Customer expectations, rapid technology advancements, global market shifts, supply chain vulnerabilities, and disrupting competition—these are just some of the drivers forcing digital transformation efforts. Organizations are scrambling to modernize their technology infrastructures, operations, business models, and cultures or be left behind.
IDC reports investment in digital transformation is growing at a compound annual growth rate of 15.5% from 2020 to 2023. By 2023, 75% of organizations will have “comprehensive digital transformation implementation roadmaps,” up from only 27% in 2020.
Focus is shifting from traditional growth strategies to investing in digital transformation to improve performance and sustain it considering so much change.
As you face unprecedented change in today’s digital era, innovation is a must to stay ahead of emerging, more agile competitors. Leveraging technology and data may be at the top of your strategy list to drive customer value, in addition, fundamental shifts in the workplace are forcing organizations to undergo radical restructuring regarding business models and operations. These influences are driving digital transformation faster than ever, with 69% of Boards of Directors accelerating their digital business initiatives in response to the COVID-19 pandemic disruptions.
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Defining Digital Transformation
Digital transformation impacts how companies across every industry do business, yet there is still no standard definition for the process.
Gartner defines digital transformation as, “the process of exploiting digital technologies and supporting capabilities to create a robust new digital business model.” Others say it is the cross-organizational, strategic business change that centers around improving the customer experience, often enabled by digital technologies.
However, defined and whatever the initiative, whether it be innovation, Agile, cloud, lean, or other, the goal is to leverage enterprise-wide technology and place the customer experience at the center of decision making. Digital transformation affects most or all of an organization, including its culture. It requires the adoption of technologies, not to add complexity but to integrate, automate, leverage more and better data, provide transparency, and help the enterprise be more agile to change.
It is important not to confuse digital transformation with digitization (the process of converting information into a digital format) and digitalization (the process of using digital technologies to change a business model and provide new revenue and value-producing opportunities, per Gartner). While digital transformation programs often include digitization and digitalization projects, the result of these changes centers around customer benefits.
Why Are Businesses Experiencing Digital Transformation?
Digital transformation has been in play for several years; however, the pandemic revealed its significance and urgency. Practically everything changed overnight at home and in the workplace. Companies further along in their digital transformation journey were able to view the challenges as opportunities, whereas many of those yet to embrace digital found the change more as an insurmountable threat.
Consumer behavior was already pressuring supply chains, and the pandemic was like gasoline on a fire. Supply chains faltered, digital accelerated beyond any expectations, and consumers changed habits on a dime. Everything from online sales and fitness apps to curbside pickups and cashless transactions skyrocketed.
The workplace wasn’t spared either. Only 20% of workers officed from home before the COVID-19 outbreak, while more than 70% worked from home at the peak of the pandemic. Organizations had to prioritize digital technology from a “nice to have” to a survival tool to keep employees productive and operations running.
While disruptions due to a crisis are less common than those that come with more slowly evolving customer demands and technology innovation, enterprises must be able to quickly adapt to whatever comes their way. Digital transformation supports this agility, bringing with it a host of benefits unachievable any other way.
Benefits of Digital Transformation
Digital transformation is an organization-wide initiative, requiring leadership, resources, and a cultural shift. While massive in scope, the initiative promises benefits that far outweigh the effort. In fact, the repercussions of not transforming are so stark, companies can’t afford not to embark on the journey.
There are at least five primary benefits you can expect to experience from your digital transformation, each of which ultimately affecting how well your organization can respond to change and continually improve the customer experience.
An integrated ecosystem
At the heart of the digital transformation is integrating systems and data to achieve a 360-degree view of the customer, as well as stay on top of challenges and opportunities. Gartner says, “Data sharing is the way to optimize higher-relevant data, generating more robust data and analytics to solve business challenges and meet enterprise goals.”
Without integration, departments and teams operate in silos, unable to share data efficiently or reliably, learn from each other, or ensure efforts are synced to execute on strategy. In essence, everyone is rowing in different directions without any sense of direction, wasting resources that could have been working together to deliver real value.
Automated processes for greater efficiency and scalability
Digitization inherently automates manual processes to not only speed time-to-market but also to increase accuracy and efficiency. Manual processes and outdated tools, such as spreadsheets, are not reliable or scalable. They hinder progress, introduce risk, and increase costs.
