What Is Digital Transformation And How Can It Change Your Business?

・15 min read
What Is Digital Transformation And How Can It Change Your Business?

If there is one thing, Covid-19 has taught the entire world how important Digital Transformation is for every business. From grocery stores to billion-dollar businesses, every organization needs digital transformation.

According to IDC, the total investment in digital transformation would reach more than $6.8 trillion between 2020 and 2023, representing a 15.5 % annual growth rate.

According to Gartner, most IT organizations' tech investment will grow across the board through 2021 and beyond. On the other hand, top performers have had a head start, with organizations that have already raised their digital innovation spending being 2.7 times more likely to be top performers than lagging performers. Read the article to find out how digital transformation can change your business in 2021.

What is the difference between digitalization, digitization, and digital transformation?

To better understand digital transformation, we need to first learn the difference between digitalization, digitization and digital transformation.

Digitalization - Using digital data to simplify work

Digitalization is the practice of using digitized data to make established ways of processes easier and more efficient. It's important to note the term "established" in that definition:

Digitalization does not imply a shift in business practices or the creation of new types of firms. It's all about to keep going, but quickly and effectively now that your material is instantly available rather than being locked away in an old archive lockbox.

Consider customer service in retail, field operations, or a contact center. By making client records accessible and promptly retrievable through a computer, digitalization revolutionized service. When checking handwritten ledgers was replaced by just a few keystrokes on a computer screen, or mobile device, the process of answering an inquiry, seeking up the necessary data, and delivering a resolution became significantly more efficient.

People began to employ business technology in new ways as digital technology advanced, rather than merely accomplishing the same things quicker. The concept of digital transformation took shape at this time. New things — and new methods of doing them — become feasible due to the new technology.

Digitization - A move from analog to digital

Businesses used to keep their records on paper. Business data was analog, whether it was penned in ledgers or entered into papers. Physical documents, papers, binders, xeroxes, and faxes were used to gather and distribute information.

When computers became more widely used, most firms transferred their ink-on-paper records to digital computer data. The process of transforming information from analog to digital is known as digitization.

Digital transformation - To add value for every customer interaction

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Digital transformation is transforming the way companies are conducted and, in some circumstances, spawning completely new industries.

Digital transformation is helping businesses to take everything from a perspective to online and in-person client interactions. "Can we modify our procedures in a way that will enable enhanced decision, game-changing efficiency, or an improved user experience with greater personalization?" they're asking.

Due to technological advancements, large-scale streaming video became conceivable. Netflix now competes with conventional broadcast and cable television networks and production studios by providing a growing library of on-demand content at extremely low cost.

First, understand what's possible with digital transformation.

Understanding the capabilities of your technology is an important part of digital transformation. That isn't to say that you should question, "How much faster can we do things the same way?" It entails answering questions such as, "What is our technology truly capable of, and how can we modify our organization and procedures to get the most of our technological investments?"

People used to rent movies by visiting stores and rummaging through racks of tapes and discs in search of something interesting. On personal devices, libraries of digital information are now available, replete with suggestions and evaluations based on user interests.

How to define Digital Transformation?

Digital transformation is defined as integrating digital technology into all aspects of a business, resulting in substantial changes in how organizations function and offer value to consumers. Beyond that, a culture shift necessitates organizations challenging the status quo regularly, experimenting frequently, and being comfortable with failure. This might imply abandoning long-standing business procedures on which organizations were founded in favor of more recent practices that are still being established.

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Why is Digital Transformation so important?

A company may undertake digital transformation for a variety of reasons. However, the most likely explanation is that they must: It's a matter of life and death. A company's capacity to quickly react to supply chain interruptions, time to market challenges, and rapidly changing consumer expectations has become important in the aftermath of the pandemic.

This fact is reflected in expenditure priorities. Investment in digital transformation (DX) of corporate methods, products, and organizations continue "at a strong pace," according to the May 2020 IDC) Worldwide Digital Transformation Spending Guide, global investment in DX technology and services would increase 10.4% to $1.3 trillion in 2020. IDC says that this compared to a 17.9% increase in 2019 and that it "remains one of the few bright spots in a year marked by severe decreases in total technology investment."

Constellation Research's VP and primary analyst, Dion Hinchcliffe, writes: "In today's fast-changing enterprises, top IT administrators must either keep up with the rate of change or fall behind. That is the existential question at hand in today's digitally infused world, where daring action requires active support from out-of-the-box exploration and pathfinding.

Improving customer experience has become a crucial goal – and thus a crucial part of digital transformation. Hinchcliffe calls seamless customer experience "the most important discriminating factor for how a business will perform."

How has the pandemic impacted digital transformation?

"We've seen the COVID crisis rapidly re-shape both the "what" and the "how" of companies' digital transformation agendas, notes Korn Ferry's Swift.

