- Digital disruption is occurring across all industries as new digital technologies change business models and customer needs. Incumbents are often slow to respond to disruption while digital leaders embrace innovation. - To successfully transform, companies must have leadership that champions digital strategies, develop new digital products/services, improve customer experience, transform processes, and leverage data analytics. Initiatives should start small and test hypotheses through prototyping before large-scale implementation. - Anticipating disruption involves scanning for digital trends, observing competitors, understanding unmet customer needs, collaborating through open innovation, and continuously questioning assumptions about the business model.

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3GAMMA INSIGHTS
DIGITAL INNOVATION
LEADERSHIP
How to master digital transformation
in the face of disruption
Jesper Nordström

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In the new digital economy, long-established ways of doing business are quickly becoming
obsolete and disruption is taking place across every sector. Digital innovation has become
fundamental for driving growth and transformation and is changing the business landscape
as we know it. Disruptive entrants are reinventing entire industries with business models that
address customer needs in entirely new ways, while incumbents are struggling to respond.
As technology cycles become shorter and shorter, the pace, size and complexity of this
change keeps intensifying with an ever growing number of businesses facing the threat of
being superseded. Digital leaders outperform their competitors in terms of growth, profits,
and market valuation.1
Gartner predicts that by 2017, 20% of all market leaders will lose their
number one position to a company founded after the year 2000 because of a lack of digital
business advantage.2
December 2015

3. 3
Despite this rapidly evolving digital Darwinism3
, 3gamma is witnessing how many companies are slow
to start their digital transformation journeys. To remain competitive, taking action is imperative – the
ability to anticipate and respond to digital disruption in a timely manner determines the difference
between being displaced and staying in the game. Executives must get their organisations ready to
advance into a digitally transformed future by making digital strategy and transformation a primary
objective and placing digital innovation at the centre of the business. To their advantage, large com-
panies have resources, assets, relationships, and data that entrants lack.4
However, they tend to suffer
from an inability to reimagine their business model and a reluctance to create products and services
that might cannibalise their current business, thereby leaving existing and potential customers an easy
target for more agile startups.
“Gartner predicts that by 2017, 20% of all market leaders
will lose their number one position to a company founded
after the year 2000 because of a lack of digital business
advantage.”
Incumbents need to adopt a more startup-like approach and realise that digital transformation is about
entirely new business opportunities. This demands a holistic and open minded view on how digital can
be leveraged to transform the business and resolve unmet customer needs – generating new innovative
products, services and business models. As the world becomes increasingly software-driven, industry
boundaries are fading. This means that companies must both watch out for competitors entering from
other industries and explore opportunities outside their own industry.
Why are incumbents slow to respond?
Given the circumstances detailed above, why do so many incumbent companies fail to react to digital
disruptions – clinging to outmoded technologies, processes and products – while others manage to
capitalise on the opportunities of the digital era?
“The problem more often lies in culture and politics than
technology. Influential stakeholders feel compromised and
attempt to neutralise disruptive new innovation efforts.”
A common initial response is to dismiss potential disruptors, failing to acknowledge them as a threat
and disruptive force, until realising too late that the disruptors can have real effect on the business. The
problem more often lies in culture and politics than technology. Influential stakeholders feel compro-
mised and attempt to neutralise disruptive new innovation efforts. But when companies engage in these
kinds of political ballgames, they’re headed down the road to obsolescence. Cap Gemini has identified
five main reasons behind the failure of incumbents to react to digital disruption.5
• Slow decision cycles
As technology development accelerates, corporate decision cycles have become longer than tech-
nology cycles.
• Complacency about existing business models
Many businesses can’t keep pace with the rapidly evolving world or react to disruptions quickly
enough. They’re unable to imagine a new reality where their old business model doesn’t work

