Digital transformation is the process of rethinking one’s business model or business process in light of the availability and affordability of digital technology. It requires coordination across the entire organisation, since it applies new technologies to fundamentally change the way business is done. For many enterprises today, the driving motivation of digital transformation is the chance to gain competitive advantages by improving customer experience.
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.
Key Elements of Digital Transformation
Digital transformation is enabled by new technology, 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.
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.
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.
Often, startups 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 can 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 checks, paying bills, applying for loans or other services.
Why Are Businesses Embracing Digital Transformation?
Businesses can choose to take on digital transformation for a range of reasons, but usually it comes down to a survival issue. 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 predicts that global spend of DX technologies will increase to $1.3 trillion in 2020, signalling a 10.4% growth.
Examples of Digital Transformation
In the past five years, many companies across the world have embarked on a transformative digital experience. Amazon.com is a classic example. Now one of the world’s largest retailers, Amazon.com started as a small mail-order book service in 1994 and grew to a billion dollar organisation in just over a decade by understanding the tenets of digital transformation.
Amazon is known as a “customer-obsessed” brand, offering unmatched service and digital experiences that set the standard every other digital experience must meet. Amazon continually enhances its digital customer experiences through the smart use of technology, particularly by optimising the navigation and searchability of its site. The best-known example of this is its 1-Click Ordering option, which removed the biggest friction point in online shopping for its customers.
By thinking outside the box executing change quickly, and investing in innovation, Amazon has created new markets and has been responsive to the needs of its customers. By continually analysing data and adjusting practices to suit the needs of those that interacted with the brand, it was able to monitor performance and quickly make data-driven decisions that helped it stay ahead of the competition.
Where to Start
A common misconception is that digital transformation begins and ends with technology. Companies shouldn’t define digital transformation as simply an increased investment in IT. Customer experience must drive the digital strategy behind transformation if companies are to see significant gains from customer insight and engagement.
To stay competitive in digital business, enterprises should look at where they are now and determine what core elements of digital transformation they need to focus on. Your enterprise may only be able to begin with one of the three pillars mentioned above; what’s important is that you start somewhere.
Though no one has a comprehensive roadmap for digital transformation, the following best practices have emerged over the past five years:
- Vision + Investment – How far your business can go depends on the reach of your vision and the level of investment you commit to.
- Digital Strategy – Have a strategy that accounts for the full scope of your vision, rather than the implementation of individual technologies.
- Leadership – Because digital transformation requires in-depth organisational change and coordination, it is more effective when led from the top layer of the business.
- Uniting Business and IT – Breaking down the barriers between Business and IT goes hand in hand with operational change. As digital business increases software needs, it will be important for Business and IT to merge their work so there are no conflicts in adapting technology.
- Third-Party Solutions – Look for partners who have specific strengths in your areas of weakness. Structure relationships as partnerships, with an expectation of knowledge sharing and frequent communication. This mitigates the risk of creating siloed information across multiple vendors and becoming dependent on a vendor's availability or timeline.
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 an organisation’s structure is not always easy to achieve, aligning your 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.