their sales. Digital technologies have furthermore made it possible
to automate core processes, and analytics are used to depict a better understanding of the customer
and market trends (Westerman et al., 2014). Developing a digital proficiency helps organization in
many way. Reed & DeFillipi (1990) identify three enablers for firms with strong information
technologies: Rapid identification and development of application, information sharing possibilities
across products, services and locations, and implementing common processes across business units,
functions and products (Reed & DeFillipi, 1990). The leadership proficiency is defined as the strength
of the vision and the governance within the organization. As argued by Westerman et al. (2014) an
organization can increase its profitability by building a common digital vision and develop a strong
business-IT relationship. From a practical perspective this suggests that senior management is willing
to invest in digital skills and promote necessary digital culture changes.

To link the digital transformation strategy to business capabilities, the next step consists of
decomposing the business capabilities into their most basic form. A capability is composed of multiple
resources (Barney, 1991; Grant, 1991; Wernerfelt, 1984). Resources within a firm are defined as
tangible and intangible assets semi-permanently tied to the firm (Caves, 1980; Wernerfelt, 1984).
Examples of individual resources include equipment, skills of individual employees, patents and brand
names (Barney, 1991; Grant, 1991). While most resources are bought (or hired), other resources need
to be built over time (Dierickx & Cool, 1989). Examples of these resources are corporate reputation

4
and skills. A characteristic of a resource is that it requires other resources to function. For an
organization to compete with resources, a strategic intent (direction and goal) needs to assigned
(Javidan, 1998; Mahoney & Pandian, 1992). An example of a bundled resource is CRM software joint
with skilled employees used for targeting customers.

The resource-based view assumes that each firm owns different resources which enable them to
develop different strategies (Javidan, 1998). This means that by identifying the resources of a firm,
enables the firm to get a better understanding of their current and missing resources for deploying a
certain strategy. Visualizing a firm from its resource perspective gives managers different insights into
the strengths and weaknesses compared to looking from a product perspective. Hence, a resource
overview give insights to what specific resources lead to high or low profits (Wernerfelt, 1984).
Increasing the value of resources within a firm is achieved by shaping them to become unique (efficient
and effective) and collective (Barney, 1991; Hafeez, Zhang, & Malak, 2002). By building resources with
a unique and collective characteristics allows organizations to develop a competitive advantage (Priem
& Butler, 2001). Building unique resources is achieved by focusing on the inimitability (difficult to
replicate), non-substitutable (no other resources fulfill the same task) and non-transferable (not
purchasable across the industry)(Priem & Butler, 2001). Collectiveness focuses on introducing it across
the organization. This is achieved by implementing it across the business, across-products and across-
functions (Hafeez et al., 2007).

2.1. Classifying Business Capabilities

The business capability classification characteristics consist of uniqueness and collectiveness. Within
this context, uniqueness is defined as ‘the extent to which a capability is distinctive among competitors’
(Hafeez et al., 2007) Collectiveness is described as the ability of a firm to develop new patterns and
products by integrating the business capability throughout the organization (Hafeez et al., 2007). Using
these two measures allows an organizations business capabilities to be plotted on a 2X2 business
capability matrix map (Figure 3). The matrix contains four different classifications defined as the core
(high uniqueness, high collectiveness), essential (low uniqueness, high collectiveness), strategic
support (high uniqueness, low collectiveness) and business necessity (low uniqueness, low
collectiveness).

5
 Figure 3 - Business Capability Classification Matrix

Business necessity capability are classified as capabilities with a low level of uniqueness and
collectiveness. These business capabilities are important for an organization to operate, but they do
not distinguish themselves from the competitors. Examples of common business necessity capabilities
are the financial account management or the human resource management. These are crucial for
supporting the daily operations, but do not deliver a competitive advantage. As they do not
differentiate an organization, a common strategy for these capabilities is to outsource them for
efficiency (Calhoun, Dowling, & Lynch, 2009). The essential business capabilities operate throughout
the organization. While they are spread across business units and products, they are not unique
compared to its competitors. These capabilities use best practices to assure efficiency, but are no
different from the competitors (Scott, 2014). Manufacturing is commonly used example for this
capability. The equipment used to produce the product is not different compared to the competitors,
but is essential for the survival of the business. Strategic supporting capabilities differentiate
themselves from the competition, but are not collectively integrated across the organization. The main
goal of the capabilities is to provide support to the core business capabilities (Fleischer et al., 2007).
Hence, when the core business capabilities change, supporting capabilities will need to adapt. Core
business capabilities are the business capabilities which have a high level of uniqueness and
collectiveness. Hence, core business capabilities are integrated across multiple business units and
products, while being rare and difficult imitate (Hafeez et al., 2002). These capabilities have a high
importance to the firm, as they sustain the competitive advantage (Prahalad & Hamel, 1990). Core

6
business capabilities are established within the organization and are often connected to intellectual
property and patents (Merrifield et al., 2008). Furthermore, Leinwand and Mainardi (2010) mention
that the core is composed of three to six business capabilities, allowing a firm to differentiate itself.

2.2. Business Capability Domains

Diffusing business capabilities into domains allows for the organization to be decomposed into
individual layers and components (Ross, Weill, & Robertson, 2006). Each domain has its own
responsibilities, differentiating between the flows of distinct resources (Iyer & Gottlieb, 2004). A solid
understanding of the business domains enables organizations to make smarter rather than more
investment decisions, decreasing costs and increasing efficiency (Ross et al., 2006).

This research proposed to make use of the Four-Domain Architecture by Iyer and Gottlieb (2004) as it
covers every aspect of the business. The Four-Domain Architecture originates from the enterprise
architecture and proposed four domains: Organization, process, data and technology (Figure 4). The
organization domain is the inter and intra-relationship between people across the organization (Iyer &
Gottlieb, 2004). The artifacts for this domain is focused on defining the roles and responsibilities and
how cooperation with customers and suppliers (Winter & R. Fischer). The process domain is described
as the formal and informal rules and routines of an organization (Iyer & Gottlieb, 2004). Typical
artifacts within the process domain are the organizational units, responsibilities and performance
indicators. The organization of the process domain focuses on developing effectiveness and efficiency
across a business capability (Winter & Fischer, 2016). The data domain focuses on enabling the flow of
information. Typical artifacts are described to be business rules, business data and information of any
type. The domain strives to decrease costs and increase the speed at which data is delivered (Winter
& Fischer, 2016). The technology focuses on integrating software and hardware across the
organization. The primary goal is to support the activities and processes of the other domains (Iyer &
Gottlieb, 2004).

