In today's modern business environment, advancing technology has continually reshaped the way companies operate.
That effect has become more pronounced every year, as new digital innovations transform once-impossible modes of business into the new normal. The effect of this shift has come to be known as digital transformation.
What is digital transformation?
In practice, digital transformation refers to the deliberate planning and execution of a business strategy that increases digitization and reinvents business processes to be done in a new, digital way. That means finding ways to embrace and integrate digital technologies meant to help the business provide better products and services more efficiently.
Today, common areas of focus include things like robotic process automation (RPA),mobile apps and customer-facing technologies, data collection and analytics, and a multitude of other state-of-the-art digital efficiency tools. In truth, depending on the nature of the business, digital transformation can take on innumerable forms.
Within a typical digital transformation strategy, however, the goals involved tend to fall within one of four broad categories.
First is process transformation. It includes steps taken to digitize individual business processes. Things like adding automation to reduce duplicative or repetitive task work, or providing customers with a multi-platform service app to connect with the business.
Second is business model transformation, which includes initiatives like insurance companies using predictive data analytics to set policy rates.
Third, there's domain transformation, which refers to industry-changing events like Apple's move into the smartphone market.
Last, there's cultural transformation, which includes the hard and necessary work of turning a formerly-analog business into a digital-first organization.
What matters more than the what of digital transformation, however, is the why. In today's hyper-competitive economy, digital transformation holds the key to innovation. It's what allows companies to work, faster, smarter, and cheaper than the competition. It's what has powered economic paradigm shifts, such as the rise of companies like Amazon and Apple.
It is, in short, the secret to business success in the modern era. It's so important, in fact, that an estimated70% of companies had or were working on a digital transformation strategy by 2018 – a figure that's certain to be even higher today.
Difference between digitization, digitalization, and digital transformation
In any discussion of digital transformation, some disambiguation is necessary. That's because there's quite a bit of confusion and overlap between concepts like digitization, digitalization, and digital transformation. To make things clearer, here's what each term means and where they overlap:
Digitization refers to the process of converting analog information into digital data. Examples include data entry procedures to get historical information entered into a database, via scanning or other means. This is very common within the healthcare industry, as years of analog patient records must be added to new digital patient tracking systems. For that reason, digitization may be a vital step in a process of digital transformation but isn't an end unto itself.
Digitalization represents another step in adding digital technology to business processes. The easiest way to understand it is to see it as the use of specific technologies to improve or enhance existing workflows. In the previous example, digitalization would refer to the use of the patient tracking system itself to replace previous analog methodologies.
Digital transformation is best understood as the master plan that brings together the previous two steps into a coherent business effort to reinvent existing processes and discover new, digital business methodologies. It also includes the creation of all-new digital business opportunities that couldn't have been explored without the addition of technology. In short, it is the catch-all term for every phase of a company's journey toward placing technology at the heart of everything it does.
How to develop a digital transformation strategy for your business
Since not all businesses are created equal, and some may be further along the curve in terms of digital transformation than others, there's no one-size-fits-all strategy to follow. Instead, businesses must chart their own course through the process of digital transformation.
Along the way, they have to make some long-term decisions on their company's direction, create some new procedures to support their efforts, and often implement some cultural changes to make sure all of the work produces a lasting and productive result. Broadly speaking, the steps involved in a digital transformation strategy are as follows:
Evaluate the status quo
As with most business-altering endeavors, the only way to know where you're going is to first find out where you are. That means conducting a top-to-bottom review of current business operations. The focus should be on identifying any existing digital technologies that are in use, looking for processes that don't currently meet business needs or long-term performance goals, and identifying business challenges still in need of solutions.
Conducting such a review is a critical step in having the kind of broad situational awareness required to make big changes in a business's operations. At this stage, it's also important to gain an operational understanding of how the various processes under review interact with one another. That will help to minimize the disruptive effects that occur as processes change, or provide cues to determine what changes to make and in what order.
Set overall business goals
For the eventual strategy that results from the process to succeed, it's necessary to decide the terms of that success right from the beginning. That means setting specific business goals that digital transformation efforts are expected to produce. Those goals must be sharply defined, measurable, and time-limited. Any goal that doesn't meet those three key requirements will be too vague to use as a measure of success.
