- Digital fashionistas: firms with high degree of digital intensity while management transformation being low

- Digital conservative: while vision and understanding of digital transformation opportunities are clear, little is made to make those opportunities commercialized

- Digitari: value of digital transformation and real technology implementation and use with competitive advantage goals

Those first prominent steps in understanding pursue of digital transformation nature impact, efforts and outcomes are highly helpful in defining the process on the organizational level from microeconomic perspective. Nonetheless, broader definition and deeper understanding needs are still needed to be set argumentatively. Such attempts were made firstly in the Menard works (Menard, 2010), digital enterprise was defined in terms of: innovation activity, customer channels, resource (capabilities), change management development and marketing. What was clearly realized is that digital transformation is something larger than its components and conceptual framework is still to be developed. But each research study on the topic enriches our understanding of this highly influential trend.

Recent and most prominent study within information systems field was conducted by MIT Sloan and Deloitte University research units with the goal to evaluate digital transformation readiness, progress and intensity among US enterprises, resulted in research report under the title “Strategy, Not Technology, Drives Digital Transformation” (Kane et al, 2015). In this report, the digital transformation was analyzed under consideration that none of any business is digitalized to a somehow defined `full' extent: `The digital transformation of business is a new phenomenon, and no company has yet reached the end state nor definitively defined it' (Kane et al, 2015). Rather, instead of `already matured' criteria regarding digital transformation progress and digitalization expand, scholars preferred to frame it as a process - `digitally maturing' enterprises as pioneers of digital transformation. Digitally maturing enterprises show different behavior than their less mature counter party. And the point is not in technologies, but in business fundamentals. In fact, researches revealed that commitment towards transformative strategy on each management tier, supported by collaborative corporate culture and sharable risks within teams distinguish digitally maturing enterprises in USA. What is also important, is equal access opportunities for both leaders and employees to gain and develop required for transformation skills and knowledge.

Research findings revealed necessity for the organization-wide digital strategies. Initially, digital strategies in maturing organization go beyond technologies and their application fields. Strategies here focus on improvements in decision-making, innovation and ultimately transformation of organizational capabilities within new market and industry environments. At the same time, evidence show positive effects of collaborative corporate culture on digital transformation pace, especially in terms of risk taking. Clearly, today companies try to test as much of their business hypothesis as possible, and certainly, encouraging risk-taking culture stimulates the processes of testing to go faster, resulting in real-time minimal valuable product development and better time-to-market performance. Less matured organizations should put efforts to develop such internal environment, as it was discovered. And since more and more things are getting developed on the intersection between technologies and business, leaders should understand to some extent how these or that technologies work in order to deliver new solutions, products and services to the market.

Additional points were noticed and addressed with prior importance. First, data and analytics help to accelerate digital transformation`s progress and scope of work. Earlier studies reported inclusion of social media data into decision-making and operations within digitally matured organizations (Kane et al, 2015). Second, sharing economy development goes hand in hand with millennials premise concerning ownership is fading away, as professor Konsynski argues with Uber and Airbnb examples. And the point is that new generations are less and less interested in ownership than earlier generations. Surely, business should change and address those millennials needs with appropriate business models, values and time-to-market initiatives.

Digitalization through software and cloud computing processes driving twenty first century forward. Those processes require established platforms for digital business processes, providing unique opportunities for growth and competitive advantage development in digital environment, and again accelerating innovation activities. To get real, scenarios as such should be supported by appropriate digital business strategy and developed internal capabilities, reshaping skill sets and responsibilities among top-management roles, CEO, CIO and CDO in the first place. Quality and agility are essential components of successful digitalization projects, influencing growing responsibility and commitment of IT and business analytics commitment. The main effects and new perception of modern business process development are reflected in the following figure.

Digital transformation requires committed leadership to drive internal disruptions and incremental changes at the same time. Also, clear strategic vision of what enterprise divisions and in what transformation sequence should be scheduled and executed needs to be established company-wide.

Digital transformation requires committed leadership to drive internal disruptions and incremental changes at the same time. Also, clear strategic vision of what enterprise divisions and in what transformation sequence should be scheduled and executed needs to be established company-wide. No matter how and by what means organizations have developed their business processes, cross-functional collaboration within and across company boundaries is the environment for modern business models, improved customer communications, digital technologies application and ultimate value capture opportunities. Not a single company, as research studies show, has succeeded in improving all DT dimension groups and 9 elements supporting digital transformation at once. However, best practices suggest transformation opportunities lie in the identification capabilities, and abilities to flexible reflect customer needs.