7
 Figure 4 - Enterprise Architecture Domains (Iyer & Gottlieb, 2004)

2.3. Business Capability Conceptual Framework

Both the resource based view and enterprise architecture support the development of a solid
foundation for business capabilities. The resource based view identifies the characteristics of resources
that generate the competitive advantage of an organization. The enterprise architecture view
decomposes an organization into four different domains. By combining the two perspectives and
relating them to the business capabilities, it becomes possible to assess and distinguish different
business capabilities according to the characteristics and domains.

Combining the findings of the literature, a conceptual framework (Figure 5) was developed to clarify
the concept of business capabilities from an abstract perspective. The framework argues that a
business capability is a bundle of resources directed through a strategic intent. In addition, multiple
business capabilities create a competence (Javidan, 1998). Business capabilities are decomposed into
four different domains: people, process, data, and technology (Iyer & Gottlieb, 2004). Addressing these
four domains covers the abilities entailed within a business capability.

Continuing with the characteristics, (Hafeez et al. (2007); Priem and Butler (2001)) argue that resources
deliver value to an organization when they are characterized as unique and collective. The framework
argues that since a business capability is a bundle of resources, they can be characterized and classified
according to uniqueness and collectiveness. To be more specific, business capabilities the unique
characteristics assessed based on its substitutability, inimitability and transferability. Collectiveness is
assessed based on the extent to which the capability is integrated across the business, products and
functions.

8
Figure 5 - Business Capability Conceptual Framework

9
2.4. Business Capability Modeling
Modeling an organization through business capabilities provides clear insights on the performance and
importance of a capabilities within an organization (Beimborn et al., 2005). Identifying business
capabilities from scratch is a time consuming process, nevertheless since the business capabilities are
stable across time (Scott, 2009), APQC (2016) have developed a list of generic business capabilities
across multiple industries (Appendix A). The cross-industry APQC framework is used to illustrate the
functioning of the business capability model.

Business capabilities consist of both horizontal and vertical relationship (Freitag, Matthes, Schulz, &
Nowobilska, 2011). This means that business capabilities are composed of multiple levels (vertical
relationships). At the most abstract level (level 1), every organization has between the 10 to 15 distinct
business capabilities (APQC, 2016). An example of the cross-industry business capability map of level
1 is shown in Figure 6.

Figure 6 - Level 1 Business Capability Model (APQC, 2016)

Each business capability level can be decomposed into a lower (more specific) level. At level 2, the
average amount of business capabilities range between the 80 and 120 distinct business capabilities
(see Appendix A). Splitting business capabilities into more specific capabilities can continue for as long
as necessary. Moreover, Scott (2014) mentions that after level 3, a business capability is likely become
company specific and turn into a business process.

Using the knowledge collected during the development of the conceptual framework, the data
collection and analysis focuses on investigating how the digital transformation strategies can be
diffused into business capabilities and the distinct domains.

10
3. Methodology

For this research the aim is to understand how business capabilities facilitate the development
coordination during a digital transformation. To answer this question, the study used the building
theories from case studies methodology developed by Eisenhardt (1989). The method is defined as a
comparative method combining the grounded theory of Corbin & Strauss (1990) and the case study
methodology of Yin (1984). The approach is relevant for this research as it focuses on generating theory
from case study evidence. The steps taken to perform this research (Figure 7) consist of initial sampling,
data collection, data analysis and reaching closure by combining the findings with literature.

Figure 7 - Research Methodology

3.1. Initial Sampling

The initial sampling focused on determining the research scope and the initial constructs. Due to the
limited resources available, the initial scoping allowed for a focused approach with a predetermined
direction. The sampling consists of an extensive literature review combined with expert opinions.
Through these findings, it became possible to develop the priori constructs. The sampling was a very
iterative process as the literature and expert opinions had strong influences on the research scope.
The final constructs, identified through the initial sampling, consist of the four business capability

11
classifications: ‘core business capabilities’, ’strategic supporting capabilities’, ‘business essential
capabilities’ and ‘business necessity capabilities’. The research included the four enterprise domains:
organization, process, data and technology.

3.2. Data Collection

The overall result of the data collection resulted in 7 case studies (Table 1) developed through
documentations and semi-structured interviews. The data was collected over a period of two months.
After respondents accepted the interview invitation, they were informed about the topic of the
research through an introductory document, including the research direction and some broad
questions. The preparation before each interview consisted of collecting company documents to
facilitate the conversation. For each case one semi-structured interview was performed, lasting on
average 40 minutes. To assure validity, the interviews were recorded and transcribed. After each
interview, field notes were developed focusing on the experience obtained from the company visit.
These notes also included new findings and points of attention for new interviews and further
research. Relevant statements and strategies of the respondents were confirmed through internal
documents. In the case of confusion about the data, a follow-up conversation was planned either via
phone or email.

3.3. Case Selection

For this research, the case study research focused on large multinational organizations going through
a digital transformation. To assure this, the case selection focused on organizations with more than
1000 full time employees, a revenue of at least €1 billion and in-house IT departments. To assure
consistency across each of the cases, the participants were required to understand the current and
desired state of the organization. Ideally, participants were also recommended to understand the
process or strategic developments for the desired situations. Within the sample, the job functions of
the participants ranged from innovation managers, vice presidents, process consultants to new
business developers.

Overall, a wide variety of cases have been selected. In total, the seven case studies address six distinct
industries. By using cases that are most different from each other, allows for a greater generalizability.
Through greater variation, the research aims to confirm that business capabilities are an accepted tool
across different industries. Furthermore, to test whether the business capability concept is applicable
for both the business and IT side of an organization, participants from different sides of the business
have taken part in the research.

