What is digital transformation?
About digital transformation
Digital Transformation describes how organizations are realizing the potential of new digital technologies – such as artificial intelligence, blockchain, big data, cloud computing, the Internet of Things, 3D printing, virtual reality and drones – to bring new value to customers. Additionally, use of digital technologies also dramatically cuts operating costs through automation.
Your Opportunity
The total value of global retail ecommerce sales will reach $3.45T in 2019 and by 2040, around 95% of all purchases are expected to be via ecommerce. Small wonder that all enterprises want to trade online and move forward with a digital transformation.
Examples
One of the examples of digital transformation is artificial intelligence that powers chatbots to serve customers through self-service web platforms and smart speakers. Not only does this improve the responsiveness and quality of services for customers, it dramatically cut customer service costs.
Another example is the use of drones to deliver parcels. As the world adopts more online trading, customers are keener to receive smaller deliveries more often. This means drones that can drop-off deliveries to the door benefit customers but they also reduce the need for vans to deliver goods ‘the last mile’ creating a more time and cost effective delivery solution both for the customer and supplier.
If you’re asking the question ‘what is digital transformation?’ then you need to know about business models and why they matter
Enabled by Digital Innovation Harnessing new digital technologies to create more customer value and reduce operating costs is a challenging prospect to many organizations accustomed to primarily investing in slow-coach IT to keep the lights on. To leverage the potential of technologies like big data, artificial intelligence, blockchain, the Internet of Things, virtual reality and cloud computing (etc.), your enterprise needs to embrace a digital ecosystem that’s able to embrace new technologies and adapt to change affordably and expediently.
A 2019 report by Zenzar found that employees too understand the value of having the right digital tools to get the job done. More than three-fourths (76%) of the 1,000-plus survey group said having the digital tools they need at work makes them more productive. More than half (53%) said it makes them more successful. The same share said they would be more empowered to better manage workflow if provided with the IT tools they needed, and 42% said it speeds up boring tasks. Some 68% of the 18 to 34 age group said having the digital tools they need at work makes them more productive. That’s a significant share. But it’s even higher – at 80% – for the 35 to 54 age group. And a whopping 83% of workers age 55 and older agreed. Source: Zenzar 2019 report
The jump-off point to a digital transformation
Most large organizations today struggle to leverage new innovation in their business model. They work in hybrid environments, connecting digital and analogue technologies together as best they can. The last decade has seen efforts to move business processes online and create digital ecosystems where customers, suppliers and providers can come together to share a common data processing platform (i.e. a digital platform) that serves all stakeholders. That said, many businesses still operate online shops only to hand-crank orders through traditional back-office systems and processes.
Business impacts
Digital Transformation is what happens when businesses realize the potential of digital technology to bring value to their customers. The outcome of a digital transformation is normally a step change in operational effectiveness and growth. Recent research conducted by Harvard Business School suggests that companies that are digital laggards don’t perform as well as those that embrace digital transformation. They write, “organizations that scored in the top quartile of our digital transformation index obtained much better gross margins, earnings, and net income than organizations in the bottom digital quartile. Other financial and operating indicators showed similar disparities.”
The business risk of a digital transformation
Leadership teams, frustrated by slow-paced IT results, go headlong into a massive organizational re-design just to release the ‘innovation hand-break’ and get their digital transformation plans moving along the road. They approach their digital transformation as a wholly ’new project’ and support initiatives with dedicated Development Operations (DevOps) teams and new tool-sets.
There are risks to bold approach that ignores well-adopted IT project safeguards in a rush to achieve a big ticket win at all costs. While the rewards of digital enablement to business models are known to be considerable, the success rate of software projects remains low. Data quality issues are a constant threat to step-change innovation projects. Re-using data can expose poor data capture protocols, a lack of good data husbanding, and ill-though-through data models. And IT leaders know, there’s always a risk that the digital transformation being considered today, could be the legacy application of tomorrow!
Barriers to digital transformation success
A series of factors are holding businesses back from embracing digital. They include:
Weak or mis-aligned leadership
Several CIOs have reported difficulties in getting their CEO to appreciate the impact that digital transformation can have on their business model. Yet, some of this criticism my be unjust given that the average tenure of a CEO these days is less than 5-years. ‘Professional CEOs’ are tasked with achieving results during their tenure if they want to receive their bonuses, and that inevitable maps a short-term view to strategies. This has caused some CIOs to suggest ‘nothing can happen until the CEO resigns.’
