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National Research University Higher School of Economics

Institute for Statistical Studies and Economics of Knowledge

Master Thesis

`Business software as Digital transformation driver: obstacles for sustainable growth in Russia'

Student Dmitriy Kabakov

Group МУН 161

Supervisor Konstantin Vishnevskiy

Submission date 17.05.2018



Declaration in lieu of oath

by _____________________________

(Student's name)

This is to confirm my Term Paper / Master Thesis was independently composed / authored by myself, using solely the referred sources and support. I additionally assert that this thesis has not been part of another examination process.

Moscow _______________________

(Date) (Signature)



Table of contents

Summary

Introduction

1.1 Introduction to Industry 4.0

1.2 Software role within Industry 4.0 concepts and components

Research methodology

Literature review

2. Information system research in historic perspective

2.1 Harvard project research initiative

2.2 Chandler and Cortada research on information system

2.3 Japanese school in information system research field

2.4 French school in information system research field

3. Recent research scope on digital transformation

3.1 Organizational capabilities as a research dimension

3.2 Digital business strategy and Digital transformation

3.3 Digital transformation - recent research findings

Analytical research

4. Depicting countries for software trade comparison analysis

4.1 Digital Evolution index and other ICT indicators

4.2 Software international trade among Stall Out and Break Out groups

5. Digital transformation conditions in Russia

6. Digital transformation - expert interview insights

6.1 Research results discussion

6.2 Organizational block

6.3 Infrastructural block

6.4 Externalities

Final remarks

References

Appendix 1. International trade services classification (EBOPS 2002 and 2010)

Appendix 1a. International trade services classification (EBOPS 2010)

Appendix 2.DT. Digital transformation research dimensions

Appendix 2.DBS. Digital business strategy research dimensions

Appendix 2.OC. Organizational capabilities research dimensions

Appendix 3a. Digital transformation indexes description (DEI and GCI)

Appendix 3b. Digital transformation indexes description (NRI and WDCR)

Appendix 3c. Digital transformation indexes description (EGDI)

Appendix 4a. Major software vendors business performance indicators

Appendix 4b. Major software vendors business performance indicators

Appendix 5. Research seminar `Digital transformation challenges for Russian business'

Appendix 6a. Expert interview guideline (in Russian and English languages)

Appendix 6b. Expert interview cumulative results

Appendix 7. Expert interviewees personal data

List of abbreviations

List of tables

List of figures



Summary

Digital transformation became major research field within information system area recently. It has many properties yet to be covered, however it is highly important to recognize prior digital transformation research dimensions. This paper is going to cover three block of research dimensions regarding digitalization process in Russian commercial enterprise segment: organizational, infrastructural and externalities. Significant part of this paper is devoted to externalities in particular, since no substantial evidence was found concerning systemic approach towards next digital industrial revolution evaluation and description. Thus, externalities negative effects could be track even on somewhat primitive level when observing current Russian economy development circumstances and policy conditions. Many undertakings established and implemented by Russian government concern digital economy development and software import-substitution policies are one of the examples of such intentions. Therefore, it is assumed along the research that business software drives digital transformation worldwide. Ambitious policy plans in highly challenging Russian environment developed certain obstacles for sustainable growth of business software application and use on the country`s territory. Therefore, the goal of this paper is to recognize obstacles and barriers on the way of digitalization in Russia within systemic and inclusive approach.



Introduction

1.1 Introduction to Industry 4.0

Since first Industrial Revolution had emerged after steam engine invention, the spectrum of radical changes was developed and widely adopted globally, such as more recent of computing, automated manufacturing, and causing massive effects on productivity. The core reasons triggering radical disruptions are individualization of demand, resource efficiency and short product development stages (Salkin et al., 2018). Therefore, large fundamental developments (both technical and digital ones) such as Web 2.0, smart devices, smart industrial equipment uncover opportunities for economies to grow and enhance quality of global value chain production. Lately, in EU around 17% of the GDP results from industrial sector, effecting approximately 32 million job opportunities (Qin et al., 2016). Apart from that, companies are struggling for rapid decision making, shorter time-to-market product launch and increasing productivity. Transformation process from manual operations towards automated machines and services, which leads to complex distributed systems with digital connection and coordination could be one example. To solve this quest, software-embedded systems are getting introduced in industrial sector and, thereby, deep predictive methods should be applied with cutting-edge self-learning algorithms in order to support digital infrastructure (Lee et al., 2015). While there is a need in coordination tools, synergy effects appeared from the integration processes of the advance IT technologies, services and production, forming a new concept of Industry 4.0.

