What is digital transformation?
The concept of digital transformation has been visibly around for a couple of decades with a continuously increasing popularity. In this article, I will try to explain what it means and why it is so important. However, in an effort to clear the ground before proceeding with the definition of digital transformation, I would like to talk about two related concepts of “digitization” and “digitalization” which are often mistaken for each other despite each referring to different processes.
Digitization is the process of changing from analog to digital form, also known as digital enablement. Said another way, digitization takes an analog process and changes it to a digital form without any different-in-kind changes to the process itself.
Digitalization is the use of digital technologies to change a business model and provide new revenue and value-producing opportunities; it is the process of moving to a digital business.
Digital transformation is a more comprehensive concept that can refer to anything from IT modernization (e.g. cloud computing), to digital optimization, to the invention of new digital business models. Digital transformation is the integration of digital technology into all areas of a business, fundamentally changing how you operate and deliver value to customers. It’s also a cultural change that requires organizations to continually challenge the status quo, experiment, and get comfortable with failure.
Therefore, a digital transformation process would involve a combination of digitization and digitalization along the way that should be customized to the structure of the subject matter organization.
Why is it Necessary?
Digital transformation can help you restructure your company in a way to add value to your business, gain competitive advantage, exceed customer expectations and yield more revenue. Latest technologies such as big data, AI and machine learning can increase the efficiency of your business processes and to improve customer experience.
A business may take on digital transformation for several reasons. The most obvious reason, however, is that they have no other option. It’s almost an obligation for a business to survive in the 21st century. TechAisle’s most recent survey of 1600 Small & Medium Businesses found that only 18% do not have any form of digital transformation initiative. Which means that 82% of SMBs are already on their digital transformation journey. Therefore, small businesses that want to survive the competition and succeed must understand how to merge technology with their business strategy.
Organizations are at different places in the digital transformation journey, of course. However, speed has become a business imperative for all, and businesses face pressure to continue digital initiatives that is translated to increased agility and speed for the organization.
I’d also like to draw a bigger picture to reveal the significance of the digital transformation concept. Worldwide spending on technologies and services that enable digital transformation is estimated to reach $1.97 trillion in 2022, per the (IDC) Worldwide Semiannual Digital Transformation Spending Guide. IDC predicted that digital transformation spending will grow steadily, achieving a five-year compound annual growth rate of 16.7 percent between 2017 and 2022.
Now, on the other hand, considering the impact of the measures taken worldwide due to COVID-19 pandemic through 2020, which ceased the hands-on operations of non-essential businesses and significantly increased the amount of work handled online via digital platforms, 2022 spending seems to easily exceed the estimated amount of $1.97 trillion with companies understanding the vitality of the digital transformation and possibly prioritizing it in the near future.
Advantages of Digital Transformation
Eliminating Time-Consuming Manual Processes via Business Process Automation
One of the major advantages of digital transformation is eliminating tasks that unnecessarily waste staff time. By implementing digital technology, you can use software to perform the tasks that were manual before. Business Process Automation is often the stepping stone to a more holistic digital transformation but it can also be one of the outcomes.
Some key areas of digital technology can be used to reduce manual labour:
- Customer data collection
- Email and push notifications based on triggers
- Account changes
- Update to services
- Status updates
- Tech support ticket creation
- Time tracking
The true value comes from connecting these tools to be able to work together to streamline processes for high-volume repeatable tasks, with greater accuracy, and reduced cost as there is less of a need for staff to get involved in such time consuming processes. An example of automating an employee onboarding process is shown in the below graphic.
Increasing Customer Satisfaction via Improved Customer Experience
Automating these tasks also improves customer and staff experiences as they’ll see much faster turnaround times when they have an inquiry. One of the advantages of digital transformation is enabling customers to access your services and support via their preferred method of interaction.
By leveraging digital tools, you can enable omnichannel support, allowing customers to reach out via phone, website live chat, email, mobile app, or through a support forum. By keeping it all digital, companies can provide multiple touch points, track interactions, and facilitate follow-ups and feedback gathering from customers.
Similarly, organizations can use digital tools and processes to make it easier for customers to gain access to their services via e-commerce, mobile platforms, social media, and other digital avenues. Not only do customers get the benefit of accessing services via their preferred channel, but businesses can also suggest other related offers, products, or services using the data attached to their accounts.
These are processes that can be built and refined once a business is managing these aspects through digital technology and can be refined based on your actual customers’ experience.
Improving Decision-Making through Real-Time Data Collection
Software-focused digital processes open up a level of visibility into what is working well and what has a room for improvement. If the business houses all data digitally, often in real-time, it makes recognizing patterns and identifying opportunities for enhancements much easier.
Central data repositories can provide data to gain insights on bottlenecks in workflows, issues resurfacing the most, employee performance, customer preferences and behaviour, and many other areas. Once a business is using digital tools and develops processes around them, they are much easier to produce reports on and pinpoint areas for improvement as opposed to traditional surveying, sampling, and manual feedback collection.
Companies also drive efficiencies in their supply chain by integrating digital tools at each stage of development to service or product delivery. This can be as simple as tweaking existing processes to include a digital checkpoint or as advanced as automating processes and monitoring the output at each stage via IoT devices.
More data typically leads to faster, more accurate decision-making.
Increasing Flexibility and Scalability
A major advantage of digital transformation is breaking free of restrictive legacy systems and leveraging modern, scalable alternatives. Existing processes in businesses are often based on old technology which requires manual input – creating bottlenecks when workloads spike. Some manual processes simply won’t scale as more and more employees need to process claims, service requests, provide support, or complete other business functions.
Modern software and processes are often easier to integrate so you can connect various parts of your business rather than ‘ensiling’ data by department or function. When a task is complete, modern systems can often connect the data or next item to push it forward to where it needs to go – without manual intervention.
Transforming businesses to operate digitally, also allows those organizations to remain nimble and be more responsive to innovations and trends in their market.
Enhancing Reliability and Reducing Risk
As organizations continue to grow, the technology and processes that they’ve relied on for your years can start to fail them.
From a technical standpoint, it can be harder to back up, maintain, and protect data within older systems. This can make them more prone to failure or an easier target for cyber criminals. From the McKinsey report, Digital risk: Transforming risk management for the 2020s, they claim: “improving the efficiency and effectiveness of current risk- management approaches, digital risk initiatives can reduce operating costs for risk activities by 20 to 30 percent.”
Moreover, protection of the customer data privacy has become one of the major concerns of businesses at all scales throughout the world, and proper digital transformation is one of the most feasible ways to ensure data privacy. According to a recently released report, 49% of respondents said that securing customer data is one of their main digital transformation objectives.
From an HR perspective, if your existing business processes and operations run around legacy technology, it can be difficult to find professionals with the right skillsets to maintain them. By upgrading to modern digital tools, you’ll have a larger pool of applicants with the right experience to be able to support them properly.
Where to start?
As they embark on digital transformation, many companies are taking a step back to ask whether they are really doing the right things.
You need to take your business objectives into consideration before starting your digital transformation initiatives. It is a holistic process that cannot be completed overnight; therefore, you should have a strategic approach to your digital transformation journey focusing on your ultimate business objectives.
For small businesses just getting started, there’s no need to set up your business processes and transform them later. You can future-proof your organization from the word go. Building a 21st-century business on stickies and handwritten ledgers just isn’t sustainable. Thinking, planning, and building digitally sets you up to be agile, flexible, and ready to grow.
Digital Transformation 1st ed. 2019 Edition by Reimund Neugebauer (Editor)