Digital Transformation is not just a buzzword. It’s an essential topic for businesses around the globe and a pick of savvy CXOs. But, what digital transformation really is? Why it’s important for businesses?
Businesses that are looking to start their digital transformation journey should have a solid understanding of the concepts and approaches. With proper understanding, you can take digital transformation beyond IT and make a positive impact on business performance.
The term “Digital Transformation” can mean a myriad things to a lot of different businesses. That’s precisely why your organizations must have a clear vision and purpose, one that serves your customers, partners, and employees.
In this guide, we’ll discuss digital transformation and how it affects businesses around the globe?
Let’s dive in.
What is Digital Transformation?
In layman terms, digital transformation (DT or DX) means using technology to create differentiating ways of doing business to drive growth in new and existing markets.
The definition of digital transformation can be different for every organization because every business is unique. So, we have collected a spread of definitions to help you find one that applies best to your needs.
What is Digital Transformation? Definition by Experts
There are a plethora of definitions of digital transformation, and here are a few:
Brian Solis’s definition of DT is entirely holistic, “[DT implies] the realignment of, or new investment in, technology, business models, and processes to drive new value for customers and employees.”
He adds that the realignment can help businesses compete effectively in an ever-changing digital economy. But, the main focus of digital transformation should be on realignment to bring in value for customers and employees.
The Wikipedia definition highlights DT as the changes associated with the application of digital technology in all aspects of human society.
Austria, Municipal Government, states: “DT means modernization or the renewal of business processes and business models supported by IT, so business processes and business models are at the center of attention and not IT.”
Peggy Chen, CMO of SDL, says: “At its heart, digital transformation is about connecting better with digital customers.”
Paige O’Neill, CMO of Sitecore, says: “It’s important to keep in mind that digital transformation is not a single project or change, but an organization-wide restructure that extends to the people, the operations and the technology.”
Many experts and influencers cite digital transformation as building a better experience for customers and employees with the help of innovative technology.
Organizations should chalk out the objectives and outcomes that suit their needs best. As Global CEO of Cognizant Softvision Andres Angelani aptly writes, “the right definition [of DT] rests within the organization itself.”In this sense, digital transformation is not a short-term plug-in concept. It’s a deep-rooted approach that can challenge mindset, goals, and KPIs. Click To Tweet
Differences between Digitization, Digitalization, and Digital Transformation
You’ll come across digitization, digitalization, and digital transformation quite often. Well, they’re not the same and each one has a different meaning.
Let’s quickly look at the differences between digitization, digitalization, and digital transformation.
Digitization, in short, is the process of converting information locked in physical documents from analog to digital.
Digitalization is the process of using digitized information to work more simply and efficiently. And you’ll find increased importance of digitalization in business today more than ever.
Digital transformation is changing the way you conduct your business. It’s about taking a step back and revisiting everything you do, from internal systems to customer interactions, and more. A key element of DT is to understand the true potential of your technology.
Digital Transformation History—A Sneak Peek
The history of digital transformation has its roots back in the 1940s. However, individuals would have better understood DT in the 1990s and 2000s with the rise of digital products, services, and mediums.
With the rise of social media platforms and smart devices, there’s a massive shift in how customers communicate with businesses. It has changed the expectations with regards to response times and multi-channel availability.
With the popularity of online payment systems, online commerce and web-based points of sale opportunities have increased. The focus is on mobile devices, which can leverage personalized customer data on a massive scale.
It is the need of the hour to better tailor your products, interactions, and communications to fit customers’ specific needs. It is likely to continue massively affecting the global business landscape in decades to come.
What are the Benefits of Digital Transformation?
With the digitization of society, you’d feel the increasing importance of digital transformation. As an entrepreneur, you may take on digital transformation for several reasons.
The most likely purpose, of course, is survival.
Quick Statistics on Digital Transformation Spending
In the IDC Worldwide Semiannual Digital Transformation Guide, experts highlighted that the worldwide spending on technologies and services that enable digital transformation would reach $1.97 trillion in 2022.
It’s also expected that this spending would double between now and 2021. By 2022, the total amount spent on digitalization globally would surpass $2.1 trillion.
IDC also predicts that digital transformation spending would grow steadily, and achieve a five-year compound annual growth rate of 16.7% between 2017 and 2022.
Shawn Fitzgerald, research director, IDC’s Worldwide Digital Transformation Strategies, says, “The shift toward capital funding is an important one as business executives come to recognize digital transformation as a long-term investment.” He reiterates that the commitment to funding DT would continue to drive spending well into the next decade.
The World Economic Forum suggests the value of digital transformation for both society and industry could reach $100 trillion by 2025.
Still, it’s not all good news. Forrester recently reported that DT efforts were running into roadblocks along with delusion, confusion, and resistance to change.
