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Digital transformation is the process that an organization applies to integrate digital technology in all areas of a business, fundamentally changing how it delivers value to customers. Companies adopt innovative digital technologies to make cultural and operational shifts that adapt better to changing customer demands. Examples of digital transformation include the following:
- Companies start building digital solutions, like mobile applications or an eCommerce platform.
- Companies migrate from on-premises computer infrastructure to cloud computing.
- Companies adopt smart sensors to reduce operation costs.
Why is digital transformation important?
The term “digital transformation” describes the implementation of new technologies, talents, and processes to remain competitive in an ever-changing technology landscape. In the post-pandemic era, an organization must have the ability to adapt fast to changes like these:
- Time-to-market pressures
- Sudden supply chain disruptions
- Rapidly changing customer expectations
Companies have to embrace digital transformation strategies if they want to keep pace with technological developments.
The following are some benefits of digital transformation initiatives.
Improve productivity
Emerging technologies like cloud services can save time and improve efficiency in all types of business processes. For example, implementing a digital technology like artificial intelligence frees employees to focus on tasks that require creativity and problem-solving. Similarly, performing data analytics with machine learning can give you insights to reach your business goals faster.
Improve customer experience
Customers in the post-pandemic era expect constant service availability across multiple channels. They also want websites and communication systems that are easy and convenient to use on mobile devices. Here are some digital transformations that directly affect customer experience:
- Developing mobile applications and mobile workflows
- Tracking and fulfilling orders faster by adopting smart sensor technology
- Engaging with customers in real time by adopting artificial intelligence
- Improving customer support and service by using automation
Reduce operational costs
Digital technology investment can reduce ongoing operational costs significantly. It can optimize existing business processes and reduce costs like these:
- Equipment maintenance
- Logistics and delivery
- Energy expenditure
- Human resource expenditure
- Customer support expenditure
Typically, you can achieve cost savings because digital transformation can help you do the following:
- Eliminate or substitute specific resource-intensive workflows
- Reduce expenditure on expensive infrastructure and equipment through managed services and cloud computing
Automate tasks by using a combination of intelligent sensors, smart devices, and machine learning
What is the difference between digitization and digital transformation?
Digitization is the process of converting the physical aspects of your business processes and workflows into digital aspects. The representation of non-digital or physical things into a digital format means that a computer system can use this information.
For example, paper forms that customers fill out are converted to digital forms they complete online. The digital data can then be used for analytics and business intelligence. In business, digitization initiatives could include projects like:
- Modernizing legacy systems
- Automating existing paper-based or manual processes
- Moving a system online
However, digitization alone is not transformational. Digitization is an important first step in the digital transformation journey. Digital transformation has much broader scope that creates a predominant culture shift in the organization.
What are the pillars of digital transformation?
For any digital transformation strategy to be truly effective, just adopting new technologies is not enough. Transformation should occur within all aspects of the organization for maximum impact. We suggest the following as six key pillars of digital transformation.
Customer experience
Customer-centric business innovation is one of the key pillars that drive digital transformation. It is better to adopt an emerging technology only after exploring it fully within the context of your customer’s journey, behavior, and expectations.
People
Employees should feel supported, not threatened, by transformational technology adoption. New digital business models can be successful only if your employees embrace them wholeheartedly. You can achieve this through a combination of training employees, attracting the right talent, and retaining existing talent by creating opportunities for them to grow.
Change
Digital transformation efforts create change in all parts of a business. Planning is crucial to avoid exhaustion and confusion due to unexpected changes. You must provide the necessary tools and environment for a successful digital transformation.
Innovation
Digital transformation and innovation are closely related but not the same. Innovation is the idea generation that drives transformation. You need to create a space of open communication, collaboration, and creative freedom that encourages employees to experiment. After an idea has been tested, you can continue digital transformation to implement it on a large scale.
Leadership
Business leaders should be proactive and bring order in all digital transformations. You must think ahead, explore any technology from several different angles, and inspire others to do the same.
Culture
When digital transformation leaders implement the previous five pillars, a culture of innovation emerges. With enthusiastic employees eager to deliver the best possible customer experience, digital transformation initiatives rapidly expand and succeed.
What are the types of digital transformation?
There are four main types of digital transformations that any organization can adopt:
- Business process
- Business model
- Business domain
- Organization or culture
Let’s explore these further with some digital transformation examples.
Business process
Process transformation looks at innovative ways to improve existing internal and external workflows. New technologies often change and improve processes radically to achieve better business outcomes.
For example, Origin Energy Ltd (Origin) is one of Australia’s leading integrated energy companies. Origin empowered its customers to self-service their energy bill and utility management by moving to the AWS Cloud. It transformed its customer-facing digital processes end-to-end with these benefits:
- Cloud compute resources to handle peak demand
- 30% decrease in bill processing time
- High-performing cloud storage to handle multiple customer interactions via website and app
These digital transformation efforts reduced call center workload and operations costs while improving customer satisfaction.
Business model
The model transformation looks at reinventing an existing business model by using cutting-edge technology. It aims to offer core business services in new ways or through different channels to increase revenue growth and customer reach.
For example, Tourism Union International (TUI) is one of the world’s largest travel and tourism companies, owning and operating several travel agencies, hotels, airlines, cruise ships, and retail stores. During the pandemic, TUI had to reinvent itself to cope with mass cancellations and the changing travel landscape. It created new business models that focused on bringing stranded travelers back to their homes while also cutting down internal IT operational costs by 70%.
Business domain
Domain transformation occurs when one business can successfully capture a new market segment or domain. You can achieve this by focusing on digital transformation projects that expand offerings instead of just improving existing ones.
