Microsoft Corporation has led the IT software market for over forty years. The organisation was at its peak as the third industrial revolution whittled down. However, changes emerging from the 21st century, and the transforming landscape of the fourth industrial revolution, necessitated that the IT industry change its business models and Microsoft was not spared in the process. A strategy shift and business model refocus resulted in digitally transforming organisations and their people. The identified problem that spurred this study is the apparent low digital transformation sales at Microsoft South Africa. The aim of this study, therefore, was to examine the reasons contributing to the low digital transformation sales.
The dynamics of culture, compensation and incentives, and organisational structure as well as external factors of customer maturity, connectivity and lack of infrastructure, regulations and policy, have all contributed to the low digital transformation sales at Microsoft South Africa. This study’s findings should inform the organisation’s next strategy cycle.
The world has transformed technologically. It is a world where we can search the web, connect to people, create and distribute material, collaborate on ideas and connect with families across different geographic boundaries and time zones. All this is possible through the presence of a large number of devices connected to the internet.
Cognitive services such as Artificial Intelligence and algorithms, machine learning, blockchain and the Internet of Things have helped the rapid adoption of technology.
Background of Study:
Throughout history, we have experienced periods of a complete change in terms of thought processes and the way we do things. Technology and economics have created a paradigm shift thereby initiating a new frame of reference.
We have thus far experienced four radical shifts in human history. The first profound shift in the way of living was the transition from foraging to farming. This was the Agrarian revolution (Schwab, 2017). The next period was the first industrial revolution which was triggered by the invention of the steam engine and brought about mechanical production. The second industrial revolution occurred with mass production and the assembly line due to the advent of electricity. The third industrial revolution was catalysed by the development of semiconductors, mainframe computing and personal computing. The fourth industrial revolution was officially introduced to the world in 2015 by Schwab (Schwab, 2017). This is marked by breakthroughs such as robotics, artificial intelligence, nanotechnology, quantum computing, biotechnology, the internet of things, 3D printing and fully autonomous vehicles. The third and fourth industrial revolutions gave rise to digital technology across all functions of an organisation known as “digital transformation,” and it significantly alters how one does business and provides value to consumers. Irrespective of the size of the organisation, digital transformation is essential.
In the field of IT, Microsoft dominated the personal computing software space through a buy a “once use for a lifetime” software licensing model for enterprises and consumers. Microsoft’s strategy was clear, Windows (their OS) and Office (their business application tools that drove productivity) were the core business contributing heavily to their revenue (Microsoft, 2012).
The introduction of smartphones allowed people to practically run their lives on a device and extend their offices wherever they were – if they were connected.
Google then developed an operating system called Android. This necessitated a shift in the strategy and business model where Microsoft would no longer sell Windows licences, they would embark on investments in developing cloud computing capability and services. Microsoft’s strategy then revolved around helping organisations empower their employees, engage their customers, assist them to transform their product offerings and optimize their operations through emerging technologies. Microsoft South Africa and its worldwide subsidiaries had to adopt and execute the above strategy.
Digital Transformation:
Digital transformation is the speedy innovation and use of new digital technologies that enable organisational improvements, such as enhanced customer experience, efficient business operations or an extension of business models and markets (Hoppe, Vogelsand & Packmohr, 2019). Digital transformation is also a realignment of technology, to more effectively and efficiently engage customers at multiple touchpoints in their experience cycle. It is an organisational strategy formulated and executed by leveraging digital resources and capabilities to create differential value to gain a competitive advantage. In today’s world, digital transformation is regarded as the most important part of human life and is required in almost every organisation where the objective is the pursuit of expansion, growth, profitability, sustainability and quality (Shinde, Piplani & Singh, 2014).
Many companies intend to become digital as it is perceived to be a means to streamline work processes, embed new products and reach more customers. At the same time, “becoming digital” requires a different set of adaptations as it will be more pervasive in all facets of one’s life (Cianni & Steckler, 2017).
Megatrends are shaping consumer behaviour and these rapid technological changes of disruptive innovation are causes of concern as they appear to outpace the organisation’s ability to compete. Despite this, it offers organisations the opportunity to reach the mass market through the billions of people who are connected.
The strategy of Microsoft is to take care of the cloud by placing adequate devices and software in the hands of users, allowing them to stay connected and be productive. The central cloud enables consumers to take advantage of the storage, compute, network and services that are offered on the Azure cloud computing platform. Microsoft permits enterprises to concentrate on their core business by using cloud IT capabilities. It is without a doubt that organisations need to transform digitally to acquire new capabilities and be better placed for the future (Microsoft, 2019).
Digital transformation consists of two parts, digital and transformation. The term digital is synonymous with the rate of change that is occurring in today’s world driven by the rapid adoption of disruptive technologies. The term transformation means rebirth, a new way of thinking, a new paradigm, that digital practices essentially facilitate new forms of improvement and inventiveness rather than just improve in sustaining customary approaches (Gebayew et al., 2018).
There are three distinct strands of organisational transformation in the context of digital transformation. The first category is operational, doing what they have always been doing, but more efficiently, faster, better, and/or cheaper. With the first category, costs of business might go down while customer or service satisfaction might go up. The essence of the organisation is not altered in any material way thereby leaving the organisation susceptible to a rapidly changing environment.
