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Digital Transformation in China’s SMEs: The
Critical Success Factors and Transformation
Framework
A Case Study of a Chemic...
1 |
Table of Content
Abstract ...............................................................................................
2 |
Abstract
Digital transformation in China is customer-driven instead of
enterprise-driven. The Internet adoption ratio ...
3 |
I. Introduction
McKinsey Global Institute published a report on the Internet’s impact on
productivity and growth to un...
4 |
Due to the differences of population bases and economic structures, the
definitions of SMEs among countries are differ...
5 |
lot of websites have serious problems, including unclear understanding on
e-business and digital transformation, undef...
6 |
adoption. Many use Internet as a practical solutions to their everyday lives, such as
easy access to news, and encyclo...
7 |
Zhou (2012) confirmed the Internet development trends. In 2011, each Chinese
consumer spent 3.6 hours a day on an aver...
8 |
II. Literature Review
2.1 Digital Transformation Concept
2.1.1The Importance of Digitalization
Requests of Model Infor...
9 |
been changed. Normal people could easily buy and review newspapers and
magazines. Therefore, apart from continue impro...
10 |
friends or commercial partners. To deal with emergency issue, they can call directly
to the person from a cell phone....
11 |
That’s why the presenting on Internet is important. Throughout along the
history, nowadays, people have higher expect...
12 |
less. The observations of this time says that the emergency of strategy was regarded
as a way to control market force...
13 |
complexity of actual competition. As a player in the industries, the firms as well as
their competitors, they are hig...
14 |
cloud, mobile technology, social media and big data to achieve its strategic
objectives such as cost reduction, infor...
15 |
alteration of context that somehow changing the context within which firm operate.
Goss, Pascale and Athos (1998) arg...
16 |
operate and to achieve a good results are depending on the problem solving and
decision-making abilities of managemen...
17 |
maximize the potential business contribution of digital technology and media”. To be
conclude, the digital transforma...
18 |
virtual digital world, even front-office staff in the companies are lack of face-to-face
clue during the communicatio...
19 |
(KPIs). The strategic decision-making are more realistic and corresponding to the
competitive environment.
The last a...
20 |
determining the outcome of the digital transformation process by ensuring the firm
moving in the right direction.
To ...
21 |
The framework is combined micro and macro elements, analyzing the
company from internal operation process and investm...
22 |
One of the key finds in this survey is that apart from leadership approaches and
cultures needed to support, digital ...
23 |
a fusion between IT strategy and business strategy”. The study identified four key
elements – the scope, the scale, t...
24 |
tissue. Rai et al (2012) explained that digital business strategy relies on rich
information exchanges through digita...
25 |
understanding and capabilities of acquiring the huge quantities data, information,
and knowledge affect digital busin...
26 |
2.2 Digital Transformation in SMEs
2.2.1 Critical Success Factors (CSFs) of SMEs
Small and medium-sized enterprises (...
27 |
Ability to identify and focus on market. 5) Ability to develop and sustain capability. 6)
A good customer and client ...
28 |
in SMEs was introduced by Mademe (2009). The idea is to provide a visual
representation of the major steps to be take...
29 |
“As the main activities (MA), 7 steps are being defined:
MA1. Current Situation Analysis
MA2. Verification of the exi...
30 |
As complementary activities (CA), 3 steps that should be followed:
CA1. Initial Setting (characteristics of digital b...
31 |
government and enterprise and bring the role of the government in macro control
into the full play so as to create a ...
32 |
The study showed that the Chinese SMEs indicated that for surviving the
competitive marketplace, highest priority nee...
33 |
III. Methodology
3.1 Descriptive case study approach
Schelle (1992) said that management studies and organizational t...
34 |
cases require that the investigator begin with a descriptive theory, or face the
possibility that problems will occur...
35 |
sui generis cases and, where the potential of generalization may exist, nomothetic
case studies suitable for the test...
36 |
performances within the company. There is no existing study that focus on the
company. Therefore, the major informati...
37 |
IV. Case Study
4.1 Case Description
4.1.1Company Introduction
This paper selected a small-sized joint venture who exp...
38 |
production lines to provide the market 6 series rubber car tires. Besides, the
powered carbon black produced by the s...
39 |
both purchase and sales and marketing; production technology department which
takes in charge of production, logistic...
40 |
The digital transformation in the company is in the early stage. The digital
activities are customer and market orien...
41 |
potential clients as well as supplier contacting them directly. To catch the digital
trends, company has an official ...
42 |
Instead, they apply a free normal email account with the company’s name before @
plus the server name.com. In additio...
43 |
DCS – Distributed Control System and SPC – Statistical Process Control are applied
to ensure the product qualities du...
44 |
parties understanding the advantage of the solution and trained them to consider the
use of this solution as a part o...
45 |
The director of the company does not have a clear vision of the opportunities
in digital era or the strategic vision ...
46 |
pay attention to the challenges and opportunities that digital era brings. It is more
than marketing and sales, it ca...
47 |
This is a common limitation for traditional small and medium-sized
enterprises in China. Brand equity – “the set of a...
48 |
Lack of sufficient change management
In the operational level, the top concern is how to change efficiently with
supp...
49 |
working direction by analyzing the data of customer demands, behavior as well as
the buyers’ profile (in corporate le...
50 |
From management perspective, the company does not have experts to
provide useful suggestions or proposals in order to...
51 |
who use a company computer, there is a great chance that the software does not
exist. And the users may also do not h...
52 |
4.2.3 Implementation Steps
Reviewing the real situation with MICEP model (Mademe, 2009), all seven
main activities ar...
53 |
4.3 Recommendations
As conclude before, the major issue for the company is to understand the
market and industry and ...
54 |
The second approach about enterprise-oriented transformation is mainly
about the internal digital integration, such a...
55 |
market, and competitions in digital related topics. To survive and growth in the digital
era, SMEs need to go digital...
56 |
Reference
Al-Mahrouq, M. (2010). “Success Factors of Small and Medium Enterprises: The Case of
Jordan”. Zagreb Intern...
57 |
Blili S. & Raymond L. (1993). “Information technology: Threats and opportunities for small
and medium-sized enterpris...
58 |
Ghosh, B. C., Liang, T. W., Meng, T. T., & Chan, B. (2001). “The Key Success Factors,
Distinctive Capabilities, and S...
59 |
Porter M.E. (1980). Competitive Strategy: Techniques for Analyzing Industries and
Competitors. Free Press, the USA.
P...
60 |
Yin R.k. (1984). Case Study Research: Design and Methods. Sage Publications, Newbury
Park, page 17.
Yin R.K. (1993). ...
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Digital transformation in china’s sm es the critical success factors and transformation framework

Digital transformation in China is customer-driven instead of enterprise-driven. The Internet adoption ratio in SMEs that contribute 70 percent of China’s GDP is way much lower than that in developed countries. The paper aimed to identify the critical success factors for SME’s digital transformation and then provide a sufficient transformation framework through analyzing a small chemical company in China. Three issues are defined as the main boundaries in digital transformation in China’s SMEs: the lack of awareness and strategic vision of Digital, the lack of sufficient change management, and the lack of experts. The seven main activities of MICEP methodology can be applied in Chinese SMEs. But the emphasis may different between one and another.