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anymore and therefore don’t recognise the need to transform. However, new digital technologies
don’t care for history and tradition.
• Fear of cannibalising existing business
Many organisations fear cannibalising their existing business, which prevent them from taking
new innovative products and services to market. But businesses who don’t cannibalise their own
offerings, will eventually be cannibalised by someone else.
• Lower margins in the transition
In sectors where a digital business model involves lower margins than the traditional model,
incumbents hesitate to move because they fear it will impact profitability. This can blind manage-
ment to many new opportunities and potential revenue sources.
• Key resources unaligned to opportunities
With few exceptions, people are tied to roles and functions. Although digital disruptions cut across
entire organisations, new opportunities are often put into existing structures despite a poor fit.
Furthermore, senior executives tend to resist letting go of assigned resources, which means they
get locked within divisions.
Embarking on a successful digital transformation journey
In 3gamma’s experience, a good number of organisations know they need to digitise their business but
don’t know how to approach it. Depending on capability, situation and aspiration, digital transforma-
tion journeys will no doubt look different. While some companies merely need to revamp their current
business and operating model to boost productivity, others will need a complete transformation of oper-
ations, processes, and business model to get the most out of digital technologies and to power growth.6
The digital agenda must be championed by leaders with digital fluency
The digital agenda must be must be led from the top and be championed by an executive management
team that is not only supportive but also accountable. Organisations at the early stages of digital matu-
rity often lack the ability conceptualise how new technologies can impact the business.7
In digitally
mature companies on the other hand, employees have high confidence in their leaders’ digital fluency.
This means that the leaders understand what can be achieved at the intersection of business and tech-
nology and are able to communicate the value of digital technologies to the organisation’s future. They
lead the way in conceptualising how digital technology can transform and improve the business.
Digital prowess demands a clear-cut transformation strategy
For companies in the early stages of a digital transformation journey, the lack of a well-defined strategy
is the main obstacle to digital maturity.8
Without such a strategy in place, the implementation of new
digital technologies falls short because the companies don’t succeed in adopting the necessary mindset,
processes and culture to bring about the change. Meanwhile, digital frontrunners have a clear digital
vision and strategy in place, both grounded in a firm understanding about the future of technology.
“The strength of digital technologies doesn’t lie in the
technologies individually, but rather in how they can be
integrated to transform the business.”
To accelerate strategy execution and ensure that new technologies reach the desired effect, companies
with high digital maturity build a number of essential and differentiating capabilities, which are often
sophisticated cross-functional combinations of people, processes, tools and expertise.8
They succeed

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in fostering a culture capable of driving transformation and inventing the new – bringing everyone in
the company together working towards the same vision. Through their commitment to digital progress,
they also succeed in attracting and retaining top talent looking for the best digital opportunities.10
The effectiveness of a digital transformation strategy depends on its objectives and scope.11
Digitally
immature organisations tend to have operationally focussed strategies emphasising specific technolo-
gies to solve isolated business problems. However, the strength of digital technologies doesn’t lie in indi-
vidual technologies, but rather in how they can be integrated to transform the business. Best-in-class
organisations have digital strategies that go beyond the technologies themselves. To them, it’s about
more than building IT functionality and rolling out new projects – it’s about thinking end-to-end about
where digital efforts can produce major improvements in performance and value for their customers.
They realise it’s about fundamentally digitising and transforming the company’s core business.
To reach its full potential, a digital transformation program should target improvements in innovation
across the entire business by addressing four interdependent key areas:12
• Launching new digital products and services to meet ever-changing customer
expectations
New offerings that complement current assets and business model enable companies to extend
their current value proposition and expand to new areas of the value chain.
• Digitising and improving communication, marketing and customer experience
Consumers today expect being able to shift smoothly between channels, which means that com-
panies have to deliver a seamless multichannel experience.
• Transforming internal processes and operations
By digitising business processes and improving internal operations through automation, compa-
nies can enhance efficiency, accuracy and customer response times. It also helps organisations
become leaner and more agile, reducing waste and costs.
• Using big data and advanced analytics for customer insight, processes and
decision making
Organisations that make extensive use of big data gain competitive advantage over their coun-
terparts and generate higher revenues.13
Leveraging the data that companies hold not only allows
them to continuously improve performance and the customer experience – it also provides entirely
new opportunities to create value and generate new businesses and revenue streams.
Avoid analysis paralysis
As important as a well thought out strategy is, a common pitfall is to get caught in analysis paralysis and
lengthy considerations, spending months researching and planning in the belief that the whole digital
transformation journey must be understood from beginning to end. But the fast evolution of digital
technologies means this approach will cause companies to be late to the game. In a fast-moving digital
world where velocity and action are key, launching quick-win initiatives based on limited information
is better than trying to complete a far-reaching analysis before getting started.14
“In a fast-moving digital world where velocity and action
are key, launching quick-win initiatives based on limited
information is better than trying to complete a far-reaching
analysis before getting started.”