The paradigm was first constituted by German government during Hannover Fair in 2011 as the start of the 4th Industrial revolution. As it was reported in Bitkom, VDMA, ZVEI analytics (2016), growing number of physical units obtain different sorts of sensors and receivers which enable to interconnect devices in one digital ecosystem and develop Internet of Things (IoT) field. Even more, those electronic connections are managed as distributed systems to support accessibility of all available information in online processing, operation and analytics. Ultimately, it creates opportunities to sort out behavioral patterns based on data analysis at any time triggering development of complex and precise prediction models and autonomous control systems. All these new conditions greatly influence current business and production processes while at the same time new business models emerge exploiting such IT opportunities to a substantial extent. On the other hand, emerging IT technologies and tools are challenge modern industrial corporations for more comprehensive value chains that require standardization and flexibility in business processes and closer communication of stakeholders. The term of Industry 4.0 itself absorbs diversified variety of concepts including digitalization, networking, miniaturization (Lasi et al., 2014). Therefore, Industry 4.0 clearly depend on integration processes of mobile value creation networks regarding the mutual integration of the physical systems and software systems within economic branches and sectors in the first place, and flexible interconnection of industries and industry types within economy. With respect to the Industry 4.0 concept, R&D and innovation, virtual architecture, standardization and security of interconnected system are fundamental elements for positive infrastructural implementation. Transformation as such can be feasible if only adequate subsystems supported by receivers, devices, machines, workplaces and IT provided, communicating with each other and external environment. These types of internal - external communication referred as cyber physical systems and coordination of the communication process is supported by Internet based standards and protocols.

As it is observed from current development of production and service management, focus of next industrial revolution is on the establishment of smart and communicative networks including `machine-to-machine' and `human-to-machine' interplay. Currently, enterprises have to cope with the implementation of data process management based on acquisition and analysis of data ejected from the smart distributed systems. The important thing about full-cycle data management is the development of self-control operation networks that provide new was for precaution measures before the network is damaged.

Substantially, Industry 4.0 consists of the following fundamental technology clusters: data analytics (and Big data), artificial intelligence, adaptive robotics, simulation, communication and networking (such as Industrial Internet, cloud computing systems, additive manufacturing, etc.) and embedded systems. These technological clusters should be supported by basic technologies (both digital and physical ones) including sensor and receiver devices, cyber security programs and the following seven design principles: interoperability, decentralization, agile, online data management, virtualization, service orientation and integrated business processes (Wang and Wang, 2016). These design principles and available technologies and technology platforms enable to estimate the adaptation process. On the contrary, there is no clear vision or road map of the step-by-step implementation progress on the way to digital transformation.

1.2 Software role within Industry 4.0 concepts and components

Recently, Industry 4.0 framework attracted a lot of attention from many parties especially including production enterprises and service networks administrators. Apart from that, there is a still a little notion of Industry 4.0 definition and essentially, there is a lack of definitive deployment of emerging technologies to trigger transformation processes. Primarily, the framework consists of integration of manufacturing facilities, logistics value chains and service networks to provide new value-added opportunities and extra profits. Thus, the range of emerging and emerged technologies from big data analytics to adaptive robotics and hybrid cyber physical infrastructures are extremely necessary. The crucial point is the Industrial Internet widespread implementation as well as alternative communicative connections that ensure interconnection of a variety of devices. To be more precise, Industrial Internet of Things embedded networks enabling dispersed wireless systems (such as sensor networks, cloud infrastructure, autonomous robotics, additive manufacturing, etc.) to be mutually interconnected and managed in centralized manner with lower transactional costs. Thus, cyber physical environment and robotics provide an integrated, computing-based systems that should be supported by simulation applications, 3D visualization tools and 3D printing.

Figure 1.2.1. Industry 4.0 technological framework

Based on: Salkin et al., 2018 `Industry 4.0 framework'

Finally, managing process of such complex environments must be based on comprehensive data analytics, coordination tools to provide real-time decision making and autonomy for lower level production and service processes. Therefore, the detailed guidance and core design principles are going to be discussed in the following sections. The fundamental assumption concerning this paper consist of clear understanding that basically all emerging digital technologies are getting more and more software intense. Therefore, software development and implementation within derivable technologies and ultimately products and services - this is one of the core digital transformation drivers. First notion of software role and importance were analyzed within information systems research studies started from 1980s.