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Digital transformation in china’s sm es the critical success factors and transformation framework

  1. 1. Digital Transformation in China’s SMEs: The Critical Success Factors and Transformation Framework A Case Study of a Chemical Company YAO Mengying EMSI, Grenoble Ecole De Management
  2. 2. 1 | Table of Content Abstract ......................................................................................................... 2 I. Introduction................................................................................................ 3 II. Literature Review....................................................................................... 8 2.1 Digital Transformation Concept ....................................................................................8 2.1.1The Importance of Digitalization .........................................................................8 2.1.2 Digital Transformation Concept and Framework..............................................14 2.1.3 Digital Strategy – The Key Element in Digital Transformation ..........................21 2.2 Digital Transformation in SMEs...................................................................................26 2.2.1 Critical Success Factors (CSFs) of SMEs.............................................................26 2.2.2 China’s SMEs .....................................................................................................30 III. Methodology .......................................................................................... 33 3.1 Descriptive case study approach ................................................................................33 3.2 Data Collection............................................................................................................35 IV. Case Study .............................................................................................. 37 4.1 Case Description .........................................................................................................37 4.1.1Company Introduction.......................................................................................37 4.1.2 Digital transformation in the Company ............................................................39 4.2 Findings and Discussions.............................................................................................44 4.2.1 Main Boundaries in Digital Transformation ......................................................44 4.2.2 Digital Strategy Analysis....................................................................................50 4.2.3 Implementation Steps.......................................................................................52 4.3 Recommendations ......................................................................................................53 V. Conclusion and Future Study ..........................................................54 Reference ......................................................................................56
  3. 3. 2 | Abstract Digital transformation in China is customer-driven instead of enterprise-driven. The Internet adoption ratio in SMEs that contribute 70 percent of China’s GDP is way much lower than that in developed countries. The paper aimed to identify the critical success factors for SME’s digital transformation and then provide a sufficient transformation framework through analyzing a small chemical company in China. Three issues are defined as the main boundaries in digital transformation in China’s SMEs: the lack of awareness and strategic vision of Digital, the lack of sufficient change management, and the lack of experts. The seven main activities of MICEP methodology can be applied in Chinese SMEs. But the emphasis may different between one and another. KEYWORDS: digital transformation, China’s SMEs,
  4. 4. 3 | I. Introduction McKinsey Global Institute published a report on the Internet’s impact on productivity and growth to understanding China’s digital transformation in 2014. The statistics in the report showed that in 2014, Chinese internet users had increased to 632 million, nearly half of the population. In generally, 700 million active smart devices connected to network that allowed users to access to the Internet from office, home, and on the road. Thanks to all these Internet audiences, customer-oriented e-business generated 4.4% share of China GDP in 2013. This proportion was higher than the United States and Germany – the two biggest well developed economies in the world. However, China’s Internet is a more customer-driven instead of enterprise-driven as the major contribution is coming from e-tailing. In the entire retail industry, 7-8% of the trades are conducted via Internet. Compare to the United States, this percentage is 6%. It seems quite similar. But when taking the internet usage of the country population into account, the e-tailing in China is 2.5 times powerful than the U.S. since 87% of American are the internet users and China only have 46%. The situation on enterprise side is contrary to the consumer side. In China, SMEs (Small and Medium Enterprises) Internet adoption ratio which responses for the use in procurement, sales, and marketing is less than 25%. In developed countries, the use of internet has been universalized in their entire economies regardless the size of the firms. In the US, around 85% SMEs has adopt Internet in their business operations.
  5. 5. 4 | Due to the differences of population bases and economic structures, the definitions of SMEs among countries are different. In China, SMEs are generally defined as companies with less than 1 000 employees. China’s small and micro businesses are those with fewer than 250 employees, which makes them comparable to SMEs elsewhere. SMEs contribute some 70 percent of China’s GDP and are an important source of employment and innovation. From McKinsey’s report, “within the SME sector, China could generate even more dynamic growth from its small and micro businesses, which contribute 35 to 40 percent of GDP, compared with 52 percent in Germany, 54 percent in Mexico, and 67 percent in Italy”. Therefore, a great economic growth potential might be coming from China’s SMEs digital transformation. Estimated by McKinsey, new applications of the Internet, especially the greater digitization of SMEs, could account for up to 22 percent of China’s labor-productivity growth by 2025. Nowadays, in China, although most SMEs have realized the importance of information and digitalization, and nearly half of them have their own intranet, the use of Internet and the penetration of e-commerce are not be able to measure based on this number. Among firms in different industries or even in the same industries, the Internet plays different roles in their business operation system, and the gap is becoming larger and larger. In the industries whose information technology has been implemented in a higher level on average – such as automotive and ecommerce, only around 30 percent of SMEs participating in the digital world (China.com.cn, 2002). Moreover, among these participants, the digital development is unbalanced. A
  6. 6. 5 | lot of websites have serious problems, including unclear understanding on e-business and digital transformation, undefined digital objective and strategy, no target audiences. Therefore, the websites lack of functional aspects, visitors could not find the information they were looking for, and the clients cannot receive the replay from client services by leaving online message. Moreover, the statistics indicated that less than one third websites support online payment, and only 1.4% corporate purchases happened through online trading (L. Jiang, 2004). The digital strategy of most SMEs focuses on online advertising and promotion. Internet users can check only the basic information of the firms – corporate name, brands, address, contact number from yellow page platform as majority of them don’t have their own domain name or official website. For others who have established their website, the usage of the sites is extremely low, some even became empty shell page. The firms may not update their online content for years (H.D. Wang & R.X. Wang, 2009). They still prefer to the traditional offline marketing model rather than the new digital trends. In the Internet era, the traditional marketing strategy cannot satisfy the need of the market, as customer behavior has changed with the revolution of technology. The Boston Consulting Group’s China’s Digital Generations 2.0 (D.C. Michael & Y. Zhou, 2010) indicated the most significant changes in online behavior in China since 2007 is the embrace of e-commerce. The main Chinese Internet users are following three generations: the older generation – aged 36 to 55, the middle generation – aged 26 to 35, and the young generation – aged 14 to 25. The older generation grew up before the economic boom and they still exhibit moderate levels of Internet
  7. 7. 6 | adoption. Many use Internet as a practical solutions to their everyday lives, such as easy access to news, and encyclopedia of the newest concept and terms. Learning from the experiences, this group is becoming increasingly comfortable with more recreational Internet use, social networking sites, instant message applications, as well as with e-commerce. The second group tends to have high rate of adoption of digital devices and services as they are the beneficiaries of the country’s reforms. The richness of information accessible via popular portals is also appreciated. The mobile-phone use and the Internet is readily embraced by the young generation as they have grown up in an openly capitalist environment and have seen rapid modernization. Moreover, BCG’s researchers believes that users who have the differences in educational background and income levels behave differently. Two most active groups have been defined: University Students – have grown up with digital service, spent 3.6 hours a day on the Internet, and focus on information, entertainment, and community; and Young professional whose motivation is for work and career – spent 4.0 hours a day online, focusing on communication and information, and perform some e-commerce and online transaction. In addition, with the digital transformation in China economy – public service, e-government, finance and etc., the internet older generation is expanding since more and more middle-class people started their Internet experiences at work. The Internet is no longer a “new” thing for them, and the benefits of Internet becomes more and more clear and obvious. As a result, they are not only using the Internet to work but also to support daily life. The updated research by D.C. Michael, C. Nettesheim, and Y.
  8. 8. 7 | Zhou (2012) confirmed the Internet development trends. In 2011, each Chinese consumer spent 3.6 hours a day on an average – about one hour more than in the US. Younger users tend to log more hours on the Internet, but many are not yet spending large sums of money online. Seniors and rural residents are new to the online world but are rapidly making the Internet part of their lives. As people spend more and more time online, presence only offline is not efficient any more. Currently, a large number of enterprise, especially SMEs could not reach online audiences, not even mention acquire online customers or client. They need to shift part of their businesses as well as investment from offline to online. The efficient digital transformation is required. However, digital transformation in China is still in the earlier phase. Firstly, the online customers are still “young”, their Internet expectations and behavior are in a certain extent easily influenced by new internet trends. Most firms that present online are learning from not only developed countries but mainly from practical experiments. Secondly, most Chinese SMEs use to traditional marketing model. The digital transformation which required the changes from internal organizational operation to external partnerships and digital business model is a new and complex concept. The lack of framework keep most SMEs away from digital adoption. The objective of this study is to provide an efficient business workflow as a guidance, helping to set a suitable sustainable digital strategy.
