BANA3050 Fall B

Management Information Systems

Class 9: Digital Strategy
Salman A. Mufti, PhD
Monday, December 25, 2023
A Comprehensive and Integrative Perspective

Digital
Imple-
mentation

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Introduction
• Topic: Digital Strategy

• Objective: Examine business and digital strategy and consider how to

incorporate digital transformation within business strategy.

• Approach: Revisit business strategy (frameworks) and discuss a mini-case.

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 “Digital is the Strategy.”

Do you agree or disagree with this statement?

Source: Various 4
What is Strategic Thinking?
• Strategic thinking is about analyzing opportunities and challenges from a
broad, big picture perspective

• When you think strategically, you lift your head above your day-to-day work
and consider the larger environment in which you are operating

• In today's highly competitive and fast changing business environment,

everyone in an organization must know how to think strategically

• Having said this, in your opinion WHAT IS STRATEGY?

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Business (Competitive) Strategy
• Strategic Positioning is not simply Operational Effectiveness. Operational
effectiveness means performing activities better, faster, and cheaper than
competitors.

• Strategy means performing different activities than competitors or

performing similar activities in different ways. The purpose of strategy is to
gain a sustainable competitive advantage.

• SUSTAINABLE COMPETITIVE ADVANTAGE COMES FROM DIFFERENTIATION,

WHICH MEANS BEING BOTH UNIQUE AND VALUABLE.

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 What is Digital Strategy?
• Digital strategy is an approach of identifying and deploying digital
technologies that will enable the company’s business strategy.

• It used to be “What’s your IT Strategy?” Then it was “What’s your Internet

Strategy?” and What’s your Social Media Strategy? Now it’s “What’s your
Digital Strategy?” – implying these strategies are separate from Business
Strategy.

• However, most businesses start with digital experiments, creating

independent units, or leveraging technology to automate processes. Such
experiments, units and automation often create temporary solutions, but
they also create longer terms problems.
Sources: M.P. McDonald, Digital Strategy Does Not Equal IT Strategy, Harvard Business Review; S. Gupta, Digital Strategy
 Types of Digital Strategies
• Digital strategy provides direction for digital transformation. The first step in
setting this direction is to decide what kind of digital strategy to pursue.

1. Customer Engagement Strategy

– The development of loyalty and trust by offering customers with omnichannel
options, rapid responses, and personalized relationships.
2. Digitized-Digitalized Solutions (Product and Service) Strategy
– The integration of diversified products, services, and information into solutions,
to add value throughout the life cycle of products and services.
3. Operational (Process) Excellence Strategy
– The streamlining of business processes, however, this is becoming the minimum
requirement for doing business digitally.

Source: J.W. Ross et al, How to Develop a Great Digital Strategy, MIT Sloan Management Review 8
Levels of Organizational Strategy

Corporate Strategy
(Mission, Values, Vision)

Business Strategy
(Objectives, KPIs, Initiatives)

Functional Strategy
(Operational, Financial, Human Resources, Information Technology, etc. )

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Traditional Business and IT Alignment Strategy
Business Strategy
Information Technology (IT) Strategy
Objective: Increase revenue by 25% in
three years through customer Objective: Implement an enterprise-
engagement. wide customer relationship
management (CRM) system.
Action Items:
Action Items:
1. Establish an elite marketing, sales,
and customer service team. 1. Research (survey, focus groups, etc.)
customers for needs assessment
2. Implement an enterprise-wide 2. Determine marketing, sales, and
customer relationship management customer service requirements;
(CRM) system. 3. Select CRM technology vendor and
implementation methodology;
4. Assemble project team, …
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 Article: Competing in the Age of AI
(How machine intelligence changes the rules of business) M. Iansiti & K.P. Lakhani, Harvard Business Review, January-February 2020
Today markets are being reshaped by a new kind of firm—one in which artificial intelligence runs the show. This cohort includes giants
like Google, Amazon, Facebook, and Alibaba. Every time we use their services, the same thing happens: Rather than relying on
processes run by employees, the value we get is delivered by algorithms. Software is at the core of the enterprise, and humans are
moved off to the side. This model frees firms from traditional operating constraints and enables them to compete in unprecedented
ways. AI-driven processes can be scaled up very rapidly, allow for greater scope because they can be connected to many kinds of
businesses, and offer very powerful opportunities for learning and improvement. And while the value of scale eventually begins to
level off in traditional models, in AI-based ones, it never stops climbing. All of that allows AI-driven firms to quickly overtake traditional
ones. As AI models blur the lines between industries, strategies are relying less on specialized expertise and differentiation based on
cost, quality, and branding, and more on business network position, unique data, and the deployment of sophisticated analytics.