12
3.4. Case Descriptions
International Beer Brewery (IBB): IBB is a beer producing company with a large product portfolio,
focusing on a wide range of premium local and international. Most of their sales originate from markets
where they hold the number 1 or 2 position. During the time of the data collection, a new CEO was
appointed. As a result, a new corporate strategy was developed, where the digital transformation had
high strategic importance. While their product cannot be digitalized, transforming digital may enrich
their marketing and sales strategies as their target market is digitalizing.

Consumer & Corporate Insurance (CCI): CCI is a large insurance organization throughout Europe. CCI
is specialized in life and damage insurances and capable of providing loans. Due to the financial crisis
and low interest rates, CCI is in a challenging position where efficiency is a strong determinant for
survival. As the years before the crisis were fruitful and little change was necessary, the digital
transformation needs to update the IT systems to support an efficient organization and an active online
presence.

Construction & Service Company (CSC): CSC is a specialized construction, real estate and engineering
group within the Netherlands. In the past couple of years, CSC has faced difficulties due to the financial
crisis, requiring the CSC to invest in a reorganization. As the current real estate market is regaining
power, the digital transformation focuses on implementing technologies that avoid delays and
stimulate effective communication.

Information Technology Consultant (1) (ITC1): ITC1 is a global information technology consultant
focusing on the system integration and outsourcing. Being a young organization (±40 years), ITC1 is
active in many distinct markets ranging from health to space agencies. Overall, ITC1 has seen a rapid
growth by acquiring large competitors. While their systems are highly up to date, their digital
transformation aims to remain a role model in terms of IT. Therefore, ITC1 needs to assure a proactive
attitude towards the latest developments.

Information Technology Consultant (2) (ITC2): ITC2 is a global information technology strategy and
transformation consultant. Specialized in the advising and supporting of organization, ITC2 can consult
a broad range of markets, for example governmental, consumer products and health. The focus of the
digital transformation is directed to improve internal processes and stimulate knowledge sharing
across the organization.

Public Transport (PT): PT is a Dutch railway company for which the shares are held by the Dutch
government. As the Netherlands has one of the busiest railways of the world, PT is put in a responsible
position where stakeholder management (governments and other transportation organizations) is

13
crucial for the survival. The digital transformation of PT focuses on reliability, where digital
technologies across products and employees need to avoid delays and unexpected scenarios.

Corporate Bank (CB): CB is one of the largest financial services established within the Netherlands.
Within CB, IT plays a leading role. As customers often prefer online and mobile banking compared to
the traditional banking. To assure customer satisfaction, the digital transformation strategy of CB is
focused at delivering a modern and secure platform for all their customers.

3.5. Data Analysis

The data analysis consists of two parts. The first part consists of a within-case analysis. Here the digital
and leadership proficiency is assessed and the digital transformation strategy is mapped. The second
part consists of the cross-case analysis. Here matching cases are compared against their areas of
improvement and their business capability domain developments.

During the within-case analysis, the aim was to clarify the digital transformation strategies for each
organization individually. The first step of the analysis consisted of classifying the cases according to
their digital and leadership proficiency. This was achieved through a predeveloped questionnaire
developed by Westerman et al. (2014) consisting of 10 questions for each proficiency. Each question
was assessed through a Likert scale (1 – low proficiency, 7 – high proficiency). Next, the analysis moved
on to describing the relevant business challenges, current situation and desired situation for each of
the cases individually. Using this information, the research used the business capability classification
matrix to generate the current situation, desired situation and the areas of improvement. For this
research, the level 2 business capabilities (APQC, 2016) were positioned into the business capability
classification matrix. The business capability modeling meant that each level 2 business capability (total
of 66 business capabilities) were individually positioned into one of the four classification (core,
strategic supporting, business essential, business necessity). This was done by relating quotes
originating from the transcribed text and organizational documents to a specific business capability.
For the cross-case analysis, the four levels of digital mastery were analyzed. The research also includes
the analyses the business capabilities shifts of digital masters. This was is relevant for the research
understand how development activities differ after a digital transformation. The aim of the cross-case
aim analyses to compare and identify the business capability movements for the four levels of digital
mastery. To achieve this, the level 2 business capabilities of each level of digital mastery was compared
against each other. The comparison was done by using a heat map. The heat map depicts the average
percentage of level 2 business capabilities present with the specific classification. Since the level of
detail for the level 2 was too high, the results are presented using the level 1 business capabilities (total
of 13). The second part of the cross-case analysis consisted of diffusing the development strategies

14
into the business capability domain developments. Since the research focuses on the digital
transformation strategies, the choice was made to solely look at how the domain developments of the
manage information technology business capability. For each individual domain, the results
demonstrate how the distinct levels of digital mastery are planning on developing their information
technology business capability.

During the data analysis, validity was established through expert opinions and reducing the data
through modeling (Whittemore, Chase, & Mandle, 2001). Expert opinions consisted of discussions with
company and university supervisors, who were familiar with the research topic. These discussions
consisted of weekly sessions, were the results were presented and discussed. These meetings made it
possible to strengthen the findings and identify new relationships. The data reduction was achieved
by classifying organizations using level 2 business capabilities obtained from the cross-classification
process framework (APQC, 2016) and plotting them according to their uniqueness and collectiveness.
This allowed each case study to be modelled according to the same characteristics.

15
 Table 1 - Case Study Descriptions

Date of Case Study Reference Company Description Industry N# of Employees Net Revenue (€) Adjust Net Profit (€)

22-6-2016 IBB International Beer Brewery Consumer Staples > 40,000 > 7.5bn > 500 mln

15-6-2016 CCI Consumer & Corporate Insurance Insurance > 10,000 > 7.5bn > 1.0bn

7-7-2016 ITC1 IT Consultancy Consultancy > 50,000 > 10.0bn > 750 mln

24-6-2016 ITC2 IT Consultancy Consultancy > 150,000 > 10.0bn > 1.0 bn

13-7-2016 CSC Construction & Service company Construction > 5,000 > 1.0bn > 1.0 mln

27-7-2016 PT Public Transport Public Transport > 25,000 > 5.0bn > 100 mln

25-6-2016 CB Corporate Bank Financial Services > 50,000 > 10.0bn > 2.0 bn

16
4. Results

The first part of the analysis consists of assessing each case according to their digital and leadership
proficiency. The results (Table 2 and Figure 8) show that for each of the levels of digital mastery is
related to two cases, except for the Beginners, which consists of one case. Classifying the cases
according to their level of digital mastery enables the research to perform a cross-case analysis.