  9. 9. 8 | II. Literature Review 2.1 Digital Transformation Concept 2.1.1The Importance of Digitalization Requests of Model Information Exchange and Communication With the development of technologies, people has more and more demands on information. Fang concluded in 1997 six information revolutions – writing, printing, mass media, entertainment, the toolshed home, and the highway – present the “new means of communication that permanently affect entire societies, changes that have shaken political structures and influenced economic development, communal activity, and personal behavior”. Writing is defined as the first revolution as important experiences and knowledge were able to be stored by writing. The knowledge would be boundless. In the second half of the fifteenth century, information spread through many layers of society thank to Printing. It contributed to a series changes – “the Reformance, the Renaissance, humanism, mercantilism, and the end of feudalism”. Then, the Mass Media Revolution began in Western Europe and eastern United States during the middle of the nineteenth century. Since then, the way information was conveyed had
  10. 10. 9 | been changed. Normal people could easily buy and review newspapers and magazines. Therefore, apart from continue improving knowledge and sciences, people are able to get the latest information about what was going on in the surrounded society, what kind of policies might be proposed, if the grocery store announced a sales during Christmas season, which restaurant was looking for a chef, and etc. Starting this period, the short-term information began to be recognized and demanded. For longer distance communication, telephone were used as early radio for receiving the latest information from other regions. In the meantime, following the inventions as stored sound, affordable camera, and motion photography, stories were printed and sold cheaply, and the movie industry was first introduced in the human history. The normal life became colorful: words, pictures and actions – all of them can be stored and spread easily. In the end of nineteenth century when the voice was first recorded, voice-related products started their journey: the records of opera and symphony, phonofilm, and broadcasting. This is the fourth revolution – Entertainment. Thanks to all these technology, the arts and music had been improving. People started to express their own opinions in the way they sang, they draw, and they acted. Entering to 20th century, a new information revolution – the Toolshed Home had taken place without any notification because of the electricity. Information can be spread and communicated without locomotion. Even normal citizens could start their day by reading the newspaper from home delivery or listening to the radio for the breaking news. Then, they checked their mail box in from of the house and wrote back to
  11. 11. 10 | friends or commercial partners. To deal with emergency issue, they can call directly to the person from a cell phone. Wherever the contact was, they were able to get in touch. After diner, families could set around and watch television while communicating with each other about their daily life. Since then, the communication turned from mass communication to more personal or individual or intimate one. The last information revolution presented by Fang is still happening – the Highway with the invention and development of computer and network. It extends communication in three important areas: 1). It provides new media and more communication options. People can use telephone to communicate with close friends and families, and leave email address for professional contacts. For saving, one can subscribe important magazines for supporting your studies or expanding your knowledge and in the meantime, listen to radio or browse through the portal sites for the latest news; 2). Interaction – gives users more control of the information and entertainment being transmitted. For instance, gamers can organize an online competition without gathering to the same place and knowing each other; 3). It makes distant connections to personal activities. Everything can be done at home: work from home with internet support, such as email communication, video conferences, FTP sharing; shop from home by purchasing from online shops; learn from home by registering for online courses or accessing for powerful and global e-library.
  12. 12. 11 | That’s why the presenting on Internet is important. Throughout along the history, nowadays, people have higher expectations from information, it needs: • To be updated timely • To be able to access from various channels and from distance • In different forms: words, images, videos, and etc. • To be understandable: serious and interesting Requests of Competitive Marketing Environment The global marketing environment is more and more competitive with the invention of new technology and the decline of costs. Starting from the First Industrial Revolution (the mid-1700s to the mid-1800s), the competition among large industrial firms became intense. However, this competition did not have much individual influence on competitive outcomes. On the contrary, described by Professor Ghemawat in 2000, in the most lines of business, firms had an incentive to remain small and to employ as little fixed capital as possible. Adam Smith indicated that under this period, the market forces as an “invisible hand” that was largely beyond the control of individual firms. The new market participants born during this period – small industrial and merchant firms did not need formal planning or strategy in the modern sense. However, the situation had been changing since the Second Industrial Revolution. Due to the mechanization, the firms of all sizes (small, media, and large) had becoming more and more productive and their costs was less and
  13. 13. 12 | less. The observations of this time says that the emergency of strategy was regarded as a way to control market forces and to shape the competitive environment. Alfred D. Chandler pointed out the market is dominated by “visible hand” of professional managers instead of previous “invisible hand”. Staring from this time, the strategic thinking was applied in the business management. Different strategic analysis models are introduced by scholars and experts. The final objective of all these models is to help a firm to establish its own business strategy by better understanding the competitive industry that it belongs to and its position in the industry. SWOT framework – strength, weakness, opportunity, and threat – was introduced as a major step forward in bringing explicitly competitive thinking to beat on questions of strategy. This theory indicates that there are two directions that a firm need to take into consideration: self-diagnostics and industrial analysis. According to the elements put by Kenneth Andrews (1980), self-diagnostic should mainly focuses on firms’ distinctive competences, including: Capabilities, such as financial, managerial, functional, and organization, Reputation, and History. The industrial analysis in SWOT model – opportunities and threats from macro-environment, such as economic, technical, political, and social is more like an industrial introduction than an exclusive analysis. To understand the attractiveness of an industry environment, Michael Porter (1980) presented Porter’s elaborate framework for the structural analysis is more efficient. It encompasses many variables and seeks to capture much of the
  14. 14. 13 | complexity of actual competition. As a player in the industries, the firms as well as their competitors, they are highly influenced by the other stakeholders within the industry: suppliers, buyers, substitutes, and new entrants that is the outcomes of “invisible” hand – the free market automatic equilibrium process due to economies of scale, the entry capital requirement, brand equity and etc. and of “visible” government policies. The competitive industrial environment is dynamic. The firms need to be prepared with all the incoming challenges. After analyzing the industries and pointing out the key competences and weakness of the firm, to survive in the competitive environment is to set a strategic planning which will bring the best interests to the firms. Porter (ibid) proposes three different approaches to gaining or strengthening competitive advantages proposed: Overall cost leadership; Differentiation; and Focus. In a low cost strategy – commodity, the company with actual lowest cost in the market place wins the market share. In order to avoid the price war in the market, companies with higher margin, meaning lower cost gain more. The Differentiation approach involves being perceived by the market place as having a relatively higher value to the customer or user than the offerings of its competitors. This approach requires deeper understanding of customers’ needs and continually innovations to fast response to the market demands (Bladwin, 2014). By digitalizing, companies have better chance to gain competitive advantages. The Digital Procurement Strategy (Murray, 2013) addresses the use of
  15. 15. 14 | cloud, mobile technology, social media and big data to achieve its strategic objectives such as cost reduction, information access acceleration, risk mitigation, innovation and CSR. In the digital world, buyers have better understanding of the products and have knowledge of the industrial price as the Internet reduce the boundary of information transparency; suppliers can increase the productivity and reduce the price by benefiting from Information System; competitors may reach potential clients faster and provide better service by communicating with them directly via Internet; New entrants can provide innovated products by conducting an exhaustive online marketing research in professional communities and popular portals, etc. In the digital world, the pressure and threat are coming from all aspects, to keep the market share and position, the firm should at least fall behind others. 2.1.2 Digital Transformation Concept and Framework Context of Enterprise Transformation Enterprise transformation is the changes that a company performed to adopt new challenges to well adopt the competitive business environment. Purchase, Parry, et al (2011) claims that there are three significant perspectives of enterprise transformation. First, transformation is a response to radical changes in the economic, market, or social environment. As argued by Rouse (2005), enterprise transformation is prompted by the significant changes within the economic and market context which lead to “experienced or expected value deficiencies” requiring fundamental changes to reverse. Transformation is also regarded as a fundamental
