This tutorial explains what is Digital Transformation, its definition, importance, drivers, examples, and Digital Transformation strategies:
In recent decades, we have all been witness to the dynamic environment of businesses around us. We have realized that innovation is critical not only for success but also for the survival of any business. It is amazing to see how technology has become an integral part of how businesses are carried out.
In the process of innovation and improving businesses, one breakthrough has been Digitalization. Organizations have become “Digitally mature” and a major credit of organizational success is owed to this wave of digital transformation.
The organizations which have been long present in the market have been under a lot of pressure and fear of becoming irrelevant and have had to constantly think of innovative ways to interact with customers as this is critical to provide a competitive edge.
In this tutorial, we will understand the What Why, and How of Digital Transformation. We must first understand what the term means?
What You Will Learn:
What Is Digital Transformation
To understand Digital Transformation, let’s first look at the word Digital. This word has often been understood and defined by different people in different ways. These beliefs can range from adopting a paperless environment, analysis of data, or even artificial intelligence.
In the context of Digital Transformation, the word Digital refers to the rate or speed of change due to the swift acquisition of technology.
Digital Transformation For Business
In simple terms, it refers to the adoption of technology in all aspects of the business which is aimed at revolutionizing everything from methods of operations to the value system passed on to the customers.
The process of this transformation also goes steps beyond ensuring a change in the culture of the organizations to monitor this change in the present state and also accept failures if any.
This process can lead to disregard of the old established methods of running a business and accept processes that are yet to be clearly laid down.
As the world is rapidly moving towards the adoption of technology, every business, big or small has identified and adopted this transformation. It is a fact that for the success of any business, it is imperative to become digital.
Click here to read about key requirements for digital transformation in detail.
Technology has been identified to play a vital role in ensuring organization (s) remain competitive in the market and create a value system for customers.
These changes could be twofold in the sense that either an organization would proactively opt for the transformation as a part of its future strategies or as a reaction to changes that were not planned in the external environment.
However, it is also observed that understanding the entire process of transformation remains a challenge for many organizations and businesses. The first step in the process of transformation is to identify the need for transformation.
This can also be called the Problem Statement. The sole purpose of bringing about this transformation digitally must be in sync with enhancing customer experience at all times. This also implies and includes other aspects like increased productivity and profits.
The initiatives of this transformation have specific results to achieve, however, there are some assured benefits of every Digital Transformation initiative.
Some of these benefits include:
- Improvisation: It helps to improvise on the existing processes thereby enabling organizations to gain a competitive edge in the market. This is critical for the survival of the business which otherwise would be walking a path of failure.
- Utilization of resources: The key factor, which is also indispensable learning for leaders of an organization, is to ensure more resources are utilized for the transformation of business rather than merely running it. This process of transformation allows businesses to remain in sync with the dynamic and competitive industries and improvise operational methodologies.
- Creating inverse proportion of labor cost and productivity: Optimum use of technology can truly revolutionize business operations. It requires a judicious choice of appropriate technology that can help evolve business operations and lets the customers connect with it. For instance, an organization spends a lot of resources, costs, and time training new employees and keeping the digital resource up to date. A suitable choice of tools can considerably bring the cost factor down and increase productivity.
- Enhanced customer experience: Customers are increasingly becoming tech-savvy and prefer enhanced experience with pre and post-purchase interaction with the brand. This can be through the use of mobile applications, social media channels, emails, etc. This transformation is a key factor contributing to enhanced customer experience.
- Survival of the fittest: With the advancement of the technological revolution, there is a close competition to adopt digital transformation. Not accepting and adopting this transformation may lead to slower growth and may even pose questions to survival in the competitive market.
We have looked at the benefits of the transformation, now we need to understand the factors that can be called the driving force behind the wheel of this process of transformation.
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It is undoubtedly true that technology is the main factor that leads to digital transformation. However, a large part of this transformation is also about the organization and businesses being receptive to the change that this transformation will bring to the old and existing processes and technology and embrace the new technology.
As per the recent researches, it is believed that while looking at IT transformation, the CIO and leaders of an organization need to keep these below-mentioned factors in mind.
The key drivers of digital transformation have been identified as:
- Security and Privacy: The entire process of the transformation may not be very successful and may move towards failure if the new technology is seen as a threat to privacy by customers. It is seen that with a surge in the adoption of technology as a means to serve customers better, organizations have shown a trend to offer a lot of convenience factors to customers. It has been proven that customers are not ready to trade convenience with security and privacy.