Research methodology

Based on literature review and analysis of current trends and latest research findings in the area of digital transformation with respect to Russian, - terms, conditions and circumstances are highly vague and unclear. Therefore, the objective of this paper is to analyze the environment developed for digital transformation initiatives as well as enterprise organizations` readiness for digitalization within global as well as local conditions and externalities.

Table 1r. Master thesis research dimensions

Some assumptions are the following:

1. Business software is one of the core drivers of digital transformation among other technological solutions

2. Business Software predominantly tracked by relevant license acquisitions and those licenses are predominantly consist of commercially oriented software solutions.

3. Software piracy is neglected and out of this paper`s scope

4. Software is one of the most prominent parts of ICT import and export

While software development is getting specialization characteristics, it is important to get a fill in what international context Russia is positioned. For this purpose, apply EBOPS classification, using OECD database on international services trade (see Appendix 1). Countries comparison is going to be presented in two groups following current digital transformation related indexes analysis.

Figure 1r. Master thesis hypothesis approach

Literature review

Literature review consist of two major parts: twentieth century major research programs in the field of information system within different regions (USA, France and Japan) and more recent studies in the area of digital transformation. The goal of this part is to recognize theoretical drivers and components of digital transformation within organizations for further investigation

1) Digital transformation indexes analysis

To include into analysis global perspective and international development features, five indexes were pointed out and two country groups for comparison were depicted in order to present systematic approach towards Russian digitalization processes. As a result of indexes analysis, countries are going to be researched further for some more insights and digitalization opportunities.

2) Software import (and export) analysis

After the countries for comparison chosen, and comparison is provided, it is time to present software import structure of countries, since all of them, as Russia, mainly import necessary software from global suppliers, like USA. Those software import flows are going to be presented in two timeframes, reflecting earlier EBOPS 2002 (1995 - 2014) and EBOPS 2010 (2012 - 2017) international services trade provided by OECD Trade data source. While prior hypothesis is developing on this stage of research plan, some peculiarities and local conditions of Russia also merged with negative externalities.

3) Business software circumstances in Russia

After reviewing international perspective on business software role in digital transformation and its trading features with respect to Russia, it is also important to provide necessary overview of local conditions and development plans. Local environment most certainly reflect those obstacles for sustainable growth.

4) Expert interview

Finally, major hypothesis with respect to obstacles for business software sustainable growth are going to be reflecting in expert interviews and cumulative answers, decomposed into industrial sectors, business software products and overall perception.

Figure 2r. Master Thesis research framework

The ultimate goal of this paper is to recognize external effects influencing digital transformation processes through business software flows and experts` view on current circumstances within and outside organizations. The core assumption driving this paper is the idea that digital transformation as global phenomenon should be discussed and analyzed in systemic approach, absorbing not only enterprises` organizational and strategic dimensions, but also external effects. Comprehensive digital technologies and range of supportive technologies consist of intangible nature at their cores, and this intangible nature brings new issues, obstacles and challenges for success and leadership on the markets worldwide. Bearing in mind Russian economic conditions and striving needs for diversification and new sources of economic growth, digital technologies might be the way to transform it for the new realities.

2. Information system research in historic perspective

Digital transformation highlights importance and direct influence of organizational design on the progress of digitalization, therefore, making the topic attractive for scholars and researchers from social sciences and economics fields. Elaborating on the organizational design, it is important to point out, that the term is about the ways companies conceptualize and efficiently manage tangible, financial and intangible assets. While organizational economics perspective on the issue is considered in terms of organizational boundaries where transactional costs framework describes the trade-off between markets and hierarchies (Coase, 1937; Williamson 1975, 1981). On the other hand, social sciences focused on organizational development explain existence of organizations in the frame of ability to aggregate and concentrate skills and knowledge within specific organizational setting (Chandler, 1992), to reduce uncertainty from environment and generally to cope with information asymmetry and its complexity (March and Simon 1958; Thompson 1967). These two approaches reflect mix of internal and external features of organizational development: on the one side, organizational boundaries depend on transaction optimization within existing business environment, and on the other, organizations bare inherent intrinsic characteristics - peculiar skills, expertise and management processes take place to deal with information complexity, uncertainty and risks. Information technologies within organization theory address framework for understanding deployment of digital instances within and around organizations. Three core dimensions were depicted by scholars to get an understanding of such deployment: interpretation, legitimation and mobilization (Swanson and Ramiller, 1997). Therefore, information as a management concern has been at research focus for a quite a long time, emerging technologies facilitate the process of data and information administration.