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Innovate with a startup mindset
Knowing that they can’t tell in advance which investments will succeed, digital leaders manage multiple
initiatives in parallel rather than putting all resources into one major, strategic venture. Equipped with
the same entrepreneurial mind-set as their startup competitors and an action-oriented approach, they
try out new business models and products with small investments – ready to scale up the winners or
quickly pivot and close down failing initiatives.
Foster a culture of initiative, agility and open collaboration
Responding to digital disruption requires openness to change and a corporate mindset that spurs digital
progress by embracing innovation, creativity and risk-taking. Companies with high digital maturity
typically have a culture of initiative and collaborative experimentation where people feel comfortable
making decisions amid uncertainty. They use their culture as a competitive force to drive differentiation
and build a more connected, agile and digitally enabled enterprise.15
To progress at the same rapid speed as consumer needs and competitive landscapes are evolving today,
companies need to adopt a trial-and-error mindset that accepts failure as part of the process and under-
stand that capabilities are built up through experience over time. Fostering a bottom-up and empow-
ering culture is key to creating a breeding ground for ideas: where digital talents can flourish and learn
from similarly talented team members.16
The days of controlling bureaucracies with strict hierarchies
that suppress new thinking are long gone.
Adopt a test-and-learn approach to strategy and development
Companies must leave behind the traditional top-down, strategy-driven and linear approach to innova-
tion where new digital products and services first must be perfected internally before they can be pushed
to market. It’s no longer viable to spend months in planning and research, writing intricate business
plans. Digital leaders instead recognise that they have a number of untested hypotheses, which they
quickly test and evaluate by prototyping and refining products and strategies in close cooperation with
customers.
“It’s no longer viable to spend months in planning and
research, writing intricate business plans. Digital leaders
instead recognise that they have a number of untested
hypotheses, which they quickly test and evaluate in search
of something that works.”
Using frameworks such as the lean startup methodology and the business model canvas 17
, they trans-
late company ideas into business model hypotheses that they test through customer development18
,
asking for feedback. With an emphasis on nimbleness and speed, they proceed to prototype a minimum
viable product or service, testing the proposed solution in the real world and refining the concept iter-
atively using input from customers. If the feedback reveals that the hypotheses are wrong, they either
revise them or pivot to test a new hypothesis.
Developing products and services iteratively and incrementally using agile development eliminates
wasted time and resources. Once a model has been proven and the product or service has been refined
enough to be rolled out on a larger scale, the process will already have generated customers, solved
actual problems and provided requirements for further development. The company can then start
building demand, scaling up the initiative and designing an organisation to execute the model.

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Question the status quo and continuously revisit the business model
Too many companies stick with the same strategy that has served them well for years, even though the
premises it rests on may no longer hold true. With the ever increasing pace of technological change, a
competitive advantage today may well change into a liability tomorrow. It’s therefore key for incum-
bents to stay on constant alert to changing circumstances and continuously review their business model
to confirm its validity.
Can disruption be predicted?
Most digital disruptions don’t happen unexpectedly but take place over time. By looking at the right data
it’s actually possible to anticipate potential future disruptions. A problem is that many companies get
so caught up in day-to-day operations that they never take a step back to think about what the future
might hold. Others only look at lagging indicators that reflect the past and therefore don’t invest enough
in initiatives that will drive future profitability.
“Many companies get so caught up in day-to-day
operations that they never take a step back to think about
what the future might hold.”
Look at the right indicators
Companies need to develop an understanding about their external environment and where it is headed,
by proactively scanning for digital trends that currently affect the industry, or are likely to do so in
the future, as well as observe the digital capabilities of competitors. Rita Gunther McGrath, Professor
at Columbia Business School, author and expert on strategy in uncertain and volatile environments,
argues that by looking at leading indicators, such as data showing a new product from an unfamiliar
competitor gaining popularity, companies can get signals about future disruption.19
In many companies
however, these indicators are either overlooked or the processes for detecting them are weak because
they’re subjective or difficult to decode.
Keep a constant eye on customers’ needs and pain-points
Since only a fraction of all startups achieve critical mass, it’s not easy to separate the truly disruptive
ones from the hype. But what incumbents can do is pay attention to where startups have identified and
are addressing unresolved customer pain-points.20
Startups that succeed in disrupting existing markets
find ways to simplify complex and frustrating customer experiences by identifying gaps between what
customers want and what incumbents currently provide. Then they build a value proposition around
resolving the customer problem.
When companies put their customers at the centre –
learning about their desires, pains and workarounds,
and building user experiences that address these issues in
previously unimagined ways – they can shape their digital
future instead of being shaped by it.

