It’s rare to come across an organisation that hasn’t contemplated digital transformation in some form. Even though digitisation began in the late 1930s with the first digital computer, it wasn’t until the early 2010s that digital transformation became mainstream.
Although a simple term, “digital transformation” has generated many interpretations: Some say it is the digitisation of processes in an enterprise, others say it is the increased delivery of value to customers, yet others say it as a complete re-evaluation of a company’s values.
Interpretations aside, the consensus is that successful digital transformation entails successful business outcomes. Deloitte, for one, reports that a sizable proportion (45%) of digitally mature companies have experienced “industry-leading” growths in revenue.
Business transformation isn’t a new concept. Companies have always sought to adapt and grow. But the sheer pace of growth in emerging technologies such as cloud, big data, 5G, artificial intelligence, and the internet of things is creating its own challenges.
Indeed, 70% of digital transformations don’t meet their objectives. The challenges don’t stop there either. Even though most organisations recognise the value of digital transformations, 87% feel they don’t have the right leadership to make them happen.
In this article, we’ll define digital transformation, explore its benefits and challenges, and explore ways organisations can engage in successful business transformation programmes.
What is Digital Transformation?
Beyond the successful implementation of digital technologies, digital transformation is about re-inventing how organisations create and deliver value. It’s about engaging with customers, employees, and stakeholders in new and different ways.
The cycle starts with harnessing emerging technologies to enhance business processes and products, and ends with innovative business models that uncover additional revenue streams, increase margins, and improve the overall customer experience.
Companies that undergo a successful business transformation have successfully integrated digital technologies into every facet of their organisation. But they’ve also aligned their cultural values to this new way of working and creating value, ensuring the support of every employee and stakeholder. Part of this culture is the willingness to try new things with an implicit risk of failure.
Digital transformation initiatives are cyclical. They are ongoing and require a constant re-evaluation of workflows, supply chains, skill sets, and other value drivers. But they also deliver ongoing benefits that enable organisations to flex with customer demands and other market drivers quickly and effectively.
An effective digital transformation strategy positions organisations to thrive in a technology driven marketplace.
Why Is Digital Transformation Important?
The first two decades of the 21st century have witnessed a rapid growth in digital technologies, spurring ever more new business models. In fact, IDC forecasts that by 2025, 75% of business leaders will have implemented digital ecosystems that transform their value chains. Furthermore, $6 trillion of direct digital transformation investments are expected between 2020 and 2023.
Integrating digital technologies with business strategy helps organisations:
- Gain better understanding of customer needs
- Improve responsiveness
- Reduce time-to-market
- Improve employee engagement
- Provide a more engaging customer experience
Blockbuster is a notable example of a company which failed to grasp digital transformation early enough. Even though it owned a substantial number of video rental stores , its market share declined rapidly after 2005 as Netflix and others capitalised on media streaming technology.
Conversely, Jeff Bezos quickly grasped the value of digital transformation in the mid-1990s when he created Amazon. He positioned the brand as digital-first and being able to respond quickly to customer demands and market changes.
What Drives Digital Transformation?
Rapid advances in digital technologies are driving digital transformation in business and society. The move to cloud computing, the adoption of social media and mobile, and the emergence of artificial intelligence and other technologies have given organisations unprecedented access to data which they can collect and analyse to deliver better products and services.
Digital leaders, such as Amazon and Uber, have raised consumer expectations. Consumers now expect their brands to provide them with intuitive, easy-to-use services and apps which serve their requirements 24/7. Whether it’s for banking, shopping, healthcare, or something else, digital technology has revolutionised consumer culture.
These consumers also expect the same access to digital technology once they reach their workplace. Consequently, businesses have been automating many of their processes while also providing flexible workplaces, enabling collaboration over geographically dispersed locations.
Key Digital Transformation Technologies
No single technology drives digital transformation. The following technologies have been ubiquitous in digital transformation projects:
Cloud Computing. Cloud computing has given organisations access to scalable software, applications, and platforms that help them meet their business goals.