From Digital transformation, as scientific unit and contemporary Information systems research field, perspective it is became clear that many internal and external factors influence digitalization process within organizations. Prior focus of this chapter were Organizational capabilities and Digital business strategy, reflecting internal readiness proxies and presenting the core dimensions of digital transformation internal organizational drivers. Nonetheless, market, industry and overall country conditions too should be analyzed and presented accordingly, covering full digital transformation picture. Regarding Russian condition and circumstances, the next chapter is going to be devoted to software import comparison from international service trade perspective and local ICT infrastructure conditions, linking theoretical background with practical insights and real-life state of things.

Analytical research

4. Depicting countries for software trade comparison analysis

To understand and evaluate business software inflows with respect to Russia, it is important to understand the structure and macro conditions influencing such processes. Therefore, to conduct such analysis is only reasonable in comparison with similar and different countries in terms of digital transformation development. There are different rankings and metrics evaluating country positioning in terms of digitalization. To find and point out comparable countries for software import analysis, five indexes were analyzed:

Table 4.1. Indexes for Digital transformation blueprint

Index	Conductor	Data sources
Digital Evolution Index (DEI)	Tufts University (USA)	Akamai Technologies, Blue Triangle Technologies, Mastercard, Private Capital Research and other research institutions
Global Cybercesurity Index (GCI)	International Telecommunication Union	ITU survey
Networked Readiness Index (NRI)	INSEAD, Cornell University, World Economic Forum	ITU, UNESCO, UN, World Bank, World Economic Forum's Executive Opinion Survey
World Digital Competitiveness Ranking (WDCR)	IMD World Competitiveness Center	OECD, UNESCO, Eurostat, World Bank, UN, The BSA Global Software Survey and other
E-Government Development Index (EGDI)	United Nations	UN survey of all Member States

The basis for hypothesis concerning potential comparison partners was Digital evolution index (DEI). First of all, this is highly comprehensive index covering a lot of countries using wide range of data sources. And secondly, since the focus of the paper is to analyze digital transformation processes going in Russia, scope of the index is targeted at the same phenomenon on larger scale.

4.1 Digital Evolution index and other ICT indicators

DEI 2017 is a data-driven assessment of digital economy progress across 60 countries, mixing over 100 different metrics and indicators in four key areas: Supply Conditions, Demand Conditions, Institutional Environment, and Innovation and Change. The analysis results getting aggregated into a framework capturing state and rate of digital transformation process, identifying investment conditions, innovation and policy priorities. DEI 2017 also underlines evolving risks and their nature as far as we continue to rely on digital technologies. For more information look at Appendix 3a. Two country groups were followed based on classification presented. Stall Out group, represented by Australia, Canada, Japan and Korea, and Break Out group consisting of Italy, Poland, Turkey and Russia. However, there is evidence showing common digitalization features between Stall Out group and Russia and the most prominent ones are in the field of Cybersecurity. International Telecommunication Union (ITU) annually conducts survey and data-driven analysis on economies` abilities to provide safe and sustainable security of information systems, infrastructure, data and information flows. And the main reason again is that digital transformation is in fact continually develop landscape for data-reliant nearest future.



Figure 4.1.1. Plotting the Digital Evolution index, 2017

Based on: Chakravorti, B., & Chaturvedi, R. S., 2017

Digital evolution is a base for hypothesis that those chosen countries in Break Out and Stall Out groups should be different in digital transformation terms, however all of them primarily business software importers, as it will be confirmed later. Other indexes` relevance and distinction could be found in Appendix 3b. and 3c. Some important ideas lying behind the scene are the following. First, initially the goal was to cover countries from different continents and economy development growth rates. Therefore, it allows to avoid misleading facts concerning digitalization processes and provides basis for adequate estimation of Russia in terms of software import in comparison with advanced economies and similar emerging/developing economies. Second, the number of countries is chosen to be four in each group for more comprehensive and substantial understanding of software acquisition by different economies. Later on, software import flows are going to be analyzed in two timeframes, covering 1995 - 2016 years - the time when Internet and different software solutions have been massively adopted and used in everyday life of people no matter the country.



Figure 4.1.2. Stall Out and Break Out comparison

As it is presented on the Figure 4.1.2, countries depicted for analysis indeed have similarities within groups regarding all five indexes. Therefore, it is reasonable to discuss and research development features and sources for growth in both groups. Benchmark of advanced economies could help in establishing appropriate policy actions and overall development framework. On the other hand, it also important to understand, what obstacles and challenges are for similar economies in terms of digital transformation development progress.

