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Defining digital | 7 Minute Read

What is Digital Transformation?

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Digital transformation is the process of rethinking and recasting a business model,  business processes, or an entire organisation in light of the availability and affordability of digital technology. It crosses culture, people, operations, online platforms, logistics, supply chain, customer experience, employee well-being, and more, to stay ahead of expectations and meet ever-evolving needs of people and organisations.

Technology Advances Created the Age of the Customer

According to Forrester, technology advances in the past five years have created the “Age of the Customer”, in which consumers choose when and how they interact with businesses. Companies today can’t fully control the experience they want to deliver to customers; instead, customers encounter businesses across many touchpoints with high expectations of consistency, ease of use, and personalisation.

It is up to businesses to use new technological capabilities and organisational change to create experiences that adapt to these changing needs. More and more, exceptional customer experience is a key differentiator in digital business, and the process of digital transformation should be guided by a customer-centric digital strategy.

More and more, exceptional customer experience is a key differentiator in digital business, and the process of digital transformation should be guided by a customer-centric digital strategy.

Key Elements of Digital Transformation

 

Digital transformation is enabled by new technology (including open source tools, machine learning, and artificial intelligence), but successful transformation requires a reorientation that goes beyond the implementation of new technology to reach every part of the business.

MIT Sloan Management Review has identified three pillars of the transformation process for companies to focus on: customer experience, operational processes, and business models. Companies also need to invest in and develop their digital capabilities, as this element enables digital transformation in each of the three main pillars.

3 Pillars of the Transformation Process
  • Customer Experience
  • Operational Processes
  • Business Models

1. Customer Experience

Advances in marketing software and data-gathering capabilities allow for better customer insight and greater personalisation in digital experiences. Enterprises are pursuing transformation in the following ways:

  • Managing personalised experiences across channels that are easy and seamless for customers to use.
  • Developing digital products and services for new devices, such as smart watches.
  • Drawing in data at every touchpoint and using that to deliver more effective personalisation.

2. Operational Processes

It can be tempting to think of front-end customer experience as the main focus of digital transformation, since that’s the most visible part of the process. However, using technology to redesign operational systems has just as much, if not more, impact on a company’s ability to successfully provide great experiences.

For example, a customer getting their package sooner means a more positive impression of the company, and having a representative already know what specific problems a customer is having, because the product sends diagnostic information over the internet, allows for shorter call times and faster solutions. Companies are successfully transforming operations by:

  • Breaking down departmental and data silos for better collaboration on digital projects, such as including both IT and Marketing on product teams so that both departments are fully informed during the process of design, strategy and development.
  • Automating processes through better software capabilities or with the creation of new tools, such as implementing automated purchase order systems in order to reduce paperwork and rejected orders.
  • Making strategic decisions based on data with increasing levels of detail. Instead of reusing or modifying a previous year's distribution process, for instance, leaders are able to make changes based on real data, rather than assumptions.

3. Business Models

Often, startups and purely digital businesses are able to disrupt long-standing brands because they use innovative business models that take advantage of new technology, without being weighed down by legacy systems. Established brands should look to models that offer services that wouldn’t be possible without new technology. Examples of new business models are varied, but generally include:

  • Expanding the scope of current business through digital services, such as a toy company that crowdsources designs online.
  • Evolving with changes in customer behaviour due to new technologies. For instance, when customers see a product in store, they may do an online search order to check reviews and end up purchasing it at a lower price somewhere else. Some businesses have countered this by creating an app that allows customers to scan the product and read the reviews, ensuring that they stay within the business’s platform instead of purchasing elsewhere.
  • Rebuilding services to be digital-first, such as banks that create mobile apps for cashing cheques, paying bills, applying for loans, or other services.

Why Are Businesses Embracing Digital Transformation?

Businesses can choose to take on digital transformation initiatives for a range of reasons but often it comes down to a survival issue and a growth imperative. As the pandemic continues to affect the way businesses operate, organisations have been forced to quickly adapt to supply chain disruptions, time-to-market pressures, and ever-changing customer expectations. 

According to the May 2020 IDC Worldwide Digital Transformation Spending Guide, spending on digital transformation or DX products and practices continues to move along at a solid pace despite the unprecedented challenges introduced by COVID-19. IDC predicted that global spend of DX technologies increased to $1.3 trillion in 2020, signalling a 10.4% growth.

From a business benefits perspective, there are many - often interconnected - reasons why organisations embrace digital transformation. Becoming more profitable tends to top the list, with given technologies helping organisations to scale their ability to sell products and services. Another driver is increasing productivity and employee satisfaction, given that digital tools can help automate repetitive tasks and free up teams to focus on higher-value work. We’ve already touched on improving the customer experience which is a major driver for digital transformation, especially from the perspective of achieving a competitive advantage. Lastly, digital transformation can also increase organisational agility and flexibility, helping companies to act faster and adapt to whatever opportunities present themselves in the marketplace.

What to Avoid

From poor leadership to lagging engagement, there are a range of ways you can derail digital transformation. The biggest culprit is an obsession with big bang change and an unwavering focus on cutting costs.
 
  • Poor Communication – Communication is crucial. Before entering digital transformation, ensuring your company is on the same page with your goals is essential. If your team is overwhelmed with too many projects, communication will crumble and the projects will as well. Ongoing communication and change management through the many stages of digital transformation is crucial as the process is always evolving. Even leaders like Amazon are continuing to transform and adapt today.
  • Working in Silos – If your organisation is executing multiple digital transformation projects, it’s important to consider how it will affect the entire company in addition to the customer journey. While breaking down and rebuilding and organisation’s structure is not always easy to achieve, aligning your aims and objectives, working on communication flow and consolidating departments may increase cooperation and aid in the elimination of siloed culture.
  • Ignoring the Data – When carrying out digital transformation, it’s likely your organisation will collect vast amounts of data. But often organisations make the mistake of ignoring this data. Whether upper management isn’t ready to make data-backed decisions or a team leader doesn’t agree with what the data is saying, failing to make calls based on this evidence could set back the digital transformation you’re after.
  • Neglecting Mastery – Digital transformation is not simply installing a new software. It is an ongoing process that truly never stops. Taking an evergreen approach to transforming processes, priorities and positions can make a real difference in how your organisation continues to adapt to the digital landscape.

How the Pandemic has Shifted Digital Transformation

The Coronavirus crisis has rapidly re-shaped how companies digitally transform. For example, the employee experience has quickly become a key theme in the community as a vast majority of the workforce continues to work remotely. Digital technology has gone from “nice to have” to “absolutely necessary.” 

Because of the pandemic, some areas of digital transformation have been pushed higher for organisations, such as furthering customer support services by introducing tools like chatbots, automating common processes, and cleaning out redundant and conflicting systems.

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