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Why are businesses experiencing a digital transformation?
The answer is simple: they don't have a choice.
Until some time ago, such an option was considered the reserve of big players only. Today, we know that any company wanting to stay afloat must undergo a digital transformation.
So what is a digital transformation? And why is digital transformation important?
What does digital transformation mean?
According to McKinsey&Company, a digital transformation is "an effort to enable existing business models by integrating advanced technologies". In other words, it is the integration of digital technologies into the company's strategy, processes, products and services.
It aims at preparing the company to meet the changing business requirements and compete in a challenging market whilst maintaining the capacity to respond to current and future customer demands.
Digital transformation is often associated with such functions as sales and marketing. This is because many companies have since realized that creating a positive customer experience is how they gain a competitive advantage.
According to "37 customer experience statistics you need to know for 2022", customer experience is the No 1 priority for businesses over the next 5 years -- ahead even of products and services themselves.
Although the applications of digital technology in customer service departments do much to enhance customer relations, the effects of a digital transformation go much deeper and are felt in a company at every level, whether that be its organization of work, its supply chain or otherwise.
There is no one form of digital technology that changes business models. Each year, Gartner publishes the top tech trends that shape the future of digital business. Currently, these trends indicate that CEOs have 3 priorities for 2022: growth, efficiency and... digitalization.
Among the strategic trends, Gartner indicates AI hyper-automation, AI engineering and cloud-native platforms. They are referred to as emerging technologies, technologies that are set to shift the status quo and thus become indispensable to businesses. And this is why we may accurately define the term "digital transformation" as a necessary disruption.
Why digital transformation?
As we'd asserted in this article's introduction, digital transformation is a necessity for the survival of any business, whether that business is corporate, small/medium-sized or indeed a non-profit organization. It's merely a matter of scale.
Naturally, a digital transformation includes start-ups. So, if you're thinking of initiating one yourself, you'll need to take these trends into account. Doing so from the outset will make for a more strategically designed structure and processes that will ensure good capacity for scaling up.
The stark reality is that digital transformation has the power to decide whether a company stays in the market or is eclipsed by the competition. It is a lever for strengthening competitive advantage and a tool to better serve all stakeholders.
Here are some indispensable benefits a digital transformation can provide:
improved customer service (positive customer experience, the anticipation of customer needs, quick response times)
increase in employee productivity and efficiency
optimized time in getting new products and services to market
improved internal and external business communications
increased level of security within operations and processes
increased level of process automation
broadened capacity to identify new business opportunities
reduced costs and increased profitability
The perception of a need for a digital transformation has changed owing to the pandemic when quick adaptation to new conditions became critical. COVID forced significant changes in business models, the way of working, serving customers, and many other processes.
As the rate and sheer breadth of integration of digital technology have increased since then, digital transformation has become a means of economic survival for most companies.
What are the 4 main areas of digital transformation?
But a digital transformation is no easy task. Many attempts fail. One reason for this failure is when that transformation is limited to a single area in a business.
There are, in fact, 4 areas of digital transformation and it's a good idea to be familiarized with all of them in order to take full advantage of this revolution.
No. 1 - Process
Digital transformation in processes aims mainly at increasing efficiency, improving value, and reducing costs. It can create real value for employees, shareholders, and customers.
Examples of process transformation:
enabling customers to purchase products and services via multiple channels
automating back-office processes hitherto performed manually
using data analytics to anticipate customers' needs and provide a personalized service to them
No. 2 - Business model
Digital transformation aimed at creating new business models is a huge undertaking. It changes entirely the way a company serves its customers. This may include how the product is offered and how charges are applied.
Some strong examples of digital business transformation in this area are:
Netflix reinventing video distribution
Uber transforming the taxi services
Airbnb revolutionizing the hospitality industry
All these new concepts succeeded in disrupting the status quo and transforming their respective markets forever.
