Digital transformation is defined as a change in processes or products that is driven by the evolution of new digital technologies. It is the process of using digital technologies to create new—or modify existing—business processes, culture, and customer experiences to meet changing business and market requirements. This could include improving customer experience, business processes like supply chain management and order fulfillment, or organizational culture through employee training and development programs.
The speed of technological change continues to become more rapid, which means that companies need to focus on innovation and agility to compete. Businesses that fail to adapt to the evolution of digital technologies will be left behind, and their products or services are likely to become obsolete. Understanding the breakdown of why digital transformation occurs and the main components will enable business leaders to prepare for the next digital wave.
The transition to digital started gradually with the digitization of analog records in the 1970s. Since then, there has been an acceleration in digital innovations, primarily enabled by the fact that each development opens the door to new technologies, which means that they build cumulatively over time. Recent innovations like machine learning, artificial intelligence, and cloud computing have laid the foundation for an entirely new generation of digital transformation. Automation has become another popular area of focus, producing significant time and cost savings for companies of all sizes. As the customer experience becomes more of a priority—especially for B2C businesses— the demand for automation and artificial intelligence has increased substantially.
For a business to be successful at digital transformation, it must consider how to integrate digital technologies into every aspect of its process. That typically requires implementing or developing tech tools that correspond with many interrelated components, including business mobility, cloud infrastructure, data security and customer experience (service and engagement). The development should also plan for continued growth, meaning that new technologies will ideally integrate well with other tools, offer open APIs, and provide long-term flexibility.
The four primary focus areas of digital transformation are business processes, business models, domain expertise, and culture and organization. Each focus area builds upon the others to create a better experience for companies and customers by maximizing efficiency, minimizing costs, optimizing production cycles, and improving products and services.
- Business Processes — The “digital transformation” of business processes has become a ubiquitous term, especially as an increasing number of productivity apps emerge on the market. However, not all solutions are equally effective. The key to digitally transforming business processes is:
- Mapping out the entire business system
- Understanding requirements for each step
- Formulating the best model
- Finding the right solution
Although organizations can develop tech solutions in-house, there are many turn-key options that are customizable and accommodate standard business processes. Examples include customer relationship management (CRM), project management, accounting, and social media management software.
- Business Models—The digital transformation of business models has become more important as digital-native companies have grown in market share. Netflix began as a lender of DVDs and redirected its efforts towards streaming. After pivoting to a digital business model, Netflix achieved exponential growth and nearly eliminated its reliance on physical inventory, expanding its reach to any household with an internet connection.
- Domain Expertise—Domain transformation leverages a company's advantages in one domain to extend its competitive reach into another domain. For example, after Amazon displaced competitors in the publishing space, it created Amazon Prime, its own brand of streaming services, and Amazon Web Services (AWS), its cloud computing and infrastructure services. By leveraging its technological expertise in delivering internet resources at a mass scale, Amazon could not only enter into a new domain but become a dominant player in it.
- Culture and Organization—Organizations and company cultures must adapt to the shifting landscape of digital business. Consider the many ways that web and mobile technologies continue to change how business interactions occur. These transitions happen more seamlessly in organizations where the culture supports and enables digital transformation.
Companies succeed in this arena by emphasizing innovation, adaptability, agile development, and technology in their values, principles, and mission. For example, when a company encourages data-centric development, each department is more likely to value and implement data-driven analytics solutions to guide their decisions, making for stronger results throughout the organization.
When this type of culture is established, it also becomes easier to recruit and retain the kind of talent that you need to implement new technologies successfully. By aiming talent and resources toward a clear goal of digital transformation, organizations have the potential to become formidable.
Digital transformation is driven by three key components: cloud services, mobile technologies, and the internet of things (IoT). These technologies continue to alter the digital landscape in innovative ways.
- Cloud Services — Cloud services is a term that covers a wide variety of services, including infrastructure as a service (IaaS), platform as a service (PaaS), and software as a service (SaaS). Cloud services are a vital enabler of digital transformation, providing the scalable, on-demand infrastructure businesses need to be agile and scale quickly. Many companies are aware of cloud services, such as Salesforce (CRM), Google (productivity), and Amazon (infrastructure). While these are a few of the current staples in cloud services, companies will need to continue reviewing options to ensure the solutions they use fit best with their businesses and enable them to keep pace with customer needs.
Amazon serves as an excellent example of cloud services. The company successfully integrated its systems into a seamless customer experience. Amazon's mobile app syncs everything from shopping to order delivery with their online store. A customer can fill their cart on mobile, check out online, and receive text tracking updates until their order has been delivered. Then, a performance questionnaire asks for customer feedback on the experience. This experience feels effortless to the consumer, thanks to the complex integration of cloud services on the backend.
- Mobile Technologies — Mobile technologies use wireless devices such as smartphones, tablets, and laptops to access information and applications. They are becoming increasingly popular as people seek greater flexibility and convenience in how they work, shop, and live. Advancements in mobile phone technology have placed potent computing capabilities, telecommunications access, and sensory technology directly in people’s hands. And mobile technologies have become a key driver of digital transformation, as they enable businesses to reach their customers anywhere, anytime.