Take, for example, employee experience, she advises. "Even as employee experience has been a prominent subject in the HR world, this idea has been getting a mixed welcome in IT circles," Swift adds, "often labeled as "spoiled employees seeking best-in-class consumer-grade equipment on shoestring budgets."

"Today, with so much of the workforce working remotely, digital technology has gone from "nice to have" to "the only way to get work done. Consequently, it's getting the problem-solving focus it likely long deserved."

COVID-19 placed certain additional areas of digital transformation activities higher on CIO agendas, according to Swift:

  • Increasing the reach of customer service using platforms such as chatbots
  • Resilience-related automation tools
  • Complete overhaul of systems that are redundant or incompatible.

According to Swift, CIOs have also adopted the idea that "the perfect is the enemy of the good" in reaction to the pandemic. "A full-fledged catastrophe silences an individual's – or an organization's – inner perfectionist like nothing else. Many businesses have had a good re-negotiation of their relationship with digital technology in reaction to major disruption, favoring "hey, it works!" above "after years of slaving over this effort, we've collected the absolute finest bells and whistles."

The "working software" lionized in the Agile Manifesto is getting a true moment in the sun." (For more, read Swift's full article: Digital transformation: 5 ways COVID-19 is forcing positive changes.)

Most common Digital Transformation areas

Digital transformation in the integrated and connected sense which it requires can, among, others, touch upon the transformation of:

  • Business activities/functions: Marketing, operations, human resources, administration, customer service are the most important business functions.
  • Business processes: Business process management, business process optimization, and business process automation are all used to achieve a specific company goal by connecting one or more associated operations, activities, and sets (with new technologies such as robotic process automation). Business process optimization is critical in digital transformation initiatives, and it is a combination of customer-facing and internal aims in most sectors and scenarios today.
  • Business models: How organizations operate, from their go-to-market strategy and value proposition to how they generate money and effectively shift their core business, dipping into fresh income sources and methodologies, and sometimes even abandoning the conventional core business.
  • Business ecosystems: The business's network of partners and stakeholders and contextual elements such as legislative or economic agendas and evolutions. On the fabric of digital transformation, information, new ecosystems are being established between organizations with varied backgrounds, where data and actionable insight become innovation assets.
  • Business asset management: Where the emphasis is shifting away from traditional assets and toward less 'tangible' assets like information and customers (improving customer experience is a top goal of several digital transformation "projects," and data is the lifeline of business, technological variations, and any human relationship). Customers and information must be considered as valuable assets from every angle.
  • Organizational culture: A clear customer-centric, agile, and hyper-aware aim must be established, which is accomplished by developing core skills throughout the board in digitalization, management, knowledge management silos, and so on, allowing organizations to become more future-proof. Procedures, business activities, collaboration, and the IT side of digital transformation all intersect with culture. Changes are necessary to get applications to market faster. Development and operations are at the heart of DevOps.
  • Ecosystem and partnership models: With the advent of collaborative, co-creative, and, last but not least, wholly new business ecosystem methods, new business models and income streams are emerging. In the as-a-service economy and in attaining digital transformation success, ecosystems will be critical.
  • Customer, worker, and partner approach: People and strategy come first in digital change. Any stakeholder's shifting behavior, expectations, and demands are critical. Customer-centricity, user experience, worker empowerment, new workplace models, shifting channel partner relationships, and other transformation subprojects reflect this.

What drives Digital Transformation?

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Technology is, of course, a key component of digital transformation. However, discarding outmoded procedures and legacy technology is frequently more important than embracing new technology. It's also about making innovation possible.

According to Dave Egts, chief technologist, Red Hat North America Public Sector, "more government agencies are on the cusp of realizing the cloud model's full potential - from cost-cutting to employing cloud for strategic advantage." "Deloitte just produced a list of nine technological trends altering government, and one in particular, the cloudas an innovation driver, will be critical to enabling the future of technology in government," Egts adds.

Legacy technology's pervasiveness in enterprise IT continues to stymie CIOs' ability to properly implement a digital transformation plan. Legacy technology can be an expensive obstacle to change, according to Beth Devin, Managing Director and Head of Citi Ventures' Innovation Network & Emerging Technology. "If you're spending 70 to 80% of your IT budget on legacy systems, you won't have much leftover to pursue new possibilities and propel the company ahead. And as technology advances and becomes more vulnerable, this expenditure will rise." Devin makes a special note.

"What is the long-term benefit of using the finest new technology for your business and customers?" she asks, pointing out that innovations are produced using cloud designs and methodologies.

Businesses must try to boost efficiency using technology wherever feasible if they want to keep up with today's quick pace of digital development. For many, this entails implementing agile concepts throughout the business.

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What are digital transformation technologies?