Figure 4.1.3. Stall Out and Break Out countries break down



When diving into countries individual contribution, two countries were specifically outlined for comparison purposes and those countries are Japan and Russia, as on Figure 4.1.3. To recognize Russian digital transformation progress and compare related development features, chosen index helped a lot in presenting contemporary state of things from the macro perspective. Therefore, the results of digital transformation indexes comparison provide compelling assumption, that higher rates of economic development correlate with digitalization and software acquisition on the national level. Russia, in terms of GCI index reflecting cybersecurity issues on the national level, is outgoing Turkey, Poland and Italy being on the same page with Stall Out countries. In terms of other indexes, Russia is quite similar to average Break Out group performance. Stall Out countries are pretty close to each other from this perspective and developing at higher pace than Break Out countries, overall. Therefore, the assumption to compare countries from software import perspective in terms of the system with developed and developing countries in digital transformation terms from presented indexes perspective holds true. The idea is to compare countries and look at their software import in time perspective starting from 1995. What is also important to remember, all presented countries are primarily software importers, but with different digital transformation scale and scope.

4.2 Software international trade among Stall Out and Break Out groups

Services has become more and more tradable, however statistical classifying tools grasping scale and scope regarding international transaction still lag behind. Information and communications technologies (ICTs) are driving those growth in service trade between countries worldwide. Falling price for voice connection and information sharing and distribution flows (e.g. data) along with deep and wide computerization and later mobilization provided new opportunities for commercial development. Therefore, remote resource access became available, decreasing operations costs. Growing number of countries and economy sectors through industrial segments absorb those opportunities in both import and export terms. Initially, service trade evolved from basic call-centers, fundamentals of software coding and digital content generation to more complex IT solutions, system design and R&D (UNCTAD, 2009, 2012). It is therefore highly important for policymakers to develop corresponding, in legal and trade terms, qualifying and quantifying detailed ICT import/export statistics with higher precision, than current state taking place globally. ICT growth trends will certainly be continued and information systems pushing their role beyond earlier labor saving and cutting-costs perception, emerging into core platforms driving innovation with high-quality products and services development and launch. Data and advanced software behind it still require improvements to be covering trade generated ICT services flows and remote software provisioning too (UNCTAD, 2015).

When analyzing software role in different devices, it is important to distinguish various and diversified soft of software. It is reasonable to start with important distinct characteristic - there is difference between software services and software products (Figure 4.2.1). Software products can be could be broke into application software (user-driven IT processes) and operation system software (program-driven IT processes). The former presents efficiency and productivity-enhancing program software, comprising language processing, spreadsheets and datasets, as well as industry specific software (developed for banking, entertainment, finance or public segment). Other industry-oriented software, such as medicine (therapy, bioanalysis, therapy etc.), education, engineering and infrastructure digitalization, is highly demanded in developing countries particularly. Application software used to be sold as off-the-shell package, but now it is rather online-based installation or subscription service both provided through licensing. Meanwhile, system software includes various types of operating systems for servers, computers, as well as mobile and other devices including software needed for application support. Software services include different services related to software development lifecycle, from technical specification to design and beta testing finishing at maintenance, repair and support. They also encompass data-related and IT-intense services (Ojo et al, 2008). While there is sharp differentiation between IT-services and software, the difference becoming more and more complicated to maintain. The two domains often cointegrated and codeveloped, blurring the boundaries between them. Moreover, IT enterprises usually business-active in both software domains at the same time. It should be pointed out, that business process outsourcing and other software-related ICT services are out software and IT services definition.

Business software, as it is assumed during the entire paper's concept and framework, drives digital transformation and facilitate technological acquisition in all industries of enterprise commercial segment. Therefore, enterprise segment in particular is being major contributor to overall digital transformation speed, scale and scope, motivating and stimulating other economy sectors strive for digital solutions and competitive advantages capture.

Figure 4.2.1. Software decomposition

Source: UNCTAD, based on Ojo et al., 2008



Since software drives digital transformation and improves economy development growth, important question is discussed among scholars and policymakers with respect to software production opportunities within country-specific conditions and level of economic and social development. For the most of emerging economies, producing software services and data-entry solutions naturally is a starting point of local IT industry development, with the lowest entry barriers (Heeks, 1999). Partner-software industries often oriented on services such as software publishing and distribution, installation and solution customization, training and consulting, etc. Fundamental software sustainable development and expanding growth obstacles tend to be concentrated in missing infrastructural and technological capabilities combined with limited ICT and software adoption in public and private sectors simultaneously. Software export competences, expertise and skills require deep and advanced country-wide capabilities (technological, economic and social mutually). Relatively few emerging and transitioning economies have achieved prominent skills and competitive advantages to enter this market. India, for example, emerged as one of successful examples if software services exporter. Other developing countries seek opportunities to intensively increase software quality, relevance and competitiveness.

