SPP Digital Transformation Strategy 4 — Questions and Answers
Question 1: A company's digital transformation budget is split 70% on 'run' (maintaining existing systems) and 30% on 'grow/transform.' What is the strategic implication of this ratio?
- The company is well-positioned to outpace digital disruptors
- Legacy maintenance is consuming investment capacity needed for transformation (Correct answer)
- The company is over-investing in new capabilities at the expense of stability
- The ratio indicates a healthy balance between efficiency and innovation
Correct answer: Legacy maintenance is consuming investment capacity needed for transformation
A 70% 'run' spend signals legacy burden is crowding out transformation investment; best-practice digital leaders typically invert this ratio over time.
Question 2: Which concept describes the strategy of using digital capabilities to add services around a physical product, creating new revenue streams?
- Servitization (Correct answer)
- Platformization
- Disintermediation
- Digitization
Correct answer: Servitization
Servitization is the strategy of augmenting physical products with digital services (e.g., remote monitoring, predictive maintenance) to generate recurring revenue.
Question 3: An insurer uses AI to underwrite policies in real time based on behavioral telematics data. This represents which level of digital business model disruption?
- Process automation within an existing model
- Product digitization
- Algorithmic business model innovation (Correct answer)
- Platform marketplace creation
Correct answer: Algorithmic business model innovation
Real-time algorithmic underwriting using behavioral data fundamentally changes how value is created and priced, constituting algorithmic business model innovation.
Question 4: In a digital transformation initiative, 'minimum viable transformation' (MVT) is best defined as:
- The smallest IT investment that satisfies the board
- The least disruptive set of changes that still achieves the core strategic objective and validates the transformation thesis (Correct answer)
- A pilot limited to one geographic market
- A transformation that excludes customer-facing systems to minimize risk
Correct answer: The least disruptive set of changes that still achieves the core strategic objective and validates the transformation thesis
MVT borrows from MVP thinking: deliver the minimum scope that validates the strategic hypothesis and generates learning without full-scale commitment.
Question 5: A global manufacturer wants to build a digital ecosystem where third-party developers create apps on top of its industrial IoT platform. The primary strategic value being pursued is:
- Reducing internal R&D costs through outsourcing
- Capturing network effects that increase platform value as participants grow (Correct answer)
- Standardizing internal operations across factories
- Achieving regulatory compliance for connected devices
Correct answer: Capturing network effects that increase platform value as participants grow
Opening a platform to third-party developers is explicitly a strategy to capture network effects, where each new participant increases value for all others.
Question 6: Which organizational design pattern best supports a digital transformation strategy that requires rapid experimentation across many product lines simultaneously?
- Centralized digital center of excellence with project-based staffing
- Federated model with embedded digital squads in each business unit supported by shared platforms (Correct answer)
- Hierarchical IT organization with a strong PMO governance layer
- Fully outsourced digital delivery with vendor SLAs
Correct answer: Federated model with embedded digital squads in each business unit supported by shared platforms
A federated model combines the speed of embedded, autonomous squads with shared platform economies of scale, enabling simultaneous experimentation across business units.
Question 7: When constructing the business case for a digital transformation, which category of benefit is most frequently underestimated in early-stage assessments?
- Direct cost reduction from process automation
- Strategic optionality and future revenue from new data-enabled business models (Correct answer)
- IT infrastructure cost savings from cloud migration
- Headcount reduction from robotic process automation
Correct answer: Strategic optionality and future revenue from new data-enabled business models
Strategic optionality and data-monetization upside are hardest to quantify early but often represent the largest long-term value, making them chronically underestimated in initial business cases.
SPP Digital Transformation Strategy 4
A company's digital transformation budget is split 70% on 'run' (maintaining existing systems) and 30% on 'grow/transform.' What is the strategic implication of this ratio?