  16. 16. 15 | alteration of context that somehow changing the context within which firm operate. Goss, Pascale and Athos (1998) argued that this alteration is a reinvention of the companies to create “what isn’t” concerning how they operate, the relationship with customers, and the sources of past success. Rouse (ibid) proposed that “Enterprise transformation concerns change, both routine and fundamental changes that substantially alters an organization’s relationship with one of more key constituencies, such as customers, employees, suppliers, and investors. Transformation can involve new value propositions in terms of products and services, how these offerings are delivered and supported, and/or how the enterprise is organized to provide these offerings”. In addition, the transformation is a step change in performance. The firms that conduct a conscious and sustainable transition are expecting “a higher level of business performance and organizational health, based on a fundamental shift in underlying capabilities, systems, and processes” (Gerstner, 2003). Rouse (2005) introduces a model describing the theory of enterprise transformation (Figure 1) as a system provides a basis for understanding the possibilities for transformation – relationship between the enterprise and context. In this model, “transformation is driven by value deficiencies and involves examining and changing work processes”. For a long-term development, the model can be used in order to exam how changes are likely to affect future states of the enterprise. Potential impacts on enterprise states are assessed in terms of value consequences: potential value and projected value. The projected consequences influence how investment of inputs – i.e. attention and resources are allocated. How to organize, to
  17. 17. 16 | operate and to achieve a good results are depending on the problem solving and decision-making abilities of management, as well as the social context. Figure 1: Theory of Enterprise Transformation Digital Transformation In this paper, Digital Transformation is the enterprise transformation in adopting digitalization wave of economy, society, and human behavior. A research conducted by MIT Center for Digital Business and Capgemini Consulting in 2011 defines Digital Transformation as “the use of technology to radically improve performance or reach of enterprise”. Chaffey, Ahrel, et Carson (2015) explained the concept with more operational details “A staged programme of business improvement to People, Process and Tools used for integrated digital marketing to
  18. 18. 17 | maximize the potential business contribution of digital technology and media”. To be conclude, the digital transformation has two main aspects: 1. Companies need thoughtful internal changes in both operational and practical levels: concept understanding, strategic thinking digital, advanced systematic work process with new technologies. 2. A continue improved digital business strategy need to be planned and implemented to adopt the requirements of the customers, partners, and industries. Digital Transformation Framework: The What and the How Framework In the research of MIT and Capgemini (2011), executives in all industries consider digital as an important changing factors that needs to be pay attentions to and adopt to. Some of them are now changing customer relationship, internal processes and value propositions by improving the use of traditional technologies such as ERP and benefiting from digital advances such as analytics, mobility, social media and smart devices. Three key areas are affected by enterprises’ digital transformation: customer experience, operational processes and business models. Nine key elements – three possibilities of each area compose the transforming visions. Companies use technology and online channels and tools to gain an in-depth understanding of specific geographies and market segment – gain from customer experiences. In the
  19. 19. 18 | virtual digital world, even front-office staff in the companies are lack of face-to-face clue during the communication with customers. However, the positive side is that it’s possible to get the most realistic information by analyzing how people behavior in the digital world. In addition, social networking sites or professional communities can also be used for interacting with customers directly. The use of technology in order to enhance in-person sales conversations is so-called Top-line growth. Benefiting from the advantage of big data, companies be able to provide personalized services and information in order to increase the purchase perspectives and finally the conversions. Due to the trust issue, the touch points are required. Multichannel activities allows customers to interact with companies and purchase via multiple devices and even in the psychical stores or agencies. Apart from the most visible transformed customer experiences, the operational process transformation that takes place internal is important in supporting corporate complex tasks. New technologies are extending the trends of gaining benefits beyond efficiency: automation can reduce labor requirements, improve product quality, and reducing product development lifecycle and changing quickly in response to market changes; enable companies to refocus people on more strategic tasks, including R&D processes. With the unlimited communication paths and channels within the companies in both vertical and horizontal, the employees in different domains are able to collaborate with others. The data is more transparency with the digital transforming internally, enabling organizations to more accurately monitor and manage their performance with the help of Key Performance Indicators
  20. 20. 19 | (KPIs). The strategic decision-making are more realistic and corresponding to the competitive environment. The last aspect is the business model. Digital provides a great business opportunities: the companies can growth by providing digitally-modified businesses such as sales on e-commerce platforms; they can expand the business scope from new digital businesses such as the trackable delivery from logistics companies. Multi-national firms are transforming to global operations thanks to digital globalization. Both local and central can benefit from broader view of the business through centralized data and make strategic decisions. The study argued that in order to transform from traditional business to digital successfully, a diagnosis of the potential value of existing corporate assets need to be done first and then building a transformative vision for the future. Then the company need to invest in skills and initiatives to make the vision a reality. Three-step process is proposed to drive digital transformation (Figure 2): 1. Envision the digital future for your firm 2. Invest in digital initiatives and skills 3. Lead the change from the top After setting up the strategic objectives and preparing the assets in both capability (initiatives) and competence (skills), the work streams – efficient communication and governance - are taken place as fundamental indicators
  21. 21. 20 | determining the outcome of the digital transformation process by ensuring the firm moving in the right direction. To have a clear version in this complex framework, two terms are the “must” in the digital maturity of an organization: “The What” – digital intensity of the organization – the specific set of elements (e.g. nine digital elements) implemented by the organization and sources like digital capabilities and investment used to do so; and “The How”, as the transformation management intensity, the ways in which the transformation can lead to a successful outcome, including digital vision, governance and engagements. Figure 2: The What and the How Framework
  22. 22. 21 | The framework is combined micro and macro elements, analyzing the company from internal operation process and investment to external digital marketing strategy to satisfy customer expectations and to gain competitive advantage in the industry. The logic of “what” and “how” facilitate understanding of this mechanism and enable decision-makers in the company establish a helpful digital strategy and transformation process. 2.1.3 Digital Strategy – The Key Element in Digital Transformation As studies explained before, digital transformation is not only about the technology, but also about the challenges and opportunities associated with the use of it. Digital as a new concept that is being recognized after the development of Internet, is an attracting and developing field for all industries. As a key element in a successful digital transformation framework, a clear digital strategy is essential to point out the right direction to move forward. Kane, Palmer et al (2015) in the annual survey conducted by MIT Sloan Management review in collaboration with Deloitte pointed out that “Strategy, not technology, drives digital transformation”. In this survey, it captured insights from individuals in 129 countries and 27 industries and involved organizations of various sizes – large, medium, and small ones. No matter how much companies have invested in digital technologies – social, mobile, analytics, and cloud, the strength of these technologies doesn’t lie in the technologies individually. The important thing is how companies integrate them to transform their businesses and how they work.