Figure 4.2.2. EBOPS 2002 Russia and Stall Out countries, 1995 - 2012 (avr. 3 years)

Figure 4.2.3. EBOPS 2002 Russia and Break Out countries, 1995 - 2012 (avr. 3 years)

Source: OECD.Stat (EBOPS 2002) - international trade database, 2018

The OECD and WTO Balanced Trade in Services (BaTIS) database was an initial research destination, providing annual bilateral services trade statistics covering 191 countries. Within previous iteration of Extended Balance of Payments Services Classification (EBOPS) developed in 2002, the data is broken into 11 groups of EBOPS distinguished services (Appendix 1). The main data sources include the OECD Trade in Services by Partner Country statistics; Eurostat International Trade in Services statistics; UN Services Trade and the IMF. The time perspective encompasses years from 1995 to 2012. To slightly adjust data and avoid statistical errors due to complex procedures of data gathering, for this analysis individual annual contributions were averaged between three subsequent years starting from 1995. The value used within dataset is mln. US$ in Value Added trade terms.

Data used in analysis is represented by `Computer and information services' category represents software import as major contributing component to the total annual value, and the comparison of country groups reflects software import flows in Figures 4.2.2 and 4.2.3. As the graphs show, each and every chosen country have been sustainably growing in their software import over analyzed decade. Moreover, the difference in import values is not that strong - comparable import flows are limited by 6 bln. US$. Therefore, Russia was highly close to Stall Out countries in this respect, showing higher values than Turkey and Poland. What is also important is the rate of growth. Digitalization processes accelerated demand in software and IT services worldwide, developing growing global opportunities for software developers.

Later and current iteration EBOPS 2010OECD EBOPS 2010 description: `A number of efforts have been made by both governments and other stakeholders to develop definitions and classifications covering ICT-enabled services. For example, several OECD reports that have examined the issue of trade in ICT-enabled services determined that the EBOPS 2010 categories Computer and information services (component 9) plus Other business services (component 10) together constituted the best available proxy for ICT-enabled services (OECD, 2007, 2006). However, as is discussed in this note, EBOPS component 10 is a poor proxy for ICT-enabled services because it contains services as different as water treatment (not ICT-enabled) and architectural services (possibly ICT-enabled). Efforts to classify ICT-enabled services using ad-hoc definitions drawn from industry nomenclature, and not based on existing trade in services classifications include the Reserve Bank of India's Software and IT Exports Services Survey'. is more focused on distinct components and role of ICT-enabled and original ICT services. Therefore, ICT services became more information system and software oriented, according to definition developed by OECD regarding ICT activities: `intended to enable and/or fulfill the function of information processing and communication' (UNTCAD, 2015a; p.3). It proposed introduction of complementary ICT services grouping disaggregating into more comprehensive three-digit level of EBOPS services classification. The following groups and subgroups were chosen for relevant analysis:

- Charges for the use of IP (from software licensing perspective)

- Computer software

- Computer software transactions

- Original software



Figure 4.2.4. EBOPS 2010 Russia and Break Out countries, 2009 - 2016

Figure 4.2.5. EBOPS 2010 Russia and Break Out countries, 2009 - 2016

Source: OECD.Stat (EBOPS 2010) - international trade database, 2018

Following described EBOPS terms and software criteria applied, import value flows resulted in numbers presented in Figures 4.2.4 and 4.2.5. As it observed, the situation dramatically changes for Russia starting from 2014. This is the time first sectoral sanctions were introduced against Russian economy including wide restriction on US software supply. Meanwhile, other represented countries were facing different reality, and Japan, for instance, accelerated software-related import in times in comparison with previous time frame.

Figure 4.2.6. EBOPS 2010 Russia software import, 2009 - 2016

Figure 4.2.7. EBOPS 2010 Russia software export structure, 2009 - 2016

Source: OECD.Stat (EBOPS 2010) - international trade database, 2018

Particular nature of software in international trade terms is characterized by instant opportunities to either close or open trade flow. Intangible and digital services and products could be stopped simultaneously decision is made, and this intangible feature helps to avoid time lacks with respect to a transaction. Therefore, hypothesis is enriched with assumption that foreign restriction negatively influences software`s sustainable growth. On the other hand, if deeper look at software import and export structures presented on the Figures 4.2.6 and 4.2.7, based on the same EBOPS 2010 classification, it is quite clear, Russia is in fact software import-oriented country. Software import heavily prevail certain software export. The main international software partners are USA, Ireland, Germany, Switzerland, Cyprus and others. It is important to recognize the following issue. Many American software development enterprises established official affiliated organization conducting operations and sales in the regions, and Ireland and Cyprus are very examples of that. On the other hand, Russian software export is targeted mainly at CIS countries. Therefore, the software exported is area-specific and the total volumes are far less that import values.

