What is Digital Transformation and How it Works?

Posted / 14 August, 2017

Author / Enginess

what is digital transformation

Digital transformation allows businesses to capitalize on opportunities presented by digital technology. It is changing the way we tackle challenges like pollution, public health issues, and sustainable transportation.

Sometimes, you just have to state the obvious: we live in a digital world. More and more, our everyday lives and interactions happen on a screen and online.

Got a problem? Before you know it, a digital solution has popped up to solve it. In short, we’re living in an era of digital transformation.


What exactly is digital transformation?

It’s not as sci-fi as it sounds. Let’s start with a general definition of digital transformation:

“Digital transformation is the application of digital technology to fundamentally impact all aspects of business and society.”

Put simply, digital transformation alters activities and processes to leverage the opportunities presented by digital technology. At a societal level, digital transformation is being seen in the way we tackle challenges like pollution, public health issues, and sustainable transportation.

But digital transformation is getting even more buzz in the business realm. It makes sense: the MIT Center for Digital Business recently reported that “companies that have embraced digital transformation are 26% more profitable than their average industry competitors.”

So what does digital transformation look like for a business? The way digital transformation plays out will be different for every company, but there is some common ground.

Generally speaking, digital transformation involves a fundamental shift in the way companies do business, from basic infrastructure to daily operations. This fundamental shift comes down to one thing: the integration of digital technology into all of a business’s components, including the way they deliver value to customers, and the way they understand their company culture.


Why digital transformation matters

iPhone

Digital transformation is about more than hopping aboard a fleeting digital trend. Here are five reasons why embracing this kind of transformation matters:


1) It can ensure business survival

Let’s start the list with a bang: digital transformation can be the difference between a business surviving and dying. Dramatic? Maybe. But hear us out.

As Howard King puts it:

“Businesses don’t transform by choice because it is expensive and risky. Businesses go through transformation when they have failed to evolve.”

King identifies three key drivers of transformation: changing competition, changing consumer demand, and changing technology. Without a fundamental transformation, businesses facing these changes can slide downhill fast—and face the dreaded digital disruption from a competitor.


2) The competition is doing it

We know, doing what the competition is doing isn’t always the best strategy. But in the case of digital transformation, keeping up with your competition is imperative: business execs predict that nearly half of their revenue will be driven by digital by 2020, according to recent research from Forrester Research.


3) It improves efficiency

Legacy systems, poor digital integration, and clunky tech solutions put a serious strain on efficient business operations. This is particularly true for IT, where legacy systems are holding 90% of businesses back from making important digital advances that would help them grow and improve efficiency.


4) It boosts profitability

Partly thanks to this improved efficiency, companies that have gone digital are not only 26% more profitable than their competitors, they also have a 12% higher market valuation.


5) It makes for a happy customer (and happy employees)

Living in the age of the smartphone means that your customers and employees have adopted digital solutions into most aspects of their lives. From online shopping to mobile banking, your customers have grown accustomed to having a digital solution to formerly non-digital activities. Without a digital transformation, you risk lagging behind these customer expectations.


How does digital transformation work?

Digital transformation is the process of using software tools and methodologies to solve existing business challenges.

An easy way to think about it is in the context of optimization:

What aspects of our existing business process is inefficient or expensive to run? Is there a better way to do it by leveraging digital solutions and tools?

If there are, organizations embark on a digital transformation process.

Of course, digital transformation is more than just deploying tools or making an analog process digital.

It’s about shifting how a business thinks about solving complex problems.

Digital transformation processes have two sides.


1. Tools & Processes

First, organizations need to find the right new tools, processes, and methods they’re going to deploy to replace their existing solutions.

For instance, you might identify that collaboration is a problem, and if you can facilitate collaboration between different teams then you can deliver 20% better business outcomes.

Your solution might be a cloud-based project management tool integrated with an internal communication tool like Slack.

Identifying the problem (collaboration) and the software solution (PM tools & Slack) is part one.


2. Digital Culture

The second part is transforming attitudes and ways of working for the people in your organization — the adoption of digital culture.

A digital culture is one where the tools and methodologies of digital transformation can take root.

