Digital Transformation refers to the integration of digital technology into all areas of a business, fundamentally changing how you operate and deliver value to customers. It involves a cultural change that requires organizations to continually challenge the status quo, experiment, and get comfortable with failure. This transformation enables businesses to become more agile, efficient, and customer-focused.
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What is Digital Transformation?
These days, everyone seems to be somewhere in the process of digital transformation. When the Corona crisis changed life for everyone, the need for digital transformation became even more apparent as having more automated processes and work from home became even more important. If you’re interested in digital transformation, then you might have heard a lot of buzz about it. Some equate it to ‘going paperless.’ Others think of automation, while some think of it as incorporating analytics.
My personal goal for digital transformation is to eliminate the need for a physical office, remove the need for many full-time employees, and rely on fewer providers for services or materials. In other words – my goal for digital transformation is to automate as much as possible, delegate more to external people, and keep the most profitable process that can be done from anywhere in the world.
So, what is digital transformation?
As Bonfour writes, “Digital transformation involves redesigning business practices to incorporate digital technology within all facets of the business [S1].”
That might seem vague at first, and it should. Digital transformation will mean and require different things depending on the business. For some, this can mean how you change business processes. For others, it’s about the change in customer relations. Simply put – Digital transformation [DT] will look different for every company and enterprise.
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What’s important to understand is that DT is more than changing processes. We can view it as a twofold process. First, there’s the integration of digital technologies into the actual work process. The other aspect is changing the actual culture of the workplace to something more streamlined and dynamic.
All this makes us ask why. What’s the good in digital transformation?
Some benefits of digital transformation are and self-explanatory, while others require more consideration. When things go digital, you have a lot more data to look at. This means you can clearly see what works and what doesn’t with a strategy or idea. As such, digital transformation gives you a chance to course-correct quickly and adjusts strategies as needed.
Other major benefits include:
- Improving efficiency and productivity
- Improve customer services relations
- Lead to data-driven decisions
- Eliminate redundancy
- Save costs of processes
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Digital Transformation is a Process
It’s best not to think of digital transformation as an either-or process. Digital transformation offers loads of possibilities for those who want to optimize. DT can be partial, or it can change every aspect of a business. When it comes to digital transformation, there is no one set path. You can adapt technologies as they best fit the needs of your enterprise. That means you can go all the way with digital transformation, or you can transform some parts and processes and leave others the same.
Remember that digital transformation is itself a process.
It’s not a button you push that suddenly streamlines everything. Digital transformation proves more effective when the process is gradual and ongoing. That means that once some processes have been made digital, they may still need small tweaks and improvements afterward.
Taking Digital Transformation as a Whole
Now that you’ve gotten a clearer idea of digital transformation, you can understand what it could do for your business. It comes with a wealth of benefits like streamlining processes and using data to improve processes. You can integrate the transformation in many ways, incorporating digitalization as much or as little as you need. Remember to take into account how digital transformation requires different considerations and upkeep.
For me, the big question is, what is your goal for DT? Do you want to save on expenses, improve productivity, or automate processes? Your goal will tell you what you should do next. You can find many resources about this topic and learn yourself or hire a specialist or coach to help you understand and do this process more properly.
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Why does digital transformation matter?
A business may take on digital transformation for several reasons. But by far, the most likely reason is that they have to: It’s a survival issue. In the wake of the pandemic, an organization’s ability to adapt quickly to supply chain disruptions, time to market pressures, and rapidly changing customer expectations has become critical.
At an MIT Sloan CIO Symposium series event, IT leaders agreed that consumer behavior has quickly shifted in many ways since the start of the pandemic. Sandy Pentland, a professor at the MIT Media Lab, described how optimized automated systems in areas like supply chain management broke down when faced with rapid shifts in both demand and supply — a reality that just about everyone has faced on a personal level during the pandemic.