- Reception of change: The word “change” does not have a positive connotation to it. It is natural to expect combat measures against changes. As discussed earlier, IT transformation may also mean a change in the entire operating system of business which may not be welcomed. As leaders, it is imperative to take into account any rigidity to change due to cultural factors. A discussion explaining the change and an agreement on the same can help to push the process of digital transformation in the right direction.
- Expansion of the concept of intelligence: An optimum amalgamation of machine intelligence or artificial intelligence and human intelligence is what contributes to a situation of expanded intelligence. The term used for this Augmented Intelligence. It should not be confused with the substitution of people with machines. It recognizes that cognitive technology – Artificial Intelligence plays a great role in helping to increase human intelligence but does not aim to substitute it.
- Process vs Product-based management: One important and indispensable factor for driving the transformation that has been identified is being flexible to move the focus from processes to the product. It is critical to understand that managing the production of the business effectively to maximize customer experience is very important and should be passed on to the customers through digital mediums to seek feedback from customers.
- Digital Twin: This refers to the creation and digital display of a replica of physical devices, objects, and processes into a virtual environment. This is done to ensure that a virtual environment is created to aid experiments, results of which can be used for analyzing and making business decisions. A digital twin is a major driving force for the process of digital transformation.
- Agility: Apart from these drivers, one major factor that has revolutionized the competitive aspect prevailing in the industry. An old school thought was that competition existed between the big and small businesses but in the current situations, the competition is between the quick and the slow. This highlights the importance of agility and acceptance towards technological advancements.
- Automation: In the race of adapting to IT transformation, there has been an increase in the number of companies that are experts as well as specialized in providing solutions for a bump-free ride towards the transformation. With the recognition of the need for speed, these companies are experts at creating automated tools and software that add agility to the process of digital transformation thereby ensuring that the business has a competitive edge in the market.
We now have an understanding of the important factors which play a vital role in the process of transformation, we must look at the entire journey of the transformation. It is indeed a journey because the process is ever-evolving.
Digital Transformation Journey
In the journey towards IT transformation, six steps have been identified not just as common but as critical for any organization.
#1) Define “digital” for the organization: The process of digital transformation begins by clearly defining the term “digital” and its understanding and acceptance across all levels of business.
Every organization has its unique set of challenges to meet and the means to overcome these challenges are also specific to the industry, its level of competition, and its environment.
Therefore, it is critical for every business to first carefully analyze these challenges and chalk out digital solutions that are best suited to overcome these challenges and then move towards fulfilling business goals.
#2) Chalk out the steps to go digital: After a detailed analysis of challenges faced by businesses, it is important to identify the transformation options available to overcome these challenges. As the process of transformation will impact all aspects of business, and a careful choice of a starting point of change has to be decided.
It could be the transformation of leading aspects like product and customer or auxiliary factors like IT infrastructure. Various strategies have been formulated to bring around this change.
Some of the Digital Transformation strategies are:
- Changing the design of products and solutions by adding digital elements to enhance the customer experience. Internet of Things (IoT) is a popular consideration for processing these solutions. Check out these Powerful Internet of Things (IoT) Examples.
- Being a part of a larger digital environment is an important support during the wave of IT transformation. A specific solution like cloud and big data can be used to create such an environment.
- Leverage data and inputs generated from the IoT environment to generate solutions that provide a competitive edge in the market.
- Revolutionizing core aspects like operations and physical infrastructure to provide a conducive environment for technical transformation including aspects like automation, etc.
A lot of organizations face major challenges with their existing physical and IT infrastructure not being favorable for going digital and is seen as a potential threat to the ultimate aim of customer experience. Hence, its important that IT teams leverage IT automation tools to meet their digital transformation goals.
#3) Buy-in from leaders and management: This is a very important step in the process of transformation. As soon as a clear plan on strategies and options for digital solutions is in place, the next vital step is to get the decision-makers to agree on it.
Research has suggested that a majority of the executives understand and support transformations which strengthens their commitment to digital transformation and to remain upbeat with the market.
#4) Create an external environment that supports digital transformation: Many times, it has been observed that while the internal infrastructure and expertise of an organization may be suitable for the transformation, some external support from the environment remains a critical requirement.
Leaders have always been appreciative of the support from partners in terms of delivering the expertise required for transformation. The services provided by partners also extend to the end-to-end application of digital solutions and the continuous invention of new digital solutions to gain a competitive edge in the market.
#5) Create a supportive internal environment: It is very important that the personnel of the organization have a clear understanding of the objectives of the process of transformation and they can channelize their efforts to the achievement of these goals.