With the help of software import analysis, certain feel for externalities impact on digitalization process in Russia became clearer. It is the fact, that in 2014 and later on software inflows began to decrease, while currency exchange rate and first sectoral sanctions were applied to Russian economy after political decision concerning Crimea was made. However, country`s software and digitalization environment were not yet discussed and there is a chance, that some of the negative trend properties lie within infrastructural and market conditions. This part is going to be covered in the next chapter.

5. Digital transformation conditions in Russia

After Soviet Union collapse, new market conditions emerged among CIS countries. Former information system facilities were reorganized, and new companies were established, building background for information technologies in Russia. Russian Information technologies market in 2012 was estimated in total sales around 630 billion rubles (excluding ICT, office machines and mobile devices), including 270 billion rubles in software products and services sales. The growth of software market was keeping at 10% annual rate starting from 2010. Local software vendors and suppliers historically could satisfy less than 25% of the market needs, and even those results were achieved only in software services segment. The situation is still similar in that sense. Currently, Russian software developers produce only 0,6% of global information technologies products and services. Major contribution to satisfy local information technologies needs is made by system integrators and distributors, providing foreign equipment, software customization and consultancy services. However, many Russian system integrators, distributors and software partners more and more trying to add value in software customization and co-development rather than just reselling (Digital economy strategy 2014 - 2020, 2013).

Russian information technologies industry is primarily represented by service enterprises, specializing in beta-testing, IT support and consultancy services for enterprise segment. Moreover, those companies are intensively involved in global competition and represented on European, US and some other markets. In the rating of top-100 best IT outsource companies; 7 players are from Russia. Nonetheless, share of Russian companies in global IT industry is about 1%, but specifically Russian IT outsource providers developed competitive advantages in high-quality and technologically comprehensive outsource segment. As it was mentioned previously, software is an extraordinarily complex thing, and services segment provides customization, scalability of information systems implementation driving systemic industry development.

In software products development there are some Russian enterprises competing globally. In 2012 Russian software developers delivered products totaling in 78 billion rubles. It is worth to mention, that software development brings the highest value added than any other software-related segment. Therefore, there is no evidence of competitive advantage in hardware segment and embedded systems for the last 20 years among Russian manufacturers. Usually, final assembly take place on the Russian territory, but R&D, design and modules development take place in other countries.

Table 5.1. Business software import-substitution plan

Source: Russian Ministry of Communications, 2014

And some problems reflecting it include low labor productivity as well as low competitiveness of applied technologies. Russian manufacturers in hardware dimension are not represented on the global market.

About a year ago, on 9 of May 2017 Strategy for national information development 2017 - 2030 was signed by the Russian president. The program consists of initiatives, actions, policy guidelines and goals concerning conditions for information systems development, increasing quality of education and professional skills, digital services and products availability, digital expertise and e-government development. Implementation of the program requires tight collaboration among government institutions, science and business organizations. The ultimate goal of the program is to establish at least 10 globally-competitive enterprises - technologically and digitally advanced organizations facilitating economy transformation through digital platforms management, start-up ecosystem development, with related research programs and certain industrial leaders.

Business software local development and competition with foreign vendors is one of core priorities within the program. However, as Russian Ministry of Communications reported in 2014, almost all business software categories are dominated by foreign suppliers (Table 5.1). Nonetheless, even those ambitious plans to decrease foreign domination to 50% among all software categories seem unrealistic, relevant policies on practice may negatively influence overall business performance. The most prominent dominance of foreign players includes operating systems, IT infrastructure software (including virtualization) and database management.