It’s early to guess which long-term consumer behavior changes will stick. However, Rodney Zemmel, global leader, McKinsey Digital of McKinsey & Company, says that on the consumer side “digital has been accelerating in just about all categories.” An important factor to watch will be the degree to which forced change — three out of four Americans tried a new shopping behavior, for example — will revert when possible, post today’s emphasis on stay-in-place.
McKinsey data shows that the accelerated shift towards streaming and online fitness is likely to stay permanently, Zemmel says. But the biggest shifts were around food. Both home cooking and online grocery shopping — a category that has been generally resistant to getting moved online — will probably stay more popular with consumers than in the past. Cashless transactions are also gaining steam. On the B2B side, McKinsey data shows remote selling is working.
For CIOs, this means rapid experimentation is no longer optional.
Mark Anderson, senior director of solution architecture, Equinix, described year one of the pandemic as “a forced test of many things we had thought about but not tried.” For example, he observed, “Many supply chains are not well understood and underpinned with paper. We’ve started looking at technologies like blockchain and IoT.”
As Dion Hinchcliffe, VP and principal analyst at Constellation Research, writes: “The top IT executives in today’s rapidly evolving organizations must match the pace of change, fall behind, or lead the pack. That’s the existential issue at stake in today’s digitally-infused times, where bold action must be actively supported by out-of-the-box experimentation and pathfinding. This must be done while managing the inexorable daily drumbeat of operational issues, service delivery, and the distracting vagaries of the unpredictable, such as a major cyberattack or information breach.”
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Improving customer experience has become a crucial goal – and thus a crucial part of digital transformation. Hinchcliffe calls seamless customer experience “the most important discriminating factor for how a business will perform.”
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How has the COVID-19 pandemic changed digital transformation?
“We’ve seen the COVID crisis rapidly re-shape both the “what” and the “how” of companies’ digital transformation agendas, notes Mercer’s Swift.
Take employee experience for example, she suggests. “Even as employee experience has become a key theme in the HR community, in IT circles this notion had been getting a mixed reception – sometimes stereotyped as “spoiled employees expecting best-in-class consumer-grade tech on shoestring budgets,” says Swift.
“Today, with a vast portion of the workforce now remote, employee experience of digital technology has gone from “nice to have” to “the only way work gets done. Consequently, it’s getting the problem-solving focus it likely long deserved.”
Swift calls out some other areas of digital transformation efforts that COVID-19 pushed higher on CIO agendas:
- Furthering the reach of customer support via tools including chatbots
- Automation tools for resilience reasons
- Radical housecleaning of redundant or conflicting systems
In response to the pandemic, CIOs have also embraced the notion that “the perfect is the enemy of the good,” Swift adds. “Nothing silences an individual’s – or an organization’s – inner perfectionist like a full-blown crisis. In response to dramatic disruption, many organizations have undergone a healthy re-negotiation of their relationship to digital technology – prioritizing “hey, it works!” over “after years of slaving over this initiative, we’ve assembled the very best bells and whistles.” The “working software” lionized in the Agile Manifesto is getting a true moment in the sun.” (For more, read Swift’s full article: Digital transformation: 5 ways COVID-19 is forcing positive changes.)
What does a digital transformation framework look like?
Although digital transformation will vary widely based on organization’s specific challenges and demands, there are a few constants and common themes among existing case studies and published frameworks that all business and technology leaders should consider as they embark on digital transformation.
For instance, these digital transformation elements are often cited:
- Customer experience
- Operational agility
- Culture and leadership
- Workforce enablement
- Digital technology integration
While each guide has its own recommendations and varying steps or considerations, CIOs should look for those important shared themes when developing their own digital transformation strategy.
A few examples of digital transformation frameworks include:
What role does culture play in digital transformation?
In recent years, IT’s role has fundamentally shifted. CEOs increasingly want their CIOs to help generate revenue for the organization.
Rather than focusing on cost savings, IT has become the primary driver of business innovation. Embracing this shift requires everyone in the company to rethink the role and impact of IT in their day-to-day experience.