For example, if the digital transformation will involve creating new digital customer service operations (i.e. a new online portal, an automated customer outreach system), a good goal might be a specified statistical increase in customer satisfaction ratings as judged by whatever feedback mechanism is in place. It's important to make sure that there is already existing data available to judge the future results against or to take steps to collect such data before any changes are implemented.
Depending on the scope of the changes that the business will have to make to meet its digital transformation agenda, some amount of risk to the business is implied. This can be in the form of increasing preexisting risk or by creating whole new areas of risk within business operations. Identifying those impacts before any changes happen is key to updatingthe business's risk management plans and creating mitigation strategies accordingly.
For example, if the digital transformation will include the mass digitization of customer data, that will change the size and nature of the risk associated with a data breach. The costs associated with guarding against those risks have to be included in the overall digital transformation plan. Failure to do this in advance can put the whole effort in jeopardy due to cost overruns or unanticipated regulatory burdens arising from the changes as they're made.
Choose the right digital tools
Once the goals of the digital transformation efforts are set, it's then time to start identifying the digital tools and technologies that will make it possible. It is at this stage that the company can also start to build out a budget for their program since the technologies often represent the largest expenditures associated with a digital transformation strategy. Pinning down the one-time and ongoing costs for every phase of the plan will determine in large part how fast the business may proceed.
It's important to remember, of course, that some aspects of a typical company's digital transformation will be less expensive than others. For example,adding telecommuting options to a business's technology arsenal is often at the lower end of the cost scale. Things like big data and analytics infrastructure, on the other hand, are far more complex and therefore costly to implement. Since the latter tends to be a key part of most companies' digital transformation plans, it's something that has to be approached with great care.
Establish a leadership structure
Only slightly less important than the specifics of a digital transformation plan is the decision about who's going to be tasked with turning it into reality. That's why, once the size and general contours of the challenge are known, the time is right to create a leadership team to execute the plan. In general, most companies will either hire a new executive to take on the role of Chief Information Officer (CIO) or promote an existing executive into the role. Once that's settled, that person can begin assembling a team that will help them to manage the company's digital transformation steps.
As a part of that process, the new CIO should make sure to strengthen the business'sinternal communications infrastructure. That will help prepare the company for the changes that will come after, which require enhanced coordination between employees and managers at every level.
In some situations, the process of adding new communication tools and protocols can act as something of a dry run for the broader digital transformation plan. How well (or badly) employees adapt can help to identify weaknesses in the plan or areas where there's likely to be resistance to change or a lack of the right skills to navigate the situation.
Lead with training and education
Before beginning to make any real changes to the way that the business operates or the tools it uses to get the job done, it's vital to prepare the ground by ramping upemployee training first. At every stage of the digital transformation journey, it is the front-line employees that will play the biggest role in the success or failure of the whole initiative. In fact, it is the training effort that will bring about the kind ofcompany culture shift necessary to change the way all employees approach their jobs.
Without bringing employees along slowly as the company adopts new workflows and technologies, there's a very real risk of a business's whole strategy collapsing upon itself. In truth, it's fair to say that planning for digital transformation only represents 25% of the work. The other 75% is execution. And since it's the rank-and-file workers who will have to put all of the changes the plan calls for into action, there's no escaping their primary role in the process.
Be ready to revisit and revise
The final part of the planning process for digital transformation is to define procedures to review the results of the changes being made to see how well – or how badly – they're going. This is when the metrics and goals defined earlier come into play. By measuring the results of the digital transformation as it proceeds, it becomes possible to adjust course as necessary if something's not working out as planned.
It's important to realize that digital transformation, especially for long-established businesses, is not easy to achieve. There's bound to be difficulties along the way. Those difficulties aren't a sign of failure, they're opportunities to fine-tune the plans and do better. It's rare, if not impossible, for any company to devise a digital transformation plan that works at every level.
To stay the course, it's helpful to heed the old military adage: "No battle plan survives first contact with the enemy." To make a digital transformation a success, it's almost always necessary to go through several planning iterations on the way to the goal.
