What is Digital Transformation?

Definition: Digital transformation is the process of using digital technologies to transform existing traditional and non-digital business processes and services, or creating new ones, to meet with the evolving market and customer expectations, thus completely altering the way businesses are managed and operated, and how value is delivered to customers.

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Introduction to Digital Transformation

According to Deloitte, “digital transformation is all about becoming a digital enterprise—an organization that uses technology to continuously evolve all aspects of its business models (what it offers, how it interacts with customers and how it operates).”

As technology evolves, so should your business. At this point, it’s not about enterprises choosing to transform; it’s more about deciding how to transform.

In this guide, we’ll cover everything from what digital transformation means for enterprises to real-world examples and case studies to learn from. This collection of resources can help you and your company adapt to technological advances and ultimately change how you do business.

Overview of Digital Transformation

Digital transformation can refer to anything from IT modernization (for example, cloud computing), to digital optimization, to the invention of new digital business models.” In general, it refers to the use of digital technology to materially evolve or create new business processes.

So, what is digital transformation for enterprises? It is the process of analyzing customer needs and leveraging technology to improve the end-user experience. End users could be customers or employees, and many enterprises need to consider the opinions of both.

Digital transformation is about evolving your business by experimenting with new tech and rethinking your current approach to common issues. Because it’s an evolution, a transformation doesn’t necessarily have a clear end point. The MIT Sloan Management Review, a publication that focuses on how management transforms in the digital age, says, “Digital transformation is better thought of as continual adaptation to a constantly changing environment.”

For enterprises, that means continually seeking out ways to improve the end-user experience. This could be through offering improved on-demand training, migrating data to cloud services, leveraging artificial intelligence, and more. 

 

The Different Types of Digital Transformation

MIT Sloan Management Review highlights three key areas of digital transformation for enterprises:

  1. Customer Experience — working to understand customers in more detail, using technology to fuel customer growth, and creating more customer touchpoints
  2. Operational Processes — improving internal processes by leveraging digitization and automation, enabling employees with digital tools, and collecting data to monitor performance and make more strategic business decisions
  3. Business Models — transforming the business by augmenting physical offerings with digital tools and services, introducing digital products, and using technology to provide global shared services

Why is Digital Transformation Important?

While every digital transformation initiative will have its own specific goals, the main purpose of any digital transformation is to improve your current processes. Digital transformation is important because companies must evolve to remain competitive in their industry. If you aren’t evolving, you’re falling behind.

A Bain & Company study shows that “only 8% of global companies have been able to achieve their targeted business outcomes from their investments in digital technology.” One of the strategies that sets leaders apart is that they spend more on transforming their businesses instead of just running them.

Digital transformation is important because it allows organizations to adapt to ever-changing industries and continually improve how they operate. 

Why is Digital Transformation Important <> Benefits

 

The Benefits of Digital Transformation

While the ROI of digital transformation depends on a variety of factors, the right technology can greatly improve how your business functions and how customers engage with it.

  • Increases productivity while reducing labor costs

Using technology to work more efficiently is one of the most impactful ways to transform your business. For example, for enterprises, the time and money they spend training new employees and updating digital resources can quickly get out of hand. With the proper tools, you can keep costs down and productivity up.

  • Improves the customer experience

Tech-savvy customers want a great experience through multiple touchpoints — mobile apps, social media, email, live chat, etc. Digital transformations are the driving force behind improved customer experiences.

Read more about How Digital Transformation Is Driving Customer Experience.

  • Makes You More Competitive in Your Industry

Your competitors are looking into digital transformation regardless of whether or not you are. Choosing not to embrace digital transformation is essentially deciding that you don’t mind being left behind.

How to Drive Digital Transformation?

To successfully transform, keep the momentum of any initiative moving toward your ultimate business goals. To do so, continually address the main drivers of digital transformation: digital twin, privacy, culture, augmented intelligence, and digital product management.

 

Drivers-of-Digital-Transformation

 

According to Gartner, CIOs need to focus on these five areas to enable successful digital transformations in their organizations.

  • Digital Twin

Gartner defines digital twin as “a digital representation of a real-world entity or system. The implementation of a digital twin is an encapsulated software object or model that mirrors a unique physical object, process, organization, person or other abstraction.”

Digital twins support digital transformation because they facilitate experimentation and collect data that supports more informed business decisions.