  23. 23. 22 | One of the key finds in this survey is that apart from leadership approaches and cultures needed to support, digital strategy drives digital maturity to a great extent. A digital maturing organization follows a clear and coherent digital strategy and effectively communicates it to employees. From the companies at the early stage of digital transformation, only 15% of respondents say that their organizations have a clear and coherent digital strategy. This percentage increased to 49% in developing stage. Among the more digitally mature, the number leaps to 81%. Depending on the digital transformation level, the companies build their strategies by focusing on different aspects: • Early-stage: Customer and Productivity Driven – about 80% cite focus on customer experience (CX) and efficiency growth • Developing-stage: Growing Vision – more than 70% cite focus on transformation, innovation and decision making • Maturing-stage: Transformation Vision – over 87% cite focus on transformation, innovation and decision making Key Elements of Designing a Digital Strategy Bharadwaj, El Sawy, et al (2013) argued that the term Digital Business Strategy should be used for describing the information technology strategy in companies by rethink the role of IT strategy, “from that of a functional-level strategy – aligned but essentially always subordinate to business strategy – to one that reflects
  24. 24. 23 | a fusion between IT strategy and business strategy”. The study identified four key elements – the scope, the scale, the speed, and the sources of business value creation and capture to guide future thinking on digital business strategy and provide a framework to help define the next generation of insights (Figure 3). Figure 3: Drivers of the Four Key Themes of Digital Business Strategy The scope is used to define the portfolio of products and businesses as well as activities that are carried out within a company’s direct control and ownership. In the research (ibid) argued, “understanding the scope of digital business strategy helps to conceive its relationship to firms, industries, IT infrastructures, the external environment, and how digital business strategy can be more effective in a variety of settings”. All of the functional and process strategies are encompassed under the umbrella of digital business strategy with digital resources serving as the connective
  25. 25. 24 | tissue. Rai et al (2012) explained that digital business strategy relies on rich information exchanges through digital platforms inside and outside organizations, allowing multifunctional strategies and processes to be tightly interconnected with the aid of interfirm IT capabilities. Over time, as firms and industries become more digital and rely on information, communication, and connectivity functionality, digital business strategy will be the business strategy. The digitalization of benefiting from the power of digital resources in the company encourages them to create new IT capabilities and craft new strategies around new products and services (Ray et al. 2005). As a result, the clear reconceptualization of the role of digital connections within a firm4s corporate portfolio of its scope – products and services help to better prescribe the digital business strategy under increased digital conditions in a certain extent. Moreover, in digital dynamic environment, the business ecosystems cannot be conceived independently as it enables firms to break traditional industry boundaries (Saraf et al, 2007). When infrastructure becomes increasingly digital, firms need to think of the scale in both physical and digital terms as both fields confer benefits of lower unit cost of products and help enhance profitability (Bharadwaj, El Sawy, et al, 2013). Cloud computing solution provides a strategic dynamic capability for firms to scale up or down its infrastructure based on on-demand of digital resources in competitive market. Network effects become the key differentiator and drive the value creation as the products and services become digital and connected. In addition, the
  26. 26. 25 | understanding and capabilities of acquiring the huge quantities data, information, and knowledge affect digital business strategy. In digital world, the information is more transparent and easier to access. The speed of product launches, of decision making, of supply chain orchestration, and of network formation and adaptions become an important driver of competitive advantage for firms. The firms that act faster than competitors have greater chance to gain market share by satisfying the customer demands and gain margin by reducing the costs from more efficient internal innovation, production, working processes. The fourth driven element is the sources of value creation and capture. Digital business brings in additional dimensions that may provide opportunities of value creation and capture. The basic source is Information. Facebook, Google, and eBay are few examples of new value creation from information collection, re-organizing, and exchanges. Multisided business model in digital industries is well-developed, not only software like Adobe Reader, but also network platforms, and any other possible products or services can benefit from multisided interaction. Coordinated business models is more commonly adopted in technic-oriented companies, especially, in the case of mobile ecosystem, the value capture involves complex coordination between app developers, and the mobile operation systems like iOS, Android, and Windows.
  27. 27. 26 | 2.2 Digital Transformation in SMEs 2.2.1 Critical Success Factors (CSFs) of SMEs Small and medium-sized enterprises (SMEs) have a vital role in the private sector of each nation. As described in the study of Ensari and Karabay (2014), SMEs have a very important role of introducing and exporting the local products and services to the international markets, as well as competing with multinational competitors and foreign SMEs in the domestic markets. “The benefits of smallness, flexibility and rapid response to changes, on the other hand, the disadvantages of size may provide SMEs different paths in globalization phase”. Rockart (1979) developed the definition of critical success factors as “areas, if satisfactory, that will ensure successful competitive performance for the organization” to help executives identify their needs. Based on the findings of previous researches, the factors that affect SMEs business success were classified into different categories: entrepreneur characteristics, characteristics of SME, management and know-how, products and services, customers and markets, the way of doing business and cooperation, resources and finance, strategy, external environment, and internet. Due to the economic, geographical and cultural differences, the CSFs could vary from one country to another. Ghosh et al. (1998) found the six top components for a successful strategy dynamics of SMEs in Singapore: “1) A committed, supportive, and strong management team. 2) A strong, visionary, and capable leadership. 3) Adopting the correct strategic approach. 4)
  28. 28. 27 | Ability to identify and focus on market. 5) Ability to develop and sustain capability. 6) A good customer and client relationship. However, after analyzing 163 SMEs in Jordanian, Al-Mahrouq (2010) argued that the top factors that have positive and significant impact on the success of SMEs are “Technical procedures and technology, Structure of the firm, Financial structure, Marketing and productivity and Human resource structure”. Digital Business CSFs of SMEs The small and medium enterprises are the type of enterprise that can benefit more using the Internet for digital business. Rahaya and Day (2015) claimed that the determinant factors of e-commerce adoption by SMEs in developing country are perceived benefits, technology readiness, owners’ innovativeness, owners’ IT ability and owners’ IT experiences. The key of the digital transformation process is the level of integration of digital business (DB) and trade between external and internal processes and systems, to enable enterprise to do development of successful and sustainable digital business models. As SMEs are very susceptible to environmental factors (Blili and Raymond, 1993), it is crucial the identification of contexts and significant factors for the success of digital initiatives and an explanation of their impact. Therefore, the studies about digital integration and e-transformation framework and process in SMEs were performed. MICEP “Metodologia para a Implementação de Comércio e Negócio Electrónico nas Pequenas e Médias Empresas”– a methodology for digital business
  29. 29. 28 | in SMEs was introduced by Mademe (2009). The idea is to provide a visual representation of the major steps to be taken towards the transformation to a digital business, so that a company is able to see its current position and plan the future path. Each step represents a level of sophistication in particular. The methodology consists of several stages and sets up its implementation in continuous cycle (Figure 4). The activities included can be divided into two parts: a group of main activities which constitute the core of the methodology, and the second a set of complementary activities which support the realization of the main activities: a full analysis of the work done and the results achieved in order to define future paths for improvement. Figure 4: The MICEP Methodology
  30. 30. 29 | “As the main activities (MA), 7 steps are being defined: MA1. Current Situation Analysis MA2. Verification of the existence of conditions for the digital business MA3. Amendments to the creation conditions for the digital business MA4. Strategic Lines Definition MA5. Tactical Definitions MA6. Implementation MA7. Analysis of Result and Impacts
  31. 31. 30 | As complementary activities (CA), 3 steps that should be followed: CA1. Initial Setting (characteristics of digital business, conditions for e-adoption, conditions for digital business) CA2. Change Management CA3. Definition of Success Metrics” 2.2.2 China’s SMEs As in most developing countries, SMEs constitute an important economic sector in China because they are significant sources of wealth and employment. Even though the individual contribution of a SME to the national economy may appear relatively insignificant when compared to a large corporate, the aggregate contribution of all SMEs can be sizeable. As described before, 70% of China’s GDP are generated from SMEs in 2014. In the macro level, the study on the development of Chinese SMEs’ by Chen (2006) found that (1) the economic laws and the fundamental role of the market in allocating resources should be respected to guide SMEs to a sound track of industrial development; (2) the self-operation status of SMEs facilitate the establishment of a mechanism of self-investment and self-development of SMS; (3) to encourage SMEs to optimize industrial structure and enhance their competitiveness benefiting Chinese SMEs to gain an amazing expansion in terms of number and scale; (4) it is important to properly handle The relations between the
  32. 32. 31 | government and enterprise and bring the role of the government in macro control into the full play so as to create a fire competitive environment for SMEs. In the operational level, within the SMEs, several important conclusions of strategic decision-making process have been drawn by Huang (2009). In China’s SMEs, the steps involved in the decision making process are less complex than theoretical models. Chinese SME owners and managers rely heavily on their personal networks for identifying opportunities in the business environment, and for information search and advice. The ownership significantly influences the degree of participation and the level of political activities in the strategic decision-making process. Digital transformation in China’s SMEs Digital transformation is still in the earlier stage in China. A survey (Fong, 2011) indicates that Chinese SMEs are involved in a limited range of business activities in e-commerce. Their level of trust for new business features such as online payment is low, because of their unfamiliarity with security issues. Therefore, most SMEs tend to use the Internet only for basic purpose. A large number of online activities are directed towards product-oriented information search retrieval and announcements including advertising and brand building by creating webpage for business information purposes. The adoption of electronic interconnection for strategic objectives is low.