Table 2 - Digital Mastery Assessment

Case IBB CSC CCI ITC1 ITC2 PT CB

Digital Proficiency 2.0 2.0 3.0 5.2 4.3 4.7 5.2
Leadership Proficiency 2.4 4.3 4.8 5.0 3.0 2.2 5.0

Digital Mastery Classification

Current Situation

PT CB ITC1
Digtial Proficiency

ITC2

CCI

IBB CSC

Leadership Proficiency

Figure 8 - Case Studies Organized According to their Digital Mastery

17
4.1. Beginners

Figure 9 – Heat Map Current Situation - Beginners

Within the current situation of the Beginners (Figure 9) the core business capabilities consists of
acquiring and managing of assets (10.0), their sales strategies (3.4) and their product development
(2.0). For the business essential capabilities, a collective, but non differentiating approach is used to
deliver their physical products and services (4.0 & 5.0). IBB differentiate themselves through marketing
and sales activities (3.0) and external relation management (12.0), but the approach is not collectively
executed. Finally, the business necessities consist of managing of their customer services (6.0),
information technology (8.0), financial resources (9.0) and enterprise risk (11.0).

18
 Figure 10 – Heat Map Desired Situation - Beginners

Looking at the desired situation (Figure 10), the goal is to develop a collective organization. In terms of
capabilities, the product development (2.0), marketing & sales (3.0) and the delivery of the products
(4.0) need to coherently operate within the core.

‘If you look at the other beer brewers, they are all going in the same direction. And one of the
things is the mastering of value management, meaning that you focus on earning more per
liter beer.’ [IBB]

The essential capabilities focus on unrolling a collective vision and strategy (1.0) in combination with
the service delivery (5.0). Within the strategic supporting capabilities the innovation activities focus on
developing and implementing new strategies and technologies. Introducing social media within the
marketing, is an example of an organizational and technological innovation.

19
 Figure 11 – Areas of Improvement – Beginners

For IBB, the areas of improvement (Figure 11) are focused on building a coherent global sales and
marketing process (3.0). This means that at the point of sale, the brand is present. To tackle the
digitalization of consumers, their marketing capability has to adapt to the digital environment.

“We are developing ourselves in terms of digital marketing through the integration of
technologies.” [IBB]

By developing the uniqueness and collectiveness of their asset management (10.0) and physical
product delivery (4.0) the aim is to increase the profits through a high efficiency.

“There is little change within the production process. The most important thing is that you
develop an efficient production process. Factories need to operate at their maximum capacity.
Technology will not solve this challenge, but the closing of factories. However, the trade-off is
that you get higher transportation costs.” [IBB]

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 Figure 12 - Manage Information Technology Business Capability Domains - Beginners

Using the reported areas of improvements, it becomes possible to diffuse these improvements into
the four distinct business capability domains for the ‘manage information technology’ business
capability (Figure 12). Within the organization domain, the focus is to develop a digital mindset. By
developing an IT strategy that identifies how IT can provide added value, the digital journey can be
triggered.

“For each of the business capabilities, there is a strategy. Someone needs to make a plan,
collect knowledge, and spread knowledge.”[IBB]

There is little change within the process domain. The main focus of the process is to assure efficiency
and that the business is not impacted by these changes.

“In terms of product there is not that much change. There, the most important factor is that
you develop an efficient production process.” [IBB]

Developing the data domain is achieved through developing performance indicators which provide
insights into the added-value of the technologies. Within the technology domain, the development
actions are focused on improvements related to proven technologies. This could include digital
marketing technologies such as social media tools.

“We are developing ourselves in terms of digital marketing through the integration of
technologies.” [IBB]

21
4.2. Conservatives

Figure 13 – Heat Map Current Situation – Conservatives

Within the current situation of the Conservatives (Figure 13), most business capabilities are located
within the business essential, strategic supporting, and business necessity capabilities. Within the core
business capability, the customer service (6.0) capability is the only differentiating capability. The
explanation, as provided by the participants, is due to a lack of organizational development in the past
years due the financial crisis.

“In the past years, the focus of our organization was mainly focused on restructuring and
keeping ourselves alive, since there were very little opportunities available in the construction
market ” [CSC]

The strategic supporting capabilities are allocated to the development (2.0), marketing and sales
capabilities (3.0) and service delivery (5.0). The business essential capabilities are composed of a vision
development (1.0) product development (2.0) and product and service delivery (4.0 & 5.0), customer
service (6.0) and the management of IT (8.0). The business necessities consist of the management and
development of their human capital (7.0), information technology (8.0), financial resources (9.0), asset
management (10.0), enterprise risk (11.0) and external relations (12.0).

22
 Figure 14 – Heat Map Desired Situation – Conservatives

Within the desired situation of the Conservatives (Figure 14) the goal is to bring the management of
information technology to the core business capability. By combining it with marketing, sales (3.0),
delivery of products (4.0) and a customer service (6.0), the Conservatives hope become more effective
and efficient.

Within the strategic supporting capability, the development of human capital (7.3., 7.5, & 7.6) requires
special attention. Functions relating to customer service and construction engineers will need to adapt
to the new technologies. Hence, new skills and employees are needed to develop and maintain the IT
systems. Furthermore, by implementing new IT systems, a specific amount of employees will need to
be retired.