Figure 5.1. Share of business software in expenditure structure

Source: Russian statistical office, 2017

On the other hand, software-related expenditures within enterprises continue to grow. Initially, companies tend to optimize business processes and business models with the help of digital technologies, however, economic externalities also heavily influenced exchange rate, increasing software deal amounts, respectively. What also could be assumed is that local software vendors and suppliers could launch competitive software and struggle in competition with some enterprises. However, this assumption is not supported by data presented on Figure 5.1. Growing share of software-related expenditures also includes those new online business service and products providing new opportunities and competitive advantages facilitating growth. For instance, by the beginning of 2017, Russian market of commercial hosting and processing data centers reached14,5 billion of rubles, growing by 11% over 2016 year. Apart from commercial purposes, one of the reasons is legal issues and new requirements to host personal data of Russian citizens locally. However, there is a lack of instruments to evaluate hosting quality, standards, terms and conditions as well as hosting capacities available. Trying to change that, Information and data security Doctrine was issued by Russian government in 2016. The document establishes policy guidelines as well as regulations on data security on Russian territory. Major areas for regulation includes information security in energy supply and nuclear facilities sectors. But still, two thirds of Russian companies reported that cybercrimes in digital environment for the last 3 years grew by 75%, and there is still room for information security development in all economy sectors.

Another important and developing software segment is cloud and online services. Data processing and analytics, entertainment services, programming and computing services are growing exponentially for the last 2-3 years. Many e-commerce businesses are only represented online and number of those players as well as range of services and products provided grow year over year. Internet market of Russia is one of the most attractive in Europe and continue to grow. Internet users in Russia are represented by over 60% of the country`s population and over 90% of younger generation use Internet at least once in a month. Apart from software development itself, online segment is dominated by Russian providers - Yandex and Mail.ru are very powerful local Internet players.

Cloud services and products overall grow by approximately 40% annually in Russia. Cloud computing is becoming core of IT development strategy in digital economy. Corporate landscape is changing with business transformation based on new and perspective technologies - Internet of Things (IoT), artificial intelligence, machine learning etc. Digital enterprises ready to take advantages of Big Data or industrial IoT today are developing through cloud migration, step-by-step, in the first place. By 2025, 80% of data processing and hosting are going to be represented in cloud (TAdvisor, 2017).

Cloud is becoming major IT industry driver, and Gartner estimated global cloud market in 203,9 billion US$ in 2016, growing by 16,5%. IDC analytics agency similarly evaluated cloud potential - experts estimated cloud spendings in 2016 - 2019 growing by 19,4% globally and cloud growth rate is 6 times more than overall IT industry growth results. Forrester Research agency forecasted public cloud services market in 146 billion US$ in 2017. Major cloud providers are USA based companies - Amazon Web Services (AWS), Microsoft, Google and IBM. Synergy research group estimated that over half of global cloud revenue is shared by those four players.

Economy stagnation in Russia push enterprises for cost optimization and IT budgeting is one of the main sources. CAPEX in hardware and its maintenance, software procurement - this model is getting less and less attractive among Russian companies too. Flexibility of cloud services and its OPEX nature provides opportunities for cost savings, at the same time providing new opportunities for value added and business model transformation. In particular, as iKS-Consulting reported, small and medium enterprises as well as individual entrepreneurs actively prefer cloud IT infrastructure and available services in order to optimize budgeting and ICT expenditures overall.

Figure 5.2. Organizations using software programs in Russia, 2016 (% of total org.)

Source: Digital economy indicators, 2017

For some time, cloud technologies could not be adopted on the Russian territory, especially in hinterlands and regions. And the main factor keeping cloud growth were low quality communication channels and poor Internet bandwidth.

Currently the situation has changed for the better. Apart from infrastructural issues, data and information security, as it was mentioned before, were issues for cloud adoption. However, as TAdvisor reported, over 60% of Russian enterprises use cloud services. It is worth to mention, that overall trustworthiness to cloud keeps growing countrywide. Therefore, it is believed that cloud services are too consist of similar value-added as in software development since cloud computing too is a derivable of software programming.

It is important two notice two very important things about Figure 5.2 presenting software consumption by software categories. First of all, business software categories are getting wider and wider in their application field. If 12 years ago somewhat primitive software, like `Paint' or `Text' were new to use and apply, recently there are tons of different digital solutions, both in cloud and on-premises. Therefore, the overall business software costs within organization became more and more feasible. And also, increasing number of organizations get advantage of business software within their business processes and operations, accelerating percentage of organizations using software as a whole. For comparison purpose of software category in further expert interviews, CRM, ERP and SCM-systems are chosen since it is relatively competitive sphere of business software with Russian vendors local struggle.



Figure 5.3. Personal computers in Russian business organizations (thousands of units)

Source: Digital economy indicators, 2017

As we may observe from the Figure 5.3, there are over 12 million of computers serving business needs of Russian business. And certainly, those number of computers need software to be run on, otherwise there is no need in a personal computers themselves. Therefore, the expenditures on software within organization cost structure estimated by HSE researchers as presented on the Table 5.2.

