What Is Digital Transformation?
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.
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.
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.
3 Key Areas of Enterprise Digital Transformation
MIT Sloan Management Review highlights three key areas of digital transformation for enterprises:
- Customer Experience — working to understand customers in more detail, using technology to fuel customer growth, and creating more customer touchpoints
- 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
- 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
- Digital Transformation in Banking
- Digital Transformation in Government
- Digital Transformation in Healthcare
- Digital Transformation in Higher Education
- Digital Transformation in Nonprofits
- Digital Transformation in PC Insurance
- Digital Transformation in Manufacturing
- Digital Transformation in Retail
- Digital Transformation in Staffing
What Is the Importance of Digital Transformation?
While every digital transformation initiative will have its own specific goals, the primary purpose of any digital transformation is to improve your current processes. Digital transformation is necessary because companies must evolve to remain competitive. If you aren’t evolving, you’re falling behind.
Let’s look at a recent example highlighting the critical nature of digital transformation – Southwest Airlines.
This past holiday season, a major winter storm slammed the US on December 21st, causing major cancellations across airline companies. However, as every other airline company was able to get people to their destinations the next day, Southwest canceled 15,000+ flights on December 22nd, and continued to cancel over 2,500 flights a day over the next week.
The culprit behind this chaos?
A decade-old scheduling system that had already caused smaller issues and that the Southwest Airlines Pilot Association union had been warning the company about since the 1990s.
Southwest failed to keep its IT software and infrastructure modernized, and it cost the company millions in revenue, an enormous about of negative PR, and ravished the company’s image with its customers.
But while digital transformation is a must to avoid IT meltdowns, it’s not as simple as upgrading legacy systems.
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 set 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.
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 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.
- Drives innovation, keeping you ahead of your competition – 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. Investing in your organization’s future allows for
Examples of Digital Transformation
Digital transformation is occurring across all industries and job functions. We’ve broken up real-world digital transformation examples by both for you to get a better understanding of the implications of digital transformation.
Examples of Digital Transformation by Job Function
|Job Function||Digital Transformation||Real-World Example|
|Sales||Spreadsheets to a Cloud CRM||Sophos improves win rates, streamlines customer relationships, and improves customer data by implementing Salesforce.|
|HR||In-person training to online elearning.||Comvivas improves its onboarding quality, cost of training, and more by moving its onboarding online.|
|Customer support||Call support center to online knowledge bases and self-support portals.||Cardinal Health improves its customer satisfaction score, reduces time to resolved tickets, and reduces overall support tickets with self-help.|
Examples of Digital Transformation by Industry
|Industry||Digital Transformation||Real-World Example|
|Healthcare||Virtual visits, telemedicine, and patient portals||Brigham Health uses virtual visits allowing patients to schedule appointments online and conduct a screening via web video.|
|Hospitality||Online check-in, amenity booking tools||Harrah’s uses online check-in for guests to skip the in-person process.|
|Insurance||Virtual quotes and online claims process||Lemonade uses an online portal for prospective customers to get instant quotes, as well as a portal for customers to file claims online – both using AI-powered technology.|
|Retail||Loyalty cards, e-commerce stores||Target encourages its uses to download the Target App where it can reach customers through in-app and push notifications instantly, as well as creates a new stream of revenue with its online store|
Most Important Aspects of 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.
According to Gartner, CIOs need to focus on these five areas to enable successful digital transformations in their organizations.
1. Digital Twins
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.
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.
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 biggest barrier to change. 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.
4. 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.
5. 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.
Why Digital Transformation Projects Fail
Digital transformations fail for many reasons, but most issues can be linked back to one of three digital transformation challenges: people, communication, and measurement. Let’s dive further into each:
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.
2. 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. You can learn more by reading our guide to change communciation.
3. 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.
How to Get Started with Digital Transformation
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 and help accelerate 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.
Digital Transformation Trends
Different types of transformations rise and fall in popularity as technology changes. Keeping up with trends is a great way to see how you can improve your own digital transformations and prepare for inevitable changes in your industry.
Right now, the hottest trends in digital transformation all tie back to one thing: creating a better customer and employee experience. Although many people, employees in particular, fear that some technology is designed to replace humans, great digital transformations involve technology that complements human work.
AI, Robotic Process Automation, 5G, mobile development, and personalized user experiences are all examples of digital transformation trends that aim to work alongside humans to do everything from improving communication to limiting repetitive work.
What is the definition of digital transformation?
Digital transformation refers to the use of digital technology to materially evolve or create new business processes.
What are 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.
What are the 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.
Here are the six stages of digital transformation
- Business as usual, status quo — The current state of your organization
- Present and active — A time of experimentation throughout the organization when you encourage creativity and improved digital literacy skills
- Formalized — When experimentation becomes more intentional, initiatives become clearer, and you start looking for leadership buy-in
- Strategic — The point when groups start collaborating and sharing their research in order to create strategic plans for the transformation
- 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
- 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
What is the cost of digital transformation?
Digital transformation efforts can be quite costly, but if implemented correctly, can prove to be a huge cost saver over time. The cost of each individual digital transformation project depends on each initiative’s scale, but it’s predicted that by 2023, organizations will spend over $2.3 trillion on digital transformations projects.
How do you measure ROI of 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:
- Set goals — What does success mean to you? What is your ideal outcome?
- 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?
- 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 technologies driving digital transformation?
Here are some of the most common technologies businesses use to enable digital transformations:
- Mobile phones and apps
- Cloud computing
- Internet of Things (IoT)
- Digital twins
- Artificial intelligence (AI) and machine learning
- Augmented reality and virtual reality (AR/VR)
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.
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).
What roles drive digital transformation projects?
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
|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.
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.|
|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.|
|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.|
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