One of the first research papers on the management of information systems was published by Copeland and McKenney in 1988. Scholars conducted retrospective airline transportation analysis and revealed sectoral factors (deregulation) influencing performance, but what is more important, they also extracted specific to the industry factors accelerating gain of competitive advantages through reservation systems: similar to economy of scale, IT technology adoption played key role in establishing autonomous booking systems. In 1976 major market players (American Airlines, United Airlines and TWA) possessed conservative distribution networks, thus innovations could only be implemented incrementally. Therefore, managerial vision of the leaders played determining role in strategic development. Overall, among cost-based variables (reflecting economy of scale) required for successful reservation systems deployment, authors specifically highlighted `intelligent persistence' (p. 368), or practical vision on how to use and apply information technologies (Copeland and McKenney, 1988).

2.1 Harvard project research initiative

It is argued, that in fact this article opened the path for development and conceptualization of information system research from historical perspective. And apparently, scholars indeed were one of the first ones to explore and define information system development framework. In 1988 Harvard project was launched to analyze the impact of information technologies investments on business industries and society, coordinated and administrated by Harvard Business School professors J.L McKenney and J.G. McLean. Dozens of scholars, researchers and experts were involved in the project, focusing analysis on IT investments impact on four large corporations (detailed case studies were conducted on examples of Bank of America and American Airlines). The research findings were concentrated on the need to develop a historical method to evaluate impacts of IT on enterprises. The subject was actively studied thereafter, and main Harvard project contributors published three papers in MIS Quarterly in 1997 (no. 3).

The first article (Mason et al, 1997b) raised importance and place of historical research in terms of information systems discipline and its general framework. The paper argues that historical research is an active factor influencing legitimation of information systems research. Starting with important distinguish between history of information system management and history of IT, authors continue by formulating conceptual frame for what they called as `IT-based business histories'. Based on Harvard project case analyses results, the scholars searched for the means of how enterprises could manage and take advantage of IT in order to reach dominant competitive positioning. Their solution is modeling of companies` IT application by means of a `cascade' model, in which ultimate stage is a `dominant design' of information system state. Dominant design reflects radical nature of a product or service, liability to disrupt competitive landscape of a certain economic sector. The dominant design is a cumulative result of a cascading process that requires three distinctive organizational roles to be performed: leader, maestro and supertech. Leader is a role within a firm displaying leadership resources accelerating and leveraging potential of technology. The maestro is generally an IT manager with a scalable strategic grasp of the firm`s business operations as well as technology. And supertechs are technology projects` implementation team members, harmonizing the process of implementation. Starting with a `crisis' situation, described actors look for technical solution (Step 1), then the chosen solution is going to be initiated (Step 2), adjustment of a firm`s organizational structure follows (Step 3), tangible and intangible assets getting generated facilitating gain of competitive advantage (Step 4), and finally sustainable dominant design is developed (Step 5).

This concept basically was tested in the second article by McKenney et al. (1997), where this approach was applied to the case of Bank of America company, providing insights on how the firm used IT to reach and sustain sector leadership in the 1950s. Successful introduction of modern at the time IT systems (ERMA and IBM 702) radically influenced the nature of banking industry, enabling development of dominant IT design based on collaboration of the roles essential for such transformation: Clark Beise (leader), Al Zipf (maestro) and a group of supertechs. Scholars proved relevance of their cascading concept model, showing how IT technologies articulated by the leadership team of roles managed struggling situation and developed dominant design solution lasting for almost 15 years thereafter (McKenney et al, 1997). Third article published by the same researchers proposed a seven-steps methodology on how to perform historical research on information systems management (Mason et al, 1997a).

2.2 Chandler and Cortada research on information system

Notably, simultaneously to Harvard project other American research focused on the same issue of the historical development of information system and technology and their influence on business and industrial changes was conducted by Alfred Chandler and James Cortada. As a result, several research papers were published by the scholars, devoted to transformation of the American business ecosystem within different industries by information technologies and management practices. Cumulative findings directed by Chandler and Cortada (2000) offer long-term development perspective concerning transformation of American economic system by information technologies, including communication infrastructure in USA, since 1700s. Particularly interesting in scientific terms are the works of James Cortada, who contributed to entire research program and developed three studies where concentrating efforts on `digital hand' (as an analogy of Adam Smith`s `invisible hand') and its potential outcomes on economy, industries, firms, administration and management practices analyzed in details.