• Putting AI at the Firm’s Core

• One Strategy: Rebuilding each business unit on a new, integrated foundation of data,
analytics, and software.
• A Clear Architecture: Data assets should be integrated across a range of applications to
maximize their impact.
• The Right Capabilities: Systematically hire a very different kind of talent and set up career
paths and incentive systems.
As both learning and network effects • An Agile “Product” Focus: Applications should have a deep understanding of the use
amplify volume’s impact on value cases they’re enabling—a product management orientation.
creation, firms built on a digital core can
• Multidisciplinary Governance: Collaboration across disparate disciplines to consider legal
overwhelm traditional organizations.
and ethical challenges.
 Business Strategy and Digital Technologies
Mission/Values/Vision/Objectives
Business Strategy
Environmental/Competitive Analysis
What are we?
(or would like to be?) Internal/Process/Customer Analysis
Internal/External Resources

Emerging Technologies

Digital Technologies Informational Inventory

What can we be? Technology Inventory
Technology Organization/Partners

Source: E. Murray, Smith School of Business (Adapted); Bain & Company (https://www.bain.com/insights/scaling-your-digital-transformation)
 Modern Business-Digital Strategy
• Current State: Do we know what digital activities are underway across the
enterprise? How many legacy technologies do we have in the business?

• What Are We? Industry, Customers, Geographies, Products, Services, Processes,

Channels, and Mission, Values, Vision, Objectives, KPIs, …

• What Can We Be? Emerging Technologies, Existing Technologies, Informational

Inventory, Technology Organization, Vendors and Partners, …

• Future State: How will digital shape our industry in 5, 10, 20 years?

• Business-Digital Strategy: How will we play and win in this future?

Source: Digital Transformation Roadmap, Bain & Company--Adapted

Business-IT Strategy vs. Business-Digital Strategy
Business-IT Strategy Business-Digital Strategy

Corporate Strategy Corporate Strategy

(Mission, Values, Vision) (Mission, Values, Vision)

Business Strategy
Business Strategy and
(Objectives, KPIs, Initiatives)
Digital Transformation
(Objectives, KPIs, Business-
Digital Transformation
Information Technology Roadmap,
(IT) Strategy Digital/IT Projects)
(IT Projects)

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 Important Questions to Ask
1. Does digital technology affect the value proposition to our target
customer?
2. Could digital technology change our target customer?
3. How could digital technology improve the way we add value to the
business we are in?
4. How does digital technology change the businesses we should be in?
5. How can digital technology enhance our company’s capabilities that can
further differentiate us from our competitors?
6. …

Source: K. Favaro, Don’t Draft a Digital Strategy Just Because Everyone Else Is, Harvard Business Review (edited)
 Digital Transformation (DX) Roadmap
DX: “Transforming an established business to thrive in a world of constant digital change.”

Current Future Plan

State State Design Refine

Strategy and Change

Objective Gap Prototype Implement

Business
& Test Y
Analysis Case

WHY? WHAT? HOW?