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To protect against disruption, incumbents must therefore identify where their customers’ needs
are not being satisfied. If there are underserved needs, there will be a market opportunity for new
entrants. When companies put their customers at the centre – learning about their desires, pains and
workarounds, and building user experiences that address these issues in previously unimagined ways
– they can shape their digital future instead of being shaped by it.
Leverage ecosystems and embrace open innovation
By shifting to an open innovation model and teaming up with players in the broader ecosystem, incum-
bent companies are in a better position to spot the early signs of disruption as well as build digital
capabilities to respond. This involves collaborating with partners, institutions and customers across
industries to align value chains and work towards common goals. In engaging with small companies
driving innovation, and by setting up incubators and partnering with startup accelerators, incumbents
can stay close to the sources of disruptive innovation as it emerges and see it before others do. It also
helps them inject a startup mentality into their own organisation and tap into key digital talent for
supporting internal innovation initiatives.
Setting up a responsive organisation able to drive
innovation and growth
To ensure a sound foundation for digital transformation, companies need to evaluate their digital read-
iness. Having the right internal resources and organisation in place with structures, governance, and
incentives is essential to drive digital transformation and make sure innovation projects receive the nec-
essary support to reach their full potential and become sustainable at scale – without being discarded
before they start producing real results.
Build a social framework that supports quick decision making and
reduces silos
A cornerstone in creating resilience to disruption is to reduce the uncertainty that business model tran-
sitions involve by building an organisational culture that supports swift decision making and action,
thereby enabling organisations to better adapt to new situations.21
This involves establishing a social
framework around shared values and principles that form a common foundation for how the business
operates and help the organisation overcome functional silos so that organisational roles and structures
become less of a concern to employees.
“Responding to digital disruption requires that
organisations focus their resource allocation on
opportunities rather than existing structures.”
Focus resources on opportunities and pursue continuous reconfiguration
Large organisations undeniably have potential to become disruptors themselves. But if they enter new
markets with the same set-up they’ve used for traditional markets, they‘ll face an uphill battle. Gener-
ally, companies follow a traditional resource allocation process where resources are assigned to separate
business or market units where they get locked. Responding to digital disruption requires that organi-
sations focus their resource allocation on opportunities rather than existing structures, as well as adopt
the right business models and organisation design for the markets they’re going after.22
By pursuing
a continuous reconfiguration process with rapid resource reallocation and organisational adaptation,
companies achieve higher responsiveness and facilitate redirecting resources from past opportunities
towards new future-oriented ventures.

