W1: Furr et al. (2022)

Question 1

Digital transformation

Answer 1

A dominant theme in the global economy, but as it erases familiar geographic, industrial, and organisational boundaries, it has led to characterisations such as “digital changes everything.” However, some things stay the same

Question 2

Three core tensions

Answer 2

At the heart of digital transformation: (1) products vs platforms, (2) firms vs ecosystems, and (3) people vs tools. They describe their undelying economics, driving forces, and countervailing forces. They frame a concrete discussion of strategic alternatives for global companies

Question 3

Born-digital firms

Answer 3

For instance, Google, Booking.com, and Amazon

Question 4

Billion-dollar unicorns

Answer 4

For instance, Uber, Airbnb, and TikTok

Question 5

Completely new world order

Answer 5

A one-for-one disruption of old by new - as more data, connectivity, and digital intelligence eradicate global boundaries and upend the old industrial order. However, a closer examination of incumbent firms undergoing digital transformation suggests a more complex story

Question 6

Heineken

Answer 6

Using digital transformation to better interact with customers, create products, and compete, but ultimately still makes beer and ships it in trucks

Question 7

Digital frontrunner industries

Answer 7

Such as media and travel, where digital players have created significant disruption. Many firms coexist and even thrive, e.g. NYT and Huffington Post coexist, and Airbnb has no means to eliminate Marriott

Question 8

Technology-based forces

Answer 8

Exponential growth in computing power, increasing connectivity, and big data. Taken together, these technologies enable start-ups like Airbnb and NYT to become digital almost overnight with relatively low investment. They also enable Apple watch to perform new tasks. Most importantly, they spawn even newer technologies like blockchain and deep learning, each on its own unique developmental S-curve

Question 9

Resource portfolios and defensible positions

Answer 9

May give way to network effects, scale economies of software and information, and positive feedback loops driven by ever-smarter algorithms

Question 10

Products

Answer 10

What most firms competed on before the emergence of the Internet. E.g. tastier beer, cheaper flights. These products were tied closely to valuable resources like manufacturing assets and defensible positions like cost leadership that could provide a competitive advantage

Question 11

Emergence of the Internet

Answer 11

A general-purpose technology. Followed by advances in telecommunications, that brough connectivity, and data generated in exponentially increasing quantities across industries. This shifts the balance towards platforms

Question 12

Digital platforms

Answer 12

Hosted on smartphones, and use GPS to track participants, match riders and drivers, etc. They have unleashed a massive, latent industry. As a result, more than half of the world’s largest firms generate most of their revenues from platforms. This trend was accelerated by COVID-19

Question 13

Distance-diminishing effects of digital technologies

Answer 13

Can blur national boundaries for some platforms, bringing countries closer and placing firms on a more global competitive landscape. Firms have traditionally been geographically or logistically bound by the resources required to produce their products. Now, platforms relax the tie between geography and resources, even as other ties between geography and language remain

Question 14

Tension between products and platforms

Answer 14

Arises from differences in their underlying economics; in how they create value, their strategy, and how financial success is measured

Question 15

Products value creation

Answer 15

Products create value for buyers by leveraging resources arrayed along a vertical value chain, which may have different elements in different countries. They capture value by selling to buyers for a price

Question 16

Products’ strategy

Answer 16

Involves finding a product-market fit in the local context, creating VRIN resources, and establishing a defensible industry position

Question 17

Products’ financial success

Answer 17

Measured by product profitability. When there are strong scale economies, valuable resources like brand and technical skills, or steep learning curve advantages, products thrive

Question 18

Platforms’ value creation

Answer 18

Platforms create value for both the platform owner and its users by matching distinct groups (often buyers and sellers) in value-creating transactions. These transactions create value by leveraging both the owner’s and users’ resources. The platform owner then captures some of that value by charging a transaction fee

Question 19

Platforms’ strategy

Answer 19

About timing and speed. So, starting early and moving quickly to kick-start the platform, which creates a winner-takes-all dynamic

Question 20

Platforms’ financial success

Answer 20

Often measured by transaction volume since platforms thrive when they attract more users

Question 21

Network effects

Answer 21

Digital transformation enables more and different types of data, thus more users and connectivity. These factors drive the potential for stronger network effects

Question 22

Cross-side network effects

Answer 22

Refers to when each group of users (buyers and sellers) is attracted to a platform when there are more of the other. As the number grows, the platform becomes more attractive