Why do we need What do we need to How do we need
to transform? transform? to transform?
Source: D. Rogers, The Digital Transformation Roadmap
Strategy Views: Market-Based vs Resource-Based
Often companies take one of two
MARKET-BASED VIEW views in developing a strategy. RESOURCE-BASED
OF STRATEGY: VIEW OF STRATEGY:

"Outside-in" view of Macro Environment "Inside-out" view of

strategy that starts by strategy that starts by
identifying opportunities identifying internal
and threats in the Industry Landscape strengths in the
external environment as company as a basis to
a basis to compete. compete.
Company's Internal
The strategic positioning Resources The drivers of success
of the company vis-à-vis are seen in the
its customers and company's capabilities,
competitors is competencies,
considered the key stakeholders, and
determinant for its culture.
success.
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SWOT: Framework for Strategic Analysis/Planning

Strengths Weaknesses Strategic Plan

• What does your • What does your
organization do better organization need to • Mission
than your improve upon? • Values
competitors? • Vision
• Objectives
• Action Plan
Opportunities Threats
• What external factors • What external factors
can your organization could jeopardize your
use to its advantage? organization's success?

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Environmental Analysis (PEST)
• Political
– Globalization, deregulation, privatization, interest groups, …
• Economic
– Trading zones, economic shocks, inflation, employment, interest rates, …
• Social
– Aging population in developed regions, younger population in developing
regions, environmental awareness, disease/pandemic, …
• Technological
– Cloud, mobile, social media, analytics, artificial intelligence, augmented reality,
metaverse, biotechnology, nanotechnology, …

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 Scenario Planning
• Scenarios is a structured way to think about possible futures
– The process begins with a discussion about how big shifts in the environment —
political, economic, social and technology (PEST) — affects a particular situation
– One simple yet effective approach is to select two important PEST trends based
on impact and uncertainty, and create a 2x2 matrix to describe four (4) potential
scenarios of the future

For example, let’s look at the future of a retail industry. One

PEST Trend 1
feels that its future will be particularly affected by customer
shopping preferences and the advent of Metaverse. 1 2
•For the Social Trend: Customers continue to prefer physical
stores OR Customers will mostly prefer online shopping.
•For the Technological Trend: Metaverse pushes most people 3 4
into the digital sphere OR physical presence is the preferred
mode of living. PEST Trend 2
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 Scenarios: Retail Industry and Metaverse

Source: https://www.futuresplatform.com/blog/2x2-scenario-planning-matrix-guideline 21
 Industry Analysis in a Digital World
Threat of
NEW ENTRANTS

Rivalry among
COMPETITORS
Bargaining power of 1 Bargaining power of
SUPPLIERS 2 BUYERS
4
3

Threat of SUBSTITUTES
(products and services)

Source: M.E. Porter Harvard Business Review

Bargaining Power of Buyers/Customers
• Usually depends on the number and size of customers, and their price
sensitivity

• Companies can establish direct connections with their customers

• Customers can compare offerings and have higher expectations regarding
cost savings
• Customers can change companies with lower switching costs

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Bargaining Power of Suppliers
• Usually depends on the number and size of the suppliers, and uniqueness of
the suppliers' product or service

• Companies can establish direct connections with their suppliers

• Suppliers have a preference for distributors with efficient and integrated
systems
• Suppliers have the ability to disintermediate, take out the middleperson

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Rivalry Among Existing Competitors
• Depends on the number and size of competitors, as well as quality and
brand differences

• Competitors can aggressively discount prices to attract new customers

• Competitors can continually shorten product development cycles
• Competitors can quickly copy products and processes making it difficult to
keep things proprietary

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Threats of New Entrants and Substitute Products
• Depends on barriers to entry, economies of scale, capital requirements,
government regulation, relative price and perceived quality of the substitute

• Companies face competition on a global scale

• Non-traditional competitors face lower barriers to market entry
• New middlepersons (re-intermediaries) can enter the market

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 Industry (Five Forces) Analysis: Questions to Ask
How easy/difficult is it for NEW
ENTRANTS to join our market? An analysis of the five
What are the barriers-to-entry forces helps deepen
into our industry? your understanding
of the industry in
Who are our Who are our Who are our
SUPPLIERS and how COMPETITORS and how BUYERS/CUSTOMERS, terms of its
are they changing? are they changing? Are how are they changing? attractiveness and
Are they gaining or they the same, or Are they gaining or profitability.
losing becoming losing power/control?
power/control? stronger/weaker? If so, What are they
It also helps you
how? demanding?
understand your
What are the SUBSTITUTE products/services. company's current
How easy is it for our buyers/customers to differentiation and
switch to them? Are the substitutes cheaper,
better, etc.?
position in the
market 27
Source: M. Porter, Harvard Business Review
Generic Strategies for Competitive Advantage
Having a sustainable competitive advantage provides above-average profitability

