What is Digital Transformation?
At the most basic level, digital transformation involves using digital technologies to change a business process to become more efficient or effective. The idea is to use technology not just to replicate an existing service in a digital form, but to use technology to transform that service into something significantly better.
It sounds simple but digital transformation can be a long, expensive and complicated process that doesn’t always go according to plan.
What are the key areas of Digital Transformation?
Every definition of digital transformation is different, depending on the industry and the particular project. The main components likely include rethinking business models, changing the underlying technology stack, innovating with customer experience and also potentially even remaking company culture.
What does Digital Transformation involve?
Digital transformation can involve many different technologies, but the hottest topics right now are cloud computing, the Internet of Things, big data, and artificial intelligence. During the next few years, we can expect increased attention on some hyped-up tech topics, including the metaverse, and blockchain and digital currencies.
However, it’s not just about the technology: changing business processes and corporate culture are just as vital to the success of these initiatives. Digital transformation projects are often a way for large and established organisations to compete with nimbler, digital-only rivals. These projects tend to be large in scope and ambition but are not without risks.
While digital transformation is one of the most commonly used phrases in the IT industry, definitions vary. What everyone can agree on is that, beneath the hype, the fluff and the confusion, digital transformation involves some pretty important changes to business culture.
What is included in a Digital Transformation project?
Digitalisation is not, as is commonly suggested, simply the implementation of more technology systems and services. A genuine digital transformation project involves fundamentally rethinking business models and processes to enhance methods.
This creative requirement remains a tough ask for business leaders. Most organisations do not have a problem generating new ideas, but many firms fail when it comes to implementing fresh business models or turning good ideas into organisational objectives, according to research from Cass Business School.
Digital Transformation examples:
The transition of legacy systems to cloud platforms is an oft-cited example of digital transformation. By moving older systems to the cloud, it becomes easier for organisations to update and change applications in response to new user demands. In this case, digital transformation is helping to support nimble and flexible IT operations, in short, it makes an existing process much more efficient and effective.
Using technology to change or remove an inefficient working process is another good example of digital transformation. For example, the digitisation of paper records by using technology to transform how an organisation records its information. It’s now possible to search digital records and run reports in a way that would have been unthinkable in the era of paper records.
While digital transformation often involves using cloud-based platforms and services, it can also involve the adoption of emerging technologies. We can expect to hear more about these kinds of use cases as the metaverse moves from the lab to the real world. Such is the level of hype that 40% more companies mentioned ‘metaverse’ in their company filing documents during the first quarter of 2022, according to researcher GlobalData.
Progress is already being made. Think of a retailer allowing customers to use virtual reality apps to visualise its furniture from the comfort of their home. In this case, digitisation transforms the traditional physical retail interaction into a virtual relationship, where customers can try and then buy products at a distance.
How important is Digital Transformation?
For those who weren’t convinced about the positive benefits of digital transformation, the power of digitisation won over many doubters during the coronavirus pandemic.
When lockdown and social distancing started, it was digital transformation and the IT departments that carried out the work, that helped businesses carry on functioning as normally as possible in the most challenging of conditions. IT teams had to spin up technology solutions to the challenges that businesses faced overnight.
Digital transformation strategies were fast-forwarded at breakneck speed. Executive teams that might once have hesitated over the implementation of a multi-year investment in video-conferencing and collaborative technologies tasked their IT departments with establishing remote-working strategies in days or even hours.
CIOs and their IT teams stepped up and delivered, from the support of home working to the provision of online learning and onto the establishment of new online e-commerce channels and even the creation of whole new business models.
The general consensus from experts around the tech industry is that the rapid digital transformation pushed by CIOs and their teams helped change the perception of IT for good. Rather than being seen primarily as a service to other functions, such as sales and finance, technology is now recognised as a critical factor for long-term business success.
What Digital Transformation trends are happening now?
With digital transformation proving its worth in challenging times, the aim now is for organisations to find new technology projects to get into. Many CEOs know they must accelerate the adoption of digital business and are seeking more direct digital routes to connect with their customers. All while keeping an eye on economic risks, bosses want to be efficient and protect margins and cash flow.
Current Digital Transformation trends include:
- Cloud Computing: These services often include servers, databases, software, networks, analytics and other computing functions that can be operated through the cloud. It’s the on-demand availability of computer system resources, especially data storage and computing power, without direct active management by the user. Cloud computing is changing how businesses and organizations use information technology for the better.
- Data and AI: Companies have spent the past few years collecting huge amounts of information. The task now is to break down silos, to bring data together and to apply insight in ways that improve customer experiences and decision-making processes. Expect investment in artificial intelligence and machine learning to grow significantly.
- Automation: Executives are finally beginning to see investments in robotic process automation pay dividends. Whether it’s reducing software-coding demands or introducing bots to deal with service requests, companies will use automation to remove repetitive tasks and allow staff to focus on work that produces value.
- Customer Experiences: From allowing professionals to work productively from home to providing new ways to help clients connect with the business, companies are going to spend big on developing great experiences for customers. Expect investments in the metaverse to become important here, too.