The first study is devoted to the role of information in transformation process of industries (manufacturing, transportation and retail) from 1950s onward. Information use analyzed sector by sector and in comparison, raising importance of imitation in virtual use. It also highlights the conditions and premises under which information system application were adopted and spread among the industries, how these processes radically change the landscape of doing business, switching manual tasks to computing operations. The motion of transformation change towards digital operations was facilitated by early adopters - huge corporations initiated information technologies adaptation within particular industries while smaller enterprises followed them. Standardization of data formats and software features, availability of commercial software on the market played determining role too. Certain managerial lessons were draw down, and clear interest in information technologies beginning from 1950s while managers were constrained by economic aspect related to investments and risks, uncertainty of potential outcomes from introduction new technologies. This context was characterized by senior top management`s lack of understanding of the IT perspectives until 1970s. A fundamental change emerged in middle 1980s with personal computer`s dissemination. Same moment it was realized that information systems and related technologies are a strategic milestone for business future. The second study analysis was structured the same way and the centers of IT transformation processes were finance, telecoms, leisure and the media. The branches analysis resulted in the following problem findings, particularly those close to intellectual property rights, licensing policies and technical issues for dataflows structuring. And the third one discussed IT in the context of public sector (government services, defense, education, healthcare and taxation). Specifically, author insisted that defense sector`s role is to influence development of balanced and competitive IT industry, - what is rather questionable issue today, but at the same time takes place (in China, for example).

Another interesting examination of IT adoption and use among insurance firms during 20s century was presented in JoAnne Yates book `Structuring the Information Age'. She finds the influence of IT use on IT development, and vice versa, specifically demonstrating how tabulators in insurance stimulated adoption of first PCs, and how these computers were close with technology and firms that sold them.

Those American studies and perspectives presented highlight importance of IT systems development and use in transformation progress among organizations and industries. Works of scholars studied phenomenon within Harvard project, those of Chandler and Cortada depicted IT usage as prior issue and focused on analysis of how it transforms business, business environment and individual practices. On the enterprise tier, the core concern is definition of `dominant design' that provides a rent for a firm, and thus sustaining competitive benefits. From macroeconomic perspective, a lot of concerns are raised among job loss, economy readiness, and technological leadership issues.

2.3 Japanese school in information system research field

A list of Japanese studies on digital transformation roots and nature were carried out in 1980s. Kiyoshi Muratata`s article (2010) described those researches, classified them and presented the framework approach. One of the first studies on the IT transformation were published by Information Processing Society of Japan`s Special Committee for the History of Computing in 1985 and 1998. Several research programs were devoted to impacts of IT systems on organizational development, business performance and workplace tasks distribution. However, the most influential project was launched later in 2007 by the Japan Society for Management Information, Trade and Industry committee, Ministry of Economy, the Japan Information Processing Development Corporation, Nikkei Business Publications and the Japan Users Association of Information Systems. The goal of the project was to develop in-depth knowledge about conditions and nature of information systems use at the levels of economy and economic sectors (manufacturing, financial services and retail). Project involved tens of researchers over two years. Different from Harvard project with its close glance on business and competitive development, Japanese undertakings were focused on systemic nature, plurality of actors within organizational structures. Number of roles and diversity of actors distinguished by how they are interested (and participate) in enterprise transformation by IT, large companies in particular. Through mutual research efforts, the entities gained knowledge in their relative involvement in IT deployment and tech use within their organizations, and distinguished factors influencing deployment. For instance, role of stakeholders in those transformational processes was pointed out and the issue of balanced involvement of different stakeholders, modes of cooperation were set as very important ones.

2.4 French school in information system research field

Historical research in information system deployment and IT use is relatively recent phenomenon. Most of the studies are conducted by scholars in management field, and France is not an exception. The research program by Ravidat, Schmitt and Akoka focused on longitudinal analysis of information system evolution and positioning from 1992 to 2004 resulted in 146 reports and number of scientific papers. The core findings could be broken down into five key components:

· 5 players driving information system function depicted (business units, users, vendors and suppliers, integrators, and IT branch)

· Technical and economic environment (externalities)

· Balanced involvement among players required

· Core competencies of information system and IT function

· Prior distinguishing features identified

This study of presented components and interlinks between the elements facilitated classification and characterization of information system function role and development processes within organizations. One of the notable findings was that explosion in high-tech supply was in fact unwillingly supported by increasing responsibility of IT and information system departments and their reorientation to less technical part, as from 2000. More generally, research provides identification of distinguished information system evolution periods, describing position of information system within firms and short development characteristics of information system`s `core competencies' (table#).

Historical research in France was developing for over 25 years. And Desq et al. (2002, 2007) were analyzing methodology of the research and central topics to be covered, brining specificity to French approach. Similar to them, Nathalie Greenan and her fellow research group conducted in-depth analysis of emerging relationship between ICT investments and new business practices in French enterprises, which lied on COI survey.

