Digital transformation is a term used to describe the integration of digital technology into all aspects of an organization’s operations and the continual adoption of new technology. Referred to as a digital transformation journey, this process is undertaken at varying paces and degrees. For many organizations, digital transformation is a disruptive endeavor initiated by senior executives and the board of directors.
At its root, digital transformation seeks to fundamentally change how an organization operates and delivers value to customers, stakeholders, and employees with an eye toward doing both more effectively and at a lower cost. Digital transformation is instantiated in the implementation of new technology as well as systems and processes to run, manage and maintain them.
Two functions that are integral to digital transformation are digitalization and digitization.
- Digitalization—the use of digital technologies to improve processes and projects
- Digitization—the transformation of paper-based information and data into a digital format
What differentiates digital transformations from business transformations is that business transformations revolve around a project that has a start and finish; digital transformation is ongoing, with new technologies being adopted and processes and systems optimized.
There are many drivers attributed to the rise of digital transformation, including the near ubiquity of new technology, such as:
- Artificial intelligence and machine learning
- Cloud computing
- Mobile devices
- Social media
- The internet of things (IoT)
In addition to these technological drivers, the digital transformation movement was driven by pioneering organizations that demonstrated the power and value of it. These organizations showed how technology could be used to:
- Automate operations and processes across an organization.
- Continuously enhance the customer experience (e.g., in-context customer reviews and personalized recommendations).
- Create completely new business models (e.g., e-commerce and electronic delivery).
- Develop intelligent workflows using artificial intelligence and machine learning.
- Update and optimize stagnated, legacy processes, such as supply chain management (e.g., just-in-time inventory) and product development (e.g., agile software development).
How to execute a successful digital transformation
Successful digital transformation hinges on executing many functions well. At a high level, the key phases of a digital transformation are the same as most large projects:
- Establish objectives and outcomes.
- Identify an executive sponsor.
- Assess requirements.
- Define specific needs.
- Assemble a team.
- Execute the program.
- Monitor and measure results.
- Continually improve.
Best practices for executing digital transformation include:
- Adopt a fail-fast approach that identifies issues early on and minimizes the impact of changes.
- Audit existing processes and policies and eliminate or update any that are obsolete.
- Build new processes into existing workflows as much as possible to minimize disruption and learning curves.
- Build teams with overlapping domain experience.
- Celebrate changes and innovations derived from digital transformation efforts.
- Conduct exhaustive research to identify the best technologies.
- Consider what and how changes can improve customer experiences.
- Create an adoption plan that includes employee engagement and integration into day-to-day workflows.
- Encourage new ideas and feedback.
- Identify team members who have the right skills for their assigned task (i.e., avoid assigning highly skilled individuals who lack domain experience).
- Invest time and effort into driving the importance of digital transformation into the organization’s culture.
- Leverage data with artificial intelligence as much as possible.
- Pinpoint processes that need to be upgraded, focusing on those with the highest impact first.
- Roll out changes incrementally as updates or new processes and systems are available.
- Secure buy-in from stakeholders before starting to assure adoption at all levels across the organization.
- Start small and set realistic, achievable goals.
What is a domain in digital transformation?
The term domain is often used when discussing digital transformations. Digital transformations are described as focusing on key domains rather than specific use cases. This is important, because it encompasses everything that must be done to achieve the objective, including how to manage interconnections holistically, rather than focusing on multiple areas separately.
Following are five of the most commonly used digital transformation domains. By developing a digital transformation strategy and plan for each of these domains, organizations cover the fundamental components and are well-positioned to successfully drive innovation in other areas.
1. Business model digital transformation domain
Applying digital transformation tenets to business models is about adapting and updating operations and processes to take full advantage of technology to meet evolving market requirements and customer demands and maintain a competitive edge.
2. Process automation and optimization digital transformation domain
Process automation and optimization get to the heart of digital transformation as it focuses on using technology to streamline operations, increase productivity, and reduce costs. This domain also has positive ripple effects across other digital transformation domains.
3. Product and service innovation digital transformation domain
Digital transformation, when applied to products and services, is about creating new or retrofitting existing solutions to be digital-centric. This ensures that they are optimized to meet customers’ needs by leveraging the latest technologies. Applied to products and services, digital transformation also helps organizations stay ahead of the competition.
4. Employee empowerment and engagement digital transformation domain
Organizations that achieve effective and sustained digital transformation do so, in part, by inculcating innovation into the culture. Employee empowerment and engagement play a key role in this. By giving employees tools, resources, and training around digital transformation, organizations see wider adoption, because employees feel empowered and are more actively engaged.
5. Customer experience digital transformation domain
The customer experience domain focuses on understanding and meeting customers’ needs and delivering a positive customer experience. This drives customer satisfaction and loyalty, which increases customers’ lifetime value and ensures the organization’s long-term success.