  • Privacy

If you can’t manage privacy, your digital transformation is destined to fail. As more digital solutions become available, organizations tend to jump on trends that offer more convenience. However, Gartner’s research reveals that a large portion of consumers and employees are not willing to give up safety and security just for convenience.

CIOs need to take privacy seriously. Employees and consumers won’t support a transformation if they feel it violates their privacy or personal data security.

  • Culture

Resistance to change is a human instinct. When you ignore the cultural aspect of a digital transformation, you’ll start hitting walls of resistance fairly quickly. In fact, 46% of CIOs say culture is their the biggest barrier.

Addressing culture ensures you get internal buy-in for your transformation initiative. When you have change leaders — vocal supporters of your digital transformation — you can use their voices to drive your initiative forward.

  • Augmented Intelligence

Augmented intelligence goes beyond artificial intelligence (AI), allowing humans and machines to work in tandem.

AI’s data collection and analysis capabilities far surpass that of a human worker. But augmented intelligence isn’t about replacing employees with machines — AI collects and presents data in a way that allows people to augment their knowledge.

  • Digital Product Management

Gartner explains digital product management as the shifting of mindsets from projects to products. Those products must be designed to improve the customer experience and be delivered through digital channels.

Digital product management is about knowing your industry and designing products that serve it. For example, instead of expecting the healthcare industry to align with Apple’s offerings, Apple created a watch that monitors the health of the wearer.

CIOs who focus on these five key drivers can stay ahead of their competition by constantly improving and growing their businesses.

The Different Stages of Digital Transformation

After several years of interviews with digital transformation leaders, Altimer released a report that defined six stages of digital transformation. Together, the six stages provide a guide for purposeful, results-driven transformation initiatives.

The 6 Stages of Digital Transformation

  1. Business as usual, status quo — The current state of your organization
  2. Present and active — A time of experimentation throughout the organization when you encourage creativity and improved digital literacy skills
  3. Formalized — When experimentation becomes more intentional, initiatives become clearer, and you start looking for leadership buy-in
  4. Strategic — The point when groups start collaborating and sharing their research in order to create strategic plans for the transformation
  5. Converged — The formulation of a dedicated digital transformation team that will guide the strategy, establish goals, and put systems in place to support the transformation
  6. Innovative and adaptive — When digital transformation becomes a part of the business and leadership establishes a system for monitoring technology and market trends so that the company can continue to evolve

3 Common Reasons Why Digital Transformations Fail

Digital transformations fail for many reasons, but most issues can be linked back to one of three things: people, communication, and measurement.

  • People

People can make or break your digital transformation. Remember: culture is both a top driver of digital transformation and one of the six pillars of successful ones. If you don’t put enough focus on people and culture, your initiative is bound to fail.

Sixteen of McKinsey’s 21 keys to success in digital transformation involve people.

  • Poor Communication

Announcing a digital transformation initiative is not the same as communicating with your team about it. Often, leadership simply mandates changes without taking the time to explain the why and how. If you don’t provide specific and actionable guidance before, during, and even after a transformation, your initiative won’t make it very far.

Read our 7 Best Practices in Change Management Communication article for detailed advice on how to manage your communication strategy.

  • Lack of Measurement

You can’t have a successful digital transformation if you failed to define what success means to you. Companies sometimes assume they can monitor success based on the key performance metrics (KPIs) they’ve already established for their business. But if you’re changing the way you do business, you’ll need to set additional KPIs to monitor the effects.

Gartner Report - Employee Usage Productivity

What is a Digital Transformation Strategy?

A digital transformation strategy is a plan of action for introducing, analyzing, and driving a digital transformation initiative forward. Your strategy will define what business goals you aim to achieve through digital transformation.

An effective digital transformation strategy will create a framework for you to follow throughout this ever-evolving process. But before you begin, it’s important to know what you hope to achieve so you can designate KPIs to track along the way.

For example, if you are migrating users from Salesforce Classic to Lightning, your high-level metrics for measuring adoption would be log-in rates, usage, data quality, and business performance.

