What Is Digital Transformation?
Digital transformation is a continuous process of adopting digital technologies into all business areas. It is a strategic process to improve the current state of operations, increase efficiency, and enhance customer experience through the use of technological advancements.
Digital initiatives require commitment from leadership, change agents, and team members, but most importantly, they entail a fundamental change in the organizational culture. Rather than merely using more technologies to perform, digital transformation invites thinking about how digital advancements can improve value delivery.
Nowadays, digital transformation revolves around many technological enhancements, such as artificial intelligence, Big Data, and more, used to complement and improve human work. On average, 70% of US and European companies use at least one advanced digital technology.
Defining digital transformation
What Are the Differences between Digitization, Digitalization, and Digital Transformation?
Digitization is the process of converting data from analog to digital form. The process is designed to help streamline information management and sharing between team members.
Digitalization, on the other hand, refers to using digital data to simplify work processes by smartly integrating innovative digital technologies and scaling new processes and competencies across the organization.
While thanks to digitization, data became much more powerful and efficient, it was the digitalization of work processes that made it possible to scale this efficiency to make work simpler and faster. Digitalization unlocked people’s creativity and ingenuity on how technologies can be used in different ways to their advantage, which was the spark of the digital transformation movement.
Digital transformation represents continuous efforts of leadership, change agents, and team members to challenge the existing business models to deliver better, more personalized and flexible customer value. Digital transformation has a broader significance than digitalization. It aims to change or create a new organizational culture that meets the dynamically changing customer and business requirements.
Why Is Digital Transformation Important?
Digitally empowered organizations leverage their digital resources to improve customer satisfaction, efficiency, innovation, and bring greater business agility.
Digital transformation can significantly impact an organization’s success when the goals of the transformation itself support the strategic objectives. As such, you may start a digital transformation to help with business growth, empower innovation, reduce operational costs, or deliver a greater customer experience.
The smart utilization of digital technologies, processes, and skills across the organization allows businesses to create real customer value, adapt swiftly to changing market circumstances, and stay competitive through innovation.
Furthermore, digital transformation challenges the status quo of current operations and sets the stage for an Agile operating model. Companies adopting the Agile practices largely report increased collaboration (69%) and better alignment to their business needs (54%).
Key Factors to Enable Digital Transformation
Emerging technologies can give companies a competitive advantage, to say the least. You must first build the right organizational mindset to benefit from digital transformation.
1. Organizational culture with a digital mindset. Collaborating and self-organizing teams who learn through experience is one side of establishing a new organizational culture. With digital technologies, such behaviors can be scaled to simplify and speed up work processes.
2. Transformational leadership. Leaders of digital transformation initiatives should be the true transformation champions. Besides being the motivators and enablers of the change, they need to be capable of smoothing out any resistance.
3. Agility is the power to adapt swiftly to a volatile environment, and it’s key to a successful shift to the digital age. Agility begins by creating a culture that encourages experimenting and welcomes innovative ideas.
4. Data-driven decision-making. Relying on data and measuring success unlocks valuable insights and allows businesses to drive improvements and maintain a competitive advantage. To measure the return on investment of a digitalization project, for instance, it’s critical to set clear goals, establish measurement indicators (KPIs), and monitor the progress on a predetermined regular basis.
Stages of Digital Transformation
A digital transformation journey consists of six stages. Understanding the stages of digital transformation can help you better assess your present state and navigate your next moves.
1. Business as usual. The first phase represents the current business operating model and the present state of an organization.
2. Present and active. At this stage, changes are starting to emerge in the form of acquiring new digital skills, education, and encouraging ideas.
3. Formalized. The formalized stage of a digital transformation is when a few experiments have proven to bring positive results and further transformation efforts are backed up by the leadership.
4. Strategic. Strategic management recognizes the power of digital capabilities and starts to push in that direction by investing in new technologies, training, processes, and people.
5. Converged. Establishing a transformation team of individuals who will drive the process by creating goals for the transition and guiding the advancement of the initiative.
6. Innovative. A digital transformation journey’s goal is to replace the status quo with a drive for continuous improvement across the company. This is when an organization unlocks its true agility, innovation, and ability to adapt to changing factors.