23
 Figure 15 - Areas of Improvement - Conservatives

For the Conservatives, the current development activities (Figure 15) are focused on the management
of information technology (8.0). Their strategy is to build a solid IT infrastructure that provides support
to the core business capabilities. For the construction company, information technology (8.0) will
improve the alignment of supply chain resources (4.1), material procurement (4.2), delivering of
products (4.3) and the management of logistics (4.4). For the insurance company the information
technology will cooperatively work with the marketing and sales of products and services (3.0) and the
customer service (6.0).

‘We strive to become personal through chats and big data to assess what somebody really
needs. Someone who for example does make large trips, could get an adjustment on their
travel insurance’ [ICC]

Furthermore, the management of human capital (7.0) also needs improvement. Integrating new
technologies and processes will require new skills and functions.

24
 Figure 16 - Manage Information Technology Business Capability Domains - Conservatives

Using the areas of improvement of the Conservatives, developing the manage information technology
business capability (Figure 16) focuses on reforming the business through new technologies. Within
the organization domain, the development activities are focused on matching the IT with the business
strategy. This includes implementing functionalities that improve business execution. To match the
organizational needs, employees will need to adapt to the modifications provided by the IT.

“With the new technologies, the market segments are much stronger refined so that you don’t
have to try to score everywhere. That’s the strategy that we currently have” [CCI]

After matching the IT with the business strategy, the process domain needs to adopt to the changes in
workflow. This includes implementing new job functions and business units, but at the same time
laying of people

“Yesterday they announced that a new department will be introduced. Across the insurance
departments they’ll introduce a new customer service department […] Implementing new
systems often means that you will need to educate people, but at the same time this also
means that a lot of people will have to leave” [CCI]

The developments within the data domain across focused on implementing process and product
monitors that provide employees with the latest information and the organization with performance
measures. .

“By introducing new technologies to our engineers enables us to provide them with the latest
information during the service delivery” [CSC]

For the technology domain, the development actions relate to deploying new technologies and
discontinuing technologies which are outdated. Nevertheless, during the development actions, the
business should not be hindered.

25
4.3. Fashionistas

Figure 17 – Heat Map Current Situation – Fashionistas

Within the current situation of the Fashionistas (Figure 17) the business capabilities are scattered
across the different classifications. The core business capabilities consist management of marketing
and sales (3.0), delivery of products (4.0) in combination with IT (8.0) and stakeholder management
(12.0)

‘Things like our white papers relating to leadership, demonstrate that we are aware of the
changes happening in the market place, this fits in with the marketing.’ [ITC2]

Essential capabilities are focused on the delivery of products and services (4.0 & 5.0) customer service
(6.0) and maintaining the IT systems (8.0). The strategic supporting capabilities consist of the
development and marketing of products and services (2.0 & 3.0) in combination with some stakeholder
management (12.0). The business necessities consist of the secondary business capabilities like
management of human resources, finances, risk and assets (7.0, 9.0, 10.0, and 11.0).

26
 Figure 18 – Heat Map Desired Situation - Fashionistas

Within the desired situation of the Fashionistas (Figure 18), the roles, responsibilities and processes
are better defined. For the core business capabilities, the focus is directed at a unique and collective
marketing, sales (3.0) and product or service delivery (4.0 or 5.0). The strategic supporting capabilities
for Fashionistas consist of the product development (2.0) combined with human capital development
(7.0). For example, ITC2 mentioned within the desired situation, the product development capability
(2.0) consist of a core team, who is familiar with a specific way of working.

‘There should be a core team [for the proposal and product development], who perfectly
understand the requirements. […] This would allow the quality to be increased’ [ITC2]

In terms of business essentials capabilities, Fashionistas have classified their information technology
(8.0), their vision and strategy (2.0) and their customer service (6.0) as business essential capabilities.
Within the business necessities, the management of financial resources (9.0), assets (10.0) and
enterprise risk (11.0) are present.

27
 Figure 19 - Areas of Improvement - Fashionistas

The main areas of improvement for Fashionistas (Figure 19) are focused within the core business
capabilities and are focused on the development (2.0), marketing, sales (3.0) and delivery of the
product and service (4.0 & 5.0). Fashionistas realize that most of their initiatives have limited effect
due to a lack of cooperation. ITC2 for example noticed how every business unit in the organization is
independently developing their proposals and offerings. Hence, the areas of improvement for ITC2
consist of a stronger cooperation in the product development (2.0) and create a coherent way of
delivering services (5.0).

‘The basics needs to be structured, employees need to know which product will be developed
by whom. And the way it is tested. The whole concept, from vague idea to minimum viable
product, to scaled up product, that process needs to be thought through first’ [ITC2]

As the competition within the public transport industry is limited, the division of the business
capabilities remains the same. The areas of improvement of PT are to develop the maturity of their
business capabilities. This mean reducing the errors through updated IT systems (8.0) and increasing
the reliance of their product delivery (4.0).

28
 Figure 20 - Manage Information Technology Business Capability Domains - Fashionistas

Diffusing the areas of improvements into the manage information technology business capability
domains (Figure 20), shows that the development actions are focused on developing a coherent
structure across the organization. Within the organization domain, the development actions relate to
identifying the long-term IT needs together with the business. Within the process domain, the primary
goal is to achieve a consistent method of delivering a services. These developments can originate from
best practices and existing methods.

“For the product ideation phase for example, there are enough metrics and benchmarks
available. You will not need to invent that yourself.” [ITC2]

The data domain plays an important role in reducing complexity. The development actions should
focus on facilitating the access to data and information, allowing for a stronger cooperation.

“We current keep a lot of information for ourselves. If a different country would perform the
same job elsewhere, they need to re-perform out analysis. That being said, if you facilitate
that data throughout project, you can basically perform project much faster” [ITC2]

Developing the technology domain can be achieved by deploying experimental and proven
technologies depending on the importance of the technology.

‘If the customers want internet in the train, it is our job to get it to them as soon as possible’
[PT]

29
4.4. Digital Masters

Figure 21 – Current Situation Heat Map – Digital Masters

The current situation of the digital masters (Figure 21) the core business capabilities are focused
around the service delivery (5.0), customer service management (6.0) and the management of
information technology (8.0).