In this case, you might drill down further and monitor metrics such as:

  • Monthly sales volumes
  • Opportunities created
  • Sales productivity (e.g., time saved, volume of sales activity per rep)
  • User log-in rates
  • Prospect account with key fields populated

 

A well-thought-out strategy will also address how the transformation will affect your customers and your employees. Start internally by designating change leaders who will publicly support your transformation. Putting trusted change leaders in charge of announcing and supporting the transformation will help generate momentum. Regularly soliciting feedback from anyone affected by the change will also help keep the momentum going.

Don’t forget to include your team’s accomplishments as part of your progress tracking. Whether you’re pointing out a quantitative achievement, e.g., a 10% increase in user log-in rates, or qualitative, e.g., Beth created a Slack group to answer questions about the transformation – celebrating milestones throughout the process is important.

Customers and employees alike will turn to the people initiating the transformation to gain the knowledge they need to be successful. It’s up to you to provide the necessary tools.

Those tools may come in many forms, but if you’re making a digital transformation, chances are, there are digital resources that could support your transition. Will you use e-learning tools for training? Could videos allow users to learn at their own pace? Keep in mind that transformations are an evolution, so leveraging tools that can adapt quickly, like digital adoption platforms, could save you time and effort down the line.

Ready to start strategizing? Learn how to Create an Effective Digital Transformation Strategy in Just 6 Steps.

5 Frequently Used Digital Transformation Technologies

Here are some of the most common technologies businesses use to enable digital transformations:

 

Frequently-Used-Digital-Transformation-Technologies

Read more: 7 Cutting-Edge Digital Transformation Trends in 2020.

Examples of Digital Transformation Across Industries

Take a look at a few digital transformation examples across industries.

 

IndustryExample
RetailTakealot automates self-training for their sellers.
Human ResourcesManpowerGroup streamlines HR platform adoption.
HealthcareCardinal Health creates self-help options across multiple websites for customers.
FinanceExperian drives Salesforce adoption.
NonprofitDimensions UK drives Iplanit adoption.

 

Still need a little more inspiration to get motivated? Here are 7 Successful Digital Transformation Examples to motivate you to get started with your own transformation.

The Pillars of Digital Transformation

Daniel Newman, principal analyst and founding partner at Futurum Research, says to understand the foundation of digital transformation, you have to look closely at the six pillars of digital transformation.

He argues that digital transformation is not about technology; it’s about “tech-enabled change.” And, to look beyond the technology aspect, focus on the pillars that support the change.

  • Experiences

Experiences could refer to the customer and/or employee experience. Successful digital transformations lead to a positive experience for the people who are affected by it. Ask yourself — will this initiative improve how I connect with my customers? Will the transformation help employees become more efficient?

  • People

Remember: culture is a top driver of digital transformation as well as its greatest barrier. You cannot neglect the people affected by tech-enabled changes and expect positive results. You can strengthen the people pillar by designating change leaders who actively support and accelerate your transformation. The key is to design an initiative that leverages technology to improve the human experience.

  • Change

Transformations can’t happen without change. Luckily, you can address the change pillar by borrowing from proven change management models and best practices in change management communication.

The change pillar encourages you to communicate your expectations for a transformation and establish clear goals. This pillar also ties back to the people pillar, as no change can be successful without the support of the people affected by it.

  • Innovation

Newman defines innovation as “a sudden spark of creativity that leads to the creation of something that changes the face of your business.”

The innovation pillar focuses on creating space for collaboration and new ideas. Innovation supports digital transformation by encouraging businesses to find creative solutions to problems.

  • Leadership

If you aren’t leading, no one is following. It’s crucial for leaders to proactively monitor not just the implementation plan but also the outcome of any digital transformation initiative. It’s leadership’s responsibility to establish key performance indicators (KPIs) and guide teams towards a successful transformation.

  • Culture

Business culture is a crucial aspect of digital transformation. Newman recommends a people-first approach — worry about employee and customer experience first and then move onto technology.

How to Measure ROI on Digital Transformation?

Digital transformations require investments of both time and money, so it’s important to have a system in place to measure the return on investment (ROI).

To establish how you’ll measure and track your digital transformation’s success, follow these three steps:

  1. Set goals — What does success mean to you? What is your ideal outcome?
  2. Establish key performance indicators (KPIs) — What metrics will you monitor? How will those metrics tell the story of your digital transformation? What level of KPI growth are you hoping to achieve?
  3. Monitor progress — What types of reports will you use to keep an eye on your KPIs and the progress of your transformation? How often will you run reports and adjust your strategy?