No. 3 - Domain
Domain transformation is about departing the boundaries of core business and seizing new growth opportunities from the new digital domain. The most cited example is Amazon's domain Amazon Web Services (AWS). Although AWS has very little to do with its core online retail activity, at the same time it generates a staggering 60% of Amazon's annual profits.
Indeed, stepping into new ground requires an element of courage. But the example above shows how generously it can pay off. It wasn't so long ago that the option for such an undertaking laid solely in the realm of corporate colossi. Not anymore.
Instead, practically any company today can have cheap and easy access to a new digital technology that goes beyond their core activity to unlock growth opportunities elsewhere. This can be done with the support of start-ups.
In fact, start-ups are an integral part of this process as a whole because they are technological innovators as well as players seeking partners to adopt their innovations in a business environment.
No. 4 - Culture
No transformation will meet its long-term objectives without a prior redefinition of the organization's mindset. This is about fostering a culture of innovation, introducing agile methodologies to daily workflows and decentralizing the decision-making processes.
Ultimately, it's about developing a more customer and data-centric approach to the business.
Of these 4 areas of digital transformation, cultural transformation is the most time-consuming and challenging. This is because it involves changing employees' habits and recalibrating the way they think -- two necessary changes that human psychology will always be instinctively resistant to.
Therefore, this transformation requires a strategy. Some companies decide to nominate ambassadors of change. When they feel this change is ready to improve their daily work, there is a greater chance the rest will follow.
Other areas for a digital transformation
There is no single best model for experiencing a digital transformation. We have presented above the most frequently identified areas of transformation.
But there are many more. Microsoft, for example, in its "Digital Transformation e-book series" distinguishes the following areas:
This suggests that each company must find its own pattern for digital transformation and understand the true potential of digital technology for its unique business.
To do so, following customer' needs, involving employees in the process, and appointing IT departments as promoters of technological benefits will be essential.
What is a digital transformation strategy?
According to McKinsey & Company, digital transformations are extremely difficult. In their article "Unlocking success in digital transformations" we read:
"Only 16 percent of respondents say their organizations’ digital transformations have successfully improved performance and also equipped them to sustain changes in the long term. An additional 7 percent say that performance improved but that those improvements were not sustained."
These numbers are cited not to discourage but rather to emphasize how critical it is for a business to adopt a digital transformation strategy. Why? Because each successful transformation must start with a vision. And no digital technology, not even the most innovative, will lead to success until it is linked to business goals.
A digital transformation strategy is a detailed plan for using technology to improve a business. It should answer the following questions:
Where the company is now?
Where the company is heading?
How will it get there?
Whereas digital technology is merely a tool, a transformation strategy must use this tool to focus on the business goals that are met by serving customers, employees and other stakeholders.
Here are some key factors and questions that must be addressed when implementing such a strategy:
Market analysis: how does the market landscape look, what is the market position of the business and who is the competition?
Trends of digital disruption: where is the market heading and where is the potential for disruption?
Value proposition: how should the business modify its offer to meet customer requirements?
Gap analysis: to introduce this change, what is needed in terms of resources, information, and processes?
Transformation roadmap: how does the business get from A to B (e.g. introducing new technologies, training programs, acquiring new talent)?
Although the failure rate of transformation is high, a smart strategy can improve the outcome of digital disruption in a company.
Key success drivers here can be:
having digital-savvy leaders in a team
empowering people to change
providing digital tools
communicating the transformation in an open and transparent way
At Startup Development House we know from experience that a digital transformation is not a one-off exercise. It's a long-distance run requiring a detailed route with many breathers along the way for evaluating whatever progress has been made thus far. Adjustments may then be introduced to the plan in a way that will maximize business value.
Whilst we believe in the power of digital disruption, we remain vigilant of the challenges it poses. This position enables us to lay solid ground for implementing such fundamental and sustainable changes.
Are you ready to join those businesses now experiencing this digital transformation? Ready to unlock new growth opportunities? Contact us and we'll help you discover what true potential digital technology has in store for your business.
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