What is Digital Transformation?

Digital transformation refers to the integration of digital technology into every aspect of a business so it can adapt to changing market needs. As the name suggests, it brings about a sea change in how the business operates and how it delivers value to its customer base.

Digital Transformation Diagram

This transformation is not restricted to how the day-to-day operations are conducted. Digital transformation also involves an attitude reset and a cultural transformation, or revolution, for the organization.

Digital transformation requires organizations to:

  • Experiment
  • Adapt
  • Challenge the status quo
  • Be OK with making mistakes and learning from them
  • Get out of their comfort zone for accepting and using emerging digital technologies
  • Build a more varied ecosystem

A digital transformation strategy is the smart integration of digital technologies, competencies, and processes across all functions and levels of an organization in a strategic, often staged way.

The creation of new competencies through digital transformation ranges from upskilling a taskforce, to becoming a more innovative and customer-centric organization. It fosters innovation, streamlines operations, and brings in more opportunities to alter the status quo.

It opens up the possibility of leveraging big data and collating insights from unstructured data sources to take the business in a new direction.

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Types of Digital Transformation

There are three types of digital transformation:

  1. Business Process
  2. Business Model
  3. Cultural

Business Process Transformation

This is a common type of digital transformation that involves the advent of technologies that offer corporations a chance to revamp their operations through streamlined digital solutions. Machine learning, data analytics, application programming interfaces are examples of this kind of technology. The benefit is seen in the form of lowered costs, reduced cycle/ turnaround times, and improving the quality of products.

For instance, some companies have adopted robotics process applications to automate tedious back-end work or streamline back-office processes such as accounting. From a shop-floor standpoint, companies such as Airbus have adopted advanced display glasses to augment human inspection of airplanes. Business process transformation has also extended to a re-imagining of how we order our food, through apps and software built around keeping customer convenience at center stage. These kinds of business-area specific transformations led to successful deployment by the concerned chief officer.

Business Model Transformation

Where business model transformations differ from business process transformations is on how they are designed to deliver value compared to process efficiency. A business process transformation is a more finite entity, often restricted to operational areas of the business. A flagship example of business model transformation is Airbnb or Uber, which outshone traditional models of hospitality and transit. Other areas where business model transformations have been successful are insurance companies, as well as the financial sector, where data and analytics are heavily relied upon.

Business model transformations are typically more high-level, strategic, and complex compared to digital process upgrading. They are usually spearheaded by strategy or similar business units and sometimes launched as discrete initiatives while another sector of the business goes on as usual.

Cultural Transformation

The process of digital transformation cannot be considered complete unless one very important piece slides into place: wholeheartedly converting the people who are meant to adopt it.

For digital transformation to succeed and stick over the long haul, employees in traditional and incumbent corporations must redefine their mindsets, adopt a learning attitude, and broaden their capabilities to embrace the digital universe.

They must actively strive to make the most of this particular march of progress and change their organizational map. They must be open to building new relationships and shaping new ecosystems. The surge in online fitness initiatives by standard gyms in the wake of the COVID-19 pandemic is one such example.

When Digital Transformation Is Not Executed Properly

The best and most ideal pursuit of digital transformation by a company is a multi-dimensional one that should involve all of these aspects. A lot of times, however, corporations often focus only on the process or organizational transformation, leaving a lot of potential unexplored and all too often, lead to unsucessful transformations.

Moreover, implementing digital transformation should not happen in silos, or involve solely the top management. The Chief Officers should be a part of it, as should strategy and business unit leadership. Employees at various levels should help their teams get comfortable with digital transformation initiatives and trained enough to adopt them seamlessly.

Ideally, the process should begin with business transformation and spread to encompass cultural and organizational transformation.

When implemented in an orderly and thorough fashion, digital transformation helps a company become more agile in pursuing emerging opportunities in the digital realm, and become more innovative.

The Latest Trends in Digital Transformation

The Covid-19 pandemic precipitated digital transformation initiatives that had been in the works for many companies, by forcing long-term fence-sitters to adopt digital technologies simply to stay afloat. Recent digital transformation trends have been ruled by:

  • Recruiting cross-functional teams and setting up task forces to get employees of various levels rapidly onboard and up to speed with switching to digital workspaces
  • Increased dependence on data and analytics
  • More efficient use of artificial intelligence and machine learning
  • Onboarding more digital partners
  • A widespread shift to the cloud in various sectors of society and industry
  • Increased investment in long-term digital transformation initiatives
  • Defining digital transformation success metrics

Advantages of Digital Transformation

By now, the advantages of digital transformation should be quite self-evident. Digital transformation ushers in tremendous organizational benefits including, but not limited to:

  • Digitalization and automation of everyday business operations to improve turnaround and optimize resources
  • Upskilling and empowering employees to keep up with industry standards
  • Gain broader and deeper insights into buyer behavior and customer preferences to deliver a superior and memorable customer experience
  • Diversification and domain expansion opportunities for traditional businesses into digital products and services
  • Opportunities to expand into newer territories and greatly broaden the geographical footprint of the business