The second category is centred on the operating model, which is regarded as the core of transformation. This involves organisations conducting their operations in their current manner but at the same time shifting fundamentally in a different manner. Organisations that fall in this category often utilize data and turn it into insights to make decisions around customer preference and significantly alter the customer experience.
The final category is the strategic one. In the transformation continuum, this is the changing of the organisation’s essence, a rebirth, and a shift in its paradigm. Successful execution of strategic transformation outcomes is the creation of new markets with their revenue streams or a fundamental increase in service delivery and citizen engagement. (Anthony, 2019).
The Drivers of Digital Transformation:
The top risk executives view their businesses as being run with high-speed innovation and digital transformation (Salierno, 2018). These rapid technological changes and disruptive innovation rank as the main concern to those who believe that changes in the environment are outpacing the organisation’s ability to compete. This is driven by the following key megatrends that shape consumer behaviour:
- Consumers will increasingly get and stay connected
- Consumers will increasingly live out their ethics and exercise them
- There will be a growing emphasis on quality and exclusivity
- The growth of consumer spending in Asia and Africa
- A shift and reinvention in the shopping experience.
The drivers of digital transformation have both external and internal attributes that influence the journey and the process of change (Morakanyane et al., 2017). They are identified as new market creation, new revenue streams and profitability, customer satisfaction, service delivery improvement, increased operational efficiency, convenience, and immediacy at the same or even higher quality points, increased organisational agility, increased employee engagement, empowerment and productivity and the ultimate pursuit, acquisition and retention of competitive advantage. In some cases, there was an overlap between the drivers of digital transformation and their impact. The difference is that drivers remain with the attributes that influence and enable while impacts are the emerging benefits or non-benefits realized from the journey of digital transformation (Ezeokoli et al., (2016).
Digital technologies play a vital role in the digital transformation process. The capabilities that these technologies, coupled with factors such as culture, strategy and digitally savvy demographics are what enable, ignite and sustain the journey of digital transformation (Kane et.al., 2015). Multiple organisations realize the need to digitally transform to stay relevant and competitive (Osmundsen et al., 2018).
Digital Transformation and its Areas of Impact:
The effects of the digital transformational journey impact organisations and customer experiences. (Morakanyane et al., 2017). The impact can be viewed as either positive or negative but the ultimate impact on organisations is the creation of value, for both the organisation and the end users. The increasingly intensive use of information technology has made possible new forms of value co-production. These new forms of cooperation have important implications for Information Systems (IS) and the role of information technology (Delmond et al., 2017). The role of Information Systems in new business models has shown a strong positive correlation between IT infrastructure and the capacity to develop e-commerce in the retail sector. Combining the two has led to increased sales per employee, lowered operational costs, and accelerated inventory turnover.
Areas of Digital Transformation:
Digital transformation occurs mainly in three key areas of an organisation, that is customer experience, business models and operational processes. Researchers agree that for the transformed areas to be sustainable, the transformation itself should be inclusive and benefit the organisation and its customer. (Westerman et.al., 2014).
The changing behaviour, values and expectations of consumers have influenced enterprises to prioritize technology not only to gain a competitive edge in the current state but to be better placed to respond to the ever-changing landscape.
The ever-connected consumer poses both an opportunity and a risk as well. The risk is that if a business does not deliver a satisfactory customer experience, the user is capable of publicizing this experience through social media networks.
The Role of Culture in Digital Transformation:
Being a digital organisation means not only having digital channels, digital services, products, and citizen and customer interactions but also enhancing the core activities that come with disruptive technology (Hemerling et al., 2018). Digital transformation means rebirth in the ways of working. It requires a tectonic change in the way employees perform as well as in their behaviours and the ways they interact with others inside and outside of the organisation (Hemerling et al., 2018). Goran et. al.,(2017) points out three cultural issues that need to be addressed if digital transformation is to be sustainable. These are – a weak customer or citizen focus, unhealthy risk aversion and siloed organisations’ mindsets.
When unhealthy risk aversion is steadfast, underinvestment in potential strategic opportunities and slow responses to dynamic citizen/customer needs and market dynamics can be the result. A lack of a unified understanding of what customers and citizens are leads to organisations struggling to mobilize employees around journeys, channels, and consistent experiences (Goran et el., 2017). When silos are prevalent in the organisation, provisions for rapidly evolving customer and citizen requirements are often too narrow. The key signals are missed or acted upon too slowly, or incoherently, simply because they were seen by the wrong division of the organisation (Goran et al., 2017).
Henley (2019) suggests three key areas for organisations to consider in shifting their culture for digital transformation journeys is to have the desired return on investment. Firstly, leaders in organisations need to understand exactly what is working and what is not. Understanding the delta puts organisations on a better path to investment success. Secondly, leaders must create a connectedness to culture and link this to the vision and mission of the organisation. Leaders need to take every opportunity to drive and compel employees to examine their behaviours that result in a lived culture. Finally, leaders need to frame the issue, demonstrate and celebrate quick wins and stay the course.
Most change management in organisations at present concentrate on the corporate context, role changes and processes, and take employees across training and new dimensions (Moore, 2016). While this methodology may be excellent for tackling the organisational apparatus, it does not sufficiently tackle the human facets of transformation, especially when it comes to digital transformation.
The corporate shift that focuses only on observable behaviours and outcomes is not adequate. Trying to employ new behaviours and metrics without tackling the fundamental culture is not sustainable. This triggers even well-meaning humans to stumble back into outdated, unwelcome behaviours in periods of tension and insecurity.
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