With the rapid development of digital technology such as artificial intelligence, wearables, and sensors, the way firms are creating value is being transformed. An exclusive group of digital native firms enjoys trillion-dollar market valuations through the effective use of digital platform ecosystems. Yet, most traditional firms are still struggling to find a way to transform their value chain.

Many firms are using various digital tools, with the goal of transforming their value chains (Porter and Hepplemann 2015). Instead of home appliances, firms started making smart appliances. Machines in factories are being connected to the Industrial Internet of Things. With the ever-growing set of digital trace data, firms can now optimize their value chains and gain new sustainable competitive advantages. Not only do firms have smart connected products, but they are also creating digital platform ecosystems or being a part of larger ecosystems (Van Alystin et al. 2016).

While these earlier investments in smart connected products and platforms are necessary and critical, many firms are still struggling to find concrete ways to capture the values that are created with all these investments. In this talk, I will introduce the concept of a digital value loop as a critical missing element of digital transformation. What companies need is not just to transform their value chain, they need to create a digital value loop. I will explain what it is, how it is different from the value chain, what are the key design parameters, and key capabilities that firms need to have to design and operate a powerful digital value loop.

With a digital value loop at its core, digital transformation is a set of interrelated shifts from “value chains” to “value loop”, “customers-as-buyers” to “customers-as-users”, “transaction-centric” to “engagement-centric”, and “physical assets” to “digital assets”. It entails changes in people, strategy, and technology dimensions. I will conclude the talk with a brief overview of a maturity framework in nine areas across three dimensions.