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Free innovation groups from organisational constraints
For incumbent companies, a major obstacle to innovation are the constraints that the existing organisa-
tion put on new innovation initiatives, with intrapreneurs getting caught up in day-to-day operational
issues and having to fight for resources together with regular business units. Establishing innovation
labs separate from the core business has therefore become an increasingly common approach to cre-
ating innovation opportunities, with the added benefit of restricting potential negative effects on the
existing business in the event of failure.
Creating an IT organisation fit for digital innovation in
close partnership with the business
Organisations that leverage digital technologies effectively, realise that all parts of the organisation are
essential for bringing digital efforts to life and purposely strive to build a close relationship between IT
and the business with effective collaboration between executives. When both IT and the business are
equally involved in crafting the digital transformation strategy and work together on digital initiatives,
organisations can accelerate time-to-market with reduced costs and fewer process delays. Furthermore,
digitally mature companies recognise the key role of IT in the organisation as an enabler of digital trans-
formation and driver of productivity and competitive advantage. Hence, they build IT departments fit
for meeting the needs of the digital age to provide a foundation for future growth.
CIOs need to empower the business
CIOs play a critical role in bringing about digital transformation and pushing their organisations into
the digital future. They must persistently work to strengthen the IT-business relationship and adapt
the IT organisation to the changing needs of the business. Accomplished CIOs invest in creating digital
platforms that enable business teams to quickly launch new digital products that help them reach their
goals.23
Rather than trying to own all IT and implementation decisions, these CIOs share control with
business teams and empower them by providing enabling environments where business teams can test
product ideas and build their own digital solutions that IT helps them implement.
Digital innovation projects must be run at rapid pace and be
adaptable to change
A key challenge is to fit digital innovation projects together with the company’s established operations.
These projects require specific capabilities and often benefit from having a clear place in the organ-
isation with dedicated resources. While traditional IT and legacy systems have slow release cycles,
digital initiatives – particularly those involving customer and analytics focused processes – have short
time-to-market and must be run at a quicker pace with fast software cycles and be highly responsive to
evolving circumstances. CIOs should therefore design the IT organisation to run at two speeds – allow-
ing digital initiatives to be rolled out quickly, while making sure that conventional projects continue
running dependably.
Form cross-functional teams
Another challenge involves ensuring that staff at all levels across departments come together and collab-
orate. Merely aligning IT priorities with business objectives is no longer sufficient: organisations must
break down silo structures and move away from the traditional working model of separately operating
units where the business provides the requirements and IT delivers the technology. A successful digital
transformation demands a new way of working that combines the expertise of IT and business teams
and promotes dialogue, mutual understanding and trust. But it’s not just about bridging the traditional
IT-business divide. It’s also about interconnecting different business units that in many organisations
tend to work in silos, and bringing together the necessary skills to create products and services that
provide a holistic, connected customer experience.

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CIOs should establish digital IT units with cross-functional
team formations where people from both IT and business
work together in partnership towards a shared vision and
goal with common budgets, KPIs and objectives.
To support this new way of working and speed up digital innovation, CIOs should establish digital IT
units with cross-functional team formations where people from both IT and business work together in
partnership towards a shared vision and goal with common budgets, KPIs and objectives – developing
new product ideas and taking them to market. With cross-functional teams bringing more perspectives
to projects, problems can be discovered and eliminated early, and work duplication can be limited,
which means that costs are reduced and promising ideas are pushed to market faster. To really ensure
that digital initiatives are developed with a holistic business perspective – delivering not only technol-
ogy solutions, but also ensuring that business processes are properly adapted – digital units benefit
from a combined leadership of executives from both IT and the business.
A great example of how this has played out in the real world is Starbucks, where the Digital Ventures
unit has brought together marketing’s product and consumer knowledge with IT’s technical expertise.24
By integrating IT with customer offerings and marketing programs, and through close collaboration
between the CIO and CMO in developing technical as well as go-to-market strategies, Starbucks has
succeeded in leveraging digital technologies to provide an exceptional customer experience.
Use DevOps to speed up digital transformation
It’s not only between IT and the business where silos need to be erased; this also applies to the dif-
ferent functions within the IT department itself. A successful digital transformation requires an agile
development approach with effective collaboration between IT development and operations, and the
alignment of processes to shared business objectives. Moving to a continuous deployment model for
digital initiatives using DevOps helps organisations achieve this. When development and operations
work effortlessly in concert, they can detect and correct problems at an earlier stage, which results in
faster software releases and reduced costs. Following DevOps practices can enable companies to reduce
the time taken to deploy apps from as much as weeks to days.25
Fund digital initiatives by rationalising IT infrastructure
One of the biggest barriers to digital transformation is the lack of sustained funding. With the short cycle
times in digital investments, organisations must manage costs with agility and flexibility and eliminate
avoidable expenditures, so they have funds to invest in strategic key projects and can quickly redirect
resources to initiatives that are important for future growth and innovation. Over time, organisations
tend to accumulate many redundant, deeply customised systems and applications that increase the
complexity of the IT environment. By improving the efficiency of traditional IT operations and reducing
spending on maintaining legacy infrastructure, cost savings can be directed to digital innovation initi-
atives and new product development.26
This is done by rationalising existing IT infrastructure through
consolidation and simplification that reduces the complexity of the IT landscape. Consolidation involves
reducing IT assets either by centralisation of infrastructure or by the use of fewer, more efficient sys-
tems. IT simplification involves the standardisation of applications and tools, and the use of reusable
assets as far as possible. Using off-the-shelf cloud solutions is one example of how companies both can
reduce costs and drive transformation.