Table 2.4.1. Evolution of the IS function in large French enterprises (1992 - 2004)

Time	Core competences	Positioning
1992 - 1994	Coherence and control	Technical positioning
1995 - 1996	Architecture, service continuity	Technical and service positioning
1997 - 1999	Security, cost, service	Loss of technical control, - internal software house role
2000 - 2002	Knowledge management, governance	Positioning towards strategy
2002 - 2004	Urbanizationm certification, business intelligence, legal framework	Search for new legitimacy

Source: Ravidat, Schmitt, Akoka (2005: 7), translated by Bounfour.

Obviously, historical dimension was one to begin with, and the study revealed strong positive correlation between ICT deployment plus use and the quantity of new business practices through 1990s, with points of increasing growth during companies` reorganization running in parallel to ICT investment rise. Those research initiatives with respect to fundamental Information system research resulted in contemporary Digital transformation theoretical framework. Subsequently, scholars recognized accelerating digitalization processes and devoted closer look and focus on this research field and recent analytical review on their findings and understanding presented in the following chapter.

3. Recent research scope on digital transformation

Digital transformation is a phenomenon influencing variety of industries, from services to products, across public and commercial segments. It provides tools and resources for innovation practices, advanced design development, new business models implementation, shaping landscape for value creation on the Internet (Gudergan and Mugge. 2017). Enterprises deploy those digital transformation tools and resources to take advantage of robust customer relationships and cross selling opportunities (Weill and Woerner, 2015; Westerman and Bonnet, 2015).

Digital transformation covers not only purpose-specific technologies and their deployment fit, but it is rather systemic approach to solve managerial issues, such as process and business efficiency, business model redesign, operations etc. According to Hess (Hess et al, 2016), digital transformation became top-priority on management leadership agenda among different organizations and companies. Almost 70% of reported transformational practices fail to meet firm`s ambitions, transformational timeline or both (Kane et al, 2016), emphasizing importance and lack of research undertakings in the field at the same time.

Past studies in the information systems field literature explored influence of various tech factors independently, such as data integration (Bharadwaj et al, 2013), information systems deployment and use, digital technology types, as well as non-tech factors (management and leadership, HR, business process management). Current academic focus and objectives with respect to digital transformation is to cover digital strategy and organizational capabilities to successfully land digital transformation initiatives. List of studies confirm that digital business strategy, digital readiness and set of certain organizational competences play crucial role in efficient and effective transformation towards e-commerce and customer-obsessed services in digital era. Currently, there are some gaps and inconsistency in understanding of what constitutes organizational capabilities and digital strategies in the transformational process. Nadeem et al. have tried to systematize current research on digital transformation topic and presented the following dimensions of current academic undertakings:

Table 3.1. Leading Information system research journals, 2000 - 2017

Selected journals in Digital transformation current research dimensions
Journals	MIS Quarterly, Journal of the association of Information Systems, Information System Journal, Journal of Strategic Information Systems, Journal of Management Information Systems, MISQ Executive, Sloan Management Review, Communications of the ACM, Human computer interaction, Behaviour and Information Technology, Information Technology and People, Decision Support Systems, European Journal of Information Systems, Information and Management, Information System Research, Journal of Information Technology.

Source: Nadeem, A. et al., 2018

In terms of this paper, it is a coherent way to discuss recent focus and characteristics of digital transformation phenomenon. The authors conducted systemic and classified literature review for Information system research papers and articles published between 2000 to 2017 years.

Figure 3.1. Conceptual recent literature review framework

Source: Nadeem, A. et al., 2018

Nadeem et al. systematized the most relevant research paths with respect to Digital transformation development, reviewing and analyzing over 290 recent research articles on digital transformation. They distinguished based on research focus, objectives and content three Digital transformation research dimensions: Digital transformation, Digital business strategy and Organizational capabilities, and, most importantly, the interrelationships between the instances. Regarding Figure 3.1, sets of organizational capabilities and unique digital business strategy features would drive digital transformation process within organization towards better business performance. And as a fact, there are different obstacles on the way for successful digital transformation outcomes, and here the scope of this paper is located. Digital transformation framework described by original interrelationships among organizational capabilities and digital business strategy initiatives mutually developing skills, knowledge and fundamental managerial practices for digital transformation success.