With streamlined prioritization and planning processes in place, leaders can simplify product and project analysis, considering variables such as technical viability, financial impact, resource capacity, and risk to optimize portfolio value. Organizations can accelerate product commercialization through an automated gated-development process. Even the innovation process can be scaled to engage employees, customers, and partners to drive a culture of innovation.
Access to richer, more reliable data to inform better decisions
With integrated systems and access to innovative technology, such as artificial intelligence (AI) and predictive analytics, leaders are better equipped to make faster decisions with greater confidence. No longer relying on assumptions or gut instinct alone, leaders base critical business decisions on data collected from multiple, interconnected systems.
Going a step further, these decisions are now objective, helping leaders justify their decisions to stakeholders, both internal and external.
Equipped with the right data, teams are free to test ideas, take more risks, and view failure as a steppingstone instead of a dead-end, fostering a culture of innovation.
Transparency into key metrics and initiatives at every stage of the strategy-to-delivery journey
Organizations can only adapt if they have insights into what’s happening and what may come. Those who succeed at digital transformation have a clear line of sight into how strategic programs are progressing, whether outcomes are being achieved, and what roadblocks are or challenge will progress.
Metrics don’t lie, giving decision makers a trustworthy way to measure strategic alignment as much as progress. As customer demands, market volatility, new technologies, and other change agents approach, they are better able to shift priorities faster and align resources to maintain focus delivering value, whatever that is at any given moment.
Agility to respond quickly and appropriately to change
Digital transformation provides the foundation for teams to explore new ways of working to deliver relevant value faster. No matter the type of change or from where it comes, digital organizations are more capable of performing better and meeting their goals.
But this transformation isn’t all about speed. It’s about leveraging technology to identify problems and solve them at scale. It provides an eye into the unknown, revealing opportunities to rethink processes and practices to achieve greater flexibility, stronger strategic alignment, more targeted execution, and yes, faster response to business fluctuations.
Creating a Digital Transformation Strategy
Digital transformation can (and often does) look different for every organization; there is no “one right way” to accomplish the benefits that implementing a digital transformation strategy promises.
To maximize the return on investment in digital transformation, you must develop a cross-functional strategy that incorporates every department in your organization that has a touchpoint on the customer’s journey: from customer service to product development, supply chain to marketing.
While IT may champion the initiative and finance may approve and allocate funds to it, the strategy should embrace enterprise-wide digital transformation. Without a proper strategy in place, the money and time dedicated will be wasted, the value to the customer will be watered down, and another corporate buzzword will go by the wayside.
Focus on what matters
Creating a digital transformation strategy requires a significant mindset shift among executives and employees alike. It focuses on:
- A single source of truth versus information silos
- Improving the overall business over individual process changes
- Integrated data rather than ad hoc systems and manual efforts
- An integrated platform versus a single-point solution
- Customers successfully achieving their goals instead of achievement of managerial objectives
Tactically, the digital transformation strategy needs to span the entire company and must be visual, bringing together the corporate strategy, product strategy, technology strategy, and digital strategy into a single view: a strategic, digital transformation roadmap. Gone are the days of strategies living in presentation slides and discussed once a year in annual planning meetings.
Because of the breadth and depth of this initiative, the strategy must be connected to execution. It must cascade from missions and objectives down into the programs, projects, products, technologies, and business capabilities required to deliver the strategy. It is a living document, ready to pivot when necessary to keep the organization on track.
The dependencies between these outcomes must be clear and well understood. If one component is delayed, what is the downstream effect? How will that impact resource availability and other projects? Will the delay have a financial consequence?
One size doesn’t fit all
Your organization’s digital transformation journey will be unique and may morph over time, as will its strategy to accomplish it. Will your strategy incorporate artificial intelligence, mobility, machine learning, analytics for improved decision making, supply chain improvements, the voice of the customer programs, or design thinking? These and many more are decisions leadership will face as your strategy takes shape.
Remember that this isn’t about the launch of any one breakthrough product, the use of a cool new emerging technology, the introduction of a new methodology, or the implementation of a single software solution, though these may all be a part of the larger strategy.
The best path will be dependent on multiple factors, including leadership’s commitment to change and invest, what the competition is doing, the level of risk the company is willing to take on, the core capabilities already in place or required for delivery, and not losing sight of the outcomes are trying to achieve with the digital transformation.
The end goal of implementing a digital transformation strategy should focus on business outcomes, even if accomplished in phases. It’s about continually making progress to enhance the customer experience to be higher quality, more intuitive, and with improved consistency. Establishing key performance indicators (KPIs) and milestones along the way will help move the initiative forward and ensure the program doesn’t stall after the first phase, as digital transformation is never really “done.”
