Contents
- What is Digital Transformation?
- Why does Digital Transformation matter?
- What does a digital transformation framework look like?
- What role does culture play in digital transformation?
- What drives digital transformation?
- How do you measure ROI on digital transformation?
- How do you get started on digital transformation?
What is Digital Transformation?
Digital Transformation (DX) looks different to every company, so it can be hard to write one definition that applies to all. However, we'd generally describe DX as integrating digital technology across all business areas. In doing so, it results in significant changes to how businesses function and deliver value to customers.
More than that, it's a cultural change that requires organizations to continually challenge the norms, experiment, and be okay with failure. Sometimes, this means walking away from comfortable, long-standing business processes in favour of new practices that are still being defined.
DX should begin with a clear opportunity, a problem statement, or an aspirational goal. For example, the why of your organization’s DX plan might focus on increasing productivity, improving customer experience, or elevating profitability. In contrast, an aspirational statement could be to become the best to do business with by utilizing technologies that weren't previously available. These initiatives align with your overarching business goals, ensuring that every step towards digital transformation is purposeful and strategic.
In the digital age, remote work has become an integral part of many DX initiatives. Think about what digital transformation will mean to your company and how you will describe it. The word 'digital' means many things to many people. For example, if you say 'digital' to one person and they might describe it as going paperless, another might think of artificial intelligence and data analytics; another might picture flexible teams, and yet another might think of open-plan offices. So, when you discuss DX, unpack what it means to your business.
When discussing digital transformation, we think about new business models, people, and automation. But, inside these topics are software, machine learning, big data, and analytics – these are your enablers, not drivers. These tools are critical to achieving your digital business objectives and staying competitive in the evolving marketplace.
You could have all these things – the products and services, data, the customer view, and slick technologies – but it will fail if leadership and culture aren't at the heart. Understanding what digital means to your company is essential. As a leader, you must be fully aware of this reality when raising conversations around DX. Leading business transformations effectively requires a deep understanding of your organization’s unique needs and the ability to adapt to the fast-paced digital landscape.
Why does Digital Transformation matter?
A business may choose to take on DX for many reasons. But the most likely reason is that they have to: It's a matter of sink or swim. An organisation's ability to adapt quickly to rapidly changing customer expectations, supply chain disruptions, and time-to-market pressures has become crucial during the pandemic. And spending priorities reflect this reality.
According to the Worldwide Digital Transformation Spending Guide, spending on the DX of business practices, products, and organisations continues at a solid pace despite the challenges presented by the pandemic. In fact, IDC projects that global spending on DX technologies and services will grow 10.4 per cent in 2020. That compares to 17.9 per cent growth in 2019 "but remains one of the few bright spots in a year characterised by dramatic reductions in overall technology spending," IDC notes.
At a recent event, IT leaders said that consumer behaviour had shifted in many ways since the start of the pandemic. A professor at the MIT Media Lab, Sandy Pentland, described how optimised, automated systems in areas like supply chain management broke down when faced with rapid shifts in both demand and supply.
Data shows that the biggest shifts were around food. Both home cooking and online grocery shopping — a category that has generally been resistant to being moved online — will probably stay more popular with consumers than in the past. Cashless transactions are also gaining steam. On the B2B side, data shows remote selling is working. For CIOs, this means experimenting is no longer optional. 55.7
Mark Anderson, senior director of solution architecture, Equinix, described the last two years as "a forced test of many things we had thought about but not tried." For example, he noted, "Many supply chains are not well understood and underpinned with paper. We've started looking at technologies like blockchain and IoT."
Dion Hinchcliffe, VP and principal analyst at Constellation Research, states "The top IT executives in today's rapidly evolving organisations 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."
Improving the customer experience has become a central goal – and therefore becomes a crucial part of DX. Hinchcliffe calls seamless customer experience "the most important discriminating factor for how a business will perform."
What does a digital transformation framework look like?
Although DX vary based on the organisation's specific challenges and demands, there are a few things that all leaders should consider as they embark on digital transformation.
For instance, these DX elements are often cited:
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Culture and leadership
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Workforce enablement
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Culture and leadership
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Customer experience
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Digital technology integration
What role does culture play in digital transformation?
In recent years, IT's role has dramatically shifted. CEOs now want their CIOs to help generate revenue for the organisation. According to the 2018 Harvey Nash/KPMG CIO Survey, many CIO's top operational priorities is "improving business process."
Rather than focusing on saving money, IT has become the main driver of business innovation. However, embracing this shift requires everyone to rethink the role and impact of IT in their day-to-day work lives.
Most startups don't start with giant software packages as the base of their company. If you're trying to create innovation inside a large enterprise, you shouldn't start with that either. Gone are the days of IT running the mainframe, servers, data centre, network, or operations. An outsourced partner can look after these for you.
While IT will ultimately play an important role in driving your DX strategy, it falls to everyone to implement and adapt to the massive changes. For this reason, digital transformation is a people issue.
If your organisation isn't supportive and fully onboard with the transformation efforts, you won't succeed. You need motivated leaders to help the organisation understand why you're doing what you're doing.
Three groups of employees tend to slow transformation momentum: Old-timers, by-the-book players, and lone wolves.
It's important for companies to engage these three groups or face perilous stalls. How do you do that? Work out which employees fit into the different segments.
Many organisations have rolled out the digital journey with the same blanket messages and techniques deployed throughout. From a change management perspective, this is lazy and a misuse of investment. Instead, companies should consider both digital experience and behavioural preferences of different sub-populations within their organisation. They should craft messaging, programs, and environments to hit the right starting point and realistic endpoint for different groups.
What drives digital transformation?
Technology is, of course, an important element of DX, but often, it's more about letting go of outdated processes and legacy technology than it is about adopting something new. It's also about enabling innovation.
If you're spending most of the IT budget maintaining legacy systems, there's not much left to seize new opportunities that will help drive the business forward. And this expense will grow as technology ages and becomes more vulnerable. What's more, new technologies are built using cloud architectures and approaches.
If businesses want to keep up with the rapid pace of digital change, they must work to increase efficiency with technology wherever possible. For many, that means adopting agile principles, like Cloud technology, across the business.
How do you measure ROI on digital transformation?
Leaders need to measure the return on investment to determine the success of DX efforts. But, of course, that's easier said than done with projects that have cross-functional and business boundaries, change how a company markets itself, and often radically reshape interactions with customers and employees.
Projects like revamping a mobile application may have a short-term payoff, but other projects chase longer-term business value.
Digital transformation efforts are ongoing and evolving, rendering traditional business value calculations and financial governance approaches less effective.
Still, measuring success is crucial to continued investment. However, implementing the technology isn't enough – the technology needs to be tied to key performance indicators on customer insights and business process effectiveness.
DX leaders must take a holistic view of digital change efforts. This is especially important so that the underperformance of one particular project doesn't negatively impact the overall IT efforts. It also helps them understand the necessary risks to achieve real DX.
Best practices regarding DX metrics:
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Set initial metrics in advance
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Develop micro-metrics for agile experiments: The goal is to learn and adjust.
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Incorporate business outcomes: Look at strategic impact (e.g., revenue growth, lifetime customer value, time to market), operational implications (e.g., productivity improvements, operational efficiencies, scale), and cost impact.
How do you get started on digital transformation?
If all of this makes you feel very far behind, fear not. One of the biggest misconceptions CIOs have about DX is that their competitors are further ahead than they are. That's because there's so much talk about the fastest transformers.
As businesses form their DX strategy, there is much to learn from CIOs and IT leaders who have already started their journeys. Below is a collection of articles you can explore further.
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