  33. 33. 32 | The study showed that the Chinese SMEs indicated that for surviving the competitive marketplace, highest priority needed to be given to IT applications in marketing and sales activities. And in terms of IT investment, “Chinses SMEs’ investment in IT training, consultancy, and maintenance, as a percentage of sales revenue, was on average 60% less than large corporations”. The study believed that Chinese SMEs are lack of long-term planning and IT budgeting that has resulted in a high level of resistance towards investing in IT. The limited awareness of owner and managers, of IT potential and, of the benefits of implementing strategic and integrated systems enabled by IT is affected by this lack of technical resources and expertise.
  34. 34. 33 | III. Methodology 3.1 Descriptive case study approach Schelle (1992) said that management studies and organizational theory rely heavily upon the case study as a form of data collection and even as a type of unstructured analysis. And the case study is the best suited to considering the how and why questions, or when the investigator has little control over event. Robert Yin (1984) defined a case study as an attempt to examine: “a contemporary phenomenon in its real life context, especially when; the boundaries between phenomenon and context are not clearly evident”. Yin (1993) has identified case studies into three types: exploratory, explanatory and descriptive case studies. “An exploratory case study is to define the questions and hypotheses of a subsequent study or to determine the feasibility of the desired research procedures, exploratory cases are sometime considered as a prelude to social research; an explanatory case study is to investage the causal relationships in the hypotheses; and the purpose of a descriptive case study is to present a complete description of a phenomenon within its context. Descriptive
  35. 35. 34 | cases require that the investigator begin with a descriptive theory, or face the possibility that problems will occur during the project (Yan, 2003). Digital transformation study is a topic existing in the latest decades. Certain studies applied quantitative methods by conducting survey with certain group of people, normally the CEOs of SMEs. Other researches studies through either qualitative studies by interviewing top-management team of the companies or descriptive case studies by describing companies historical development processes and conducting the interviews with certain key stakeholder in the changes. From previous studies, the key fields, elements, and involved parties have been clear identified. The difference of the CSFs and transformation process are mainly due to the variety of macro- and micro- environments that SMEs belong to. To see how traditional Chinese SMEs implement digital transformation in their daily business and adopted the challenging market, it is essential to have a close observation on exactly “what” companies do and “how” to do it. Therefore, this paper selected descriptive case study approach to understand the reality of China’s SMEs. Single-Case Study Willis (2014) argued that there are three key points that are central to the principles of single-case study research: respectively concerning issues of ontology, epistemology, and methodology. In his study, he concluded that: the various forms of single case analysis can provide a nuanced, empirically-rich, holistic account of specific phenomenon; when analyzing a single case, it incorporates both idiographic
  36. 36. 35 | sui generis cases and, where the potential of generalization may exist, nomothetic case studies suitable for the testing and building of causal hypotheses; and finally, single case study benefits at a more practical rather than theoretical level. To conclude practical framework and advices and to understand the whole structure and management performance under digital transformation pressure, this paper analyze one single case exhaustively. 3.2 Data Collection The six sources of data collection in case study research are identified by Yin (2003): documentation, archival records, interviews, direct observation, participant observation, and physical artifacts. Documents could be letters, memoranda, agendas, study report and etc. Stable, unobtrusive, broad coverage are the advantage of documentation. Archival records have not only all above strengths, but also precise and quantitative since it include service records, map, charts, lists of names, survey data, and sometimes even personal records. Interviews can focus on case study topic and get insightful opinion. The rest three sources – direct observation, participant observation, and physical artifacts require a site visit to observe or event participate in the activities. No single source has a complete advantage over the other; rather, they might be complementary. Thus, in a case study, it would be better to use as many sources as are relevant to the study. As this study is a single case analysis, many sources of data are used to have a global and detail view of the digital transformation process, its influences, and
  37. 37. 36 | performances within the company. There is no existing study that focus on the company. Therefore, the major information are gathering from corporate publications and articles from local newspapers and web portals. In addition, three interviews were performed from long-distance through Skype or QQ – a Chinese instant messaging software. The interviewers were the owner and manager of the company, comprehensive department manager, and sales and marketing manager. According to each one’s responsibilities and working aspects, different questions have been asked. With the director, most questions were related to the strategic management, including company’s long-term strategy, the objectives of digital transformation, the financial strategy and digital investment. The manager in comprehensive department is responsible for operation management, human resources, security, and logistic. Therefore, the questions were in operational level, focusing on the challenges and changes to normal working life – the requirement of material, equipment, and experts, the response of employees within different departments, and the challenges to company’s structure. Sales and marketing manager in this company is objective-oriented people as he is responsible for generating the revenues. As a result, during the interview, the major topic was to find new business opportunities and benefit from the new technology and networks to establish brand equity. The objectives of the questions are to know the main marketing work stream of the department in the digital era, the challenge for current team (from internal and external), the new opportunities, and the future business development plan.
  38. 38. 37 | IV. Case Study 4.1 Case Description 4.1.1Company Introduction This paper selected a small-sized joint venture who expands its business in chemical industrial sector. The company was a traditional manufacturing company, its registered capital is 50 million RMB (more than 7 million US dollars at that time), covering an area of more than 50 square kilometers in the National Chemical district in a secondary-level city. In terms of production, at the beginning, the company invested more than 200 million RMB (early 29 million US dollars) to build its factory with the 2 automatic product lines and annual production 60 tons of carbon black. The product of the company is carbon black – a material produced by the incomplete combustion of heavy petroleum products – which is widely used as a model compound for diesel soot for diesel oxidation experiments such as reinforcing filler in tires, and other rubber products. The company commits to meet the diversified and unique requirements of its customers. So far, it owns 3 carbon black
  39. 39. 38 | production lines to provide the market 6 series rubber car tires. Besides, the powered carbon black produced by the special power line is widely applied to the field of sealant. The rest special production lines are designed for more than 10 grades of DT series carbon black which could be used for making fiber, conduction, ink, and plastic field. Now, as a famous brand in the region, apart from the domestic market which contributes more than 70% of total revenue, company’s products have been exported to more than 10 countries in the global market, covering the rest 30% of company’s revenue. As a high-tech chemical enterprise, the company has a provincial engineering and technology center as well as a post-doctoral research center. Vast amount of funds for researches are focusing on the topics of process equipment, plant control, product development and application and environment protection. So far, the company has owned 13 patents, involved or presided for revising 9 national standards. So far, there are about 150 employees, among them, 25 engineers, and 60% of total employees were collage-trained. Apart from the top management team including the director, vice director, chief engineer, and chief financial officer, the company has 5 departments, and most of the department take care of more than two missions (Figure 5): Finance department – accounting management and statistical planning; comprehensive department which is responsible for administration, security, human resource, and operation management; trade department includes
  40. 40. 39 | both purchase and sales and marketing; production technology department which takes in charge of production, logistic, and maintenance; and research and development center. Figure 5: The Organizational Structure 4.1.2 Digital transformation in the Company Customer Experience Director Financial Department Comprehensive Department Trade Department Production Technology Department Research & Development Center Chief Financial officer Vice Director Chief engineer
  41. 41. 40 | The digital transformation in the company is in the early stage. The digital activities are customer and market oriented. The company built its corporate website from beginning in order to get customer know about the company and the products. Therefore, the website is designed as an information center instead of online business platform. Eight sections have been defined on the website: About Us including introduction of the company, corporate culture, and organization structure; Products – a main catalog page including available carbon black series, and detailed information such as the technical standards, the performance, and the usage can be found in the product page – each series has a dedicated page to present. Quality Certification presents the high quality control of the company; Supply and Demand; Equipment – similar to a gallery as in this section, it shows the photo of production equipment, the control center, and as well as the R&D center; News – articles of important internal and external events; REACH regulation – in this part, the company presents the REACH (Registration, Evaluation, Authorization and restriction of Chemicals), a European Union regulation which is important for chemical products import and export to European market. In this article, the company explained in what way the company achieved the standards and can supply the European market without any legal issue; and finally the Contact Us – a list of contact information for sales, purchase, and technology support. To support the sales growth and let customer be able to reach the company and product via different channel, the company have generated introductory content for itself and the product on regional “yellow page” platform, aiming at attracting
  42. 42. 41 | potential clients as well as supplier contacting them directly. To catch the digital trends, company has an official account or so-call e-shop on “China.eb80.com” – a Chinese domestic B2B platform in all kinds of products. For each corporate account, the platform provides different modules for displaying the content reasonable and logically: homepage, products displays, purchase list, company introduction, news, gallery, career center, and contact. However, even the company created an account to open a shop, most of the modules are empty, and even for product, only “carbon black” – the generic term is displayed without any detailed product description. The content on the platform are exactly the same as the ones on corporate website. Moreover, in 2014, the company joined O2O platform “oky61.com” which provides trading platform, comprehensive service information, marketing and promotion, technical support, logistics especially warehouse monitoring and financing services for industrial products suppliers and buyers. As the platform focuses on global business explanation and has offices in Russia, Germany, Thailand, Korean, the United States, India, Brazil and etc, the objective of joining this platform is to expand its international market. Similar as on China.eb80.com platform, no content apart from company introduction, product “carbon black”, and contact information is displayed. In the social media, the company run a public account WeChat – one of the most popular free messaging & calling app in China - try to contact with customers or potential buyers directly. For customer contact, the company does not invest in corporate email, meaning no official email with company’s name in the domain.