Digital transformation opportunities in various sectors
In today's economy, there are few sectors that aren't seeing the benefits of digital transformation. Among them, some have a greater distance to travel to achieve a complete transformation, while others simply have to build on their existing digital strengths.
Digital transformation in healthcare
Of all of the sectors seeing large-scale digital transformation efforts, there is perhaps none with as much to gain from them than the healthcare industry. It is also the industry with the longest history of analog management and business practices –dating back some 5000 years. Those entrenched methodologies aren't easy to supplant, and in the US, only the mandates of the Patient Protection and Affordable Care Act were able to start the ball rolling.
Since then, the healthcare industry has embraced digital patient tracking systems, patient feedback software, AI-powered diagnostic equipment, telemedicine, and a raft of other digital innovations. The industry as a whole is undergoing a digital transformation that would make it unrecognizable to previous generations of doctors, hospital administrators, and insurance carriers. And, there's still a long way to go, as the analysts at McKinsey suggest thatseveral cultural barriers remain that are preventing real, revolutionary transformations in healthcare.
Digital transformation in banking
Another sector that's ripe for digital transformation in the banking sector. After getting off to a somewhat slow start at the dawn of the internet age, the banking industry has of late embraced digital transformation to deliver some real benefits for consumers. Things like mobile banking apps and digital money transfer options have fundamentally altered customers' relationships with their banks.
It is in their internal infrastructure, however, where the real opportunity lies. New technologies like blockchain and added customer data collection and analysis are primary areas of advancement. They're allowing banks to offer customers new services while lowering costs.
Blockchain, for example, is emerging as a replacement for interbank settlement systems, which will eventually enable seamless and instantaneous cross-border transactions with virtually no fees, and data analytics is allowing banks to lend to consumers who lacked traditional credit scores so they can participate in the global economy for the first time.
Digital transformation in telecom and communications
Of all of the sectors that have seen major changes and opportunities as a result of digital transformation, the telecom and communications sector stands out. Few other industries have moved so rapidly from analog systems and practices to digital ones on so many fronts. Emblematic of that transformation is theongoing global phase-out of the legacy PSTN (copper analog) phone network that's expected to be complete by 2030.
At the same time, companies in the industry have taken steps to embrace digital technologies in their customer service and business operations. That has enabled them to enhance the customer experience without increasing overhead. They're also on the leading edge of adopting AI-powered security technologies to keep their new digital assets safe from harm.
Nothing, however, presents a bigger opportunity for the industry to drive digital transformation than the ongoing deployment of 5G wireless networks. They're expected to provide the backbone that's going to enable IoT on an unthinkable scale, as well as smart cities and autonomous vehicles. In the end, it is digital transformation in the telecom and communications sector that's going to enable businesses in every industry to enact their own transformation agendas.
The bottom line
Already, digital transformation has emerged as a primary business goal across every major sector of the global economy. It is going to be the driving force that propels businesses into a new growth phase that would have been impossible just a few short years ago. That makes it one of the most consequential business trends of the early 21st century.
With noticeable results already appearing daily, it's clear that digital transformation marks a significant business evolution. Like the industrial revolution of the 18th and 19th centuries, the digital transformation of today's businesses will go down as a watershed event in the history of the global economy.
Andrej is a digital marketing expert, editor at TechLoot, and a contributing writer for a variety of other technology-focused online publications. He has covered the intersection of marketing and technology for several years and is pursuing an ongoing mission to share his expertise with business leaders and marketing professionals everywhere.
Renew Your Business Operations With Digital TransformationLearn why you should bring digital transformation to your business processes, and understand the differences between digitization, digitalization, and digital transformation.https://learn.g2.com/digital-transformationhttps://learn.g2.com/hubfs/iStock-1154371605.jpg2020-05-27 15:52:31Z
Andrej KovačevićAndrej is a digital marketing expert, editor at TechLoot, and a contributing writer for a variety of other technology-focused online publications. He has covered the intersection of marketing and technology for several years and is pursuing an ongoing mission to share his expertise with business leaders and marketing professionals everywhere.https://learn.g2.com/author/andrej-kovačevićhttps://learn.g2.com/hubfs/Andrej%20Kovac%CC%8Cevic%CC%81.jpg
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