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Final Note
Digital innovation leaders dare to reimagine their future, fundamentally rethink their business model
and create their own challenger businesses to stave off competitors. They digitise and reinvent every
dimension of their business, embrace data-driven analytics and leverage their ecosystems. Using a
cross-functional, build-measure-learn approach to strategy and development, digital masters are pre-
pared to take on risks and they accept failure as a part of the path to success, knowing that they have
no other option if they want to stay competitive.
About the author
Jesper Nordström is a management consultant and head of group marketing at 3gamma. With a
cross-disciplinary background, he has extensive experience working at the intersection between busi-
ness, IT and design – helping companies gain competitive edge by leveraging digital technologies. Areas
of expertise include digital transformation, innovation strategy and emerging technologies. Jesper
holds dual degrees in engineering and business management.
References
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2. https://www.gartner.com/doc/2636049/predicts--seizing-digital-business
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4. https://www.bcgperspectives.com/content/articles/digital_economy_technology_strategy_digital_imperative/
5. https://www.capgemini-consulting.com/when-digital-disruption-strikes
6. https://www.bcgperspectives.com/content/articles/transformation-large-scale-change-technology-business-transforma-
tion-how-jump-start-digital-transformation/
7. http://sloanreview.mit.edu/projects/strategy-drives-digital-transformation/
8. http://dupress.com/articles/digital-transformation-strategy-digitally-mature/
9. http://www.strategy-business.com/blog/How-Digital-Leaders-Outperform-Their-Peers
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11. http://sloanreview.mit.edu/projects/strategy-drives-digital-transformation/
12. http://www.mckinsey.com/insights/business_technology/a_two_speed_it_architecture_for_the_digital_enterprise
13. https://www.bcgperspectives.com/content/articles/digital_economy_technology_strategy_digital_imperative/
14. https://www.bcgperspectives.com/content/articles/transformation-large-scale-change-technology-business-transforma-
tion-how-jump-start-digital-transformation/
15. http://www.strategy-business.com/blog/How-Digital-Leaders-Outperform-Their-Peers
16. https://www.bcgperspectives.com/content/articles/digital_economy_technology_strategy_digital_imperative/
17. https://hbr.org/2013/05/why-the-lean-start-up-changes-everything
18. http://www.startuplessonslearned.com/2008/11/what-is-customer-development.html
19. https://www.capgemini-consulting.com/digital-transformation-review-7
20. https://www.capgemini-consulting.com/digital-transformation-review-7
21. https://www.capgemini-consulting.com/digital-transformation-review-7
22. https://www.capgemini-consulting.com/digital-transformation-review-7
23. https://www.capgemini-consulting.com/the-it-business-symphony
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26. https://www.capgemini-consulting.com/the-it-business-symphony

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ABOUT 3GAMMA
3gamma is a leading professional services firm focusing on IT management. As an independent specialist
in IT management, 3gamma provides advisory, consulting services and fact-based insights to many of the
world’s most respected companies. 3gamma operates globally from offices across the Nordics and UK.
3gamma is a knowledge firm that bases its expertise on six core capabilities:
• Strategy & Governance
• Emerging Technologies
• Sourcing & Legal
• Risk & Assurance
• Operational Excellence
• Transformation & Change
3gamma Insights brings leading-edge thinking at the intersection of IT and business, illuminating central
topics relevant to CIOs and decision makers.
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