  43. 43. 42 | Instead, they apply a free normal email account with the company’s name before @ plus the server name.com. In addition, for instant messaging contact, they are using QQ accounts. Operational Process Within the company, the digital activities are much simpler. The company built an intranet on local drives to share internal information, documents, as well as data which has high requirement level in the transparency among different departments for logistic management. The main objective of this intranet is to manage the employees working activities when using companies by controlling their capabilities on the Internet. In the meantime, share certain internal document, normally agenda, contact information, new company’s regulation, and certain working process instruction. Besides, the transformation in work stream is more like an informatization rather digitalization. ERP – Enterprise Resource Plan is integrated in Production Technology Department and Trade Department as it is widely and efficiently used in production and logistics management. Based on the requirements of the order form sales combing with production capabilities of the chemical plat, the software will update a production plan with required materials and the quantities, as well as the estimated time line. Moreover, according to the production plan, it will check the quantitative information of all required materials and therefore ensure a stable production plan. This material demands will send to Trade department to purchase the correct materials on time. In order to ensure the production quality,
  44. 44. 43 | DCS – Distributed Control System and SPC – Statistical Process Control are applied to ensure the product qualities during and after the production process. All these three solution are based locally, no cloud solution is integrated. Initially, the company had only the DCS and SPC for production purpose. As the whole production process is automatic, there was less than 20 employees working in this areas. The major job here is to monitor the process and material quality. The employees whose missions include operating the system are the ones that have gained knowledge in the industrial sector and that are able to work independently after the short-term training. Moreover, the operation of these two system is within the department, meaning no coordination between departments is required. With the implementation of the first informatization in the working stream – ERP, the coordination and communication are becoming critical. To full in the updated information in the software costs labor power as well. The employees of trade department are hardly working from the company as most of them have to visit clients or suppliers, only the staff who is in charge of international business has the chance to update the information as the major communication between him and international clients is via email. The challenge is that he is not familiar with the situation in the domestic market and not be able to gather order information in time. Due to this initial delay, the production could not get a precise plan to organize the manpower within its own department. The problem had not been solved until the second half year of the implementation of ERP. It took a real long period for involved
  45. 45. 44 | parties understanding the advantage of the solution and trained them to consider the use of this solution as a part of routine work stream. Business Model The way of doing business in the company does not change with the implementation of digital or information system. All of the company’s revenues are coming from offline businesses – partner particularly. From the business perspective, as a chemical industrial company, the director believes that “it does not make sense to provide other service or products apart from carbon black”. And currently, the key missions within the company are to differentiate from competitors by improving the productivities and diversifying the range of products. However, the presences on two online platform indicate that the company would like to participate into e-business. 4.2 Findings and Discussions 4.2.1 Main Boundaries in Digital Transformation Lack of awareness and strategic vision of Digital “I know the company need to go Digital, but we have not figure out why…most of our clients would like to visit our plant and see the samples before giving an order…the trade manager said we needed to present on e-commerce platform and it does not cost much, then I agreed”, director said.
  46. 46. 45 | The director of the company does not have a clear vision of the opportunities in digital era or the strategic vision of digital transformation impacts within the corporate. Two main reasons that causes the issue: 1. The understanding of the industry in this dynamic environment 2. The lack of knowledge about digital capabilities According to MICEP methodology, the first step of the process is to the current situation analysis. This is an essential step to prepare the transformation in the company. Several analysis frameworks have been introduced, such as SWOT and Porter’s Five Forces that are the most popular used ones. Following all the studied item, the company would be able to perform a throughout industrial analysis. To conduct this analysis, the company need to know its competitors including their latest improvements like the new equipment to improve production capability, new marketing channels (online or offline), or new innovation to increase the efficiency. The macro environment such as national policy, economy (i.e. price of base oil, labor cost, etc), as well as technology innovation have serious impact to SME’s decision making. The studies of suppliers and buyers can help company have first-hand information about the new requirements or even the standard in the market. Therefore, it can have a clear direction to work on. Without a clear understanding of the environment, it is difficult to have a long-term strategy. In addition, the company need to be aware of new technology and its capabilities. As digital has become a new industrial revolution, the company need to
  47. 47. 46 | pay attention to the challenges and opportunities that digital era brings. It is more than marketing and sales, it can benefit company’s whole value chain to not only become more and more efficient but also figure out the improving point by implementing digital services and solutions. Cloud computing and big data are the most important topic for the internal working process improvement. Now, the company is definitely a “follower” as all its digital activities are learned from others and highly influenced by the so-called “digital trends” – the hot subjects. As e-commerce become popular, it goes to B2B platforms; and then joined O2O platform when this new concept is shifting from B2C to B2B industry. Same for the social networking platform. With the Internet infrastructure development, the smartphone is becoming one the most used devices in China. The touch point on mobile channel is absolutely necessary. The wechat business – an M-commerce digital model is invented based on WeChat ecosystem. Some famous brands have create their official account in WeChat. The company created its own account in 2015 trying to expand their business by benefiting from the new trends. All above activities were proposed by trading department, mainly the marketing team. “We have quarterly quota of orders, the priority for us is to find buyers to achieve the target…The brand reputation is important and we definitely want to work on it, however, it is difficult under this sales pressure…”, said trade department manager.
  48. 48. 47 | This is a common limitation for traditional small and medium-sized enterprises in China. Brand equity – “the set of associations and behavior on the part of a brand’s customers, channel members and parent corporation that permits the brand to earn greater volume or greater margins than it could without the brand name” (Leuthesser, 1988) – is a luxury product for these companies as they must ensure the normal operation, meaning keep receiving orders, maintaining a regular productions, gaining revenues, and be able to pay all the salaries in time. The brand management is a supplementary and may not be invested in the first 5 and even longer period as this is a long-term investment and cannot be able to receive expected result. That may explains why the initial company introduction on corporate website has not been updated for nearly 10 years. Between certain pages, the content are different. It is dangerous for the company, especially the objective of the corporate website is to promote the brand and let people know company’s name and products. With Internet, everything spreads fast and effectively. Markers need to be careful about what to put on the Internet. In digital marketing, the major challenge is the acquisition – how to get traffic – letting corporate website present when people are looking for products that company provides, company name (brand), or even other services within the industrial ecosystem. Therefore, one single mistake or inappropriate context, functions and etc. will descry visits first impression and they may not come back in the future again. Therefore, the company losses their future clients.
