The term "digital transformation" has been put through the buzzword wringer, but it has held its own and continues to stand as a truly game-changing paradigm shift. Digital transformation is considered a top priority by the majority of business leaders.
Among the organizations that have initiated digital transformation, many have faced significant challenges. Observers attribute this, in part, to a lack of understanding as to the full scope of a digital transformation effort. Those who have been successful had the total commitment of leadership and took time to develop a long-term strategy as well as plan for execution and ongoing efforts.
Understanding digital transformation
At its root, a digital transformation initiative seeks to fundamentally change how an organization operates and delivers value to customers, stakeholders, and employees with an eye toward doing both more effectively and at a lower cost. Digital transformation is instantiated in the implementation of new technology as well as systems and processes to run, manage, and maintain them.
Definition of digital transformation
Digital transformation is a term used to describe a strategic initiative that is led by senior executives and their boards of directors. At its core, digital transformation is the integration of digital technology into all aspects of an organization’s operations and the continual adoption of new technology. Referred to as a digital transformation journey, this process is undertaken at varying paces and degrees.
What is new about digital transformation, in contrast to business transformation, is that business transformation revolves around a project that has a start and finish. Digital transformation is ongoing, with new technologies being adopted and processes and systems optimized.
Importance in modern business
Digital transformation has become a mandate for most large organizations and a top priority for many others. Embracing digital transformation is widely considered a necessity, not just to compete but for sheer viability.
With rare exceptions, digital-first is the operating approach of most organizations. Digital transformation is important because it helps optimize this approach, drive it into all aspects of an organization, and embed the concept in an organization’s culture.
Key drivers of digital transformation
Many factors have contributed to the broad adoption of digital transformation. One of the main drivers is the latest generation of technology, which has made the digitization of nearly everything a de facto standard.
In addition to technology, the digital transformation movement has been driven by pioneering organizations that have demonstrated its power and the value it can deliver. These organizations showed how technology could be used to:
- Automate operations and processes across an organization.
- Continuously enhance the customer experience (e.g., in-context customer reviews and personalized recommendations).
- Create entirely new business models (e.g., e-commerce and electronic delivery).
- Develop intelligent workflows using artificial intelligence and machine learning.
- Update and optimize stagnated, legacy processes, such as supply chain management (e.g., just-in-time inventory) and product development (e.g., agile software development).
Components of digital transformation
Two integral components of digital transformation are digitalization and digitization. Digitalization is the use of digital technologies to improve processes and projects, while digitization is the transformation of paper-based information and data into digital format. Technology integration, process optimization, and cultural change are required to power digitalization and digitization.
Technology integration
With technology at the core of digital transformation, integration is imperative. In fact, the integration of technology is where the bulk of the digital transformation magic happens. Technology integration extends from ensuring that different solutions are connected and working together to drive it into strategies, operations, and processes.
Process optimization
Process optimization is supported by integrated technology but also requires an assessment of all operations and the processes that support them. This includes evaluating which manual processes can be automated with technology and which should simply be eliminated because they are outdated or outmoded. It also includes integrating processes to ensure seamless workflows and optimal efficiencies.
Cultural change
For digital transformation to take root, organizations need to embrace it fully. Cultural change starts at the top, with management championing the concept and demonstrating its value to everyone in the organization.
Communication is crucial to effecting cultural change. It should be executed with regularity and diversity to ensure that the messages reach individuals in ways that resonate.
Cultural changes that come from digital transformations are far-reaching. Done well, digital transformation will impact every part of an organization. Success hinges on taking time to explain the changes to team members and ensure that they have the training and support needed to adopt the new systems and processes that come with digital transformation.
Major areas of digital transformation
Digital transformations are described as focusing on key domains that encompass everything that must be done to achieve the objective. A crucial part of this is determining how to manage interconnections holistically rather than focusing on multiple areas separately.
The following are the most commonly used digital transformation domains. By developing a digital transformation strategy and plan for each of these domains, organizations cover the fundamental components and are well-positioned to bring innovation to other areas successfully.
Customer experience
The customer experience is focused on understanding and meeting customers’ needs and delivering a positive customer experience. This drives customer satisfaction and loyalty, which increases customers’ lifetime value and ensures the organization’s long-term success.
