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.
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.
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.
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.
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.