When clients see us, it is really not a question about quantity over quality. It might come across
as Utopian, […] but we have been given the flexibility because of our company structure. [ITC1]

The business essential capabilities are focused around the vision (1.0), product development (2.0),
marketing and sales (3.0) and the delivery of the physical product (4.0). The strategic supporting
capabilities have a high variety. They consists of the development and management of products (2.0)
and marketing and sales (3.0). Other strategic supporting capabilities are customer service (6.0),
human capital (7.0) and IT (8.0) management. The business necessities consist of the development and
management of human capital (7.0), financial resources (9.0), enterprise risk (11.0) and external
relations (12.0).

30
 Figure 22 – Heat Map Desired Situation – Digital Masters

The desired situation for the digital masters (Figure 22), the core business capabilities are focused
around the service delivery (5.0) and the management of customer services (6.0). Furthermore, the
core business capabilities consists of the development and management of products (2.0), human
capital (7.0) and the management of information technology (8.0). Within the business essential
capabilities, the development of a vision and strategy (1.0) and delivery of physical product (4.0) are
dominant. Other essential capabilities are the development and management of products (2.0),
marketing and sales (3.0), management of customer services (6.0), information technology (8.0) and
the acquisition, construction and management of assets (10.0). The strategic supporting capabilities
consist of many distinct capabilities. These consist of product development (2.0), marketing and sales
(3.0), service delivery (5.0), customer service (6.0), human capital management (7.0) and the
management and development of information technology (8.0). Finally, within the desired situation,
the business necessities consist of the development and management of human capital (7.0),
management of financial resource (9.0), enterprise risk (11.0) and external relations (12.0).

31
 Figure 23 - Areas of Improvement - Digital Masters

The areas of improvement for the digital masters (Figure 23) is focused around the core business
capabilities. As the matrix shows, the development and management of products and services (2.0) is
moving from a business essential to the core business capability. Even though the delivery of services
(5.0) and the management of information technology (8.0) is currently classified as a core business
capabilities, these capabilities will be improved to strengthen the competitive advantage. As the digital
masters are integrating more technologies across the firm, the development and management of
human capital (7.0) is moving from a business necessity to the strategic supporting capability.

32
 Figure 24 - Manage Information Technology Business Capability Domains - Digital Masters

For the business capability manage information technology (Figure 24) the Digital Masters are
proactively improving their IT by experimenting with new technologies. To achieve this, the
organization domain focuses on collaborating with the business. This could be achieved by introducing
an innovation technology lab central within the organization.

“We have a whole facilitate that have been given to innovative projects [...] here we display
what we are working on in terms of gadgets. The second room is, is what we have already
established, and then the third is a presentation where we bring in our clients.” [ITC1]

In the process domain, digital master seem to promote a digital culture, where implementing a (lean)
startup process is recommended.

“Internally we have started setup some startups which are experimenting and testing new
products and technologies” [CB]

To avoid scattered technologies and startups across the organization, it is of importance that the data
domain is developed to monitor the success of the new (and old) technologies to assess the add-value
for each. The technology domain should be developed to allow new technologies to be tested and
deployed. Implementing these technologies at larger scale becomes possible after they have proven
to be of added value.

“Due to the rise of Fintech startups, we need to actively develop new ways of delivering our
product. However, compared to the Fintech’s, our technologies and products are much more
concentrated on reliability and security” [CB]

33
5. Discussion

During a digital transformation, development activities are focused on integrating digital technologies
to improve the customer experience, operational processes and business models (Andal-Ancion et al.,
2003; Berman, 2012; Matt et al., 2015; Westerman et al., 2014). Matt et al. (2015) states that further
research is necessary to understand how digital transformation strategies diffuse into process
developments. Answering this question, strengthens our understanding since business capabilities
focus on what changes, whereas a strategy and processes are derived by why and how (Brits et al.,
2007).

5.1. Theoretical Implications

The research argues that business capabilities ease the transition from a digital transformation
strategy towards process developments. Using the business capability classification matrix, it becomes
possible to show the areas of improvement by comparing the current situation against the desired
situation. Having identified these areas, it became possible to diffuse these improvement activities to
the business capability domains.

While designing digital transformation strategies, earlier research indicated that digital technologies
are important determinants for the digital customer experience and improved operational processes
(Berman, 2012; Matt et al., 2015). To clarify how integrating digital technologies impacts business
capabilities, the research analyzed how the importance of the information technology business
capability changed. The findings confirm that the information technology business capabilities fulfill
an important function across the organization. Results illustrate that an IT business capability is likely
to operate as a core or essential business capability after the digital transformation. Therefore, during
the digital transformation the aim should be to incorporate the IT collectively across the organization,
meaning the organizations has a shared IT vision incorporated across products and functions. Firms
can individually decide whether (and to what extend) they wish to uniquely develop their IT business
capability.

By diffusing the digital transformation strategies into business capabilities, the results indicate that,
apart from the information technology business capability, two or three other business capabilities are
empowered and given a different role within the organization. These business capabilities are
empowered since the information technology business capability enables new possibilities in terms of
customer experience and operational processes. While individual cases identified how their customer
experience and operational processes are affected through a digital transformation, no clear

34
conclusions can be made as to what specific business capabilities relate to customer experience or
operational processes. Nevertheless, while business capabilities are identified as stable over time
(Beimborn et al., 2005), the research identifies that the uniqueness and collectiveness of a business
capability varies over time. Results indicate that the uniqueness of a business capability dependents
on external and internal factors. In terms of external factors, uniqueness is reduced by market
competition, new trends and technological developments. Internal factors that impacts the
uniqueness are caused by a reduction in strategic importance and financial attention. The level of
collectiveness is largely reduced by internal factors. These factors include acquisition, rapid growth or
due to long periods of stability. As an organizational structure changes internally, the collectiveness of
a business capability reduces over time. This means that parts of the organization independently
develop and deploy methods for similar business capabilities.