When Are You Ready for a Digital Transformation Strategy?
Whether you feel able or not, succeeding in today’s dynamic business climate demands the ability to adapt—shifting priorities, funding, and resources to continually deliver value. The entire enterprise, from IT to finance or PMOs to EPMOs, must embrace this shift and evolve portfolio management, tools, and practices.
Essentials Needed for Digital Transformation
McKinsey says successful transformation factors fall into five categories:
- Leadership who serves as digital transformation champions to drive the initiative
- Building capabilities to develop tomorrow’s workforce through targeted hiring and training
- Empowering workers to work in new and different ways
- Upgrading tools, digitizing them and making them accessible
- Communicating frequently the vision, strategy, and timeline via traditional and digital methods
Looking more closely, the consulting firm found companies that implement digital tools are more than twice as likely to succeed in their digital transformation than those that don’t. Similarly, those that make information more accessible more than double the likelihood of a successful transformation.
Roadmap your digital transformation strategy
Transformation doesn’t happen all at once. It is a process that requires an incremental plan based on vision, strategy, goals, priorities, and resources (the people, technology, and dollars required to execute). And just like any plan, the roadmap is flexible to adapt as conditions change.
The advantage of having a digital transformation strategy is that it gives you an integrated, executable roadmap that keeps everyone on the same page and connects investments, outcomes, milestones, and financials.
Your roadmap will allow leaders to analyze business capabilities against strategy, identify impacts, and propose the investments required to enable digital transformation.
Foster an innovative culture
An innovative culture embraces creative ideas and problem solving. It isn’t solely about what is created but about how it is created. Truly innovative companies encourage risk taking, enable IT with the tools to execute, and ensure investments are focused on achieving strategic objectives.
While every culture is unique, innovative cultures share similar characteristics:
- Focused leadership
- A thirst for knowledge and progress
- Engaged employees
- Collaborative environment
- Flatter hierarchies
- A fail-fast mentality
How do you foster such a culture? It begins with establishing clear direction and accountability while granting autonomy, so teams have the freedom to approach problems in creative ways. You deploy systems that facilitate innovation rather than support bureaucracy. You hire those with creativity and a passion for innovation, building a diverse workforce of innovators who each bring a different perspective to the table.
How to Overcome Digital Transformation Challenges
With so many considerations and dependencies, the sheer size and scope of a digital transformation can be daunting. Add to that complexity a “we’ve always done it this way” mentality along with a potentially inadequate or outdated technology portfolio, the odds of success decrease dramatically.
Each industry and organization will have a different approach to digital transformation – healthcare will be different from retail, and banking will take a different approach than consumer packaged goods. But there are a few best practices, a digital transformation framework, to ensure the achievement of your digital transformation strategy.
Map the customer journey to gain insights
Organizations can find great success in taking a design-thinking approach that focuses on the customer and solutions that aim to delight. The vision and clear definition of the ideal customer experience allows companies to explore the possibilities of what “could be.” This may include surveys, focus groups, customer feedback, and observation. The key is to put design first and supporting technology second.
Each step (and sub-step) of the journey, from awareness to loyalty, must be evaluated in detail. If specific trouble spots are known, either through customer feedback or employee knowledge, start there for quick wins, and then expand end to end.
As a best practice, this customer journey map should be living, non-static, and connected with the ability to see all supporting processes, technologies, teams, and business capabilities. To be effective, it must allow for both current state and future state visualizations that outline the projects and programs that are required to drive the change, contributing to the larger digital transformation.
Communicate the roadmap to cast the vision
As with the customer journey maps, roadmaps must be dynamic components of the digital transformation strategy. The strategic and digital transformation roadmaps should be comprised of the other roadmaps – the product roadmap, technology roadmap, and capabilities roadmap—to communicate the overarching plan and timing to every member of the organization and your customer base where it makes sense. Move your roadmaps to digital to deliver on the benefits of digital.
Create a continuous improvement culture to embrace change
Customer needs, technology landscapes, and the marketplace are all in a constant state of evolution. Furthermore, with new competitors always on the horizon, companies must transition from serial processes to embracing a state of continuous process improvement. Voice-of-the-customer programs, strategic planning, portfolio analysis, technology road mapping, and capacity planning should move from an annual exercise toward a continuous process.