Two basic types of competitive advantages are low cost leadership and
product/service differentiation, which combined with market scope – broad or
narrow – leads to three (3) generic strategies

1. Low Cost Leadership: Become a lower cost producer/provider in the broader

market

2. Product/Service Differentiation: Become a higher quality producer/provider in

the broader market

3. Niche Market: Produce/provide a tailored solution to a narrow segment of the

market

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 Revisit Industry Analysis in a Digital World
New entrants may face
obstacles with the high costs Threat of
of more complex product NEW ENTRANTS By capturing product-usage
design, and layers of new data, companies can lock-in
technology infrastructure buyers, increasing their cost
Rivalry among of switching
COMPETITORS
Bargaining power of 1 Bargaining power of
SUPPLIERS 2 BUYERS
4
As software and services 3
deliver more value relative
Technology-enabled products
to physical components,
Threat of SUBSTITUTES and services can offer
the physical components
(products and services) superior performance,
can be commoditized
relative to substitute products
Source: M.E. Porter Harvard Business Review
Mini-Case: Benjy’s and Amazon (1/3)
Bertice Jenson couldn’t believe how shameless they were. Right in front Although Bertice prided herself on her financial toughness, she was a natural
of her in the Benjy’s superstore, a young couple pointed a smartphone mediator. Her even temper and evenhandedness had helped her succeed in
at a Samsung 8K TV and then used an app to find an online price for it. her mostly male undergrad finance and MBA programs and then at a top-tier
They did the same for a Sony and an LG model. “Excuse me,” Bertice accounting firm, where she had become the sole African American partner.
said. “I see what you’re doing. Don’t you think that’s kind of…unfair?” Bertice would soon be mediating among the board members of Benjy’s as
The two shoppers looked at each other as though this hadn’t occurred they discussed what she had just seen: “showrooming.” Customers like the
to them. “We’re only comparing prices,” the young woman said, couple with the dog weren’t unusual. More and more people were coming
stroking the terrier she was cradling. “But the app— it’s Amazon’s, to Benjy’s to look at products but then buying them from online competitors
right?” Bertice asked. “Once you figure out which TV you want to buy, whose lack of physical presence enabled them to offer discount prices.
you’re going to order it from Amazon.” “Probably,” the young man said. Research showed that 83% of people shopping for electronics and
“But this isn’t Amazon’s showroom,” said Bertice. “Benjy’s doesn’t appliances were now practicing showrooming. The chain’s sales had nose-
display these products and staff these stores for the benefit of Amazon. dived as a result; the most recent quarterly loss was nearly $700 million.
We want you to buy from us.” They looked at her blankly. “Oh, you
work here?” the woman asked. Bertice’s father, Ben Jenson, and the company’s CEO, Stanley Farber, knew
that something had to be done, but they didn’t agree on what. Ben favored
Bertice wasn’t dressed like the sales staff, and the couple had no way of a two-pronged approach that was already under way in a few stores: make
knowing that her father had founded Benjy’s and that she chaired the showrooming as difficult as possible for customers, but if they did find a
board of the $40 billion electronics and appliance retailer. She was now lower price online, then match it, in keeping with the company’s traditional
making a routine drop-in visit to one of the chain’s 2,000 odd stores. But low-cost, high-volume ethos. The CEO wanted to pursue a different strategy:
that wasn’t worth explaining. “Never mind,” Bertice said. “Just be aware He thought Benjy’s should set itself apart from the competition by
that what you do has consequences. This real-live shopping experience emphasizing a curated product mix, knowledgeable employees, and follow-
you’re having here at Benjy’s is helping you decide which TV to buy. And up services.
if you order from Amazon, you’re basically cheating us.”