Bryson Koehler, CTO, Equifax, says, “There is a very different mindset at work when you take IT out of an operating mode of, ‘Let’s run a bunch of packaged solutions that we’ve bought and stood up’ to ‘Let’s build and create new capabilities that didn’t exist before.’ If you look at the vast majority of startups, they’re not starting with giant, shrink-wrapped software packages as the base of their company. If you’re trying to create innovation inside of a large enterprise then you shouldn’t start with that either. You’re not here to run the mainframe anymore. You’re not here to run the servers. You’re not here to run the data center, or the network, or operations. That is table stakes. That’s what you can outsource.”
Although IT will play an important role in driving digital transformation strategy, the work of implementing and adapting to the massive changes that go along with digital transformation falls to everyone. For this reason, digital transformation is a people issue.
IT leaders find themselves working in cross-functional teams more than ever. Digital transformation initiatives often reshape workgroups, job titles, and longtime business processes. When people fear their value and perhaps their jobs are at risk, IT leaders will feel the pushback. Thus leadership “soft skills” – which turn out to be rather hard – are in great demand.
Mattel EVP and CTO Sven Gerjets says leading transformation starts with empathy. “When your empathy is genuine, you begin to build trust,” he says. “If you don’t have an organization that is supportive and fully onboard with the transformation efforts, it’s impossible to succeed. You need to have leaders that know what “good” looks like and who are motivated to help the organization understand why you’re doing what you’re doing.”
“This will become apparent when you hear things like, ‘Hey, we’re working with your team and it feels different,’ or, ‘We can’t believe that IT delivered this project early and it met my business needs.'”
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Mercer’s Swift, who leads the firm’s efforts in the areas of workforce transformation, finds in her consulting work that three groups of employees tend to slow transformation momentum: Old-timers, by-the-book players, and lone wolves.
Companies must not ignore but engage these three groups – or face perilous stalls, she writes. How to do that? Her first suggestion: Think about your population in a segmented fashion, and work to meet different segments where they are.
“Many organizations,” she writes, “have rolled out the digital journey in a highly uniform manner, with the same messages and techniques deployed throughout. “Re-skilling for everyone! New teams! Welcome to the new world!” From a change management perspective, this is pure folly – and a misuse of investment dollars that might be spent more strategically targeting smaller groups. Companies should consider both digital experience and behavioral preferences of different sub-populations within their organization, and they should craft messaging, programs, and even environments to hit the right starting point and realistic end point for different groups.” [ Read the full article for more advice from Swift: 3 kinds of employees who hurt transformation momentum. ]
What drives digital transformation?
An important element of digital transformation is, of course, technology. But often, it’s more about shedding outdated processes and legacy technology than it is about adopting new tech. It’s also about enabling innovation.
In the area of government IT, for example, more government agencies are on the verge of realizing the cloud model’s full potential – beyond cost-cutting to using cloud for strategic advantage, notes Dave Egts, chief technologist, North America Public Sector, Red Hat. “Deloitte recently released a list of nine technology trends transforming government, and one, in particular, will be key to enabling the future of technology in government: The cloud as an innovation driver,” Egts says.
The prevalence of legacy technology in enterprise IT still hinders CIOs’ ability to successfully embark on a digital transformation strategy. As Beth Devin, Managing Director and Head of Innovation Network & Emerging Technology, Citi Ventures has explained, legacy tech can become a costly barrier to transformation. “If you’re spending 70 to 80 percent of the IT budget operating and maintaining legacy systems, there’s not much left to seize new opportunities and drive the business forward. And this expenditure will grow as technology ages and becomes more susceptible,” Devin notes.
What’s more, new technologies are built using cloud architectures and approaches, she points out: “What is the long-term value of leveraging the best new technology for your business and customers?”