Challenges in Digital Transformation

Though the advantages are many, companies still need to jump some hurdles in order to successfully implement digital transformation initiatives. These include:

  • A reluctance on the part of employees, particularly those in incumbent or traditional enterprises, to switch to a completely new way of doing business. In the field, it has been likened to “teaching an elephant to dance.”
  • Companies may wish to cling to legacy business models instead of leading the charge into newer territory
  • A desire to expand digitally but a lack of expertise to actually execute such an initiative
  • An organizational structure that does not easily lend itself to digital transformation
  • Budget constraints or pushbacks in getting approval or monetary support for digital transformation programs
  • A shortfall in digital transformation strategy or weak leadership to push through barriers
  • Rapidly evolving and changing buyer behavior and a lack of omnichannel presence

How to Offset the Challenges When Executing Digital Transformation

Bringing about successful digital transformation starts with strong leadership and the ability to shift a mindset away from archaic business systems. For example, in the case of employee pushback, leveraging the innate desire of employees to provide quality customer service can be more effective. Leaders can build a highly customer-centric work culture that builds the willingness to pivot based on customer feedback or data-derived insights.

Modify brick-and-mortar business setups to become automated and have a digital presence. Leverage insights to create personalized offerings and customer experiences. Ditch old systems that are not serving the organization anymore and invest in technologies that will sustain the business over the years.

Digital Transformation Across Specific Industries: Challenges and Opportunities

Digital Transformation in Retail

This is the classic application of digital transformation, which drives a shift to customer-centricity, experiential retail, and personalized experiences, often driven by the Internet of Things. Apart from this, digital transformation has revolutionized supply chains, back-office processes all the way through delivery and customer delight.

Retail is fertile ground to sow digital transformation and reap optimized, innovative systems, uncover more revenue streams, and float original business models centered around information on customer preferences and bespoke services.

Digital Transformation in Healthcare

Many countries across the globe are saddled with aging and growing populations, the rise of obesity and chronic diseases, in parallel with the increase in healthcare costs. Coupled with this are the changing expectations of a subset of the population that is increasingly converting to and consuming everything that digital health platforms have to offer. This phenomenon is driving the focus of connected health initiatives towards patient-centricity as well as digital and mobile platforms to assist healthcare workers and professionals. Digital transformation in healthcare has the potential to optimize systems and deliver fast, efficient access to healthcare, save on expenses, and build revenues.

Digital Transformation in Governance and The Public Sector

Cost savings and budget optimization through digital transformation are a major push for governments. In particular, digital transformation in healthcare can benefit a world filled with aging populations and shifting local, national as well as geopolitical trends. With increasingly tech-savvy, mobile populations, a more digital lifestyle has led to changing demands. Most of the operations continue to be paper-based, which contradicts the agility of digital transactions that digital citizens are used to. The challenges in this sector are as great as the opportunities.

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Metrics for Quantifying the Success of Digital Transformation Initiatives

It is necessary to gauge the success of digital transformation, just like any other company initiative. How can organizations measure the return on investment for digital transformation? In this case, it is useful to track not just short-term results but also the long term payoffs.

This is no small task, given the scale of digital transformation projects that span both functional and business sectors, and have an internal-facing as well as external-facing implications. These include go-to-market strategies, incorporating analytics from multiple sources, evolving customer relationships, internal training/learning, and development, and so on. Traditional methods of calculating business value as well as shaping financial governance may fall short.

Tying the technology to methods and metrics for monitoring key performance indicators across various sectors, including customer feedback, buyer behavior insights, employee engagement, technology adoption, and business process effectiveness is the way to go.

The expert view on gauging how digital transformation investments are performing is that companies should take a “portfolio view” and not a “project-level view.” This is somewhat similar to the “big picture'' outlook of wealth managers or venture capitalists, how they take a holistic approach rather than an overly drilled-down one. If one or two sectors underperform in the digital transformation program, it does not reflect poorly on the entire program itself, if other areas are doing relatively well. A digital transformation initiative must chalk this up to the necessary risk of changing and pushing forward and balance the risks out with more rewards.

From an operational point of view, it is vital to outline the best practices for defining metrics for measuring digital transformation. It is best to set up initial metrics well in advance while developing micro-metrics alongside agile experimentation, learning, and adjusting as the program goes along. The key areas for tracking results or business outcomes include revenue growth, time-to-market, customer loyalty, productivity, cost savings, and operational efficiency.

It is important to understand that digital transformation is as much a journey as a destination. While there are several interconnected intermediary goals and touchpoints, the ultimate goal is a holistic kind of optimization across operations, divisions, and the creation of a new and thriving business ecosystem by building the right connections.

Companies seeking digital transformation must sow a culture of continuous learning and upskilling to be relevant, successful and remain competitive in any industry.