Question 23

Same-side network effects

Answer 23

Occur when users of the same type benefit from more similar users. Once a platform becomes dominant in an industry, it can be difficult to dislodge (given its network effects) without attacking with a new core interaction

Question 24

Marketplace control

Answer 24

Enables platform-owning firms to shape which complementors can offer products and to develop their own products to fill product categories

Question 25

Local effects

Answer 25

Can limit platform success. National borders often coincide with discrete changes in language, culture, and regulatory frameworks that limit cross-platform interactions, thereby limiting network externalities for any given platform. Sometimes these are familiar cultural and linguistic boundaries, which may be one reason why Europe has fewer native platform compared to more populous and homogenous nations, e.g. US and China. They are a particularly limiting factor for platforms that rely on location-based goods or services

Question 26

Location-based goods/services

Answer 26

E.g. transportation, food delivery, dog walking, dating

Question 27

Demand heterogeneity

Answer 27

Expands the number of potential applications, and so strengthens both value creation and network effects. In contrast, when demand is homogenous it may make more sense to create the added goods or services in-house

Question 28

Ecosystem

Answer 28

A set of components and complements that collectively deliver a value proposition to users. They can influence whether and how a firm can capture new markets and can affect the choice of technology when entering a new industry, the allocation of resources to innovative efforts, and the relevant strategies and roles that a firm can adopt

Question 29

Tension between firms and ecosystems

Answer 29

Largely arises from differences in their underlying economics, e.g. in their value creation

Question 30

Firms' value creation

Answer 30

Firms create and capture value by relying on a value chain that they mostly control. They may work with suppliers, but not in complicated constellations of firms. Rather, they engage in (often bilateral) alliances when they need to collaborate on specific issues like an R&D project or co-marketing

Question 31

Ecosystems' value creation

Answer 31

Ecosystems create collective value from the contribution of multiple actors. Thus, ecosystems differ from alliances and supply chains because they include a larger set of interdependencies, many of them informal yet necessary to create value for users

Question 32

Ecosystem orchestration

Answer 32

Can be valuable in any industry. It is useful in digital settings because digital products can often be more easily bundled to create advantages than traditional products

Question 33

Co-specialisation

Answer 33

May be difficult to achieve across global boundaries with their different regulatory, technical, and related regimes

Question 34

Interfirm conflict

Answer 34

Regarding how to organise the roles within the ecosystem or divide the created value can inhibit the benefits of ecosystems

Question 35

Digital tools

Answer 35

Highlight software-based applications and algorithms that perform specific tasks, and are at the very centre of the conceptualisation of digital transformation. They include data analytics, machine learning, blockchain, and related technologies that constitute a force often described as "disruptive substitution of humans by algorithms"

Question 36

Tension between people and digital tools

Answer 36

Arises from differences in their underlying economics

Question 37

People

Answer 37

Mostly non-scale free variable costs. So when a firm grows, its costs grow with it in a roughly linear relationship. This ongoing relationship affects the pace of growth and the underlying capital requirements to fuel that growth

Question 38

Digital tools (vs. people)

Answer 38

Largely scale-free. So, their costs are primarily the fixed costs of software. While the development is expensive, their marginal costs are very low. This cost relationship means that firms become increasingly profitable as their revenues grow. Also, they offer 24/7 availability without complaints. They do not leave, ask for wage increases, require motivation, or speak different languages. Thus, the frictions of the employment relationship are avoided

Question 39

"Datafication"

Answer 39

Increased due to automated internal processes and digital platforms connected to consumers. Through AI, it enables firms to learn from their own processes and customers

Question 40

Economies of scale

Answer 40

Digital tools are often primarily comprised of fixed costs. As the number of transactions increases, the cost per unit decreases

Question 41

3 forces pushing for localisation

Answer 41

(1) Business model, (2) Physical/technical infrastructure, and (3) Customer journeys

Question 42

Repeat-transaction business models

Answer 42

E.g. retail. They tend to require greater localisation than low-touch business models like subscriptions. This is particularly true for business models where relationships matter, or where play a significant role

Question 43

General Data Protection Regulation

Answer 43

Creates significant constraints on how firms acquire, store, and use data in Europe. These constraints have required changes in the use of digital tools and data that have led to the localisation of digital tools and negative performance implications for firms