It’s hard to pinpoint the first use of the phrase “digital transformation,” but it has been around since at least 2012. And of course, the process of digitization, or migrating towards computerized technologies, has been going on since the 1960s.
Indeed, for nearly a decade, industry pundits have been telling enterprises to embrace digital transformation, and many of them have been heeding that call. Enterprise technologies like cloud computing, data analytics, and artificial intelligence all drive the growth of digital transformation.
Today, the term “digital transformation” has become nearly ubiquitous. It’s hard to find a company that hasn’t embarked on at least one digital transformation project. In a 2021 Gartner survey, only 3 percent of the data and analytics leaders surveyed said they were not involved in a digital transformation project.
Firms have good reason for tackling these projects. Several studies have found that digital transformation correlates with better business outcomes. For example, a Deloitte Insights study found, “Greater digital maturity is associated with better financial performance. The higher-maturity companies in this year’s sample were about three times more likely than lower-maturity companies to report annual net revenue growth and net profit margins significantly above their industry average—a pattern that held true across industries.”
And while digital transformation was already well underway at many companies by 2019, the coronavirus seems to have accelerated the process. A 2021 BDO Digital study found that 43 percent of organizations surveyed where accelerating their existing plans in response to the pandemic, and 51 percent were adding new digital projects. Looking ahead, 90% of middle market organizations planned to maintain or increase their digital spending in 2021.
In the same vein, when Boston Consulting Group surveyed 5,000 managers and employees about how the pandemic was affecting their business, more than 80 percent said that their digital transformation efforts were helping them deal with the economic slowdown.
But what exactly is digital transformation? And what should organizations be doing if they want to experience the benefits associated with this trend?
What Is Digital Transformation?
You will get widely different definitions of digital transformation, depending on who you ask. And almost everyone shades the definition slightly so that it benefits them. For example, Salesforce, which sells customer relationship management software, will tell you, “Digital transformation begins and ends with the customer.”
Red Hat, which sells software and services that touch all areas of business, says:
Digital transformation is the integration of digital technology into all areas of a business, fundamentally changing how you operate and deliver value to customers. It’s also a cultural change that requires organizations to continually challenge the status quo, experiment, and get comfortable with failure.
Analyst firm Gartner, which makes its money by selling information about broad, complex topics, makes digital transformation look broad and complex:
Digital transformation can refer to anything from IT modernization (for example, cloud computing), to digital optimization, to the invention of new digital business models. The term is widely used in public-sector organizations to refer to modest initiatives such as putting services online or legacy modernization.
The eWeek definition of digital transformation is a bit more general: “Digital transformation is the adoption of digital technology that has the capability to transform the business.”
Critically, digital transformation involves more than just deploying some new technology. And it is about much more than becoming more efficient or increasing productivity.
Digital transformation is about finding new markets and new ways of doing business, about interacting with customers in new and different ways. It involves harnessing the power of emerging technology to do things that have never been done before. It often leads to new revenue streams, increased margins, greater competitiveness and meeting other business goals.
It carries a high degree of risk. But it also brings significant opportunities.
Digital transformation represents the intersection of numerous constantly evolving sectors, from cloud computing to data analytics to social media.
Also see: Top 10 Digital Transformation Companies
Types of Digital Transformation
Well-known companies that have publicly discussed their digital transformation efforts include GE, Nike, Home Depot, Walmart, Target, John Deere and many others. But because every organization is unique, digital transformation looks different at every single company that attempts it. And often organizations are deploying more than one kind of transformational technology at once.
Having said that, many organizations are drawn to similar types of technology. Here are some of the more popular types of digital transformation projects:
- Converting from primarily brick-and-mortar sales to ecommerce.
- Migrating from on-premise data centers to cloud computing.
- Using big data analytics to become more efficient and optimize business processes.
- Deploying artificial intelligence and machine learning into business analytics to uncover new insights.
- Creating mobile apps that allow customers to interact with the company from their phones.
- Integrating new technologies like Internet of Things sensors, digital twins, blockchain and others directly into products.
- Abandoning traditional advertising methods like direct mail, television and newspapers in favor of digital marketing and social media.
- Utilizing virtual reality and augmented reality to improve product design and service processes.
- Enabling employees to work remotely, thus improving their employee experience.
Today, most digital transformation efforts incorporate several of these types of technologies. And they also usually require a change in business strategy as well.
Challenges in Digital Transformation
As digital transformation continues to accelerate, businesses must consider the challenges that arise during implementation. Here are some of the most common challenges businesses face when implementing a digital transformation:
- Culture and Onboarding. Digital transformations are not as simple as adopting technologies for each aspect of your business. Businesses must provide the right tools, onboarding assistance, and general company culture for employees to encourage the transformation. A major factor in this challenge is having effective senior leaders in an organization, particularly a Chief Data Officer (CDO).
- Budgeting. Digital transformations are an investment. If businesses do not have a clear transformation strategy in place, budgeting becomes more challenging. Having foundational knowledge of what types of technologies you should adopt and why is a critical first step before budgeting comes into play.