For example, Amazon was initially an eCommerce retail platform. However, we added our own streaming platform, Amazon Prime, and also ventured into cloud services. Today Amazon Web Services (AWS) is the largest cloud computing and infrastructure service in the world. We used business transformation to establish ourselves in two completely new domains.
Organization
Organizational transformation looks at completely reinventing the entire organization or internal culture focusing on delivering the highest value to customers. It is the best way to get ahead of the competition and meet business goals faster.
For example, Thomson Reuters is a leading provider of business information services. The company decided to separate its financial data and trading business into a separate entity called Refinitiv. As part of this move, the company migrated hundreds of customer-facing applications to Amazon Elastic Cloud Compute, completely overhauling its legacy systems. It could achieve this on an accelerated timeline by changing the way its internal IT teams worked.
What are the different stages of digital transformation?
There is no clear path to transformation and every company is different. We suggest the following six stages as a guideline.
Stage 1—Status quo
In the first stage, businesses continue to operate as usual and maintain the status quo without awareness of changing customer requirements and technological advances. Lack of digital initiatives can drive any organization into obsolescence. It is critical to move into the next stage as soon as possible.
Stage 2—Active
In the second stage, businesses become more aware of the need for digital optimization. They recognize current challenges and the need for a digital transformation initiative. Different departments start attempting to solve the same problems in different ways. Although this stage is better than the previous one, it shows a lack of focus and unity. Organizations have to find a way to move out of the initial chaos if they want to achieve digital transformation success.
Stage 3—Intentional
Digital transformation begins when a business moves to the intentional stage. Key digital leaders and change agents emerge and begin testing new technologies. They seek formal approvals from company executives to lead the change. Business culture can become a roadblock at this point, and leadership must actively encourage innovation culture to transform further.
Stage 4—Strategic
In the fourth stage, an organization achieves cultural changes, so individual groups and departments agree to work collaboratively. Key stakeholders create a focused strategic roadmap to achieve successful digital transformations. They plan different aspects of the change, like ownership, research, effort, and investment.
Stage 5—Targeted
Businesses in the fifth stage begin implementing the digital transformation strategy that we outlined in the previous stage. They have a cross-departmental team of innovators who identify what needs to be done both right now and in the coming months to achieve successful digital transformation. New digital projects, infrastructure, and initiatives begin to take shape.
Stage 6—Adaptive
Businesses that make it to this stage have a digital transformation framework in place to deal with all future customer requirements. It becomes a way of life, and they can pursue innovative technological paths with ease. Digital transformation projects are the new normal in a sixth-stage organization.
What is a digital transformation strategy?
A digital transformation strategy is a detailed plan for implementing short-term and long-term digital transformation in any organization. It takes into account the following components:
- Leaders who initiate and drive the transformation
- Investment and financial planning
- Key performance indicators (KPIs) to measure the return on investment (ROI)
- Tools and processes that will support the transformation
- External resources and third-party experts
- The impact of transformation on customers and employees
We give four steps to developing successful digital transformation strategies below.
Align the digital transformation with your business goals
Digital transformation project planning should center around your organization’s overall plans and not on a particular technology. Your key focus areas will also help determine the KPIs, keep the transformation measurable, and accelerate time to value.
Develop a proof of concept
The best starting initiatives can show measurable results in six months or less. It is better to develop initial strategies that demonstrate ROI and get leadership buy-in. You can then gradually tweak and scale these early prototypes across the organization.
Map out technology implementation
Digital transformation involves several tools you can use to bring change to your organization. The following are some of these technologies:
- Mobile technologies, like customer-facing applications and internal applications that improve productivity
- Internet of Things, like smart sensors and intelligent devices that automatically connect to the internet and collect data
- Cloud technologies, especially cloud computing and cloud storage
- Artificial intelligence and machine learning for data analytics and decision-making
- Robotics for operational efficiency
- Augmented and virtual reality for immersive customer engagement
Introducing these technologies can create a major shift in the ways employees work, and customers interact with your organization. You might also need to bring in external partners and experts to train your team and increase your organization’s ability. You will need to carefully plan this as part of your digital transformation strategy.
Collect feedback and refine the digital transformation strategy
It is important to include strong feedback loops in your digital transformation project plans. By collecting regular feedback from stakeholders, you can make sure everyone learns from the experience and grows dynamically. Because digital transformation is a journey, introducing checkpoints in your timeline gives you an opportunity for flexibility to make changes if required.
A case study in digital transformation
Saint Louis University (SLU) began its digital journey in an effort to improve student productivity and campus engagement, its core business goals.
- After reviewing student engagement processes, transformation leaders realized that students wanted faster responses to their questions about studying at SLU.
- They decided to prototype Amazon Echo devices by introducing 2,300 devices in the residence halls, or campus living spaces. Students could ask the devices questions about SLU and receive responses.
- The devices got a lot of usage during the trial, and the student interaction analysis revealed that students were using the devices to set notification reminders and ask general knowledge questions.
- SLU partnered with AWS Professional Services to scale this digital transformation idea even further. It used the intelligence that leaders had gained from the early trials to build a full-scale intelligent chatbot platform. Students can now interact with the chatbot via the SLU website, text messages, or Amazon Echo and still receive consistent responses.
SLU has decided to take the transformation even further. The next stage of this digital transformation project is to customize the chatbot so that students can ask individual questions like “When is my history exam?” or employees can ask, “How many leaves do I have left?”
What is a digital transformation framework?
A digital transformation framework is a blueprint for change management in any organization that is undergoing a digital transformation. A framework is a tool that guides all levels and departments of the organization through the change.
A framework supports digital transformation by outlining best practices and processes to do the following:
- Analyze the impact of change across all areas of the business
- Manage the change effectively and efficiently
- Plan the steps to implement the transformation
- Identify metrics to measure the benefits the change brings
- Clarify ways to progress along your digital transformation journey
