It’s rare to come across an organisation that hasn’t contemplated digital transformation in some form. Even though digitisation began in society and business in the late 1930s when the first digital computer was conceived, it wasn’t until the early 2010s that digital transformation took hold.
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 reports that a sizable proportion (45%) of digitally mature companies have experienced “industry-leading” growths in revenue.
Business transformation is not a new concept. Companies have always sought to adapt and grow. But the sheer pace of development 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 fail to meet their objectives. The challenges don’t stop there. Even though the vast majority of organisations recognise the disruptive nature of digital transformations, 87% feel they don’t have the right leadership to make them happen.
In this article, we will define digital transformation, explore its benefits and challenges, and explore ways companies and organisations can engage in successful business transformation programmes.
Beyond the successful implementation of digital technologies, digital transformation is about reinventing 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 an ongoing process that requires 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 cost-effectively.
An effective digital transformation strategy positions organisations to thrive in a technology driven marketplace.
The first two decades have seen a rapid growth in digital technologies, spurring enterprises towards digitally driven new business models. IDC expects that by 2025, 75% of business leaders will implement digital ecosystems to transform their value chains. Moreover, between 2020 and 2023, $6 trillion of direct digital transformation investments are expected.
Integrating digital technology 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 begin its digital transformation when the time was right. Although it owned a substantial number of video rental stores across the world, its market share declined rapidly from about 2005 onwards as companies such as Netflix capitalised on new streaming technology.
Conversely, Jeff Bezos quickly grasped the potential of digital technology when he created Amazon in the mid 1990s. He positioned Amazon as a digital-first company that was (and still is) able to respond quickly to customer expectations. Today, Amazon is undoubtedly the envy of retail organisations around the world..
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.
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) 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-premise data centres to the cloud
- Deploying robotic process automation to automate tasks
- Deploying blockchain, internet of things,…
- 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
Digital transformation initiatives are unique to each organisation and the success of their digital transformation projects will depend on their individual business goals and industry. However, there are common benefits across industries which many organisations will experience, including:
- Increased engagement with customers, employees, and stakeholders brought on by enhanced data analytics
- Increased agility in response to fluctuating market conditions
- Increased innovation as new technologies support more out-of-the box thinking
- Increased efficiencies as digital technologies reduce errors, improve productivity, and minimise time-to-market
- Improved competitive positioning in the digital age
As their digital transformation gathers momentum, organisations must consider the challenges that will appear during the implementation phase of their digital transformation strategy.
Following are some common reasons for the failure of digital transformation projects:
Lack of business strategy: Given the complexities involved in a business transformation initiative, a coherent plan of action is critical. A written strategy avoids wasted effort and instils confidence in the process among stakeholders.
Lack of budget: Insufficient funding often follows a poorly defined strategy. Without a clear transformation plan, it is even more difficult to allocate resources in technology and expertise.
Lack of adoption: While implementing new technologies, there’s often a lack of assistance in helping employees adapt to these technologies. Additionally, there may be resistance to new ways of working. A Chief Digital Officer could act as an effective leader that helps steer the organisation towards new ways of working.
Other reasons for the failure of digital transformation initiatives include:
- Lack of interdepartmental collaboration
- Limited in-house expertise
- Data security concerns
- Regulatory constraints
Moreover, legacy technology is a concern for many organisations as they strive to adapt to the cloud.
Organisations have often cited culture as the most important factor in business transformation. It is incumbent upon business leaders to foster a culture where continuous improvement is encouraged, thus empowering everyone to abandon outdated practises in favour of new digital business models.
However, this is easier said than done. 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.
A digital transformation framework outlines the steps a company intends to take to execute its digital transformation strategy.
Although this framework depends on every organisation’s 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
A successful digital transformation strategy sets out how business technology will enable the organisation to reach its objectives. No matter how cutting edge the systems, without a clear path to positive ROI, there will be no digital transformation to speak of. Although each path is unique, there are common denominators which should guide a company’s digital transformation journey including:
- 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
Here are some practical tips:
Identify your strengths. First and 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’s rarely about abandoning your 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 formulate 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 of a digital transformation project previously, it may be helpful to bring in expert help for additional support.
Leverage a digital transformation framework. We alluded to digital transformation frameworks previously. Although you can choose to follow your own path, a transformation framework will help shorten your adoption curve while also avoiding many of the common pitfalls.
Iterate. Understand that digital transformation is not a one-off process. You’ve got to be prepared for some trial-and-error. Small changes are more valuable than huge leaps forward. For one, they give you the opportunity to backtrack if something doesn’t work, but they also allow you to identify what’s worked so you can repeat it. Agility separates successful organisations from the rest.
Digital transformation is an iterative process. Successful organisations assess their digital transformation projects on a regular basis, and adjust their course as required.
Business leaders should regularly review their technical capabilities, the skills of team members, and other determinants so that the organisation reaches its goals quicker. Agile development methodologies such as scrum, lean, and six sigma are tools that enhance an organisation’s agility.
Assembling the right team is essential to the success of a digital transformation project. In a McKinsey survey, 70% of respondents reported that 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 is responsible for selecting and implementing 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
At the periphery (or outside the IT department), other key roles include:
- Project managers who keep the project running and manage the deliverables
- Technology liaisons who understand the business context behind the technology strategy
- User experience (UX) engineers
- Change managers
- Marketing managers
Like any business initiative, business leaders need to demonstrate a compelling return on investment from their digital transformation projects to secure support and funding.
However, measuring digital transformation ROI is tricky. By their nature, these projects cross functional boundaries and are constantly evolving. This renders traditional business value calculations less effective. Proving digital transformation ROI is particularly challenging because technology must be tied to business outcomes.
It is important that business leaders are not blinkered by short-term, project-based thinking. They would be better guided by a long-term view of their digital transformation initiatives. Therefore, the short-term failure of one project does not reflect negatively on the overall initiative. In fact, the digital transformation initiative may be served by these failures as they build a tolerance for the risks that must be undertaken for real transformation to take place.
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 is 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 own particular challenges and benefits, there are common frameworks which organisations can follow to shorten their learning curves. Beyond implementing new technology, digital transformation is a business transformation initiative that involves every level of the organisation, from the C-suite to the most junior employee.