Cloud services continue to focus on mobile as a platform for innovation while designers and marketers are concentrating on ways to create rich experiences in a mobile environment. That strategy worked well for Lego when it was on the verge of bankruptcy in 2004. The toy company gambled on a newly-focused digital strategy to save them. The company expanded into movies, video games, mobile games, and education through their app Lego Digital Designer, and the digital transformation saved the company.
- Internet of Things (IoT) — The Internet of Things (IoT) is more ubiquitous than mobile technology. IoT is a network of physical objects—devices, vehicles, buildings, and other things—that are embedded with sensors to collect and exchange data. These IoT-enabled devices are expected to be 3x the global human population by 2023. IoT is transforming how businesses operate and creating new growth opportunities.
Unlike mobile technology, IoT technology is intended to quietly integrate into users’ lives. Such technology can operate on an individualized level, like controlling household environments and appliances to suit user preferences. In industrial applications, IoT technology like RFID tags (sometimes considered a precursor to IoT) exponentially accelerates business operations by providing real-time tracking of business elements like inventory, equipment, and even people using RFID wristbands. The opportunities for integrating IoT technology into daily business and life will continue to increase as it becomes more affordable and smaller.
Technology enables digital transformation in the four business areas discussed using the three components described above, while the pillars support digital transformation through guiding foundations. The aim is to improve user experience, empower employees, and discover insights in the sea of business data that companies produce.
- Leadership and Vision — Strong leaders with a clear vision for digital transformation guide their companies toward innovation. They are able to create a culture that encourages digital transformation and helps employees understand how the momentary discomfort of change will ultimately benefit their work and the company in the long run. These leaders evangelize a data and technology mindset and lead by example, leveraging technology strategically in their daily lives and through the company’s development.
- Digitally Empowered Employees — Digital transformation for the company and its teams leads to increased efficiency, reduced human error, and greater team capacity. In recent years, new technologies have dramatically enabled remote teams to work quickly and effectively through cloud collaboration apps like Google Suite. And for many, these tools have become the standard. Companies that focus on understanding how their employees work and providing them with the technology to enable their success will reap the rewards. For example, companies can supply digital or remote teams with technologies that increase efficiency, support healthy communication, enable visual collaboration, and automate repetitive manual processes to gain measurable improvements in operations.
- Digitally Engaged Customers — As previous Amazon examples have illustrated, it can require multiple devices to successfully engage customers and immerse them in the product experience. Some experts suggest that an improved digital customer experience is the foremost digital transformation pillar to intensify user engagement. Technology should also be used to collect customer feedback, both active and passive, from all possible touchpoints. Aggregating and analyzing this data can lead to tremendous market and operational insights that can further improve product offerings.
- Data and Advanced Technology Mindset — Digital transformation is a mindset that promotes data and technology as primary tools for companies to improve their operations and user experiences. For a data and technology mindset to work, it must be adopted by all participants in the company’s digital transformation process. This mindset allows for a continuous improvement process, which is essential for companies that want to remain competitive in the digital age. A data and technology mindset is not about making a quick fix; it’s about making long-term changes that will improve the way a company does business. It’s also about using data and technology to create new opportunities for the company.
Digital transformation is an essential part of becoming a data-driven and technology-enabled company. A data and technology mindset will help companies make this transformation successfully.
A digital transformation strategy is a company's plan of action, mapping out exactly how the business will reposition itself to compete in the evolving digital economy. Formulating a digital transformation strategy requires company-wide input and departmental buy-in. It is essential to understand the intended business outcomes for each department to ensure that the new technologies are meeting the goals.
For instance, each department should define their key performance indicators (KPIs) and measure where they are at currently, then track the progress as new technologies are introduced. Compiling the needs of each department, customers, and expected future demands is a beginning step in any digital transformation strategy. Next, a company will need to invest in the right kind of technology. This means more than just buying the latest gadgets; it means understanding how new technologies can be integrated into existing systems to create a cohesive whole. For example, a company may want to consider investing in cloud-based solutions, which offer flexibility and scalability.
Generally, adhering to a broad three-step strategy can direct companies along the right path.
- Examine Digital Requirements — Feedback and planning from all departments regarding their requirements and team dynamics will inform a plan of action. Department needs must be thoroughly discussed and understood to get to the right solutions. For example, does accounting software need to easily integrate with other systems like HR or sales? This may lead to high-level solutions that cover multiple departments, or it may uncover gaps in business processes.
- Develop Corresponding Policies — Based on the company's needs, policies must be developed to fit the business circumstances and resources. Perhaps a less sophisticated cloud service is selected over a more sophisticated enterprise solution because the budget is a concern. However, by anticipating a company's complete digital needs, plans to transform further can be implemented in phases. This may prove beneficial in some cases where technological adoption by employees is slower.
- Devise A Plan Of Action — A clear implementation plan should be laid out, scheduled, and documented thoroughly along with progress metrics. Each component is vital to keep the leadership and teams aligned if digital transformation is to be successful.