How to Create a Digital Transformation Strategy?
To set up your digital transformation strategy, you should understand the needs of your organization, think of the data sources available, how flexible you can be regarding technology and the ownership requirement.
Answering these 3 cornerstone questions will guide you through setting the foundation of your digital transformation journey:
- Why do you need the transformation?
- What needs to be transformed?
- How can you transform?
The steps to follow when creating a digital transformation strategy should support your vision. Below you can find 10 tactics to consider in the process.
- Identify opportunities.
- Assess your current position.
- Analyze your readiness in terms of company culture.
- Determine your strategy goals.
- Create a roadmap plan.
- Employ data and technologies.
- Get leadership approval.
- Set measurable goals.
- Focus on long-term objectives.
- Strive to continuously learn, measure your progress, and innovate.
What Is the Best Framework to Create a Digital Transformation?
A digital transformation framework is an elaborate roadmap to guide organizations toward cultural and operational transformation. Furthermore, this formalized strategic plan helps companies move forward in their journey without experiencing any stalls caused by the fast digitization pace, changing customer needs, innovative technology solutions, etc.
The best digital transformation framework to employ is one that allows organizations to take control of their digitization without sacrificing their short- and long-term goals. A great strategic plan is a plan you can adjust to reflect and support your business needs. It also invokes a company-wide understanding of the chosen business approach and goals to pursue during the transformation initiative.
What Are the Digital Transformation Challenges?
The most commonly experienced challenges threatening a digital transformation initiative are listed below.
- Missing leadership buy-in.
- Resistance to cultural change.
- Lack of cross-functional collaboration.
- Lack of technological skillset.
- Poor communication.
- Lack of success measurement.
COVID-19 Effects on Digital Transformation
When talking about digital transformation, we need to mention the Covid-19 pandemic too and its impact. Digitalization was accelerated a few years into the future in record time in various domains such as healthcare, pharma, finances, and technology.
- Customer needs. Companies’ digital transformation is driven by the pursuit to service the evolving customer needs that require a simple and easy customer experience. As a result, 48% of companies have accelerated the digitalization of customer channels since the start of the pandemic.
- Funding. The shock that the crisis brought globally also emphasized the strategic importance of technology for long-term business survivability. Companies' digital products portfolios and funding for digital initiatives increased significantly compared to revenues, the number of customers, or channel partners.
- Workforce. The pandemic’s travel and physical restrictions have dramatically increased the need for virtual employee collaboration and interaction. For instance, technologies such as videoconferencing and filesharing were adopted by a growing number of companies (85%) at an accelerated rate.
Digital Transformation Examples
Digital transformation happens throughout industries and domains and applies equally to startups and global enterprises alike. Below are a few examples of digital transformation in various industries.
- Digital transformation in the financial domain, for instance, may seek to merge artificial intelligence with technology to transform data into high-end financial solutions.
- Digitalizing the procurement sector through fetching, analyzing data, and automating processes, can boost visibility into stocks, losses, and overall operations in the supply-chain industry.
- In healthcare and pharma, digital transformation is used to create greater patient satisfaction and engagement and to improve care quality. On that mission, organizations utilize electronic health record systems, develop AI health applications, improve the patient’s user experience, receive real-time feedback, etc.
What Are the Digital Transformation Trends?
As dynamic as the nature of digital transformation is, there are several globally-observed tendencies.
1. Automation is intrinsic to digital transformation. For businesses to run smoothly in today’s widely remote working environment, automating processes through the use of machine learning, AI, Big Data, and other data analytics technologies is the new norm.
2. The power of Customer Data Software to collect and combine customer data from multiple sources allows companies to create more accurate customer profiles, improve their audience segmentation and enhance their predictive models.
3. The need for Security Resilience will increase exponentially as the maturity of the digital transformation process increases. The more digitalized an organization is, the greater the potential for cyberattacks. To combat this, companies must adopt measures like antivirus, VPN encryption, and secure data storage to protect their digital attack surface.
4. Infrastructure Agility or the ability of organizations to adapt and effectively manage their increasingly complex infrastructure. Cloud architecture and automation software are two critical components of successful digital transformations.