Exploring the Benefits of Digital Transformation
1. Transforming Customer Experience
At the heart of digital is customer experience. Many companies are increasingly aware of this, with 92% of leaders developing sophisticated digital transformation strategies to enhance the consumer experience.
2. More Data-based Insights
When you go digital, you can track metrics and analyze the data that you capture during your digital marketing efforts.
Using data-driven insights can help to understand customers better, and also rethink business strategies, assisting with better decision-making, paving ways to a higher ROI.
3. Greater Collaboration Across Departments
DT offers an excellent opportunity for unity throughout the organization as leaders build it on digital congruence.
When you find everyone aligned to a common purpose, you’ll find a smooth and seamless transition.
4. Improved Agility and Innovation
With DT, businesses proliferate, fuelled with innovation. When it comes to DT initiatives, 68% of companies rank agility among the top three considerations.
Even with all the benefits, there are critiques on the concept. Let’s check out.
Criticisms of Digital Transformation
Digital transformation is an excellent opportunity to rebrand your offerings. However, the overselling of the concept, as Gartner highlights, is approaching the trough of disillusionment. (Source)
Many tech workers are cynical about digital talk. DT, at times, is so broad that it can trip to becoming meaningless.
As Gideon Kay, European CIO at advertising specialist Dentsu Aegis, says, “I just think its two words that people put together. There is a rapid transformation that is driven by technology. Yet all change in society and business these days is impacted by some level of technology.”
What are the Digital Transformation Drivers?
A critical element of DT is technology. However, the emphasis is often on transitioning from outdated processes and legacy technology to adopting new technology.
It is no wonder that there is a lot of investment in existing IT concerns, which is reiterated by research from Forrester. The report suggests that CIOs spend an average of 72% of their budgets on existing IT concerns. In comparison, only 28% goes to new projects and innovation.
Many organizations also embark on DT journeys to counter the potential for disruption from startups.
Consider Uber’s entry into the transportation sector, which forced everyone from car rentals to taxi companies to come out with similar initiatives on ride-sharing and on-demand services, which included bikes and scooters. So, executives are continually feeling the pressure to rethink and deliver.
There is an increasing need for businesses today to adopt agile principles and increase efficiency with technology wherever possible.
What is a Digital Transformation Framework?
When it comes to digital transformation frameworks, they cannot be generic, and they will vary depending on an organization’s specific challenges and needs.
However, there are a few constants that we can draw out from the existing frameworks.
Let’s take a quick look at some of these elements from published digital transformation frameworks. They include customer experience, culture and leadership, and operational agility, among others.
A quick look at Cognizant’s digital transformation framework highlights how you can use the structure to develop a digital vision and build new business models.
Image 1. Cognizant’s Digital Transformation Framework | (Source)
The whitepaper suggests that all elements of the framework should be further analyzed to ensure the full exploration of relevant digital opportunities.
The authors also recommend establishing a high level of digital awareness to maximize stakeholder acceptance of the changes within the organization.
They also suggest that organizations need to rethink how they do business in the digital era and underscore the need to develop a digital transformation strategy and begin the digital transformation soon.
In conclusion, digital transformation frameworks are not about elements and stages, but more about vision, purpose, and resolve. It’s time for a new mindset and paradigm.
What is a Digital Transformation Strategy?
The question is how to put the critical elements of the DT puzzle together. With puzzle elements such as changing the culture of IT, increasing awareness among stakeholders across the business, and bridging transformation to the vision of the company.
A constructive digital strategy can help you give your DT the best chance of succeeding. Here are a quick set of pointers for you:
1. Ideate and Create a Compelling Digital Strategy
The first step is ideating, getting everyone involved, and finding out what DT means for your company and what it can do for you.
At the heart of the DT journey, is to create value. When employees understand the meaning that DT can bring in, they can quickly buy-in and drive the change you need.
2. Aligning DT with Business Goals
Once you have your digital strategy story in place, it is crucial to align it for a successful transformation. The approach is usually a top-down one.
As CEOs, you need to communicate the move and also outline the right outcomes. DT cannot be driven out of IT only—you must completely align it with an organization’s vision, mission, goals, and values.
3. Document the Risks
There could be risks involved with DT, and many companies are aware of this. Whenever you roll out a new internal application, there could be risks involved.
It is prudent that you discuss, analyze, and also document the risks so that you can track threats over a set period.
4. Run Pilot Tests
Once you’ve ideated your story, analyzed challenges and the technology, documented the risks, it’s time to run a pilot test with the technology.
Running proof-of-concept and pilot tests helps you with identifying impacts on your business and culture as you move forward with a solid plan. The tests will ensure that your stakeholders are ready for the DT journey, and your organization and employees know how to implement the project effectively.
5. Keep Analyzing the Impact
It is prudent that as a part of your digital transformation strategy, you keep analyzing the rollout. An excellent example is Artificial Intelligence (AI).
