What is digital transformation and how to do one? [examples included]
What is a digital transformation?
Today’s world becomes extremely digital and businesses, from small to the enterprise, have to keep up with the changes. Digital transformation means operational and cultural changes of business through the integration of digital technology into all sectors of a company.
With this article, we want to provide you with a clear understanding of what is digital transformation and spark insights about how it can be done in your company. CIOs should consider digital transformation as a crucial point of focus because technology plays a critical role in a companies’ ability to progress and provide value to customers.
Business digital transformation areas
Digital transformation commonly affects such business areas as:
- Business functions: operations, administration, human resources, marketing, customer service, etc.
- Business processes optimization and automation.
- Business models: changes in value propositions, revenue stream, and even transformation of the whole concept of how a business makes money.
- Business asset: customers and information become real assets as the common goal of digital transformation is an enhancement of customer satisfaction and the information is a foundation of any digital change.
- Organizational culture: when a company becomes digitalized, it accepts the new, IT culture which includes agile methodology, design thinking, and consistent change. All of that changes interactions and operations as well as the culture of the company.
- Ecosystem and partnership models: entirely new business ecosystem approaches will emerge, causing new business models and revenue sources.
- Customer, worker, and partner approaches: digital transformation puts people in the center. The transformation itself is done to enhance the customer experience, workspaces, and workflows. As a result, interactions will be affected too, creating new ways we communicate with customers and cooperate with partners and co-workers.
These points are not exhaustive, but they give general vision on how digital transformation affects business. It’s not about using some new tech, it’s about a massive change in business operations and model.
Why should you do digital transformation?
There are several reasons why businesses should implement digital transformation, but in most cases, there is only one reason — they don’t have another choice. This is because the world is changing and if the organization doesn’t adapt, it dies.
John Marcante, CIO of Vanguard, has pointed out:
“Just look at the S&P 500. In 1958, U.S. corporations remained on that index for an average of 61 years, according to the American Enterprise Foundation. By 2011, it was 18 years. Today, companies are being replaced on the S&P approximately every two weeks. Technology has driven this shift, and companies that want to succeed must understand how to merge technology with strategy.”
But if this reason is not persuasive, here are some more to consider:
- Competitors are doing it. Forrester says that by 2020 47% of organizations’ revenue will be influenced by digital.
- Profits. According to Gartner’s survey, 56% of companies report that digital transformation had a positive effect on their revenue.
- Effectiveness. Digital technologies optimize business processes and increase a company’s productivity.
- Customer satisfaction. Your customers are already drowned in the digital world. They communicate with their homes and buy stuff in messengers and social media. And they want your company to be a part of their digital environment.
Information is a foundation
Any change starts with a collection of information to understand the current state and gather insights about what should and can be changed.
There are four ‘information chaos’ challenges businesses face according to John Mancini of AIIM (association of information management professionals):
- How do we get any business insight out of the information we collect?
- How do we use the information to better engage employees, partners and customers?
- How do we manage the risk of growing volumes and complexity of content?
- How do we automate business processes?
Today’s businesses are moving to intelligent systems and ecosystems, intelligent automation and optimization, ecosystems of code, fast and smart data and algorithm as means to succeed with digital transformation and informational challenges as transformational drivers.
Information is no more just managed, it became a real business asset and is used to enhance customer experience and drive business change.
The anatomy of digital transformations
McKinse&Company have done the survey of the companies who have done a digital transformation. Regardless of the results of the digital transformation, the companies have common traits in its implementation.
First, 68% of companies started from digitizing the organization’s operations. Less than 50% say their objective was digitalizing the interaction with external partners or launching new products or services.
Eight in ten respondents say their transformation involved either some of the business segments or the whole organization.
Lastly, the companies who succeeded in digital transformation deploy more technologies than others do, including most popular web tools, cloud technologies, mobile technologies, and big data. This might be hard to except as it gives more opportunity to fail and makes the transformation process more complex. But the organizations who succeeded in transformation used more advanced technologies, such as artificial intelligence, machine learning, and the Internet of Things.
The keys to success
According to McKinsey’s report, there are factors that increase the chances of digital transformation:
Digital transformation across various industries
Though every business is different, the analysis of top companies shows that they have common aspects of digital transformation. Yet, you should look at your business and your industry to see specific approaches.
Digital transformation in the retail industry
Retail is one of the most rapidly changing among other industries, implementing new technologies fast and adapting to market needs.
Digital transformation is in every sector of retail business: from supply chain digitalization, delivery, and back-office processes to data and information optimization, and front-end where customer expectations are driving transformations to provide the best customer experience.