3.1 Organizational capabilities as a research dimension

Organizational capabilities defined as the set of capacities by which a company `perform a particular activity in a reliable and at least minimally satisfactory manner' (Helfat & Winter, 2011, p. 1244). The concept of organizational capabilities includes various collections of detailed capacities that make sense for different companies within different conditions and circumstances. For instance, fast-changing and flexible markets require superior market sensibility capacities from market players (Teece, 2012); R&D resources, knowledge and skills are especially necessary to compete and gain competitive advantages in high-tech industries (Eisenhardt & Martin, 2000). New businesses and new markets engagement require organizational transformation to cultivate, stimulate and develop new sorts of relevant capabilities. Previous undertakings in IS and organizational transformation research fields suggested that enterprises should create not only IT capacities, but also complementary capabilities, such as new service delivery options or specific IT human resources capabilities, to gain full advantage of digitalization (Aral & Weill, 2007; Singh et al., 2011). On the other hand, successful digital transformation progress requires organization to constantly develop new capabilities, knowledge and skills to survive and prosper in upcoming circumstances.

The theory of organizational capabilities currently is getting intensively developed within its dimension of dynamic managerial capabilities (DMC). DMC is referred to `the capabilities with which managers build, integrate and reconfigure organizational resources and competences' (Adner & Helfat, 2003, p. 1012). DMC`s focuses on leadership capabilities to drive digital transformation and develop necessary resources and organizational capabilities internally. Past sturdies provided three core segments of DMC: managerial cognition, managerial social capital and managerial human capital (Helfat & Martin, 2015). Managerial cognition may be described by personal beliefs and certain developed psychic approaches towards decision making. Cumulatively, this model absorbs experience, knowledge and practices, understanding of current market trends and conditions, abilities to forecast and cope with uncertainties. It is also including acquisition of new skills and knowledge, constantly required on the way of digital transformation. Therefore, managerial cognition influence manager`s sensibility of market and industry change and adaptation extent to that change. Lack of abilities, willingness and skills to adopt may lead to obstruct efforts to digital transformation initiatives. Managerial social capital consists of `formal and informal relationships that managers have with others' (Helfat & Martin, 2015, p. 1286). Managerial social capital helps in terms of obtaining new information, knowledge and experience from diverse resources and people, allowing managers to keep on track with external changes, emerging technologies and their business application, to find market opportunities and specific niches. From this perspective, managerial social capital is an intangible asset facilitating smooth digital transformation changes. Moreover, it is not only individual concern, but rather mutual intelligence within different teams. Managerial human capital strives diversified teams consisting of people with mixed experience, knowledge and skill sets to succeed and recognize new opportunities with reconfigurable resources (Wright, Coff, & Moliterno, 2014). Managerial human capital is leadership ability to reconfigure and include missing resources within flexible organizational structure within organizational capabilities.

Advanced DMC facilitate internal strategic readiness to digital transformation initiatives and market change, subsequently improving business performance and increasing opportunities for sustainable growth. Theoretically, enterprises may drive digital transformation through developing DMC among top management leads. Sufficient cognitive, social and human capital build emotional intelligence internally and facilitate transformation of enterprise in digital era.

3.2 Digital business strategy and Digital transformation

During last three decades, IT strategy as a research unit was dominantly viewed as functional-level strategy that should be aligned with overall business strategy (Henderson and Venkatraman 1993). Even within that view, many scholars argued that business strategy orchestrated IT strategy despite signals of emerging opportunities within IT strategy and its potential to shape business strategy in order to gain competitive advantage form business processes and business scope transformation (Venkatraman 1994). Alignment perception from subordination to business strategy perspective subsequently were reflected in multiple research studies including fields of business process redesign, information system, IT values and outsourcing, etc. (e.g., Chan and Reich 2007; Hussin et al. 2002). Nonetheless, recent decade in digital business strategy research focus explored impressive and meaningful improvements in information systems development, communication quality and accessibility, mobile technologies and software development. Those advancement unleashed new business models and communication channels, functionalities and resources for new market opportunities, thus, improving IT business strategy`s importance, role, functions and influence on business competitiveness as a whole. Post-dotcom decade characterized by both startup and established enterprises gaining advantage of lower costs and higher performance of computing resources (hardware and software together) as well as absorbing global connectivity opportunities through standardized protocols (Internet and mobile channels) to fit in their tangible and intangible infrastructures within new digital era circumstances. Various digital technologies fundamentally redesign traditional business strategies through modular, distributed, agile and global business process that enable different approach towards doing business, no matter time, distance and functionality (e.g., Banker et al. 2011; Ettlie and Pavlou 2006).

