Time for a Digital Transformation Reality Check — Are you sure you are on track?
Understanding the information surrounding the buzzword-loaded world of Digital Transformation can be a challenge. This article provides clarification around the terms used when discussing Digital Transformation and suggests some questions any organization needs to ask themselves, before embarking on a digital transformation journey. The article also discusses the impact that a digital transformation initiative will have on your business and where the focus should lie to ensure success.
Companies that are currently trying to keep up with the front runners and digital disruptors by delivering a seamless digital experience to their customers, may need to rethink their digital transformation strategies. But before we delve into this, let’s clarify some terms that are often unclear and misunderstood. We need to understand the difference between ‘Digitization’ and ‘Digitalization’ and how they relate to ‘Digital Transformation’ as a whole. Some people are unaware that any distinction even exists, which is one of the problems related to the success of an initiative, as we also need to understand the business value that an initiative delivers.
Digitization is where it all began decades ago and was the original buzzword. The goal was to simply reduce the amount of paperwork and hard copy material that was involved in any business process by moving from analogue to digital. As a result, a computer system can then use the digital information in a number of use cases. A simple example would be to scan a paper document and save it as a digitized document such as a PDF. Another key consideration here is that digitization alone delivers no business value, but it is the enabler of opening up any organization to create value through digital transformation.
Digitalization, on the other hand, is about making the digitized information or data work for the business. Once any analogue data that you manage has been digitized, it opens up a world of opportunities to exploit, in terms of using the digitized data to simplify specific operations. Gartner defines digitalization as: “The use of digital technologies to change a business model and provide new revenue and value-producing opportunities”. And it’s a bit like putting the cart before the horse, for you are unable to move towards digitalization, if you haven’t digitized enough information already. A great example of how digitalization completely changed an industry is the movie rental business. Before movies could be streamed online, you needed to take a trip to your local DVD rental store like Blockbuster to pick a movie and take the physical disk home to watch. But digitalization enabled new business models like Netflix, who developed subscription-based models to watch movies on various digital platforms completely killing the bricks and mortar rental stores.
And now for the ultimate question: Well, what is ‘Digital Transformation’ then?
Let’s be clear here — Digital Transformation is not something that can be achieved with a single project or initiative. It is difficult to have a concise definition, but ultimately Digital Transformation is the profound transformation of business activities, competencies, and business models to fully leverage the opportunities brought by digital technologies. This requires companies to embark on a series of digitalization initiatives, to be in a position to transform their business. And: the main focus of any strategic digital transformation should always have the customer at the core.
Reality Check: Are we really on a digital transformation journey?
If your answer is no, you are still in time to act. The list below provides you with questions to be answered before starting your Digital Transformation journey:
- Are you looking beyond the simple digitization projects to really leverage the digital technologies available, in order to create new offerings and revenue streams based on new business models?
- Are you collaborating with other departments in your own organization, as part of this journey?
- Are you partnering with companies who may already have solved the issues you are experiencing?
- Do you have a solid end goal in mind?
- Is a transformed or new disruptive business model part of your plan?
- And ultimately: Do you have the right skills and tools in the organization to carry you through your digital transformation journey?
If you are already on your digital transformation journey, then it’s also important to understand which of the three levels of Digital Transformation you are at and define your concrete steps and time-line to achieve level 3. Below we describe the three levels of Digital Transformation:
- Level 1 — Efficiency through Automation
You’ve reached level 1 on your digital transformation journey when you’ve managed to increase efficiency through automation. These efficiency gains you achieved through automation of single process steps with existing processes. While doing so, you are still operating in your traditional AS-IS business model. An example would be: Moving from a non-integrated legacy system to a state-of-the-art system integrated via APIs to reduce manual work by users in related systems. - Level 2 — Rapid progress from Transformed Business Model
Level 2 of your digital transformation journey is all about rapid progress from transformed a business model. New technological possibilities have allowed you to re-define existing processes and hence to gain speed, reduce error or even go new ways. You’ve re-designed some processes, deployed new ones and implemented some fully automated processes along the way. This allows you to rapidly delve into new capabilities and opens additional opportunities. An example could be to move from your existing, on-site training capability into an e-learning service. - Level 3 — Disruptive scaling through Disruptive Business Model
You have achieved ninja level of digital transformation when you’ve finally managed to adopt a digital native business model. Any business engineering going on in your organization is focusing on the digital business model and its related opportunities. The resulting market disruption and the technology-enhanced scaling opportunities allow you to grow your business exponentially. Such massive scaling lets your business capitalize rapidly on this new business model. A well-known example for such a success is Netflix and how its digital entertainment content creation and distribution to its audience drastically challenges the traditional movie industry, network providers and movie rentals.
As you can clearly see, digital transformation is more holistic and business model focused than most organizations think. What really matters is how the digital technologies at your disposal will impact your business in real life, in terms of how you deliver value to your customers through disruptive business models and meet their ever-growing list of demands.
Conclusion
To be ready for any digitization or digitalization project, or to even get close to real digital transformation, the starting point will almost always be in understanding how you currently do something — i.e. your organization structure, your business processes and the underlying architecture that support their automated and digital delivery. It is also important to understand your organizations’ capabilities, in order to identify how these capabilities can be improved, or transformed to deliver new value based on new technological advances and new business models. Fortunately there are specialized Business Process Analysis (BPA) and Enterprise Architecture (EA) tools out there that allow professionals to achieve this understanding of the organization to enable a successful digital transformation journey.
To find out how these tools can help you on your Digital Transformation journey check out the recent Forrester Wave™: Enterprise Architecture Management Suites, Q1 2019 analyst report that covers the main players in the Enterprise Architecture tool market and how they are positioned to help organizations in making better decisions throughout their digital transformation journey.
- Christoph Schumacher. (2018). Why the right messaging is so important in digital marketing, University of Zurich. Retrieved from: https://www.youtube.com/watch?v=jnChcp84SsA
- BOC Group. (2018). “The Digital Advantage — How to manage Digital Transformation with BPM and EA” video. Retrieved from: http://bit.ly/2HEaCSa