An absence of ‘fast-IT’
Gartner predicted a few years ago that companies looking to implement a digital transformation would look to move towards a ‘two-speed IT’ to overcome the sluggish pace of innovation in incumbent IT teams charged primarily with the task of ‘keeping the lights on;’ This, during a period when IT was often described as the’ business avoidance department.’
Conflicting IT strategies and project distractions
Incumbent IT teams charged with ‘keeping the lights on’ – and used to spending as much as 70% of IT budgets on core business systems – have found themselves under pressure to respond to digital transformation. They are being asked to re-define their role or move over and let new Development Operations teams (‘DevOps’ for short) take on the chalice of driving a digital transformation. This, when many IT teams are already swamped by work to unify systems, upgrade core business systems, port self-hosted platforms to the cloud, and find answers on how to govern and secure data better, faced with the risk of high non-compliance fines.
Departmental leader wars
Department leaders find themselves competing to lead the charge to digital transformation, or a least not be left behind when new budgets for tech innovation surface in the boardroom.
A lack of technical understanding that inhibits ambition
Generally, the level of technology appreciation and understanding in boardrooms is poor. New concepts like big data, cloud computing, the Internet of Things and blockchain have left many boardrooms behind. The paradigm shift potential of digitally transformative technology is easily lost on individuals that aren’t able to grasp the richness of the detail.
Head in the sand ‘ostrich syndrome’
Like any agent of change, there is always the likelihood that leaders will choose to dismiss the importance of digital transformation as being ‘a bit of a fad’ and instead choose to stick their heads in the sand. They may well elect to avoid having to make a decision ‘on their watch’, particularly when the evidenced Return on Investment (RoI) of projects is unclear.
Where to start with your digital transformation
Adopting a top-down approach to enterprise IT and creating a single, unifying digital platform with modern cloud platforms will transform your business and its ability to compete in the digital age.
McKinsey & Co. suggest companies with digital platforms enjoyed an annual boost in earnings before interest and taxes (EBIT) of 1.4 percent, compared with the 0.3 percent gains of non-players. They go on to state that performance effects are cumulative, with EBIT improvements adding to early-year gains, so over a five- year period, platform players may capture an additional 10 percent in EBIT growth—a company’s 2 percent EBIT growth, for example, would increase to 2.2 percent in year five. Source: ‘The right digital-platform strategy’, McKinsey & Co, May 2019
The Frictional Relationship between Enterprise IT and Digital Transformation
Digital Transformation sees ‘IT’ transitioning from a subject that happened in back-offices – to automate processes by equipping workers with computer processing tools – to something that customers, partners and suppliers can harness themselves. This shift from back-office to front-office means that no longer is IT about enforcing best practise into processes by installing Systems of Record that every other competitor also happens to use. Instead, IT becomes a game-changer; but only when it is tailored to deliver the unique characteristics of the business model that exists in the enterprise. It’s created a demand for two‐speed IT… because coded legacy IT is slow. DevOps teams need fast, code‐less tools to implement digital transformation projects that lower skill demands and produce sustainable results.
Digital Transformation has moved enterprise IT into the limelight having re-sited enterprise software from a state of competitive neutrality to a competitive weapon; from heavily standardized to heavily tailored; from a state where a slow-pace of development was ‘liveable’ to a state where extremely fast still isn’t fast enough.
Challenges in Building Applications to Orchestrate your Business Model
Along with the small number of business-critical applications you rely on for finance, HR and sales management, you’ll also be operating a long-tail of SaaS tools and self-authored applications – like spreadsheets – that fragment your data that impose a painful legacy on your IT operations. And you’ll need even more software apps to create the web and mobile apps to serve all of your stakeholder groups. Attempting to do too much too soon can deplete resources and focus on the quick-wins that really matter. Simple activities, like creating proper database apps to displace spreadsheets ]can make a real difference.
The Road is Long
Both market analysts and practitioners agree, the road to become a digital leader is paved with challenges, but those that survive the next decade are likely to be the businesses that get there – eventually. Digital transformation is expected to grow at CAGR of 20.1 per cent from 2017 to 2025 by streamlining business processes. Source: Grand View research