Artificial intelligence (AI) and digital transformation
Artificial intelligence (AI) is embedded in much of the technology seen in digital transformation initiatives. AI-powered solutions have a number of powerful capabilities, including:
- Enabling advanced analytics
- Evolving and learning based on data inputs
- Helping organizations analyze and react to data
- Identifying patterns in data
- Making predictions
- Providing actionable insights
- Supporting complex, non-repetitive tasks
These capabilities support many objectives of digital transformation, such as advancing automation and using technology to drive value. Digital transformation technologies use AI to enable quick reactions to new information or unexpected changes. It also analyzes data to detect incoming challenges before they occur to support proactive postures in multiple areas, such as security and risk management.
When using AI-powered solutions as part of digital transformation, it is important to consider the use cases and derivative value.
It is also critical to ensure that the organization has staff with the expertise to take advantage of AI solutions.
Digital transformation technology powered by AI provides many benefits, including:
- Enhancing customer engagement
With the insights provided by AI and other aspects of digital transformation, organizations are better able to predict consumer demands, identify emerging trends, and adapt to changing market requirements. In addition, AI supports omnichannel experiences for consumers. AI solutions also improve security to protect consumers’ sensitive information.
- Facilitating more effective decision-making processes
AI helps optimize business processes driven by digital transformation. It provides teams with insights that help them make better decisions faster. AI tools can also process large volumes of information quickly and deliver predictive analytics to provide insights that drive proactive operations.
- Improving cybersecurity
Digital transformation, despite its many benefits, has the downside of increasing an organization’s digital attack surface. However, AI-powered security solutions are able to detect and thwart threats, which helps mitigate cybersecurity risks.
- Increasing profitability
By incorporating AI solutions into processes and workflows, organizations that embrace digital transformation are able to minimize risks and improve operational efficiency, which both increase profitability. AI also helps identify patterns and trends that can speed time to market for new products and services, giving organizations a chance to gain market share more quickly. These patterns can also identify opportunities to optimize sales and marketing efforts.
- Predicting risk vulnerabilities
Processing vast amounts of data from disparate sources, AI increases digital transformation success rates by helping organizations identify and predict risk vulnerabilities. The power of pattern detection is in high relief when AI is used for risk analysis. AI-powered solutions are able to detect hard-to-find or overlooked risks that can impede digital transformation efforts and negatively impact operations.
- Providing a holistic view of the customer
AI facilitates digital transformation efforts by drawing on disparate data sources to give organizations a 360-degree view of customers. These insights can be used to identify areas for improvement and inform priorities.
Key leadership roles for digital transformation
Chief executive officers
Due to the all-encompassing scope of a digital transformation, it must be driven by the CEO with the support of the board of directors. Digital transformation journeys impact every area of an organization and require large-scale investments that require a CEO’s endorsement and committed support to ensure alignment and engagement across functions.
Senior leadership must also be on board with the digital transformation and ready to drive the initiative in their teams and business units.
Once a digital transformation initiative is approved and planning begins, evangelists play the crucial role of explaining what it is, why it is important, and how it will benefit the myriad groups and individual roles in the organization. Evangelists help develop grass-roots support for digital transformation to assure broad and deep adoption and support.
The success of a digital transformation initiative is contingent on technology being absorbed and embraced across all operational areas of an organization.
An operations-technical liaison has deep insights into how the technology can and should be applied to business models, customer experience issues, products and services, and technology strategy.
They work with the organization’s leaders to facilitate the adoption of digital transformation principles, processes, and technologies by identifying opportunities and addressing issues.
Experts in the various technologies brought with digital transformation, technologists are the part of the team that selects the solutions and ensures their successful implementation. Technologists also identify specific use cases for technology across the organization and at the business unit level.
Security, risk, and compliance managers
Security, risk, and compliance team representatives bring a critical strategic perspective to digital transformation initiatives that should be applied to all functional areas. Each group must be part of planning from the outset to avoid future issues that delay efforts and increase costs.
Program and project managers
The tactics of digital transformation initiatives are run by program and project management teams. They develop the plans for executing the various phases, oversee staffing, and ensure that projects are completed on time and within budget. Having a dedicated digital transformation project management team is essential as they are looking at the project as a whole versus at the functional level. This perspective gives them the ability to ensure alignment with the overall strategic goals and other groups conducting different parts of the rollout.
How to evaluate a digital transformation
The success and efficacy of a digital transformation can only be assessed if it is properly observed, measured, and evaluated. Best practices for assessing a digital transformation include:
- Establish initial metrics to use at key milestones and on an ongoing basis.
- Develop micro-metrics that make it possible to test and measure results accurately.
- Measure various outcomes, including:
- Strategic results, such as customer satisfaction and retention, revenue changes, other value creation, and performance against competitors
- Operational results, such as employee productivity changes, scalability in response to market changes, and operational efficiency impact
- Productivity of the digital transformation team
Digital transformation: Not just a buzzword
Although digital transformation has been widely used as a superficial buzzword, it has held its own and continues to stand as a truly game-changing paradigm shift. Digital transformation has become a mandate for most enterprises and a top priority for many other organizations. Embracing it is widely considered a necessity, not just to compete, but to survive as an organization and a leader.
The good news is that the technology, frameworks, and expertise needed to embark on or continue the digital transformation journey abound. Organizations that want to move forward with their digital transformation are encouraged to take the next steps, even small ones, to begin the journey and start to reap the rewards.
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