Companies should aim to create an environment of continuous improvement and innovation to deliver customer value faster. By visualizing work as it flows through each process connected to the customer journey, leadership gains a big-picture view of bottlenecks, gaps, and opportunities for efficiency and productivity improvements.
Accelerate collaboration and break down silos
The internal transformation required to improve the customer experience coalesces with other fundamental industry shifts, such as an increasingly remote workforce, changing methodologies, a greater thirst for innovation to stay relevant, and the need for speed and agility. Together, these market forces point toward a demand for better collaboration across the enterprise.
Companies can leverage digital to unify and communicate internally as well as engage externally with customers, breaking down any regional, divisional, or departmental barriers.
Teams are eager to solve the problems highlighted as part of the digital transformation journey but need mobile, intuitive collaboration tools to get work done and easily provide visibility to progress or overcome roadblocks. Long, manual status reports emailed and then consolidated are not part of a digital transformation strategy.
It is essential to go digital to manage the digital transformation initiative and best serve the customer. Providing digital collaboration workspaces that are flexible enough to support every team, regardless of methodology (scrum, agile, Kanban, gated, waterfall), in completing their work on time will provide the visibility and efficiency required to stay ahead of the digital curve.
Deliver analytics to drive decision making
Perhaps the most important best practice to guarantee digital transformation success is beginning with the end in mind. What outcomes does the company want to achieve from its digital transformation investment? How will the company measure and report on progress, and what metrics will drive the desired benefits?
Some traditional KPIs used to measure customer satisfaction include revenue growth, margin expansion, Net Promotor Score (NPS), Customer Effort Score (CES), improved customer wait times, brand loyalty, and ecommerce metrics such as web search response times and mobile app ratings.
OKRs (Objectives and Key Results) are also effective measurements as they provide valuable insight into where efforts should be focused and whether those efforts are generating the right outcomes. OKRs are more proactive and actionable than KPIs, helping companies align team efforts around big-picture goals, set objectives and achieve targets.
Internal metrics to calculate improvements in productivity, time to market, throughput, and cycle times are equally valid. Many of these improvements come through automation (digitization) of manual processes, freeing up time for more customer engagement, innovation, and solution exploration.
Getting Started on Your Digital Transformation Journey
To be a digital transformation leader and successfully execute the digital transformation strategy, companies must rewire internally to better serve their customers and enhance the customer experience in every way possible.
This change is not an IT initiative; it is an organizational initiative.
Investment now has the power to create new markets, increase revenue, open new sales channels, improve organizational efficiency and agility, and generate devoted customers who keep coming back.
Define the purpose and the path
Before embarking on a digital transformation initiative or any change of this magnitude, leadership should clearly articulate and communicate what this investment means to the company and ultimately the customer. Therefore, the first step in the journey should be to create a digital transformation definition for your company and how you expect to get there.
The effort dedicated in advance to characterizing this new way of operating and thinking will circumvent any misunderstanding, clearly articulating that digitizing information and digitizing processes are but parts of the larger vision.
Start small. Focus on one area and move onto the next
Build an achievable strategy, meaning it’s likely more advantageous to take baby steps rather than trying to tackle the organizational transformation all at once. Take stock in your core business capabilities—the specific and distinct strengths or foundational “know-how” embedded in the company that keep it competitive and moving forward.
For example, some organizations have innovation and employee retention as capabilities. Others have organizational agility, leadership, a strong growth portfolio, and tools and processes amongst their core competencies.
When evaluating business capabilities in the context of embarking on a digital transformation initiative, evaluate what new or existing capabilities and enablers of capabilities are needed to fulfill strategic goals. Big data? Mobile? IoT (Internet of Things)? And in support of these capabilities, consider assessing the required skills and resource capacity needed to identify, implement, measure, and improve these business capabilities.
Business leaders are starting to recognize the importance of purposeful planning capabilities to understand gaps, overlaps, and areas that require development or renovation. The ability to deliver against the digital transformation strategy depends heavily on these building blocks. Companies that skip this part of the evaluation do so at their own peril.
Realizing the Potential of Digital Transformation
The world is changing faster than ever before, requiring organizations to step up or step out of the race to innovate faster and better at scale. To fully embrace digital transformation, enterprises must first define digital transformation, build an achievable strategy, and adopt a digital culture.
With this foundation, it will be easier to leverage purpose-built technology to address necessary improvements for the customer experience and deliver data that drives improved decision making. To compete digitally, you must transform digitally and reap the benefits of a digital transformation organization.