Digital Transformation of the Enterprise Value Chains
Digital Transformation Strategy

Digital Transformation of the Enterprise Value Chains

Nowadays, those who use data wisely has the upper hand in the market competition in almost all the industries. Value chains have opted to undergo digital transformation to ensure their presence in the market.

Knowledge isn’t determined by information, because it is the knowledge that decides which information should be important.

 — David Weinberger, HBR article, 2010

With the advancement of technology, almost everyone has access to vast data and information. But the ability to choose which data is important is the hardest part. To do that, knowledge and wisdom are essential.

Companies today are leaning towards the well-known – Ackoff’s DIKW Hierarchy, that talks about Data, Information, Knowledge & Wisdom to be applied in their value chains. Information Systems are considered to be a strategic tool for digital transformation and strategic value-added platform for decision making. Ackoff DIKW cycle combines all of these and creates a better and easier way for digital transformation. Here is what we are going to learn in this post.

Table of Contents

  1. What is Ackoff DIKW hierarchy pyramid?
  2. DIKW virtuous cycle and reality
  3. Digital Transformation of Porter’s value chain
  4. Why is strategy important?
  5. Digital and Information Systems Strategy
  6. Summary

1. What is Ackoff DIKW Hierarchy Pyramid?

The easiest way of understanding the Ackoff DIKW hierarchy pyramid is by looking at the image mentioned below.

Ackoff DIKW hierarchy pyramid used in Digital Transformation

From this picture, we can understand the difference between all the four stages of the Ackoff DIKW pyramid. This knowledge management system has simply outthrown other enterprise strategy concepts with the emergence of Big Data, IoT and Artificial Intelligence.

2. DIKW Virtuous Cycle and Reality

There are several cases of the application of the DIKW virtuous cycle in the real business world, even in the primary sector, which is purely an analogic industry. The transformation of this industry has been kick-started with deployments of “connected farms”, “soil-moisture sensors”, “autonomous tractors” and “stock and animal wearables”

The real examples of the DIKW virtuous cycle applications are, for instance, developed by Fujitsu, the Japanese technology firm, and its customers. Fujitsu started this business and technological deployment, with a Microsoft cloud infrastructure on a Japanese farm in 2013.

Here the sensors were pedometers attached to cows delivering the steps given by cows (data), which permitted to see the visualize the cows position (information) and understand the normal and the unnormal behavior of the cows. This led to the accurate detection of estrus (knowledge). This technology implementation (IoT + Big Data+ Artificial Intelligence together) permitted them to be 70% more productive than before.

3. Digital Transformation of Porter’s Value Chain

Michael Porter’s Value chain concept is one of the most valued concept in today’s market because the Value chain tells us how we can differentiate our products by analyzing the chain of events which occur within our company.

As differentiation is very important in today’s saturated market, naturally Porter’s Value chain is being referred in a lot of management studies. He explains the systematic structure of the set of activities needed to deliver products or services value added by enterprises value chains.

Porter's Value Chain Digital Transformation

Information value has a fundamental infrastructure to achieve efficient models, between the several flows that optimize the support and core activities of the enterprise.

Knowing Information system and Information technology are considered to be two different tasks. the confirmation that technology is a fundamental accelerator for efficient and sustainable companies, means that the Information Systems are more than the Technology development within the support activities of the value chain.

In this 21st century, Information Systems need to be understood as a primary activity on the daily basis of the company and essential for the product or service delivery.

4. Why is Strategy Important?

Today, marketplaces are very competitive and saturated at times with products, offerings, and other services to a global consumer base. This means all the companies must have detailed information about their own company activities and changes that are impacting their business future.

A strategy starts always with a vision, which determines exactly what is the target to be achieved, or at least, the field of opportunity to be surpassed. This vision milestone definition is the trigger for the strategy process definition, which can be resumed in three main steps: analysis, choice, and implementation.

Strategy in Digital Transformation

The analysis can be described as the process of internal and external understanding of the environment, the culture, the capabilities, and beliefs. The choice is the generation of paths to achieve the vision. For example, we have several route options to go from city A to city B (by car, by train, by air, by bicycle, etc.) and each option has an economic cost.

The strategy implementation is the operational deployment details of the strategic option that has been chosen, which is normally known as the action plan of the strategy. This implementation plan needs to have the set of milestones and the key performance indicators, that will guide the confirmation acknowledge.

The companies use midterm as well as longterm strategies to make sure they compete well in the market. Technology also has played a major role in strategical advancement. But the competitive advantage was not on technology, it is the way that companies used it and leverage it as a strategic issue.

4. Digital and Information Systems Strategy

Technology has been shaping the business world since its advancement in recent times. It is obvious that technology will shape our future as well. Certain digital, as well as information systems strategies, are essential along with technology for reshaping the business environment.

“The world has changed far more in the past 100 years than in any other century in history. The reason is not political or economic but technological — technologies that flowed directly from advances in basic sciences” 

— Stephen Hawking

The ways of doing business by companies are changing faster and faster. Companies are opting different and new reliable methods which bring the results in a much better way. The common challenge identified by several studies is the power of the present and near future digital disruption that is changing markets.

That power is pushing operations to be efficient as they never have been, which means that technology needs to be present and correctly deployed because only technology can help to reshape existing processes in companies, can understand more deeply new digital interactions within the various channels.

5. Summary

The impact that information systems have in the knowledge and business management inside companies, namely the creation of capabilities of leveraging data analytics able to understand deeper the value chain.

Basically, these analytics intend to automate the Data, Information, Knowledge, and Wisdom (DIKW) hierarchy, potentiate that managers and decision makers within companies are capable of maximizing their business value generation.

The digital transformation of a company is basically a process reengineering inside the companies, adding technologies that will create a vision of “real-time” everywhere in the value chain and will run as an automation authority, creating additional efficiencies and competitive advantages.

In reality, Information Systems is the set of people, processes, and technologies. Information Systems are fundamental to address the strategic optimization of the automation and efficiency transformation within a company.

This means that when a company is building a business strategy, needs today not only to create but fundamentally to assure the right alignment with Digital and Information Systems strategies. It is a fact that the speed of new technologies appearance can create market disruptions and add continuous pressures to the existing status of the market.

Reference: Digital Transformation of the Enterprise Value Chains, Rui Ribeiro, Universidade Lusofona de Humanidades e Tecnologias, Lisboa Portugal

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