Table 5.2. ICT expenditures by category among Russian business organizations (mln. rubles.)

Source: Digital economy indicators, 2017

What is important about this cost structure is firstly annual growth in software-related procurement. Therefore, about 160 billion of rubles were spent on foreign software, while 42 billion on local suppliers in 2015. Thus, the hypothesis concerning Russian software market foreign vendors domination is factually become true. And what is also no merely important, is that software drives digital consumption with different kinds of business software, increasing market value for technologies alike. In other words, there is evidence that software plays more and more important role in current Russian business environment - its share in total ICT structure continue to grow and the number of software-related solutions are getting actively acquiring by the corporate sector. However, there is still room for development and points to be discussed, but there is also some notion of untrivial process living behind the numbers. In particular, rising costs of business software and powerful competitive advantages of foreign suppliers on the Russian market might be connected. The major hypothesis concerning externalities comes the right time. Since foreign suppliers are substantially represented by US multinational corporations (Appendix 4a and 4b), there are feasible economic restrictions and contractive mutual politics between the countries influencing high-tech trade in the first place - this is major group of products and services on Trade Balance export section of US with Russia. Therefore, currency exchange rate high volatility also reflect rising price of business software, since foreign vendors initially gain revenue in their native currency - US dollar. This uncertainty and risks in doing business between the countries may also negatively effect software implementation and further digitalization progress. Therefore, the next chapter is going to test those assumptions concerning externalities with internal organizational capabilities and infrastructural terms. The idea is that externalities are as important to digital transformation positive development as internal readiness and advanced ICT infrastructure.

While local conditions and circumstances analysis is presented, some notion of real obstacles for digitalization indeed exist on the market. The major finding reflects concerns regarding physical ICT infrastructure development and Internet access availability countrywide. As we observed, cloud computing technologies are getting more and more adopted by the enterprises, however poor Internet connection cannot leverage cloud computing advantages. Therefore, business ecosystem requires modern and developed infrastructure in order to provide affordable products and services on the Russian territory, and extra revenue streams could be allocated on further IT project and digital solution piloting. However, the pace of development is pretty ambitious no matter current infrastructural obstacles, and even government services are getting digitalized more and more. Thus, there are infrastructural issues influencing digital transformation development in Russia, and to finish systemic approach towards estimation of digital transformation obstacles in Russia, experts in business software commercial field were asked to share their vision on organization, infrastructural and externalities dimensions. The description and approach of expert interview properties are presented in the final chapter.



6. Digital transformation - expert interview insights

The research consisted of expert interviews in area of business software internal and external organizational features, infrastructural conditions and relevant externalities influencing digital transformation development. The focus of research and the scope of the interview questions were devoted to Russian enterprise commercial segment (500 of employees or more) in Retail, Financial services, Manufacturing, Oil & Gas and Transportation industries in the first place. A few interviews were specifically allocated to business application sales and implementation environment on the examples of CRM and ERP systems from major vendor perspective.

Table 6.1. Expert`s prerequisites for interview

Focus	Professional	Academic Research pilot with researchers in Digital Transformation development in Russia, Moscow State University
	Commercial Enterprise	Software vendors
Experience in IT	over 5 years
Organizations	Russian enterprise commercial segment (Retail, Financial Services, O&G, Transportation, Manufacturing)	Software vendors, system integrators, consultancy service partners and etc. (Business applications)	Leading Russian research institutions
Roles	CIO, IT Directors	Account Sales management, Solution Sales Professional, Business Apps senior management	Scientific research in digital transformation and related fields

Initially, the basis or research benchmark for this interviews and the ideas behind it lie in recent wide-scale, deep analysis of digital transformation features, progress and scope in commercial segments, from SMB to Corporate, conducted by MIT Sloan Management Review in collaboration with Deloitte fourth annual survey and resulted in research report under the name `Strategy, not technology, drives digital transformation' (Kane et al, 2015). More than 4800 business executives, managers and analysts from organization worldwide (129 countries) and variety of industries (27) took part in that research, discussing and providing their opinion on digital transformation development processes, challenges and digital maturity issues. It also specifically pointed out software vendors' representatives and highlighted their vision within overall research. The research conducted is indeed highly complex and hard to repeat, however, to test own hypothesis, try to feel similar digital spirit in Russia - this is a major driver of this paper. There is no intention to provide somewhat similar quality, rather this is an undertake, a try of similar, but smaller-scale approach, and curiosity of the final results.