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Mini-Case: Benjy’s and Amazon (2/3)
After her visit to the store, Bertice flew to the company’s headquarters, Realizing that she’d allowed her father to dominate the conversation, she
for a regular board meeting. The first item on the agenda was how to turned the floor over to the CEO. “As you all know,” Farb said, “I spent my
address showrooming, and she jumped right in: “This is a serious early career in the hospitality industry, and one of the reasons you hired me
problem for most retailers, but particularly those of us in electronics. five years ago was to improve our customer service. That starts with
Amazon keeps making it easier for shoppers to search for, find, and respecting our guests and how they like to shop.” “The way they shop is
order a product online. We need to decide on a counterstrategy.” Farb, killing us,” Ben interjected. Farb hesitated but continued: “We have to
as everyone called the CEO, had prepared a presentation. But the acknowledge that the world has changed. Showrooming is a fact of modern
projector was balky, and Ben took advantage of the pause to share his life, and if shoppers' sense that we’re trying to stop them from doing it, they
own views. “It’s obvious that we need to play both offense and defense. won’t even walk through our doors. So, with all due respect, I think we should
scrap the defense and focus on a stronger offense. We need to be looking at
Offense should include providing more-aggressive discounts through the what more we can do for our customers— provide better service,
Benjy’s app and matching online prices. We also need to get more knowledgeable salespeople, exclusive products, and after-purchase support.”
suppliers to impose minimum advertised prices on their online retailers Ben broke in: “But now you’re talking premium. Customers don’t want that
so that there’s a price floor for every product, online or off. “As for from us. Our priority is the biggest range of products at the lowest prices.
defense, it will be a process. Some of the basic tactics, such as altering That’s the Benjy’s promise. How can we make money by increasing our cost
our bar codes, are now moot, because the newest price-comparison structure?” “Maybe it’s time to change our promise,” Farb said. He paged
apps incorporate object-recognition software. That means shoppers quickly through the deck until he got to a slide titled “The New Benjy’s.”
don’t even have to upload bar codes. All they have to do is point a
smartphone at a product.” There was murmuring around the table. Bertice was slightly miffed; Farb hadn’t warned her about this. But as ever,
Apparently, this was news to some of the directors. “But there are ways she kept her expression neutral. “I’ll skip over some of the lead-in, but here’s
to thwart object-recognition software,” Ben continued. “We’ve begun a short report I had my team prepare,” Farb said. “As I see it, we can’t beat
creating display structures within the stores that confuse the apps while Amazon on range, and when we try to match prices that are, on average, 8%
still showing off the products. There are consultants that specialize in lower than ours, we’re in the red on most sales. But what if we shifted away
this. The costs are relatively minor and well worth it. I think this tactic is a from big-box retail to a more boutique experience? Fewer and smaller stores
no-brainer.” Farb caught Bertice’s eye and signaled that the projector with fewer but better- motivated and better-trained employees—the baristas
was now working. of electronics retail.
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Mini-Case: Benjy’s and Amazon (3/3) The next day, Bertice was at a new location, to join in the ribbon cutting for a
redevelopment project. Several big-box superstores—including a Benjy’s—had
Ben sputtered: “We’re not running cafés, Farb!” Bertice spoke up: “Let’s been closed and replaced by a mixed-use residential-retail community. Benjy’s
hear him out, Dad.” Farb gave her a grateful look. “TVs and laptops may still had a presence there, but a much smaller one. “Welcome to Benjy’s,” a
seem like commodities that people will buy only at the lowest prices, but store employee said when Bertice walked in. “Did you come here today
so did coffee before Howard Schultz made Starbucks a destination. Why looking for something specific?” That was a nice touch—probably Farb’s doing.
shouldn’t Benjy’s do the same—sell only the highest-value products and He was no doubt piloting his ideas about more helpful and attentive
educate customers about them, instead of letting them get employees here in this smaller-store format.
overwhelmed in an uncurated retail landscape?” “You’re naive, Farb,”
Ben said. “People will still showroom if they find better deals online.”
Instead of responding to the young woman’s question, Bertice explained that
“We could still match prices,” the CEO said. “How could we afford that?”
she was in corporate management at Benjy’s. Then she asked about the
Bertice asked, keen to break up the back-and-forth between the two
showrooming phenomenon. The woman’s cheery expression faded. “Oh, yeah.
men. “I’m glad you asked,” Farb said. He paged ahead to a different slide.
That’s a big problem. We’ve changed the displays to make showrooming
“Before I was in hospitality, I worked for a supermarket chain. Do you
harder. And we’ve tried matching online prices, but people say they don’t
know how those companies make money while cutting prices? They
want to go through the hassle. Seems they just want to hear our spiel, try out
charge their suppliers fees for promotions and access to prime shelf
the products, and go online. And often not to the Benjy’s site.” That was
space.”
extremely discouraging. “What spiel?” Bertice asked. “Lately we’ve gotten a
lot of training, so we can tell you everything you ever wanted to know about
“There’s no precedent for that in electronics retail,” Ben countered. “It’s the sound system in the Sony TV, for instance. We’re full of information.
a nonstarter. You’ll ruin relationships that we’ve spent decades building. People tap into that, get educated — and then go buy from Amazon.” “But I
And you’re talking about huge business-model changes that, even if we can’t imagine everyone does the showrooming thing,” Bertice said. “Don’t
wanted to make them, would take months — maybe years! — to some of your customers really appreciate your knowledge and purchase from
implement. We need a solution now!” Several board members nodded in us as a result?” The employee laughed nervously. “Honestly? I think service
agreement. Bertice could sense the tension building between Farb and scares people—especially people who are longtime Benjy’s customers,” she
her father. “Farb, you’re proposing a pretty radical change, and it’s a lot said. “Scares them?” Bertice asked. “They assume good service equals higher
for us to digest,” she said quickly. “Dad, it would also be useful to have prices. It’s not true, but I’ve seen people turn around and walk out when we
more detail on those countermeasures you mentioned. So, let’s table try to engage them.” So, customers weren’t responding to price matching, and
this discussion for now and get through the other items on our agenda. they were being chased away by excellent service.
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Physical-Digital Space-Time Matrix