Big Data & Artificial Intelligence (AI). Concurrent with the move to the cloud, the volume of data produced has increased exponentially. AI and machine learning algorithms have provided organisations with powerful analytics tools for faster decision making and forecasting.
Automation. Automation scripts such as chatbots have automated many of the repetitive tasks once handled by humans.
Mobile. Mobile connectivity has empowered employees with on-demand connectivity so they can do their jobs from any location or device most convenient to them.
Emerging Technologies. New technology is created almost every day. Blockchain, Virtual Reality (VR), and the Internet of Things (IoT), for example, are promising to deliver greater efficiencies to businesses, consumers, and the public sector.
Companies such as UPS, Dominos, and Netflix have implemented these technologies to deliver successful digital transformation initiatives. Examples of digital transformation projects include:
- Deploying big data analytics to optimise business processes
- Migrating on-premises data centres to the cloud
- Deploying robotic process automation to automate tasks
- Deploying blockchain, internet of things, and other technologies
- Transitioning from brick-and-mortar to online
- Switching from traditional advertising to digital marketing
- Transitioning to a remote workforce
- Deploying virtual reality/augmented reality to improve the in-store experience
Benefits of Digital Transformation
Digital transformation initiatives are unique to each organisation: The success of digital transformation projects depends on individual business goals and industry drivers. There are, however, common benefits which many organisations will experience, including:
- Increased engagement with customers, employees, and stakeholders enabled by data analytics
- Increased agility in response to fluctuating market conditions
- Increased innovation as new technologies support out-of-the box thinking
- Increased efficiencies as digital technologies reduce errors, improve productivity, and minimise time-to-market
- Improved competitive positioning
Challenges of Digital Transformation
As digital transformation gathers pace, organisations must consider the challenges that will appear during the implementation phase.
Research suggests that 78% of digital transformation projects don’t reach their business goals. Data privacy, lack of resources, and inability to extract value from data are the chief reasons for failures.
Following are some common reasons for the failure of digital transformation projects:
Lack of business strategy: Given the complexities involved, a coherent plan of action is crucial. A coherent strategy avoids wasted effort and builds confidence.
Lack of budget: Insufficient funding is often the result of a poor strategy. Without a clear plan of action, it’s difficult to allocate resources.
Lack of adoption: There’s often a lack of assistance in helping employees adopt new technologies. There may also be apathy towards new ways of working. A Chief Digital Officer could be an effective leader that helps smooth things over.
Other reasons for the failure of digital transformation projects include:
- Lack of collaboration between departments
- Limited in-house expertise
- Concerns with data security
- Regulatory constraints
Legacy technology could also leave a heavy footprint as organisations strive to become more agile.
The role of culture in digital transformation
Culture has often been cited as a critical factor in business transformation. It’s incumbent on business leaders to foster a culture of continuous improvement, empowering everyone to abandon outdated practices in favour of new digital business models.
This is easier said than done, however. In its “Measuring Digital Transformation Progress” report, Dell Technologies reports that 52% of organisations are not sharing knowledge across departments, while only 49% are investing in digital skills.
Although technology plays an important role in digital transformations, implementing the changes that entail is a people issue. Without an investment in digital skills, enterprises risk ending up with expensive technologies which employees are unwilling (or unable) to use.
Understanding Digital Transformation Frameworks
A digital transformation framework outlines the steps a company intends to take to execute its digital transformation strategy.
Although this framework depends on individual organisations’ goals, industry, and market, there are common denominators which make for a successful transformation, including:
- Cultural and leadership alignment
- Focus on agility
- Focus on customer experience
- Data analytics and technology integration
Notable transformation frameworks include:
- Gartner’s Roadmap for Digital Business Transformation
- Boston Consulting Group’s Six Factors of Digital Transformation
- PwC’s Five Step Transformation Programme
- Ionology’s Digital Transformation Framework
How to Build a Digital Transformation Strategy
A successful digital transformation strategy sets out how business technology will help the organisation reach its business objectives. No matter how groundbreaking the technology, without a clear path to ROI, there is no real transformation. Here are common denominators to help guide a company’s digital transformation strategy:
- An evaluation of the marketplace, as well as supplier and customer relationships
- Identification of opportunities to expand the value proposition of the organisation
- A vision of the products and services the organisation could deliver in the future
- A strategic roadmap detailing the steps to bring the vision to reality
The following practical tips may help put these into practice:
Identify your strengths. Foremost, evaluate your current situation. Identify your strengths and weaknesses. Your digital transformation journey is as much about what you’re doing right as it is about what you can improve.