There’s a robust list of what this means, but broadly speaking, a digital culture facilitates lean development methodologies, so organizations are agile, can fail fast, are data-driven, and focus on real-time analytics.

Traditional business culture is slower, retroactive, and more focused on looking back and analyzing past activity rather than adopting current behaviour to maximize profit. Shifting from a traditional business culture to a digital culture is the hardest part of digital transformation.

It takes a lot of senior buy-in, an internal champion, and stakeholder engagement at every organizational tier.


Why digital transformation projects fail

In order for a digital transformation to be successful, both the tools/processes and a digital culture need to be engaged.

However, problems arise with digital transformation efforts when they focus entirely on getting the right tools in place with little to no focus on how to deliver the cultural change that it needs.

Basically, organizations focus a lot on getting the right tools in place and not enough on making sure people actually use them.

For instance, imagine you’re a bank driving digital transformation. You want to move from a retrospective decision-making process (“we tried this and six months later, have evaluated it to see if it worked) to a real-time decision making process (“our results show X. Let’s tweak it to optimize what we’re doing and see the impact in real time”).

This change can only happen if the process and incentives for the people involved change AND those people are given the right tools.

For instance, imagine you’re a marketing manager. If you have the tools to deliver real-time reporting, but you’re evaluated on retrospective performance, you’re going to focus on the retrospective analysis, regardless of what tools you have access to.

 

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How to make digital transformation successful

The best way to be successful with a digital transformation process comes down to leadership. Choosing the right technology vendor and finding tech solutions is only part of the challenge. And frankly, the more straightforward part.

Convincing people that the new way is better and managing the transformation of complex moving parts is more difficult.


How to lead digital transformation

To be a successful digital transformation leader you need to:


Securing buy-in from senior executives.

You’re going to be asking for an upfront investment and a complete change in how success or failure is defined. That can’t be completed without buy-in from senior executives, even if the tool you’re buying doesn’t necessitate high-level approval (as most cloud products today don’t).


Know your customer.

Digital transformation is all about building a customer-centric organization. And that isn’t possible if you don’t intimately know your customer and understand their objectives.


Know your employees.

They’re the ones who actually have to use the new tool and will be evaluated on the new way of working. It’s critical that they are both bought into the project, and the project reflects their reality, not the reality that organizations wish they had. Rose-tinted digital transformation projects are destined for failure.


Understand the digital landscape.

Finally, you need to understand the digital landscape so you know what solutions are possible and what tools are available. This may involve working with a partner with experience in the area who conducts and presents the research to you. This doesn’t mean compiling a dossier on every vendor, but rather, knowing the buckets that those vendors go into and creating a short-list of relevant options.


Digital transformation is about empathy

The most important takeaway from digital transformation projects that we’ve worked on is that they’re fundamentally about empathy.

Empathy for customers, their needs and wants, and how your organization can fulfill them.

Empathy for senior leaders, and understanding their pressures and needs and how digital solutions can help them do their jobs.

Empathy for employees, understanding how they work day to day, how they’re evaluated, and what success means for them and their supervisors.

When you can empathize with these three key groups, you can craft digital transformation projects that are not only successful but produce meaningful change.


Wrap up: who can make use of digital transformation?

In short, almost everybody. There’s a long list of use-cases for digital transformation in industries from government and public sector agencies, to energy providers, to manufacturers.

Take DHL for example. They’ve tested smart glasses in one of their warehouses in the Netherlands in a major step towards the digital transformation of their warehouse operations.

By embracing digital transformation, DHL has become a leader in ‘vision picking’ in the logistics industry.

General Electric (GE) has also been successfully pursuing digital transformation for years. GE is working on a digital windfarm, leveraging digital tech to make the world’s most efficient gas turbine, and has introduced the GE online store, where GE businesses can ‘shop’ for tech innovations, research, and software.

Digital transformation doesn’t only happen within individual companies though. Entire industries go through digital transformation more often than you might think. In the entertainment industry, we’ve seen the dramatic shift from Blockbuster to Netflix. In retail, we’ve seen customers purchase from Amazon over Walmart.

The list goes on—and illustrates why digital transformation has become so important.

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