The strategies developed by the executives and management have to be clearly communicated to the workforce and their agreement on these strategies is vital. To effectively prepare employees, some capability-building training may also be required.
#6) Execution of strategies: After keeping a close view of all the internal and external factors and developing capabilities, it is now time for the implementation of strategies to bring about the transformation. The importance of speedy and quick transformations to remain upbeat with the market has already been discussed.
The process of transformation is a continuous process of evolution as technological advancements are happening at a lightning speed. It is imperative for organizations to constantly be on their walk of innovation.
Let’s now look at some examples to see how digital transformation has contributed to taking organizations to new heights of success.
Examples Of Digital Transformation
Nike is a popular name in the footwear industry. In recent times, Nike has used the leading level of technology that is centered on algorithms and machine learning.
It has moved the focus on developing applications to enhance the customer experience. One such breakthrough achieved by Nike is the development of an application that takes a leg scan and assists in choosing the most suitable shoe.
The application collects the points of reference (data) from the scan and suggests the most suitable shoe. This data also helps the brand to improvise on existing designs and products.
Another milestone was achieved with a significant surge in sales with the introduction of the Nike+ program. This program aimed at appreciating loyal customers through rewards. This was introduced in Japan and showed great improvement in sales volume.
Nike also revolutionized its internal operations and became digitally mature. Footwear material was digitized and that provided the benefit of agility to the designing teams thereby meeting the increasing demands swiftly.
Lego is a popular brand of construction toys owned by the Lego group. Lego achieved a breakthrough in the digital transformation when it ventured into the world of video games in the year 1997. The introduction of games that are mostly free has also increased the promotion of its blocks.
Lego has also begun the use of channels on social media like YouTube which introduces various products and also shows the way to assemble the toys. This also added to a significant upward movement on sale volumes.
Along with this, Lego as a brand is also using websites to invite ideas and feedback from the customers. This is a great way to engage customers and improve their loyalty. The brand is also looking at opportunities for modernization.
Sometimes, even the blocks have advanced features like sensors. There have been constant innovations for entering the world of games along with physical blocks amalgamated together in one virtual playset. To get started, one needs to take a picture of the set and the game begins.
Types Of Digital Transformation
It is equally important for us to gain an understanding of the types of IT Transformation as well. Types include business process, business model, domain or environment of operation, and organization.
The various types include:
- Business Process Transformation: With the introduction of Data analytics, Artificial intelligence, and machine learning, there are considerable opportunities for businesses to revolutionize operational processes.
- Business Model: This transformation is aimed at transforming the fundamentals of the business in terms of the ways of transforming values to customers. This leads to new avenues opened for the growth of the business.
- Domain Transformation: This has been the most neglected aspect for transformations but provides great opportunities for growth. It refers to exploring opportunities for value addition in different specializations. For example, Amazon, after being recognized as a retail giant in the online retail market, moved into the domain of AWS (Amazon Web Services). This can be true for any organization if they do not see technology as a barrier but as support.
- Cultural/ Organizational Transformation: A complete process of transformation must also look at redefining the thought process, operational processes, and capabilities to be suitable for walking towards transformation. Some examples can be equal decision-making opportunities across the organization, priority for new learning, and introduction of agile methodologies. This transformation is indispensable for the long-term growth and survival of any organization.
Frequently Asked Questions
Q #1) What is a Digital Transformation strategy?
Answer: Digital transformation strategy is clearly defined as the steps explaining the step-by-step process of how businesses restructure themselves in a digitally competitive market.
With the dynamics of change in customer preferences, businesses have to be constantly innovating new methods that are in sync with the latest technology to enhance customer experience
Q #2) What are the key challenges in Digital Transformation?
Answer: The key challenges faced by organizations are cultural change, the decision of appropriate strategies to bring the transformation, change in infrastructure, expertise in IT transformation, and restructuring of the organization.
Q #3) Why do Digital Transformations fail?
Answer: Constant change and adaption of new technology sometimes can be exhausting for organizations and has been identified as the top contributing factor for the failure of digital transformation.
In this tutorial, we have discussed the meaning of digital transformation along with the reasons why it is the most popular buzzword for organizational success.
Some leading success stories of brands that incorporated the transformation and have seen improvement in the way they connect and deliver customer experiences were also discussed.
We hope this tutorial would have provided gainful insight into the world of digital transformation, its challenges, and the ways to overcome these challenges. Go digital!!!