- Lack of Strategy. As we previously mentioned, not having the right experts assisting with your digital transformation could ultimately prove detrimental. In the same vein, going into a digital transformation with a lack of strategy could lead to wasted time and money. If you’re looking to get a rundown of what a traditional strategy looks like before making any decisions, digital transformation frameworks can provide clarity and insight into proven strategies.
- Not Prioritizing Cybersecurity. Although this is becoming less and less of an issue as businesses take cybersecurity more seriously, businesses must put security at the forefront of their digital transformation. Prioritizing cloud migration is a practical start to ensuring your newly adopted technologies are secure.
How to Create a Digital Transformation Strategy
The most successful digital transformations are those with well-planned and well-implemented strategies. How can you create a successful strategy? Here are some tips:
- Identify your business goals. Deciding to start a digital transformation project because everyone else is doing a digital transformation project is a surefire recipe for disaster. Before you begin, make sure everyone on your team understands why you are undertaking the effort. You need to have agreement on your current situation and a clear vision for where you want to go. Often, the most effective digital transformation goals come with key performance indicators (KPIs), metrics that allow you to track your progress toward your goal.
- Hire an expert. Chances are good that no one on your current team has ever shepherded a successful digital transformation before. If that’s your situation, you might want to think about bringing in some help. This could take the form of hiring a full-time employee with digital transformation experience, or it could entail hiring an outside consulting firm. Some companies also hire other key personnel in IT, marketing, or other areas who have experience or expertise in the kind of transformation you want to make.
- Build on your strengths. It’s tempting to throw out everything you are currently doing and start from scratch, but that is usually a mistake. Think about what you already do well. Do you have loyal customers? What does your brand stand for? As you go through your digital transformation you need to make sure you aren’t doing anything to undermine the success you already have. The digital transformation projects that meet their goals often seem like a natural extension of a company’s previous efforts into the digital arena.
- Put yourself in your customers’ shoes. A common theme among digital transformation frameworks (more on that below) is an emphasis on the customer experience. Digital transformation will change the way your customers interact with your organization. You need to make sure that this new experience is positive and reinforces the brand image you want to have.
- Establish new procedures and policies. New technology is completely unhelpful if no one uses it. Before you roll out a new tool or application, think carefully about how you want your employees to use it. If you don’t clearly define procedures and institute some enforcement mechanisms to make sure that people follow them, your staff will likely revert back to the old way of doing things. In some cases, digital transformation will require a complete cultural transformation, which is a lengthy, difficult process.
- Iterate. You can’t transform your organization in an instant. Instead, make a small change, evaluate and repeat. Digital transformation projects that evolve through a series of steps are more likely to succeed than a wholesale change that you attempt to implement all at once. If you keep your strategy somewhat agile, you can make slight modifications along the way and react to changing conditions in a timely manner.
- Consider following a digital transformation framework. Several analyst and consulting firms have laid out digital transformation frameworks that can help give form to your strategy. Remember that your actual strategy should be unique to your organization, but following a proven strategy can help you avoid missing key steps or repeating mistakes that other organizations have made before. A framework isn’t necessary, but it might be helpful, particularly if your management team doesn’t have prior experience with digital transformation.
What is a Digital Transformation Framework?
According to Boston Consulting Group, less than a third of companies (30%) navigate their digital transformation successfully. In order to help businesses improve their odds, a number of consultants, vendors, and other experts have published digital transformation frameworks.
A digital transformation framework is a step-by-step plan for successfully implementing a digital transformation strategy. Usually, it comes along with a graphic representation that shows how the consultants perceive digital transformation.
Some of the most well-known digital transformation frameworks include the following:
- MIT Sloan’s Path to Digital Transformation The MIT Sloan Digital Management Review offers a host of resources related to digital transformation, including several different step-by-step guides that could be classified as digital transformation frameworks.
- Boston Consulting Group’s Six Factors of a Successful Digital Transformation include integrated strategy, leadership commitment, high-caliber talent, agile governance, effective monitoring and a modular platform. It says that 80 percent of organizations with these factors in place success in their digital transformation efforts.
- PwC’s Digital Transformation Framework has five steps: evolve your business, create new value, protect for the future, accelerate through technology and know your customers.
- Cognizant’s How to Win with Digital Playbook claims that only 30 percent of digital transformation projects succeed. It says that in order to be one of the winners you need to take a human-centered design approach, cope with emerging technologies and digitize your business strategy.
- Gartner’s IT Roadmap for Digital Business Transformation describes the key steps of digital transformation as ambition, design, scale, deliver, refine. And it notes that digital transformation continues to be a top priority for business leaders.No matter which digital transformation strategy and/or framework your organization chooses to pursue, it’s worth noting that planning and strategizing is only part of the effort. In order to succeed, you will not only need a good plan, you will need to execute it well. As more and more companies embrace digital transformation, those that rise to the top of their industries will be those that execute digital transformation well.