Defining Digital Tranformation

Defining Digital Transformation

What is digital transformation?

Digital transformation is the integration of digital technology into all areas of a business, fundamentally changing how you operate and deliver value to customers. It's also a cultural change that requires organizations to continually challenge the status quo, experiment, and get comfortable with failure. Digital transformation is imperative for all businesses, from the small to the enterprise. That message comes through loud and clear from seemingly every keynote, panel discussion, article, or study related to how businesses can remain competitive and relevant as the world becomes increasingly digital. What's not clear to many business leaders is what digital transformation means. Is it just a catchy way to say moving to the cloud? What are the specific steps we need to take? Do we need to design new jobs to help us create a framework for digital transformation, or hire a consulting service? What parts of our business strategy need to change? Is it really worth it?

Why does digital transformation matter?

A business may take on digital transformation for several reasons. But by far, the most likely reason is that they have to: It's a survival issue. In the wake of the pandemic, an organization's ability to adapt quickly to supply chain disruptions, time to market pressures, and rapidly changing customer expectations has become critical.

And spending priorities reflect this reality. According to the May, 2020 International Data Corporation (IDC) Worldwide Digital Transformation Spending Guide, spending on the digital transformation (DX) of business practices, products, and organizations continues "at a solid pace despite the challenges presented by the COVID-19 pandemic." IDC forecasts that global spending on DX technologies and services will grow 10.4 percent in 2020 to $1.3 trillion. That compares to 17.9 percent growth in 2019, "but remains one of the few bright spots in a year characterized by dramatic reductions in overall technology spending," IDC notes.

Why is digital transformation important?

The digitization of society started in the late 20th century and underwent rapid acceleration in the first two decades of the 21st century, spurring a growing need for digital transformation across industries. Indeed, many organizations believe they must either adapt to the changing market forces driven by digitization or face extinction. According to the Digital Transformation Index 2020 from Dell Technologies, a third of enterprise leaders are worried their organizations will not survive in the upcoming years, while 60% thought they'd survive but would shed many additional jobs and take years to return to profitability.

The need for transformation is exemplified in the often-cited case of Blockbuster LLC, which, in the early 2000s, was a global entity with video rental stores throughout the United States and around the world. But its presence and relevance precipitously declined from about 2005 onward, as Netflix and others harnessed emerging technologies and capitalized on the consumer appetite for on-demand entertainment delivered via highly profitable streaming video services. The power of digital technologies to disrupt is also evident in the rise of Amazon from online bookseller to an electronic commerce (e-commerce) juggernaut that redefined the retail industry.

The danger of market leaders being displaced and disrupted is expected to continue, as emerging technologies enable new business models, more engaging customer experiences, novel products and services, and other innovations.

What are digital transformation drivers?

Technology's ability to rapidly collect, generate, analyze and transmit data is the principal driver of digital transformation. Artificial intelligence (AI), cloud computing, mobile technologies, social media platforms and next-generation technologies, such as the internet of things (IoT), edge computing and robotic process automation (RPA), have dramatically changed how quickly we get information.

The application of these technologies in the marketplace by digital leaders like Amazon, Airbnb, Uber and others has changed the kinds of products and services people expect. For example, consumers expect companies to respond quickly, as well as to provide products and services tailored to their needs. They have also have come to expect intuitive, easy-to-use interfaces, and they generally prefer digital interactions that can happen anytime from any device.

The same technologies affecting the consumer market are also are transforming workplaces by, for example, automating business processes that, until recently, were done manually; enabling work-from-anywhere environments; providing insights into ever-growing stores of customer data; and providing tools that facilitate collaboration among local and far-flung workforces.

How to develop a digital transformation strategy

Successful transformation starts with a vision that articulates how to harness computer-based digital technologies to achieve strategic objectives based on the organization's own digital business model.

Implementing cutting-edge technologies, no matter how promising they are, without understanding how they'll deliver a return on investment (ROI) to the organization and its customers will not lead to transformation.

"What every company needs is a solid business strategy built around tomorrow's digital capabilities," Forrester Research analyst Nigel Fenwick said.

Each organization must have its own vision of success, but the following are steps that every organization should be prepared to take when developing a digital transformation strategic plan:

1. Understand the market and the organization's place in it, as well as its existing and potential customers.
2. Analyze where the market is heading so the organization can anticipate the potential for digital disruption and how it can be the disruptor instead of being disrupted by others.
3. Identify the existing and potential value proposition through internal evaluation and external research.
4. Develop a vision for what the organization should be in the future, including how its products and services should evolve to meet customer needs and expectations.
5. Create a digital transformation roadmap that offers a way to move from current to future state.

As part of this strategic planning, executives should assess the organization's existing capabilities -- from employee skills to its existing IT stack, articulating what additional capabilities will be needed and devising a plan to obtain those capabilities. Organizational leaders will need to draw on a number of traditional disciplines, such as project management, as well as new techniques, such as Agile methodologies, in order to successfully bring their organization, its culture, its people and its technologies into the future.

Digital transformation is not a one-time exercise. Experts agree that organizations must evaluate their digital transformation process and strategy on an ongoing basis and adjust it to maximize business value.

What are the benefits of digital transformation?

Digital transformation enables organizations to succeed in this digital age: That is the single biggest benefit of digital transformation. For businesses, that success means higher revenue and bigger profits. For other types of organizations, such as nonprofit institutions, the digital metrics for success they've implemented enables them to better serve their stakeholders.

Although digital transformation's ultimate benefit is survival and strength in the future, transformation initiatives deliver many other advantages to organizations. They include the following:

• increased efficiency and effectiveness, as the implementation of technologies such as AI and RPA boost worker productivity, reduce errors and speed time to market -- meanwhile, revamped business processes enabled by digital technologies further increase productivity and the pace of business;
• improved engagement with customers, employees and business partners, as organizations are able to better process data to make smarter, more accurate decisions and anticipate the needs of their different stakeholders;
• more agility and responsiveness to changing markets, as an organization's culture and capabilities shift to support ongoing change; and
• enhanced ability to innovate, as a nimbler workforce and updated technology capabilities support and encourage experimentation, while also limiting risk.

These benefits help fuel ongoing transformation, as automation enables employees to shift to more innovative and higher-value work and more agility enables the organization to better identify opportunities and pivot resources toward seizing upon them.

Digital transformation team roles

Building the right team for a transformation effort is the most important component of a successful digital transformation strategy, according to Metrigy CEO and principal analyst Robin Gareiss. The effort "starts with good leaders -- typically C-level executives with budget, influence and respect," she said. The chief executive officer (CEO) usually appoints the person in charge of the digital transformation initiative. At some companies, this might be the chief digital officer (CDO) or a person hired specifically to work on digital transformation, or the project might be the responsibility of the CIO, chief technology officer (CTO) or chief operations officer (COO), who spearheads the initiative in addition to their other duties. Other key roles described by Gareiss in her tip on how to build a digital transformation team include the following:

• Business-technology liaisons. They understand business models, customer experience issues, and technology strategy.
• Evangelists. Highly skilled communicators, they generate excitement and find funding.
• Financial stakeholders. These are typically C-level executives.
• Project managers. They develop detailed projects plans, keep the project running and raise red flags.
• Marketers. They advertise digital transformation benefits internally and externally to customers and shareholders.
• Implementation leads. IT leads focus on the technology installation, and the process leads focus on change management.