[ Leading CIOs are reimagining the nature of work while strengthening organizational resilience. Learn 4 key digital transformation leadership priorities in a report from Harvard Business Review Analytic Services. ]
A critical factor driving legacy upgrades, according to a recent Deloitte survey, is technological relevance, she says. “Legacy solutions lack flexibility and carry a significant technology debt due to dated languages, databases (and) architectures,” Deloitte reported. “This liability prevents many organizations from advancing and supporting analytics, real-time transactions, and a digital experience.” (Read Devin’s full article: Digital transformation: 9 ROI factors when upgrading legacy systems. )
If businesses want to evolve with the rapid pace of digital change today, they must work to increase efficiency with technology wherever possible. For many, that means adopting agile principles across the business. Automation technologies also help many IT organizations gain speed and reduce technical debt.
What are the key trends in digital transformation in 2022?
As Enterprisers’ Stephanie Overby has reported, digital transformation took on new urgency during the pandemic. Some CIOs and IT organizations achieved previously unimaginable speed of change. Today, CEOs see digital transformation work as key to future success. “As organizations have weathered the upheavals instigated by the pandemic, digitization has become integral to their responses and also their future plans,” Overby notes.
E.G. Nadhan, chief architect, Red Hat, notes: “Even companies who have embarked on multi-year transformational journeys have had to make adjustments midstream, as they should. The operative word that defines the purpose for digital transformation in 2022 is resilience. The pandemic taught enterprises to be prepared for seismic shifts in the market dynamics and consumer needs. Forward-thinking enterprises will focus on the ability to effectively pivot and deal with change with minimal to no impact to internal and external consumers.”
“There will be increased focus on experimentation with configurable parameters to predict enterprise behavior using simulated environments. And such experimentation will yield more insight into the optimal configurations that are most resilient,” Nadhan says.
Consider these eight key digital transformation trends that business and IT leaders should be aware of in 2022:
- Focus on resiliency and sustainability
- An emphasis on using cloud to enable innovation
- AI-fueled automation of business processes
- Continued acceptance of remote work
- Increased attention to managing data for its entire lifecycle
- Security as a business imperative, not an afterthought
- Prioritizing AI ethics and governance
- Increased use of maturing machine learning technologies
For more detail and advice on each of these items, read our related article, Digital transformation: 5 future and 3 fading trends for 2022.
How can I measure ROI on digital transformation?
To prove the success of digital transformation efforts, leaders need to quantify the return on investment. That’s easier said than done with projects that cross functional and business boundaries, change how a company goes to market, and often fundamentally reshape interactions with customers and employees.
A project such as revamping a mobile application may have a short-term payoff but other projects are chasing longer-term business value. Moreover, as we have reported, “Digital transformation efforts are ongoing and evolving, which can render traditional business value calculations and financial governance approaches less effective.”
Still, quantifying success is crucial to continued investment. “Just implementing the technology isn’t enough – the technology needs to be specifically tied to monitoring key performance indicators on customer insights and business process effectiveness,” says Brian Caplan, director with management consultancy Pace Harmon.
First, ask if you’re taking enough risks.
“When determining how well digital transformation investments are performing, it’s best to take a portfolio view and not a project level view,” says Cecilia Edwards, partner with digital transformation consultancy and research firm Everest Group. Just as a mutual fund manager or venture capital firm would look at overall performance to determine how well things are going, digital transformation leaders must take a holistic view of digital change efforts.
This is particularly important so that the underperformance of one particular project doesn’t reflect negatively on the overarching efforts of IT. It also builds tolerance for the necessary risks that must be undertaken to achieve real digital transformation.
Next, consider best practices regarding digital transformation metrics:
- Set initial metrics in advance
- Develop micro-metrics for agile experiments: The goal is to learn and adjust.
- Incorporate business outcomes: Look at strategic impact (e.g., revenue growth, lifetime customer value, time to market), operational impact (e.g., productivity improvements, scale, operational efficiencies), and cost impact.