- Cybersecurity: Underlying all these digital transformation efforts is a continued requirement to invest in IT defence mechanisms. Here at bva, we offer cybersecurity services that will true-up security holes, make systems more reliable, and secure all critical data.
Why does Digital Transformation matter?
Digitalisation is helping smart businesses to change the established economic order, and the effects are everywhere. From Amazon’s influence over retailing to Facebook’s impact on publishing, traditional firms are being challenged by nimble, digital-savvy operators.
Consultant McKinsey reports that many executives believe their companies’ business models are becoming obsolete. Only 11% believe their current business models will be economically viable through 2023, while another 64% say their companies need to build new digital businesses to help them get there.
It’s also important to recognise that digital transformation is more than simply an IT concern. Line-of-business units are crucial to identifying where digitisation can create big benefits. Without a more fundamental business transformation, digitisation on its own is a road to nowhere.
Example of what Digital Transformation looks like:
Beauty company Avon International has used a direct-selling model for 130 years. The company normally sells its products through reps who call at clients’ doors and collect orders from a paper brochure. That model was all-but-impossible to continue during the coronavirus crisis and lockdown.
The solution to this challenge came in the form of a rapid digital transformation that allowed reps to carry on selling. The IT team focused first on putting in place a mechanism that allowed reps to ensure that the orders they were taking through WhatsApp, a text message, an email, or a phone call, were delivered directly to Avon’s customers rather than by hand.
As the company had 60 different enterprise resource planning systems around the world and more than 200 back-office systems, changing the delivery address meant modifying a range of ordering and invoicing processes. The team implemented that new approach on top of its legacy platforms in 30 markets in just six weeks.
Avon also started to develop a stronger e-commerce platform, such as via mobile and web. Sales through e-commerce channels grew by six times in the first three weeks following lockdown. The company also started to produce digital brochures that could be updated far more easily and shared through social channels.
Today, 30% of the company’s sales contacts are made online in the UK, up from less than 10% before the pandemic. By finding ways to maintain sales and beef-up its e-commerce channels, Avon kept its customers served and its reps busy, gaining new clients along the way.
In short, digital transformation has helped to change the company’s business model and that’s going to last forever. Chief executive Angela Cretu has said the company wants to become fully “omni-channel”, linking different methods of selling from stores to the doorstep, over the next few years.
How much does Digital Transformation cost?
Global spending on the digital transformation of business practices and products will reach $1.8 trillion in 2022, an increase of 17.6% over 2021, says tech analyst IDC. The researcher expects a five-year annual growth rate through 2025 of 16.6%
“As organisations accelerate their pursuit of a digital-first strategy, they are channelling these investments into both internal operations and external direct engagement,” says Craig Simpson, senior research manager at IDC. “The investments in internal operations are largely focused on improving efficiency and resilience while customer experience transformation has become a digital transformation priority for many companies.”
Something to note: digitisation is far from easy. The average enterprise has more than 200 technology solutions in its tech stack across the organisation, according to Futurum Research. The advisory firm’s analysis suggests the vast majority of digital transformation initiatives don’t consider the user and ultimately result in inefficient adoption.
How long does Digital Transformation take?
Digital transformation projects have traditionally been associated with multi-year strategies. CIOs have worked with their peers to think about how technology might help their organisations react to the threat of digital disruption. They’ve then created a long-term business strategy that uses technology to help the organisation meets its aims.
The problem with many of those long-term strategies is that they’ve taken too long to come to fruition. Incumbents might be good at creating spot digitisation projects, such as moving systems to the cloud or creating new digital channels to market, but they’re much slower when it comes to transforming the whole business to support new operating models.
In an age where fleet-of-foot digital challengers can move into a new sector almost overnight, then multi-year strategies are simply too slow. The multiple challenges associated to dealing with a global pandemic, new geopolitical tensions and macro-economic pressures have shown that flexibility and agility are the watchwords for modern digital strategies.
McKinsey reflects on the fact that most companies’ adoption of digital technologies sped up by three to seven years in a span of months during the pandemic. That increase in pace is having a lasting impact as the need for speed has an impact on digital transformation strategies. Instead of talking about five-year plans, boards demand constant iteration.
For many organisations, that shift has required a new Agile way of working.
What’s the relationship between Agile and Digital Transformation?
Digital transformation is as much about establishing the right cultural change programme as it is about introducing new tech. Digitisation needs organisations to work out quickly what their business needs and how they’re going to get there. For many managers, the best way to find these answers is by adopting Agile methods.
While Agile won’t be applied the same way in every organisation, the basic principles are decentralised decision making, cross-organisation teams and cross-team empowerment, which are likely to resonate with most business leaders.
Experienced digital leaders suggest the big benefit of an Agile approach is cultural. By working in small, cross-organisation groups to explore challenges and deliver solutions, IT staff and line-of-business professionals can iterate around a problem and apply digital systems and services quickly.
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