  49. 49. 48 | Lack of sufficient change management In the operational level, the top concern is how to change efficiently with supports from all employees that involved in the changes. “The trouble is to let all employees understand the importance of the changes and align with the strategy. Most of them don’t like changes as they believe that with the changes, more work will be given…sometimes, without clear explanation and efficient communication, there might be conflict among departments”, operational manager. As for informatization, the digital transformation is a serious change which will impact the company. For example, the work process in Trade Department might be change if a cloud computing solution such as salesforces is integrated. All department member would need to spend sometimes on their applications and share the network with coworkers. The daily sales meeting may be not needed any more and all information are posted on internal cloud solution. The CRM would be managed at a higher level. From a positive side, first, it saves money in certain extent. There is no need for employees coming back to the office after visiting the clients and the working hours are more flexible as they can manage their own tasks whenever they need. It helps the company to save their transportation cost as well as the time consumption. Secondly, by gathering all information together, the team manager can have a global view about the clients and their requirements. Therefore, they are able to provide useful and accurate information for R&D and show a future
  50. 50. 49 | working direction by analyzing the data of customer demands, behavior as well as the buyers’ profile (in corporate level). In additional, the department can have a targeted marketing strategy by segmenting their clients. It will help the company to gain better knowledge about the clients. Last but not the least, However, from individual point of view, the drawback of this solution is significant. As in the department, the individual bonus are tight to the orders, meaning more orders more revenue. Sharing clients from individual point of view is a loss. It may motive employees in a negative way. To solve the issue above, there must be a change in the salary policy. It means additional work for human resources and finance. “No change happens independent and isolated. In the company, any changes will affect others’ interests more or less…” The comprehensive department manage does not want any changes as they are the one in charge of all the coordination among departments, the office suppliers and maintenance, and one of the most important part – human resources. The inefficient ERP implementation in 2007 indicated that there was no sufficient change management or internal communication in the company, meaning in certain extent, the comprehensive department was not working properly. Without any turnover or training, the coordination skill and execution ability of this department may not be able to handle a major digital implementation. Lack of experts
  51. 51. 50 | From management perspective, the company does not have experts to provide useful suggestions or proposals in order to facilitate the digital transformation process. In terms of technology, there is an IT expert in the company taking care of the safety of the intranet, as well as supporting and maintaining the use of information system within the company. However, in the digital level, these skill are not enough, a training would be one of the basic requirements. In the operational level, with current labor force, the company is shorthanded to having several employees taking care of digital work stream. In addition, the lack of experiences and certain expertise indicate a recruitment is needed. 4.2.2 Digital Strategy Analysis Current customer-oriented digital presents are not efficient for a company. Firstly, the contact email with @163.com and QQ as a communication tool in B2B indicate the company does not pay attention to their online image. Official email address in large or medium-sized enterprise always use company’s name as a domain adding after @. The use of 163.com the email service provider explains the company does not know or at least not an adventure in digital world. When doing business with a foreign company, this email domain will let them question about the reliability of the company and therefore, lose opportunities. In addition, for the instant messaging solution, it’s OK of using QQ. However, two attentional disadvantages should call an alert. 1. The communication via QQ will make contactor leave as in order to chat, the contactors would have to install QQ in their devices. For the person
  52. 52. 51 | who use a company computer, there is a great chance that the software does not exist. And the users may also do not have the right to install a new software without asking IT. 2. The initial marketing position of QQ is a friend and family oriented tool. Therefore, most of QQ users are considering it as a personal one. When communicating with a stranger via QQ, the privacy and the security are always the reason that people leave. Looking at the corporate website, which is acceptable in terms of structure and functionality. The website have a product selector tool for visitors searching for the products based on the series and price. However, maintenance is the biggest problem on the website. The content are out of date, some partner links are expired, the product selector stopped working as there is no successful search can be performed with the integrated database, and etc. The presence on the Internet needs to be accurate since in digital age, the first information that potential clients receive is on the Internet. The company does not have a real e-commerce activity. The presence on the Chinese B2B and the O2O platforms are not representative. The objective of expanding the business is difficult to achieve as part from company introduction and “carbon black”, nothing is generated on the platform. Meanwhile, the selection of China.eb80.com may not be a good choice as there are way much Ad exchange banners displaying on the page. It is easily to miss the key content that belong to the company.
  53. 53. 52 | 4.2.3 Implementation Steps Reviewing the real situation with MICEP model (Mademe, 2009), all seven main activities are essential in company’s digital transformation. However, the weight of each highly depends on the firms. For the selected company, the current situation analysis would be one of the most important steps. With a throughout analysis of the firm as well as the industry, the company will gain a broad vision of digital and establish a strategic vision in certain extent. The step2 – verification of the existence of conditions for the digital business and step3 – amendments to the creation conditions for the digital business are less important for the company as the internally, digital participate tiny part of its business. However, studies of both factors are needed to review the external environment, such as the most used B2B platforms, and new technology that can benefit the product process and etc. The next step – strategic lines definition would be the most important step for the company as does it in most of the enterprises. Executive management should spend some time to discuss and agree with the digital strategy. Once this step is achieved, the next one of tactical definitions will be clearly reviewed. Implementation as the step6 is the key to success. It is important to ensure the costs as well as the accurate of the solution or activities before actually using it. It would a time consuming task, but it’s worth to slow down. The last step – analysis of results and impacts is a continue mission. This is the moment to measure the performance of all internal and external digital activities. The result will help to identify the area of improvement. A regular reporting is needed.
  54. 54. 53 | 4.3 Recommendations As conclude before, the major issue for the company is to understand the market and industry and set a clear digital strategy. Depending on the budget as well as the positioning, two approached can be proposed: 1. Business-oriented digital transformation; 2. Enterprise-oriented digital transformation. The first approach is focusing on the e-business and e-marketing activities. Although sales is the top priority, in digital, the e-business activities is less important than brand image at this stage, especially in B2B market. The main area to work on would be the optimization of corporate website, including functional specification evaluation and re-design, SEO, Media and Campaign acquisition, and analytics based performance measurement. The company can prioritize these topics according to each topic’s impact, cost, and labor force. In addition, in this approach, the changes can happen little by little, without challenge the current work stream. Therefore, the company would have time to adjust its digital strategy in the dynamic environment. Within the company, the change would be easier to manage as the small changes such as add company domain in official email address or shift instant messaging solution QQ to iframe contact form. Changes in this operational level with limited number of involving parties are easily to adopt and manage.
  55. 55. 54 | The second approach about enterprise-oriented transformation is mainly about the internal digital integration, such as a cloud solution for data storage, an internal communication platform including community, forum, and etc. These kind of changes are the fundamental improvements and any of them have serious impacts in the company work stream. The changes here are better adopted as fast as possible. Then, with the support of targeted training sessions, the employees do not participate into the decision-making process. Once the implementation is taken place, the employees’ job is to adopt it. This approach has high-level requirements in coordination skills and managing abilities. For the company, it would be a challenge. No matter which approach will be applied, the key to success for the company is to have the right people to complete the right missions. An exhaustive analysis of industry and digital need to be done. The hire of external experts might be a good point to start as these experts know the industry and the digital trends. The involvement of external experts would help the company to understand itself better and help executive team to make a practical digital transformation strategy. V. Conclusion and Future Study This paper tried to provide a practical used framework to support China’s SMEs digital transformation as compared to developed economy, the digital transformation rate in China is low. Companies face the challenges from digital: the requirement of information in digital channels, the large Internet audiences and
  56. 56. 55 | market, and competitions in digital related topics. To survive and growth in the digital era, SMEs need to go digital either from internal process-oriented to external customer or market-oriented. After an insight study of a small traditional chemical company in China, the study can conclude that three main boundaries that stopped the digital transformation process in the company: top executive team is lack of strategic vision in digital; the company does not ready to change as the change management is insufficient; lack of expert is also a key item that affect the transformation process in a negative way. MICEP model can be used for Chinese SMEs digital transformation process. The importance of each step depends on various factors, such as industry digital performance and the key objective to go online. As a result, before a SME implements Digital as a work stream, an exhaustive study need to be done during the preparation. The future study will be the testing of the findings in different industries. The paper analyzed a single case may misjudge the global situation. A qualitative and a quantitative study in other sectors and different sized companies are required. Moreover, as the global environment may challenge the SMEs in a different way, the investigation of the performance of digital business models for both SMEs and large firms might be needed.
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