Both the demand for digital transformation and the support for an organization's digitalization are driven by technology. Several digital transformation technologies are crucial to digitalization, even though no one application or technology supports transformation:

  • Cloud computing, which allows an organization to have instant access to its software, new features, and upgrades, as well as data storage, from any location at any time.
  • Commoditized information technology, which allows a company to focus its investment funds and human resources on the IT modifications that set it apart from the competition.
  • Mobile platforms, which allow work to take place anywhere and whenever it is convenient.
  • Machine learning and artificial intelligence (AI), which, when powered by extensive data programs, give firms with insights for making faster and more accurate choices in sales, marketing, product development, and other important sectors
  • Automation, such as RPA, uses bots to perform monotonous, repetitive activities quicker and more precisely than people, allowing humans to focus on higher-value work.
  • Other upcoming transformative technologies that aid firms in moving quicker, working more efficiently, and developing new goods and services, such as:
  • blockchain
  • augmented reality (AR) and virtual reality (VR)
  • social media
  • IoT
  • edge computing

What are the challenges of Digital Transformation?

According to a Gartner analysis from 2020, "just 40% of organizations have brought digital efforts to scale," even though 91% of organizations are engaged in some sort of digital transformation, and 87 % of top business leaders think digitalization is a priority.

Everest Group discovered that 78% of businesses fail in their digital transformation efforts; among the main causes for failure, the research company listed unsustainable returns, low user acceptance, and abandoned projects.

The following are the most prevalent reasons for digital transformation failures, according to experts:

  • lack of employee engagement
  • inadequate management support
  • poor or nonexistent cross-functional collaboration
  • lack of accountability
  • data privacy and security concerns
  • budgetary constraints
  • limited in-house skills and expertise
  • regulatory and legislative changes
  • immature digital culture

Legacy systems and applications — outdated technologies that don't enable digital objectives but can't be quickly replaced — are one of the major digital transformation problems for companies that weren't "born digital." Digital transformation is highly unlikely to happen if the leadership group declines to pay for a replacement outmoded technologies or fails to secure the requisite executive and board-level support for investing in a technology makeover.

What are the benefits of Digital Transformation?

The single most important benefit of digital transformation is allowing organizations to prosper in the digital era. For businesses, success translates to increased revenue and profits. Other companies, such as nonprofits, may now better serve their stakeholders due to the digital success indicators they've introduced.

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Although the ultimate goal of digital transformation is to ensure an organization's survival and strength in the future, it also provides numerous additional benefits to businesses. The following are some of them:

  • greater efficiency and effectiveness, as AI and RPA raise worker productivity, minimize mistakes, and shorten time to market — in the meantime, revised business processes enabled by digital technology boost productivity and speed of business even more;
  • improved engagement with customers, employee, and business partner involvement as organizations can analyze data more effectively to make wiser, more accurate choices and anticipate the demands of their many stakeholders;
  • more agility and responsiveness to changing markets, when an organization's culture and skills adjust to accommodate continual change
  • Improved capacity to innovate due to a more agile workforce and upgraded technological capabilities enable and promote experimentation while reducing risk.
  • Understand the market and your company's position within it, as well as your current and future clients.
  • Analyze the market's trajectory so that the company may foresee the potential for digital disruption and how it can be the disruptor rather than being disrupted by others.
  • Internal and external research is used to identify the current and potential value proposition.
  • Create a vision for the company's future, including how its goods and services should change to satisfy client demands and expectations.
  • Create a digital transformation roadmap that offers a way to move from current to future state.

How can I measure ROI on Digital Transformation?

Digital transformation is a vast endeavor with no single conclusion; it usually necessitates a series of continuing activities that include investments in new technology, new skills, a refreshed workplace culture, and even organizational restructure.

Despite the broad scope of digital transformation, businesses can assess how well they're progressing and whether their expenditures are paying off.

Executives can measure ROI delivered by digital transformation initiatives as they would quantify ROI on more conventional projects:

  1. Determine the aims or goals of a specific effort that contributes to the company's digital transformation plan.
  2. Determine the components of the initiative and their related expenses.
  3. Define the metrics used to assess if and how successfully the defined objectives and goals were fulfilled and how those metrics will be compared against expenses to calculate ROI at various stages of the organization's transformation journey.

Because organizations are expected to invest enormous amounts in their strategic initiatives in the coming years, measuring the success of digital initiatives will be crucial. According to IDC, direct digital transformation investments will total $6.8 trillion from 2020 to 2023.

Conclusion

The rise of Digital Transformation has changed service much like it’s changed advertising, marketing, sales, and even customer services. Progressive businesses are embracing digital transformation as a chance to extend their service offerings by meeting customers on their platforms of choice.

If you are looking to embrace digital transformation for your company and want to partner with a team of experts, you should get in touch with Selleo. We master techniques to digitize your process and workflows without affecting your current productivity. For more details, please contact us now!

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