To illustrate how a business might apply these steps in a real-world scenario, here’s a simple example:

  • Goal: Decrease customer support queries without negatively affecting customer satisfaction
  • KPIs: Number of support queries received each day, time spent responding to support tickets, average support query response time
  • Monitor: Run weekly reports on KPIs and send monthly surveys to customers to gauge satisfaction

What are the Essential Digital Transformation Roles?

While digital transformation projects will involve several teams across departments, there are four essential digital transformation roles:

  • Chief Information Officer (CIO)
  • Digital Transformation Specialist
  • Digital Adoption Manager
  • Digital Product Manager

 

Here is an overview of the responsibilities associated with each role:

Chief Information Officer (CIO)

Traditionally, CIOs are in charge of a company’s information technology (IT) systems and processes. However, the role is becoming more focused on heading up business strategies and digital transformation initiatives.

The responsibilities of a CIO:

  • Establish objectives for digital transformation initiatives and IT-related processes.
  • Analyze the costs and potential value of technology.
  • Run risk analyses for IT investments and initiatives.
  • Design digital transformation strategies.
  • Oversee technology implementation.

CIOs often manage other key players in digital transformation, including digital transformation specialists, digital adoption managers, and digital product managers.

 

Digital Transformation Specialist

Digital transformation specialists find ways to leverage technology to enhance a company’s technical performance and help them remain competitive. This could mean digitizing outdated processes, augmenting operations with the help of machine learning or automation, etc. Specialists work across departments to identify both gaps in service and opportunities for improvement.

The responsibilities of a digital transformation specialist are:

  • Stay up to date on tech trends.
  • Recommend digital transformation initiatives that would benefit the business.
  • Provide strategic advice for implementing and managing digital transformations.
  • Guide companies throughout the transformation process.

 

Digital Adoption Manager

Digital adoption managers oversee a company’s digital strategy and identify ways to help people learn new technologies. It’s their job to make sure teams know how to use digital tools to their full potential.

The responsibilities of a digital adoption manager are:

  • Onboard new hires.
  • Train employees on software and other technology.
  • Recommend new digital tools and business processes to leadership.
  • Gain leadership buy-in for digital initiatives.
  • Monitor the success and ROI of digital transformations and investments.

 

Digital Product Manager

Digital product managers take ownership of the entire digital product life cycle, from the idea phase to launch. Their work involves collaborating with multiple teams, including IT, marketing, sales, and legal. They oversee the development of digital products and do market research in order to make more informed design and product decisions.

The responsibilities of a digital product manager are:

  • Perform market research to identify opportunities for new products or improvements on existing products.
  • Create strategies for developing digital products.
  • Serve as a liaison between the various teams involved in digital product development.
  • Track performance metrics for digital products and projects.

 What is a Digital Transformation Framework?

Transformations alter the status quo, so it’s important to design a framework that helps you manage that change. Luckily, there’s a simple shortcut: borrow from established change management models.

Take the McKinsey 7-S model, for instance. The model is designed to maintain the balance between seven elements: strategy, structure, systems, skills, shared values, style, and staff.

McKinsey-7S-Framework-Digital-Transformation

Because digital transformations involve a lot of moving parts — training, technology, people, etc. — maintaining balance is crucial. If you focus too intently on a new tool (system), you might overlook the need for additional employee training (skills, staff).

Learn how to borrow from other proven change management models: Creating a Digital Transformation Framework is Easier Than You Think.

Digital Transformation Challenges

When you hear “digital transformation challenges,” you might think of a problem you need to fix. However, identifying the challenge is more about determining which parts of your business need improvement or growth.

Common digital transformation challenges include:

  1. Improve the customer experience
  2. Increase productivity internally
  3. Become more competitive in your industry
  4. Increase sales/profits

 

Take a look at What 5 Companies Learned by Overcoming Digital Transformation Challenges.

How Successful Will Your Digital Transformation Be? That’s Up To You.

The goals you set and the technology you use to achieve those goals will define what your digital transformation will look like. Regardless of how you choose to transform your enterprise, proper planning and follow-through are crucial. Bookmark these resources so you can refer back to them in the future.

Gartner Employee Productivity Report
Deloitte Learning In The Flow Of Work Report
Everest Peak Matrix DAP Report 2020

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