To investigate how the business capabilities are diffused into the process development, the research
used the four business capability domains. Based on the results, diffusing the generic business
capabilities into specific business capability domains is related to the shifts in uniqueness and
collectiveness. Business capabilities that increase in uniqueness develop across all four domains.
Central in development of uniqueness is the technology domain. By implementing suitable
technologies, the organizational and process domain can design an effective workflows. For
collectiveness, the improvements also affect all four domains, but the process and organizational
domains are most relevant. Within these domains, clear roles and responsibilities are recommended
combined with performance indicators. While technology can help increase the collectiveness, its
impact is of less relevance.

5.2. Managerial Implications

Using the business capabilities to direct the digital transformation strategies benefits organization by
providing stable performance measures and a common language across the firm (Long & Vickers-Koch,
1995; Scott, 2009). Combining the findings, the result suggest that each level of digital mastery requires
a different development approach (Figure 25) since some organizations focus on developing their
digital proficiency, while other organizations need to improve their leadership proficiency. Based on
the findings, development suggestions are made for each of the four levels of digital mastery.

35
 Figure 25 - Development Trends - Digital Mastery

During the digital transformation, organizations classified as Beginners should remain aware of
industry changes and market trends to maintain a stable position. In terms of their information
technology business capabilities, beginners can start their digital transformation by focusing on their
organizational and technology domain. Within this domain, the relevance of IT should be established.
Since beginners have yet to develop a digital mindset, the technology domain can focus on
implementing proven technologies. Through a reactive approach, beginners become capable of
following and reacting towards industry changes, focusing on implementing proven technologies.

During the digital transformation of Conservatives, the research recommends that Conservatives start
by developing the information technology business capability to support their customer experience
and operational process developments for the core business capabilities. To achieve this,
Conservatives are recommended to redesign their organization, process, data and technology
domains. During the redevelopment of all four business capability domains should focus on deploying
and removing functionalities with minimal distraction and risk to the business. Over time, these
development activities are likely to facilitate and stimulate the digital proficiency developments.

During the digital transformation of Fashionistas, the research recommends to use the information
technology business capability to improve the collectiveness for specific business capabilities. Using
the information technology business capability to develop collectiveness is likely to facilitate the flow
of information and the cooperation between the distinct business capabilities. To achieve this,
Fashionista are recommended to restructure their organizational and process domains. Within the
organizational domain, a clear vision and strategy needs to be established that matches the needs of
the other business capabilities. Within the process domain, the research recommends to set up

36
guidelines for deploying and removing functionalities. Using this approach, Fashionistas could improve
their delivery of a coherent digital customer experience and over time strengthen the operational
processes through an improved flow of information.

Once an organization has successfully undergone the digital transformation, the next step should focus
on sustaining the digital mastery status. By establishing a proactive approach towards further digital
innovations, Digital Masters are recommended to further develop their core business capabilities
themselves by experimenting with new methods and adapting the successful ones. To achieve this,
digital masters should develop the organizational and technology domain and make it flexible for
experimentation. By facilitating the experimentation, organizations can outperform their competition
through innovations and sustain their competitive advantage. Overall, through future developing
business capabilities, digital masters can secure profits through a first mover advantage.

5.3. Limitations and Future Research

Reflecting on the explorative research, the research has several limitations. As with theory building
studies, the intensive use of empirical data may cause overly complex theories (Eisenhardt & Graebner,
2007). While this research attempted to develop simplicity of the overall perspective, the vast amount
of data, combined with a bottom-up approach, made it difficult to capture the real essence of the
research. To develop a simplistic and solid theory, replication of the research is necessary. Further
research should specifically focus on an industry or a certain level of digital mastery.

Evaluating the overall results, the research may contain a certain bias from both the researcher and
the respondent side. Within the current sample, respondents may have experienced the digital
transformation differently, due to their involvement in certain business capability improvements.
Therefore, for the case studies, more respondents are needed to strengthen the argumentation and
researchers should reconsider which participants across the organization help develop the entire
picture. We propose that the ideal participants are the executive leaders of the firm such as chief
executive officer, chief innovation officer, chief information technology officers and the chief
experience officers. From the researcher point of view, the bias may have been (indirectly) present
during the data analysis. While the classifications are based on quotes from the participants, the
interpretation may resulted in misplaced results.

While analyzing the vast amount of data, several interesting further research opportunities arose. To
strengthen the research argumentation, that business capabilities are a useful tool for diffusing a
strategy, future research could investigate how strategies are ideally translated into business
capabilities. The same applies for the process developments, future research should look into a
supportive method or tool to diffuse business capability domains into specific process developments.

37
This could be achieved by connecting the business capabilities to the capability maturity model.
Performing the research would allow us to develop a stronger understanding of the recommended
levels of maturities for each business capability classification.

To increase the long-term benefits of using business capabilities within an organization, future
research should look into the business capability ‘Develop & Manage Business Capabilities’ (13.0)
(APQC, 2016). The business capability consists of managing business processes, capability portfolios
and the maintenance of enterprise quality. For this research, the business capability was excluded
because respondents could not directly relate this business capability back into their organization.
Further research should therefore clarify how the business capability is best implemented across an
organization and how the business capability is applicable for long-term developments like a digital
transformation.

5.4. Conclusion
Concluding this research, business capabilities facilitate the transition from digital transformation
strategies to process developments. Overall, the business capabilities facilitate strategic discussions
and enables a common language between the business and IT, due to their level of abstraction.
Hopefully, the research inspires researchers to further investigate the potential of business
capabilities. Within a world where organizations are continuously transforming themselves, a stable
tool, like business capabilities, could facilitates many digital journeys.

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6. References

Andal-Ancion, A., Cartwright, P., & Yip, G. S. (2003). The digital transformation of traditional business.
MIT Sloan Management Review, 44(4), 34-41.

APQC. (2016). Cross-Industry Process Classification Framework (Vol. V.7.0.4.): IBM.