Operational processes
Process automation and optimization get to the heart of digital transformation as they focus on using technology to streamline operations, increase productivity, and reduce costs. This area also has positive ripple effects across other digital transformation domains.
Business models
Applying digital transformation tenets to business models is about adapting and updating operations and processes to take full advantage of technology. It also includes meeting evolving market requirements and customer demands to maintain a competitive edge.
Workforce enablement
Organizations that achieve effective and sustained digital transformation do so, in part, by inculcating innovation into the culture. Workforce engagement and employee empowerment play a key role in this. By giving employees tools, resources, and training around digital transformation, organizations see wider adoption because employees feel empowered and are more actively engaged.
The role of AI in digital transformation
Artificial intelligence (AI) is embedded in much of the technology seen in digital transformation initiatives. AI-powered solutions have a number of powerful capabilities, including:
- Enable advanced analytics
- Evolve and learn based on data inputs
- Help organizations analyze and react to data
- Identify patterns in data
- Make predictions
- Provide actionable insights
- Support complex, non-repetitive tasks
These capabilities support many objectives of digital transformation, such as advancing automation and using technology to drive value. Digital transformation technologies use AI to enable quick reactions to new information or unexpected changes. It also analyzes data to detect incoming challenges before they occur to support proactive postures in multiple areas, such as security and risk management.
AI vs digital transformation: understanding the difference
AI is used in much of the technology that is part of a digital transformation. Many parts of digital transformation are, in fact, powered by insights provided by AI-enabled technology. Several examples of these are highlighted below.
Applications of AI in digital transformation
When using AI-powered solutions as part of digital transformation, it is important to consider the applications and derivative value. The following are several successful applications of AI in digital transformation.
Customer engagement
With the insights provided by AI and other aspects of digital transformation, organizations are better able to predict consumer demands, identify emerging trends, and adapt to changing market requirements. In addition, AI supports omnichannel experiences for consumers. AI solutions also improve security to protect consumers’ sensitive information.
Decision making
AI provides teams with insights that help them make better decisions faster. AI tools can also process large volumes of information quickly and deliver predictive analytics to provide insights that drive proactive decision-making.
Cybersecurity
Digital transformation, despite its many benefits, has the downside of increasing an organization’s digital attack surface. However, AI-powered security solutions are able to detect and thwart threats, which helps mitigate cybersecurity risks.
Revenue opportunities
By incorporating AI solutions into processes and workflows, organizations that embrace digital transformation are able to minimize risks and improve operational efficiency, which both increase profitability. AI also helps identify patterns and trends that can speed time to market for new products and services, giving organizations a chance to gain market share more quickly and drive revenue.
Risk mitigation
Processing vast amounts of data from disparate sources, AI increases digital transformation success rates by helping organizations identify and predict risk vulnerabilities. The power of pattern detection is in high relief when AI is used for risk analysis. AI-powered solutions are able to detect hard-to-find or overlooked risks that can impede digital transformation efforts and negatively impact operations.
Holistic customer views
AI facilitates digital transformation efforts by drawing on disparate data sources to give organizations a 360-degree view of customers. These insights can be used to identify areas for improvement and inform priorities.
Benefits of digital transformation
There are a number of benefits associated with digital transformation. The top one is actually born of necessity. For most organizations, embracing digital transformation is a requirement for them to remain relevant and competitive. Other commonly cited benefits of digital transformation include the following.
Increased efficiency and productivity
- Automates repetitive manual tasks
- Improves communication and collaboration
- Minimizes human error
- Speeds information management and sharing
- Streamlines workflows
Enhanced customer experiences
- Achieve higher conversion rates
- Create more meaningful interactions with personalized recommendations, tailored customer service, and targeted marketing messages
- Increase customer engagement and lifetime value
- Provide a consistent customer experience across all touchpoints
- Provide customers with 24/7 service and support
Better data-driven decision making
- Align and refine online and offline data to optimize operations
- Allows campaigns to be targeted with precision
- Helps organizations track and measure key performance indicators (KPIs)
- Improves the quality and accuracy of data
- Uncover hidden patterns, identify emerging trends, and highlight areas for improvement
Competitive advantage in the market
- Adapt quickly to changing market conditions and customer demands
- Deliver products or services faster and more accurately
- Gain and retain a deep understanding of their customer’s needs and preferences
- Increase brand visibility, customer acquisition, and revenue streams
- Optimize strategies to stay ahead of and stand out from the competition
Steps to implement digital transformation
As noted above, digital transformation is a journey. Those who successfully navigate it do so by investing time and resources into each stage and understanding that the journey is ongoing. This means that organizations will need to repeat the stages as new areas are added to the digital transformation or pivots are required to parts that have already been rolled out.