Digitalization enabled different variations of dynamic capabilities, efficient and productive in fast-changing global environment (Pavlou and El Sawy 2006, 2010). Social relationships, communication channels and structures transforming with digital transformation processes in consumer, business and public sectors, through developed and emerging social media and networking platforms. Moreover, services and products getting more and more embedded with modern technologies, including cutting-edge software and applications, and the mutual interconnections between intangible infrastructure and product/service itself are getting so tied, that it is too complicated to distinguish one from another (El Sawy, 2003). Different technological platforms provide cross-boundary industry changes, developing new forms and approaches towards business strategies (Burgelman and Grove 2007). Last, but not least, exponential improvements in cost/efficiency and performance capabilities of data analytics, distributed high capacity bandwidth, and software applications drive next generation of digital technologies based on cloud computing (Bharadwaj et al, 2013).

Such intensive and fast digital development clearly reshape role of IT strategy within organizations from just supportive functional instance aligned with bold management needs to convergence of IT and business strategy, resulting in digital business strategy, as it was described by Bharadwaj et al. Definition of the term `digital business strategy', provided by researches was constructed as `organizational strategy formulated and executed by leveraging digital resources to create differential value' (Bharadwaj et al, 2013; p. 472). Underlying intention to formulate definition in the presented way is highlighted by `go beyond' approach to traditional doing business features and characteristics, and currently IT function is focusing on `digitalization' opportunities recognition in different management fields, including operations, marketing, sales, supply chain etc., for the better timing, costs and performance outcomes. Meanwhile, information systems and technologies became and got recognized as resources, being aligned with resource-based strategy component (e.g., Barney 1991; Conner and Prahalad 1996). Overall, digital business strategy explicitly interlinks with differential business values, therefore, transforming IT strategy itself beyond productivity and efficiency KPIs to those driving strategic differentiation and developing competitive advantages.

Figure 3.2.1. Drivers of digital business strategy

Based on: Bharadwaj et al., 2013 `Digital business strategy framework'

Scholars identified four core components to guide future considerations on digital business strategy as a research unit and suggested a framework that helps in developing of the next generation insights. Those four components are:

scope of DBS

scale of DBS

speed of decision-making within DBS

sources of business value creation and capture within DBS

The synthesize of the components capture DBS attributes and could surf further investigations on the topic and provide landscape for academic community and business representatives in their research and undertakings.

3.3 Digital transformation - recent research findings

Digital transformation is a recent development trend in the use and deployment of digital systems and merged related technologies all-around organizations and institutions. While the term itself is being under discussion and clear definition is yet to be provided, dimensions of digital transformation are distinguished. McKinsey research study (Bughin and Manyika, 2012) reported estimations of Internet impact on economy growth from countries perspective. The findings showed that Internet contribution to GDP at 3,4% in 13 countries their studied. Obviously, USA as global IT supplier contributed much, being a digital platform provider or source of deep and comprehensive expertise and knowledge. In Europe, United Kingdom and Sweden are deploy Internet and pretty fast pace, while Germany and France very powerful in terms of usage. China and India going faster and faster meanwhile Russia, Italy and Brazil being at early development stage. More recent studies, including report on Chinese Internet use, highlighted economy benefits of digital information systems on development and growth. The example referenced included estimated 632 million Internet users in China in hand with 700 million active mobile device users and 300 billion US$ of e-commerce earnings on the other end in 2013 (Woetzel et al., 2014). Consumer-oriented nature of Chinese Internet ecosystem results in Internet-oriented economy with 4,4% GDP share, higher than USA or Germany. France, on the other hand, was reported to have a gap between consumer and business digital technologies deployment and use. Later the desynchronization was characterized as being missing appropriate technical and strategic skills, financial conditions due to budgeting issues and to-management commitment. Those signs were analyzed and researched to some extent, and results were aggregated within digital transformation processes involving digital technologies diffusion from demand and supply perspectives. Those processes also include countries cloud services consumption and software applications implementation, reflecting countries` so-called `maturity' distinctive feature. And the specialization either on demand or supply of digital technologies was included too. Following studies developed classifications from digital intensity and management transformation intensity perspectives in the same maturity terms (Cap Gemini and MIT Sloan Management, 2011). Digital transformation was suggested to be defined more clearly than previously - `the use of technology to radically improve performance or reach of enterprises' (p. 5). Based on interview study with over 150 US enterprise executives from 50 organizations and hypothesis concerning those digital intensity and management transformation progress, findings were group as following:

- Digital beginners: both criteria on low scores

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