Initially, the research started with a pilot - the first iteration of research structure and related questions were discussed with scholars and researchers in the field of digital transformation during research seminar devoted to Digital transformation among Russia business organizations (Appendix 5). Among speakers there were business representatives too, mixing theoretical and practical issues disturbing digitalization processes within organizations. Based discussion and consultancy with research seminar organizers and guests, the following structure was finalized and established for the further research with business representatives.



Figure 6.1. Interview structure and major research blocks

The interview template structure could be found in Appendix 6a and 6b (cumulative results), and basically consisted of three major blocks: organizational development (organizational capabilities and digital business strategy), infrastructural development (digital ecosystem in Russia) and externalities or shocks effecting digital transformation speed and pace through the prism of business software acquisition by commercial enterprises. Each block consists of several dimensions, as it could be seen from Figure 6.1. The interviewees of this research were represented by top-professionals within Russian enterprise segment (management of leading Russian companies), as well as sales management of leading global software vendor and local business IT partnership ecosystem resulting in total of 15 experts. Average age of interviewees is 38 years and experience in IT sphere is a bit more than 14 years. More details on interviewees could be found in Appendix 7.

Table 6.2. Expert interview major features and priorities

6.1 Research results discussion

To begin the review and analysis of research results, I would like to clarify approach used during information and data results construction and interpretation. Since there was no certain set of questions addressed towards interviewees but rather guideline established in order to navigate the discussion from organization and digital strategy development through infrastructural struggles and market conditions to external effects and business shocks influencing development of Russian industries (e.g. FSI, O&G and Retail) and business software products application (on example of CRM/ERP). The first block to be presented is going to be Organizational obstacles for digitalization.

6.2 Organizational block

Short summaries of interviewees understanding of current digital transformation processes within organizations from capabilities and strategy perspectives could be found in Table 6.2.1. Meanwhile I will point out the most important insight I have found during those interviews and demonstrate certain ideas behind. Let`s start with the strategic awareness and digital technology inclusion within company`s vision and perception of the future.

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information system digital information

Cumulatively, almost all experts were sure that Russian enterprises are pretty open to new and emerging technologies and top-management is ready to consider digital changes within organizations. Even though the most active in this respect are FSI and Retail enterprises, there are some evidence that companies in traditional O&G industry recognize potential values of digitalization too. Therefore, there is a reason to believe that enterprises actually keep digital acceleration and indeed search for new opportunities and market values. However, some initiatives are not that successful and sometime decisions related to digitalization left untouched.

What is the probability of taking full advantage of new and emerging software and related technologies in the following time-perspective?

When discussing that important digital dimension inclusion in strategy point deeper, interviewees were asked to estimate maximum digital potential value captured in timeframe perspective up to 10 years. Later on, the discussion broke into two paths. First one concerned current software solutions and the second scenario also included emerging digital solutions during depicted 10 years timeframe. It was agreed, that our interview focus is on ongoing digital development with imaginable more complex and comprehensive solutions. Therefore, it is believed that in nearest future (1-2 years) organization unlikely to take full advantage of contemporary cloud opportunities and most likely to gain that digital advantage within next 3 - 5 years. Since O&G industry is quite conservative one with long business solutions lifecycles and CAPEX investment focus, they are expected to make cloud platform-investments within similar 3-5 years but than just use those technological platform solutions till next lifecycle beginning. FSI and Retail industries on the other hand are more agile and adaptive, expected ordinarily update their digital infrastructure and solutions, explore cross-functional solutions and strive for new opportunities. CRM and ERP solutions estimated to be fully integrated within enterprise infrastructures within next 5-8 years, reflect comprehensive technological nature and monthly functionality updates following product acquisition. Within 10 years the perception of CRM and ERP systems is most likely to be common digital business infrastructure alike.

What is important, is that digital technologies a getting integrated into organization`s infrastructure and strategy development. Internal organization environment possesses certain digitalization obstacles too. And many of them concern middle management lags in support of digital and software-related decisions. Also, lack of transparent decision-making processes and personal interest take place in some organizations. These factors slow digitalization speed. However, it also takes time to take full advantage of current technological conditions, and some of the reasons live in infrastructural conditions as well as externalities` effects and outcomes. Therefore, in the nearest future it is hardly to get advantage from current digital technologies.

Table 6.2.1. Research findings within Organizational block

Organizational dimensions	Product differentiation	Industrial distribution
	CRM/ERP	FSI	O&G	Retail
Strategic management perception and readiness for digital transformation changes	There are some gaps in understanding of CRM-related sets of technologies` value and their future. Therefore, in most cases companies do not adopt their business strategies towards powerful software, neither actively explore new program solutions. Ordinarily they might pilot 1-3 projects in 2 years at large. ...

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