Consumers expect shops to be at a distance of a finger tap, predict their desires and be fast in delivery.
In addition to the cloud and big data, analysts see a growing role of the Internet of Things in retail, mainly in digital signage and omnichannel customer experience:
Winning retailers focus on these essential customer expectations and transform their businesses to satisfy them.
Digital transformation in the logistics and transportation
Transportation and logistics are ones of the most complex industries with a lot of operations and individual components.
When talking about the transportation of goods and the supply chain, speed, data, digitization, and digital transformation are the most important points of focus.
Logistics and transportation industry takes a leading place in the implementation of the Internet of Things by using sensors and RFID, as well as the need to analyze the data which allow new business models and processes optimization.
Moreover, this industry worked with big data even before this term existed and nowadays it’s crucial to implement strong data analysis with a help of machine learning.
Digital transformation in manufacturing
Manufacturing companies are implementing digital technologies at a different speed, merging the informational and operational technologies to improve performance and speed.
Leaders of the manufacturing industry transform to optimize operations, improve customer relations, reduce risk, innovate, increase revenues by tapping into new revenue streams and business models. When the mass continues to focus on just the optimization aspect. And this is a mistake that leads companies to the extinction.
Though enterprises are slow in transformation, the industry takes a leading place in implementing the industrial Internet of Things and implementation of this technology divides leaders from laggards. Two other important points in the digital transformation of manufacturing are digital twins of physical things and cyber-physical systems approach.
Digital transformation in government and the public sector
The structure and operations of government and public sector institutions differ from country to country. But, there are many similarities in the ways how public healthcare and infrastructure, transport, policing and defense or citizen services are organized and in their challenges and priorities.
There are two main drivers of digital transformation in the government sector:
- The first is reducing costs due to processes automation and better data analysis.
- The second driver of digital transformation in government is satisfying the demands of citizens who live in a fully digitalized world and paper works cause frustration.
All of that narrows down to enhancing the process of interaction between citizen and government.
Digital transformation in the utility industry
Utility firms also are in the list of industries where digital transformation can lead to customer experience optimization, huge cost savings, and even new business models.
From a technological point of view, the Internet of Things and Big Data have the biggest impact. Moreover, there are tremendous innovations in how consumers can track and control their consumption through the web and mobile technologies.
Digital transformation in the insurance industry
The insurance industry has numerous opportunities to leverage technologies in transformational ways. The most popular transformations in 2018 are internal workflow automation with machine learning, IoT, chatbots, predictive analytics, fraud detection software and telematics with pay-as-you-go insurance approaches.
Digital transformation in healthcare
Digital transformation in healthcare was driven by the challenge with the population aging and growing, the increase of chronic diseases, rising costs and the changed people’s behavior.
Health care industry is moving toward patient-centricity due to those behavior changes. Furthermore, healthcare workers changed behavior and use digital platforms too, which leads to an even more rapid digital transformation in health care.
Mobility in healthcare caused new challenges: increasing productivity and employee satisfaction. More often, healthcare workers have to work in difficult conditions under budget cuts.
That requires higher performance and quicker access to information, in addition, to the need for digital technologies to grow revenues, not just save costs. The Internet of Things becomes a key to overcoming many of the mentioned challenges and opening new opportunities in healthcare models, but it isn’t the only technology moving healthcare into a better future.
Here are some trends of healthcare digital transformation for 2019:
- AI speeds up the tests and body scans, improving customer experience by illuminating the need to wait for a few days.
- Blockchain improves patients data protection and optimizes the process of moving patients records from doctor to doctor.
- AR and VR help Alzheimer’s and dementia patients retrieve memories by returning them to experience that was meaningful to them in the past.
- Digital Twin gives providers and manufacturers an opportunity to experiment on a virtual version of the person or device that is based on rich data from the real person or device.
- Chatbots reduces expenses by consulting people and providing them 24/7 support. Moreover, chatbots answer in seconds, which enhances customer experience.
Digital transformation in banking
Banking is another industry that faces urgent need in digital transformation. It mostly focuses on mobile, user experience, cloud, data analytics, mobile wallets, chatbots, self-service and front-end and back-office integration with APIs.
Moreover, omnichannel banking platform is among trends too.
Digital transformation is not a privilege anymore, it’s a need to survive in the fast-changing digital world. Among shared technologies, we can highlight usage of cloud technologies, machine learning and AI, chatbots and basic web and mobile technologies.
Remember to start small, but keep in mind that winners are those who take risks.