If an organization devised to use AI as a part of a sales process, they might see some gains, but with further analysis, they may realize the need to automate even more of the sales process.
Similarly, any DT strategy will be most useful when you analyze further. The initiative will help you run your business smoothly.
6. Prepare for Culture Change
The most critical element is the cultural aspects of transformation. The biggest mistake will be to overlook the cultural change in a digital transformation journey. Give careful consideration to cultural facets of transformation, because at heart, it is a people challenge.
Preparing for culture change is a vital element in the DT strategy. Let’s look at this facet a little more in detail.
Digital Transformation and Culture Change
Technology indeed plays a significant role in driving DT strategy, but the work of implementing and adapting to massive changes falls to everyone. It is for this reason that DT is a people issue.
As Mattel EVP and CTO Sven Gerjets rightly highlight—transformation starts with empathy. When empathy is genuine, [employees], you begin to build trust. It would be difficult to buy-in support with the transformation efforts and impossible to succeed if everyone is not fully onboard.
Korn Ferry’s Swift, who leads Digital Advisory for North America and Global Accounts, suggests segmenting groups into old-timers, by-the-book players, and lone wolves. She suggests from a change management perspective that it would be wiser to target smaller groups strategically.
Swift states that companies should consider the digital experience and behavioral preferences of various groups within their organization, and then craft messages that hit the right starting point and realistic endpoint for different groups.
Digital Transformation Examples
Once you have the big picture of what you want DT to accomplish, technology can facilitate your efforts to realize those goals.
It always helps to find out what organizations have done in their DT journeys, and this knowledgebase can help while you are ideating. It also helps to learn from challenges, pitfalls, and successes of competitors and other organizations seeking to accelerate innovation.
As you look at insights of digital transformation by industry, you’ll find that all digital transformation starts with the move from analog to digital, emphasizing the digital realm. And if you’re wondering—what are digital transformation examples? Let’s look at a few.
1. Restaurant Chains Stay Ahead | TGI Fridays and IHOP
Restaurant chains—TGI Fridays and IHOP are experimenting with virtual assistants, which facilitates customers with mobile ordering. The restaurant chains initiated the change to stay in tune and ahead of more tech-savvy boutique brands.
2. Customer Experience at Heart | Porsche
A key takeaway of the DT journey is placing the customer at the heart of your DT strategy, and Porsche did precisely this—position customers first. What drives Porsche’s digital strategy?
The answer is the customer experience. Porsche heavily invested in understanding the Porsche driver. They’ve adopted an approach, wherein they place all customer data into a central CRM data center, and in the entire lifecycle, documented every customer interaction.
The data helps with real-time segmentation and predictive intelligence. The outcome is brilliant—they can contact only customers that are interested in purchasing a car, which leads to a significant increase in the overall sales conversion rate.
3. Competency Centre Supporting Client Base | Deloitte
Deloitte (Professional Services) founded Deloitte Digital Today. This innovative initiative of establishing the competence center brings all technical, creative, and digital competencies together to support their client base on their DT journey.
Deloitte’s partnership with Alcon Labs and doTERRA has also helped the organizations to model real solutions and enabled them to develop their DT strategy.
4. Connected Enterprise | Rockwell Automation
The leadership team of Rockwell Automation envisions becoming a fully connected enterprise in the future. Their current DT journey includes becoming a customer experience organization to achieve its goal of the connected enterprise.
5. Acquiring Other Firms | Disney
To advance its DT, Disney acquired other companies to match the demand of consumer preferences for streaming video enabled by technology.
Disney bought BAMTech so that they could access the streaming technology instead of trying to create it in-house. Disney also spent $52.4 billion to acquire the assets of 21st Century Fox to connect directly with consumers.
What are the Key Trends in Digital Transformation in 2020?
In 2020 and beyond, organizations will need to augment digital initiatives.
As Steve Hall, partner and president of global technology research and advisory firm ISG, says, “2020 will still see the rapid scaling of digital initiatives across industries.”
Some of the key digital transformation trends that you should look out for in 2020 are:
- Better use of Artificial Intelligence (AI) and Machine Learning (ML).
- Increased digital partnerships, mergers, and acquisition activity.
- Expanding public cloud adoption.
- Improved digital transformation success metrics and more
As senior managers and entrepreneurs, the roadmap to take full advantage of DT’s potential is quite clear. Here are some digital transformation best practices for you:
- Research DT examples and find out key trends
- Reimagining your business model
- Create a distinct digital transformation strategy story
- Apply trending technologies to optimize your business model
- Create a distinct competitive advantage with DT
In conclusion, it’s time you explore the intersection of your business with engaging and meaningful customer experiences augmented with digital transformation and innovation.
Digital transformation has become a global business movement, and you must stay tuned to the universal paradigm to thrive in the digital economy eventually.
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