Different
Place/Space

Same

Same Different
Time
Strategic Plan and Digital Roadmap
• Digital is not a matter of choice anymore. You cannot say that you will win in the future
without digital. Digital strategy should be a part of (not apart from) business strategy.

• Why: State a business case for strategic change and transformation

– Analyze the environment (consider scenarios), industry, revisit business strategy
– State business goals and define the strategic problem that needs to be solved
– Describe reasons for launching a digital transformation (competitive advantage via differentiation)
• What: Determine the business and digital transformation strategy
– Assemble the digital transformation team and define key success factors
– Conduct a gap analysis (current business/technology vs future business/technology)
– Get executive buy-in, determine technology alternatives, select technology/partners
• How: Plan the digital transformation and change management approach
– Prepare a digital transformation roadmap (detailed plan), establish governance, create dashboard
– Create a change management plan and communications strategy (stakeholders)
– Create process maps, project plans, select methodology, assign roles, …

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Conclusion
• Types of digital strategy (customer, product/service, operational)
• Levels of strategy (corporate, business, functional)
• Competing in the age of AI (one strategy); business-IT alignment to business-digital strategy
• Strategic thinking to competitive strategy (differentiation: unique and valuable)
• Strategy views (market-based vs. resource-based)
• Environmental (PEST) trends and scenario planning (Retail Industry and Metaverse)
• Industry (five-forces) analysis in a digital world (mini-case: Benjy’s and Amazon)
• Digital space-time matrix
• Strategic plan and digital roadmap

• Next Class 10: Digital Leadership

– Prepare for Class 10 (Digital Leadership) by reading the Case Study: Digital Transformation at GE:
What Went Wrong? (do not submit as memo). We will discuss this case study in class.

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