Digital transformation is defined as a change in processes and products driven by the evolution of new digital technology. It's a concern because businesses that don't adjust quickly enough to new technologies that affect business and society can find themselves or their products obsolete.
The transition to digital started gradually with the digitization of analog records in the 1970s, with recent acceleration and renewed focus stemming from innovations like artificial intelligence and cloud computing.
For a business to be successful at digital transformation, it must consider transitioning or developing many interrelated factors, like business mobility, cloud infrastructure, data security, customer service and engagement, and the business's ability to change and adapt continually.
What are the 4 main areas of Digital Transformation?
As an ongoing process, digital transformation is notably applied to four main business areas in the effort to improve efficiencies, reduce human errors, and generate new and exponential value.
Business Processes — Digitally transforming business processes has become a ubiquitous term with so many productivity apps on the market. However, not all solutions are equally effective. The key to digitally transforming business processes is in mapping out the entire business process system, understanding requirements between each step, and formulating the best model and finding the right fitting solution. Although custom solutions can be developed when complexity demands, there are many turn-key and self-customizable solutions that typically accommodate most common business processes, for example, customer relationship management (CRM) software, project management software, accounting software, or social media management software.
Business Models — Digitally transforming a company's business model has become more vital as digitally native companies have grown in market share. Netflix is a common notable example. It began as a lender of DVDs and wisely redirected its efforts towards streaming video. After pivoting to a digital business model, Netflix exponentially drove its growth by nearly eliminating its reliance on physical inventory and 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 mass scale, Amazon could not only enter into a new domain but become a dominant player in it.
Culture and Organization — Company cultures and organizations continuously adapt to the changing digital business landscape. Examples can easily be found; for instance, how has web and mobile technology changed the way business interactions are carried out? More specifically, by crafting a company culture through its values and principles around digital transformation, a company's work ethic becomes an exponential advantage. For example, by orienting company thinking as data-centric, departments may seek out data-driven analytics solutions to guide their decisions and interactions.
What are the 3 components of Digital Transformation?
Today's digital transformations require more than supplying internet connection, email, and digitizing paper records in the office. The trend has grown beyond that. Technologies such as cloud services, mobile devices, and the power of the Internet of Things (IoT) continue to alter the digital landscape in innovative ways. But the aim remains to leverage the latest technology to improve user experience and effectiveness.
Cloud Services — Many companies are aware of cloud services, such as Salesforce for CRM, Google for productivity, and Amazon for infrastructure. But digital transformation is an ongoing process prompting companies to refresh their technology and keep pace with customer needs. For example, Amazon has successfully integrated all of its systems into a seamless customer experience. Amazon's mobile app syncs everything from shopping to order delivery with their online store. To illustrate, a customer can fill their cart on mobile, check out online, and be texted tracking updates until their order has been delivered when a performance questionnaire asks for customer feedback on the experience. This level of effortless digital experience is made possible by complex, integrated cloud services.
Mobile Technologies — Advancements of mobile phones have created the opportunity to put extremely powerful computing capabilities, telecommunications access, and sensory technology in every team member's hand. Reciprocally, every user or customer of your business can also access services via mobile devices. While cloud services continue to innovate powerful services for mobile platforms, designers and marketers are learning new ways to create rich experiences in a mobile environment. Near the verge of bankruptcy in 2004, the toy company Lego gambled that a newly focused digital strategy could save them. Their digital transformation strategy worked, and Lego has expanded into movies, video games, mobile games, and education through their app Lego Digital Designer.
Internet of Things (IoT) — More ubiquitous than mobile technology is Internet of Things enabled devices, which are expected to outnumber the global human population by 2021. IoT technology quietly integrates into the user's lifestyle, as compared to mobile, which often competes for the user's attention. Such technology can operate on a personal level like controlling household environments and appliances. In industrial applications, however, IoT technology like RFID tags (sometimes considered a precursor to IoT) exponentially accelerates business operations by rapidly tracking business elements like inventory, equipment, even people using RFID wristbands. The use of enabling IoT technology will continue to increase as it becomes cheaper and smaller.
What are the 4 pillars of Digital Transformation?
Technology enables digital transformation in the four business areas, while the pillars support digital transformation by providing guiding foundations. The aim supported by leadership's vision is to use the latest technology to improve user experience, empower employees, and discover insight in the sea of business data that all companies produce, whether they track it or not.
Leadership and Vision — Technology is not merely applied in transforming company culture. Strong leaders with clear digital transformation visions who use technology to communicate their message help employees understand how the discomfort of change will ultimately benefit them in their work and the company in the long run. These leaders evangelize a data and technology mindset to their teams and lead by example using technology to good effect.
Digitally Empowered Employees — Digital transformation for the company and its teams tends to lead to increased efficiency, reduced human error, and greater team capacity. In recent years, technology has dramatically enabled remote teams through cloud collaboration apps like Google Suite. And for many, these tools have become the standard for digital office space. Companies that focus on understanding how their employees work, and supplying them with the appropriate technology to remove barriers to inefficiencies, like group collaboration or automatic data entry, will see marked improvements in operations.
Digitally Engaged Customers — As previous Amazon examples have illustrated, digitally engaging the customer can be executed with significant effect, spanning multiple devices to immerse customers within the product experience. Some opine that an improved digital customer experience is the foremost digital transformation pillar and intensifying user engagement the goal. Technology should 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 a way for companies to improve their operations and product experience. Foremost, a data mindset must be adopted by all those who participate in a company's digital transformation; if not, the firm may fall short of reaping any benefits. For instance, digitization is the process of converting information into a digital format using OCR (Optical character recognition) to scan in data from paper records into a computer. But, to end at this step is not digital transformation. Rather the next step of cataloging and analyzing this newly digitized information is required before any useful insight can be found. At this stage, the firm would have reached a low digital transformation level with plenty of space to continue transforming.
What is a Digital Transformation strategy?
A digital transformation strategy is a company's plan of action mapping out exactly how the business will take action to reposition itself to meet the shifts in the evolving digital economy.
Formulating a digital transformation strategy requires company-wide input and departmental buy-in. It is essential to know that each digital transformation must understand their current and intended business outcomes for each department. For instance, marketing departments may want to know more about their customer activity online; this may call for web analytics. Warehousing departments may struggle with inventory tracking, a challenge that could be met with sophisticated RFID tracking. Compiling the needs of each department, of the customers, and of expected future demands is a beginning step in any digital transformation strategy.
Generally, adhering to a broad three-step strategy can direct companies along the right path.
Digital Requirements — Feedback and planning from all departments regarding their requirements and team dynamics will later inform a plan of action. Requirements must be truly understood; for example, does accounting software need to easily integrate with other systems like HR or sales? This may lead to discovering broad solutions that cover multiple departments or uncover gaps in business processes.
Guiding Policies — Based on the company's needs, policies must be chosen to fit the business circumstances and resources. Perhaps a less sophisticated cloud service is selected over a more sophisticated enterprise solution because budget is a concern. However, by anticipating a company's full 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.
Plan of Action — A clear plan of implementation should be set to a schedule and be documented thoroughly with progress metrics. Each component is important to keep leadership and teams aligned and if digital transformation is to be successful.