Assessing current state
Arguably, the most important step in implementing digital transformation is assessing the current state. Observations and determinations made during this step will inform the prioritization of areas where digital transformation efforts will be focused. They will also play an essential role in the selection of talent and tools needed to support the ongoing effort. This is a complex step that will be unique to each organization, but several considerations apply universally, including:
- What is the current digital state of the organization?
- What resources are available to support the effort, and what will need to be acquired?
- What digital tools are in place that are suitable for the digital transformation effort, and what needs to be replaced?
- What is the available budget to start, and what will be available throughout the rollout to support it on an ongoing basis?
Defining a digital strategy
A successful digital transformation hinges on executing many functions well. At a high level, the key phases of a digital transformation are the same as most big projects:
- Establish objectives and outcomes.
- Identify an executive sponsor.
- Assess requirements.
- Define specific needs.
- Assemble a team.
- Execute the program.
- Monitor and measure results.
- Continually improve.
Best practices for executing digital transformation include the following.
- Adopt a fail-fast approach that identifies issues early on and minimizes the impact of changes.
- Audit existing processes and policies and eliminate or update any that are obsolete.
- Build new processes into existing workflows as much as possible to minimize disruption and learning curves.
- Build teams with overlapping domain experience.
- Celebrate changes and innovations derived from digital transformation efforts.
- Conduct exhaustive research to identify the best technology.
- Consider what changes can improve customer experiences and how they can be implemented.
- Create an adoption plan that includes employee engagement and integration into day-to-day workflows.
- Encourage new ideas and feedback.
- Identify team members who have the right skills for their assigned task (i.e., avoid assigning highly skilled individuals who lack domain experience).
- Invest time and effort into driving the importance of digital transformation into the organization’s culture.
- Leverage data with AI as much as possible.
- Pinpoint processes that need to be upgraded, focusing on those with the highest impact first.
- Roll out changes incrementally as updates or new processes and systems are available.
- Secure buy-in from stakeholders before starting to assure adoption at all levels across the organization.
- Start small and set realistic, achievable goals.
Investing in technology and talent
Technology powers nearly every aspect of digital transformation. The specific technology solutions needed to support an organization’s digital transformation will vary considerably, but the main categories of technology that are required are:
- Artificial intelligence and machine learning
- Cloud computing
- Mobile devices
- Social media
- The internet of things (IoT)
Having the right team is vital for effective digital transformation efforts. This starts by having the leaders on board and committed to the endeavor. Key roles to engage are:
- Chief executive officers
- C-suite leaders
- Evangelists
- Operations and technology liaisons
- Technologists
- Security, risk, and compliance managers
- Project or program managers
Monitoring and adapting the transformation strategy
The success and efficacy of a digital transformation depend on monitoring and adaptation. To start, establish initial metrics to use at key milestones and on an ongoing basis. Then, develop micro-metrics that make it possible to test and measure results accurately. Measure various outcomes, including:
- Strategic results, such as customer satisfaction and retention, revenue changes, other value creation, and performance against competitors
- Operational results, such as employee productivity changes, scalability in response to market changes, and operational efficiency impact
- Productivity of the digital transformation team
Processes also need to be developed to support the ongoing integration of updates and changes based on information collected from monitoring. The continuous improvement that results from proactive adaptation ensures the success of the digital transformation journey.
Get started with digital transformation
After investing time in understanding the specific requirements and options for digital transformation, experts recommend starting small. Select a project that is representative of the majority of use cases and can be supported by team members who embrace innovation. This will increase the chance of success, create a model for the continued rollout of digital transformation, and provide a win that can be used to drive interest, support, and adoption across the organization.