Identify your customers. Do you understand who your customers are? Do you understand their pain points and how they perceive your brand? Although your digital transformation project is about improving the customer experience, it rarely means abandoning your brand’s identity.
Identify your business goals. Understand where you wish your organisation to be a few months or years down the line. This will help you outline key performance indicators (KPIs) to track your progress along your digital transformation journey.
Establish a digital culture. You may encounter some apathy and resistance to change, but everyone needs to be on board if your digital transformation initiative is to succeed. It may be helpful to emphasise how using digital technology will benefit everyone. If you haven’t had experience with a digital transformation project, it may be helpful to bring in expert help for additional support.
Leverage a digital transformation framework. Although you can choose to follow your own path, a transformation framework will help shorten your learning curve while also avoiding many of the common pitfalls.
Iterate. Digital transformation is iterative, not a one-off process. Successful organisations assess their projects regularly and adjust their course as required. Small changes are more valuable than huge leaps because they give you the opportunity to backtrack if something doesn’t work. They also allow you to identify what’s worked so you can repeat it.
Agility separates successful organisations from the rest. Companies should regularly review their technical capabilities, the skills of team members, and other elements. Agile development methodologies such as scrum, lean, and six sigma are tools that help increase agility.
Key Digital Transformation Roles
Assembling the right team is essential to the success of a digital transformation project. In a McKinsey survey, 70% of respondents reported their teams changed for the better when digitally savvy leaders joined them.
C-level executives such as the chief information officer (CIO), chief technology officer (CTO), chief digital officer (CDO), and chief transformation officer have a primary role in driving digital transformation.
The IT department selects and implements new technology. It comprises:
- Data architects who understand how to structure data for artificial intelligence and machine learning applications
- Cloud architects who build secure and resilient networks
- Scrum masters and software engineers who deploy agile development methodologies to speed up product development
- Digital product managers
- Systems integrators
Outside the IT department, key roles include:
- Project managers who keep the project running
- Technology liaisons who understand the business context behind the technology
- User experience (UX) engineers
- Change managers
- Marketing managers
How to Measure Digital Transformation ROI
As for any other initiative, business leaders need to demonstrate a compelling return on investment from their digital transformation to secure ongoing support and funding.
However, measuring digital transformation ROI is tricky. By their nature, these projects cross functional boundaries and are always evolving. In this context, traditional business value calculations become less effective. Proving digital transformation ROI is particularly challenging because technology outcomes must be tied to business outcomes.
It’s tempting, therefore, for business leaders to become guided by short-term, project-based thinking. However, the short-term failure of one project does not have to reflect negatively on the overall initiative, and business leaders would be better guided by a long-term perspective.
In fact, digital transformation initiatives may be enhanced by these short-term failures because they build a tolerance for risk that is inevitable during transformation.
Best practises for measuring digital transformation ROI include:
- Outlining business goals in advance
- Setting mini goals for agile experimentation
- Identifying strategic key performance indicators (KPIs) such as lifetime customer value, revenue growth, and time to market
- Identifying operational metrics such as productivity improvements
Depending on the circumstances of each organisation, many factors will be used to calculate digital transformation ROI. The important thing is to track costs, timeframes, and baseline figures that demonstrate long-term success. It’s also important to look for ways to improve outcomes with each new initiative.
While digital transformation may hold a different meaning for each organisation, along with its unique challenges and benefits, there are common frameworks which organisations can follow to shorten their learning curves. Beyond technology, digital transformation is a business transformation initiative that should involve every level of the organisation.
With our deep appreciation for emerging technologies, we strive to be a catalyst for out-of-the-box thinking in digital transformation.