By Joshua Dinneen, President of Strategic Services
In my work as a consultant I am frequently asked questions about digital transformation by very intelligent and accomplished business and IT leaders. They've heard and read a lot about it but are still uncertain about exactly what it is and how it might apply to their organization. The short answer is that digital transformation is very real and powerful; it can be a "game changer" or a "life saver." However, the process absolutely needs to be tailored to the unique needs and strategy of each organization. Over the next few weeks, I'll be authoring a series of six blogs followed by a webinar that will help you not only understand digital transformation, but how it can help you and your organization, and how to get started. Our discussion on transformation begins with today's blog: "Digital Transformation - Beyond the Buzzwords." Let's get started.
Digital transformation is the integration of digital technology into all areas of a business. It fundamentally changes a business's operation and the way in which it delivers value to its customers. Digital transformation also requires businesses to make cultural changes that allow them to replace established practices with those that are still being defined. The approach requires a re-imagining of many elements of your business and willingness to become a more agile, responsive, and client-oriented organization. The areas of change affected by digital transformation fall into the following categories:
- People & Processes
- Business Model
Digital transformation dramatically changes a business's use of resources to achieve its goals. Its CEO must, therefore, lead this process, since it requires collaboration between departments to develop business-focused philosophies to support the rapid development of new applications for digital resources. Changes in customer expectations regarding a business's products and services typically drive digital transformation, especially when those expectations greatly exceed a business's capabilities. A desire to pursue new revenue streams is also a common driving factor towards digital transformation. Digital transformation can be "offensive" – taking the lead to create advantage and disrupt your business and/or industry – or it may be "defensive" as a response to "disruptive" competitors or influences in your industry.
The impact of digital transformation on business processes is difficult to overstate. The World Economic Forum estimates that digital transformation in the automotive, consumer, electricity, and logistics industries could provide $8.4 trillion in value for industry and $12.7 trillion for society between 2016 and 2025. The total combined value of digital transformation for industry and society could reach $100 trillion by 2025.
People & Processes
A 2019 survey by NewVantage shows most executives believe people and processes present the greatest challenge to digital transformation. 40.3 percent of respondents cited a lack of organizational alignment as the most significant factor, a significant increase from 25 percent in the 2018 survey. Cultural resistance was the biggest obstacle for 23.6 percent of respondents, down from 32.5 percent in 2018. Only five percent of respondents thought technology was the major barrier to digital transformation, unchanged from 2018.
Organizational agility and innovation are especially important for IT when undergoing digital transformation. Executive management must also provide strong, clear leadership to bring about the cultural change needed for digital transformation to succeed. Minimizing business and operational risks during this period is essential and requires executives to make these changes with great thought and care.
Altimeter's 2019 research on the state of digital transformation shows that 51 percent of enterprises must invest in their infrastructure to take advantage of the growth opportunities digital transformation provides. The degree of modernization an organization's infrastructure may need varies greatly, from upgrading a single component to a complete restructuring and renovation of the entire infrastructure.
Too often, digital transformation efforts focus heavily on technological improvements, despite growing acknowledgement of the importance of human factors such as organizational culture. Altimeter's research shows that modernizing customer touch points is the focal point in 54 percent of digital transformation efforts, while enabling infrastructure accounts for the primary effort in 45 percent of cases. However, 41 percent of companies invest in digital transformation without performing due diligence to determine their customers' needs.
The specific types of infrastructure and tools that digital transformation requires typically include cloud platforms, big data storage, artificial intelligence (AI), analytics, and improved security. Traditional IT skill sets can handle some of these aspects, but new tools such as big data, AI, and analytics may require IT members to learn new skills.
Digital transformation redefines the way businesses capture and deliver value to their customers, necessitating a change a business model change. These new models challenge CIOs, requiring them to bring new practices to their department. Almost two-thirds of CEOs and CFOs expect to change their business model in the foreseeable future, according to a 2018 Gartner symposium.
Investors are rewarding businesses that add digital capabilities to their products and services. However, investors are more interested in analytics than mere data collection. New business models for digital transformation also need greater automation, with more self-help functions, partner integration, and feedback loops. Additional business model changes commonly include increased consumption-based IT services such as cloud computing.
Digitizing an organization's operational model is the most common objective of digital transformation, according to 68 percent of respondents in the 2018 McKinsey Global Survey. Less than half of respondents indicated their primary objective was to develop new products or services. Less than half of respondents indicated their primary objective was to develop new products or services. The adoption of new technologies is also an important aspect of digital transformation. The respondents in the McKinsey survey are using an average of four out of 11 key technologies, with web tools topping this list.
The McKinsey survey also showed a correlation between successful transformations and the technologies they deployed. For example, 68 percent of respondents with successful transformation indicated they deploy mobile internet technologies, whereas only 53 percent of respondents with unsuccessful transformations deployed these technologies. Cloud-based services are another technology with a significant effect on successful transformations. Eighty-one percent of successful transformations implemented cloud-based services, but only 71 percent of unsuccessful transformations did so.
I hope this blog has helped your understanding of digital transformation and piqued your interest in how you can apply modern IT approaches to drive competitive advantage in your own organization. Please check out our next installment in our series: "Digital Transformation – Every Journey Starts in a Unique Place."