What Is Digital Transformation? – A Guide for the Future
What is digital transformation, why does it matter, and how can organizations implement change?
Questions such as these have become very relevant in today’s dynamic and fast-paced economy.
In an era where disruption and innovation have become the norm, organizations cannot afford to sit idly by while their competitors adopt and profit from new tools and technology.
Below, we’ll learn the basics of digital transformation, a few digital transformation roadmaps, how it has shaped today’s business world, and more.
What is digital transformation?
Digital transformation refers to the adoption of digital technology in order to transform a business, its practices, its workplace, and its strategy.
Every transformation program is unique and will focus on different aims, including everything from improving business performance to overhauling the customer experience.
One of the most important points to highlight is that digital transformation is not the same as software implementation. Software implementation is definitely a key component in digital transformation programs.
However, simply deploying a new tool will not achieve a meaningful business impact.
Over the years, digital technology’s role in the economy has continued to grow:
Digitization – transforming analog processes into digital ones – was the focus towards the end of the last century. The PC revolution replaced typewriters with desktop computers, turned fax machines into scanners, transformed physical records into electronic records, and more.
The arrival of subsequent digital technologies, such as the internet and mobile, shifted the focus to digital transformation. Between 1995 and June 2020, the number of internet users grew from 16 million to nearly 4.7 billion. Along with this expansion, the continued evolution of technology opened up new markets and enabled entirely new forms of value. The result: widespread digital innovation and transformation.
The digital revolution is far from over and will only see more growth in the years ahead. Some argue, for instance, that another industrial revolution will combine digital technology with physical and biological technology. Advancements in these areas, they suggest, will completely transform the economy and the world as we know it.
Given these revolutionary technological trends, it should be no surprise that so many companies argue in favor of aggressive digital transformation.
Yet many business professionals lack a clear direction or roadmap, both of which are necessary in order to make progress.
Mapping out the digital transformation journey
Digital transformation roadmaps vary from source to source, but many of them follow the same general pattern.
One model by Deloitte outlines a three-stage business transformation process:
Imagine. Organizations should start by understanding disruptions, exploring new options, and choosing a path forward.
Deliver. New capabilities are designed and built, then tested and refined before full-scale rollout.
Realize. An organizational change program is then implemented, monitored, adjusted, and sustained.
One of Deloitte’s strategic frameworks that specifically focuses on digital transformation defines five stages: strategy, business model, capabilities, operating model, and people, process, and technology.
Another model by BCG describes a three-stage “digital path to business resilience,” specifically geared towards digital transformation during the COVID-19 crisis:
Respond. Organizations mainly focus on business continuity and human safety.
Recover. As countries gradually begin to reopen and ease lockdowns, organizations focus on restarting and reopening.
Reimagine. The future remains uncertain and potentially volatile, so it is important to transform and find new ways to create a sustained competitive advantage.
Each of these research firms naturally offers in-depth information about their models and recommendations on how to apply those ideas.
Yet the general pattern remains relatively the same for the vast majority of organizational change plans:
Analyze potential options and develop a strategy.
Create a plan of action and the capabilities necessary to enact that plan.
Implement the program, monitor its performance, and refine as necessary.
Naturally, during the COVID-19 pandemic, it was and is important to adapt transformation strategies to fit the circumstances.
Catalysts that drive transformation
For years digital innovation has driven disruption and change throughout the global economy. Technological advancements enable new products, services, and forms of value, which in turn enable innovative change that disrupts the marketplace.
Individual companies and even entire industries have evolved as a result, compelling many organizations to adopt new technologies, workflows, and business models.
Yet innovation is only one among a number of catalysts that drive change and influence digital transformation strategies.
Here are a few others:
Performance improvement. One of the most common goals of any digital-powered business transformation initiative is performance improvement. The logic is straightforward: new technologies can improve organizational performance, which can drive up profit margins, generate a competitive advantage, and more.
Competitive pressure. Many companies only engage in digital transformation efforts after competitors take the first step. This makes sense since transformation is no small undertaking. Yet those who are adopting as a result of external pressure rarely become digital leaders or innovators. To capture market share, it is necessary to act early and invest aggressively.
Customer expectations. Peoples’ needs, expectations, and behavior can be driven by a number of factors, from technological advancements to world events. When those expectations change, organizations must implement new customer experiences in order to keep up. For example, as mobile technology became widespread, customers began to prefer companies that offered better mobile and multi-channel experiences – organizations that could do so were able to gain an edge over those that could not.
The COVID-19 pandemic. In 2020, overall IT spending dropped as a result of the COVID-19 pandemic. Yet despite the financial downturn, the pandemic has spurred growth in some technology-related fields and it has even fast-tracked digital transformation for many companies. After all, certain types of technology, such as telecommuting software, are necessary to operate in a remote world.
Digital transformation often refers to long-term, large-scale programs that affect the entire organization, though smaller digital programs can still achieve substantial results.
Digital Adoption Platform (DAP) spurs digital transformation
70% of organizations today are focusing on measures to use their technology effectively and successful organizations will leverage this time to continue introducing new technologies with the right strategy in place. As explained digital transformation isn’t simply buying new software; it’s integrating new business processes, workflows and developing a comprehensive digital strategy to ensure success.
A digital adoption platform (DAP) is a tool that can enable digital transformation across diverse areas of a company. If a company is implementing new software but not having their employees adopt and fully use it, then the investment is a waste and the digital transformation process becomes stunted.
Conclusion: Success yields rewards for those who persevere
There are endless examples of the positive impacts of digital transformation.
Chipotle, for instance, according to a report by Deloitte, added features to its mobile app that allowed for greater customization of orders. Over the next two quarters, digital sales grew by more than 100% year over year. In Q3 2019, for instance, digital sales amounted to 18.3% of total sales, compared to 11.2% in Q3 2018.
That report also cited the case of a manufacturer that rolled out a new technology to help retrain employees for new positions within the company. This rollout more than doubled overall employee engagement.
Yet it must be remembered that no business initiative is without challenges, including digital transformation.
To earn rewards such as those mentioned above, it is important to understand, address, and mitigate those risks.
For instance, according to a report by the World Economic Forum, by 2022, we will see a widening digital skills gap and 54% or more of employees will require “significant re- and upskilling.”
To succeed in tomorrow’s digital economy, then, it is necessary to rise to that challenge, adopt new technology, train their workforce, and fully embrace digital transformation.