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Appendix A – APQC Cross-Industry Classification
Framework
1.1 Define the business concept and long-term vision
1.0 Develop Vision And
1.2 Develop business strategy
Strategy
1.3 Execute and measure strategic initiatives
2.1 Govern and manage product/service development program
2.0 Develop and Manage 2.2 Generate and define new product/service ideas
Products and Services
2.3 Develop products and services
3.1 Understand markets, customers, and capabilities
3.2 Develop marketing strategy
3.0 Market and Sell
3.3 Develop and manage marketing plans
Products and Services
3.4 Develop sales strategy
3.5 Develop and manage sales plans
4.1 Plan for and align supply chain resources
4.0 Deliver Physical 4.2 Procure materials and services
Products 4.3 Produce/Manufacture/Deliver product
4.4 Manage logistics and warehousing
5.1 Establish service delivery governance and strategies
5.0 Deliver Services 5.2 Manage service delivery resources
5.3 Deliver service to customer
6.1 Develop customer care/customer service strategy
6.2 Plan and manage customer service contacts
6.0 Manage Customer 6.3 Service products after sales
Service 6.4 Manage product recalls and regulatory audits
6.5 Evaluate customer service operations and customer
satisfaction

7.1 Develop and manage human resources planning, policies, and

strategies
7.2 Recruit, source, and select employees
7.3 Develop and counsel employees
7.0 Develop and Manage 7.4 Manage employee relations
Human Capital 7.5 Reward and retain employees
7.6 Redeploy and retire employees
7.7 Manage employee information and analytics
7.8 Manage employee communication
7.9 Deliver employee Communications

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 8.1 Manage the business of information technology
8.2 Develop and manage IT customer relationships
8.3 Develop and implement security, privacy, and data
8.0 Manage Information protection controls
Technology (IT) 8.4 Manage enterprise information
8.5 Develop and maintain information technology solutions
8.6 Deploy information technology solutions
8.7 Deliver and support information technology services
9.1 Perform planning and management accounting
9.2 Perform revenue accounting
9.3 Perform general accounting and reporting
9.4 Manage fixed-asset project accounting
9.0 Manage Financial
9.5 Process payroll
Resources
9.6 Process accounts payable and expense reimbursements
9.7 Manage treasury operations
9.8 Manage internal controls
9.9 Manage taxes
10.1 Plan and acquire assets
10.0 Acquire, Construct, and 10.2 Design and construct productive assets
Manage Assets 10.3 Maintain productive assets
10.4 Dispose of assets
11.1 Manage enterprise risk
11.0 Manage Enterprise Risk, 11.2 Manage compliance
Compliance, Remediation, and
11.3 Manage remediation efforts
Resiliency
11.4 Manage business resiliency
12.1 Build investor relationships
12.0 Manage External 12.3 Manage relations with board of directors
Relationships 12.4 Manage legal and ethical issues
12.5 Manage public relations program
13.1 Manage business processes
13.2 Manage portfolio, program, and project
13.3 Manage enterprise quality
13.0 Develop and Manage 13.4 Manage change
Business Capabilities 13.5 Develop and manage enterprise-wide knowledge
management (KM) capability
13.6 Measure and benchmark
13.7 Manage environmental health and safety (EHS)

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APQC Cross-Industry Classification Definitions

Establishing a direction and vision for an organization. This involves

defining the business concept and long-term vision, as well as
developing the business strategy and managing strategic initiatives.
1.0 Develop Vision And
Strategy Processes in this category focus on creating a vision, a mission, and
strategic objectives, and culminate in creating measures to ensure
that the organization is moving in the desired direction.

Detailing practices and procedures related to the concept of

developing and managing products and services. These are
2.0 Develop and Manage reflected in the process groups Govern and manage product/service
Products and Services development program, Generate and define new product/service
ideas, and Develop products and services.

Outlining process groups related to understanding markets,

customers, and capabilities; developing marketing strategies;
3.0 Market and Sell executing marketing plans; developing sales strategies; developing
Products and Services and managing marketing plans; and managing sales partners and
alliances.

Performing supply chain activities. Refers to the process groups

plan for and align supply chain resources, procure materials and
4.0 Deliver Physical
Products services, produce/manufacture/deliver product, and manage
logistics and warehousing.

Offering services to customers. This is the act of providing service

delivery as a core business practice and covers identifying strategies
5.0 Deliver Services for performing service delivery, managing resources, and delivering
services to the customer.

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 Managing customers before and after the delivery of services. This

6.0 Manage Customer includes developing and planning customer service practices with
Service an eye on steering processes relating to inquiries after sales,
feedback, warranties, and recalls.

Delivering processes traditionally defined as human resources.

Process groups include those related to developing and maintaining
workforce strategy, recruiting employees, developing and
7.0 Develop and Manage counseling employees, managing employee relations, rewarding
Human Capital and retaining employees, redeploying and retiring employees,
managing employee information, and managing employee
communications.

Managing process groups relevant to the business of information

technology within an organization. The process groups include
manage the business of information technology, develop and
manage IT customer relationships, develop and implement security,
8.0 Manage Information
Technology (IT) privacy, and data protection controls, manage enterprise
information, develop and maintain information technology
solutions,, deploy information technology solutions, and deliver and
support information technology solutions.

Overseeing key back-office processes for organizations. This

category includes process groups related to planning and
management accounting, revenue accounting, general accounting
9.0 Manage Financial and reporting, fixed-asset project accounting, payroll, accounts
Resources payable and expense reimbursements, treasury operations, internal
controls, tax management, international funds/consolidation, and
global trade services.

Relating to the design, construction, acquisition, and management

10.0 Acquire, Construct,
and Manage Assets of both productive and non-productive assets.

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11.0 Manage Enterprise Ensuring that an organization effectively manages its risk. Process
Risk, Compliance,
Remediation, and groups are aligned with traditional risk management activities.
Resiliency

Fostering external relationships with stakeholders of the entity,

including investors, government and industry, the board of
12.0 Manage External
Relationships directors, and the general public. This is not related to customer
management.

Performing activities by an organization that is fundamental to the

successful operation of the organization, even across functions in a
business. Capabilities defined in the PCF include business process
13.0 Develop and Manage
Business Capabilities management; portfolio, program, and project management; quality
management; change management; benchmarking; environmental
health and safety management; and knowledge management.

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