Digital transformation is necessary for enterprises, though many business leaders don't know where to start. This digital transformation primer covers best practices, challenges, tech and more.
Digital transformation is more than a buzz phrase for the enterprise. Technology is reshaping business in numerous ways, and the overall concern is that anyone without the newest tech in place will soon be left behind. This fear is not unfounded.
"Digital transformation is not just about technology. It's the necessary but challenging journey of operating digital-first with the speed and nimbleness to change rapidly, exploit technology to create lean operations, and free people to do more complex tasks," according to Forrester.
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This cheat sheet presents leaders with details and expert analysis about the benefits of digital transformation initiatives, tips on how to start these projects and more. Also, find out how the Internet of Things, blockchain, big data, artificial intelligence, machine learning and cloud computing are having an impact in digital transformation strategies.
What is digital transformation?
The concept behind digital transformation is how to use technology to remake a process so that it becomes more efficient or effective. It's not just about changing an existing service into a digital version but improving it.
Some of the technologies used in digital transformation projects are IoT, blockchain, big data, cloud computing, AI and machine learning. Digital transformation is more than just adding technology—part of the transformation includes changing how employees think. If the corporate culture doesn't support change, then it will be difficult for a company to instill new business processes and reach digital enlightenment. The shift to a digitally transformed business often means breaking down silos and relating differently to customers.
"Digital transformation is quite simple. It's adopting what are now becoming mainstream digitization technologies such as IoT, mobilizations, customer engagement, artificial intelligence, data and analytics. How do you use those technologies to improve the value of your product? Not just the value of your product, but the value your customers get out of your product or the value they get out of that service," said Rick Veague, CTO of IFS North America.
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How will digital transformation impact spending?
As the COVID-19 pandemic reshaped business needs globally, companies began using fewer traditional processes and focusing spending and resources on digital transformation.
A 2020 Flexera report found that 54% of organizations indicate that digital transformation is a top priority. According to the report, "organizations are embracing digital transformation because it's essential to creating a compelling customer experience that enables future business success."
The expectation of greater sales from digital transformation means executives are hopeful that business will thrive in the new environment, according to a blog post by Nigel Fenwick, vice president and principal analyst for Forrester: "This suggests not only huge awareness of the potential for digital to change today's business but also an expectation that their company will be successful in making the transformation needed to bring this expectation to fruition."
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Why is digital transformation a must for every company?
Regardless of industry, competition in the market spurs innovative thinking, and a company's closest competitor may find a new solution and catch a company off guard, said Craig Williams, vice president and CIO of Ciena. "This requires you to stay on your game by observing what is happening in your industry and whether the initiatives you implement are keeping the business one step ahead of other industry players."
"There's also nothing like a healthy dose of paranoia to force you to stay keenly aware of the market and motivate you to implement tools to keep the workforce competitive. IT competition isn't necessarily the same as selling widgets, but you can pretend it is. Run your IT department like you're running a business and understand the costs, the customer satisfaction, the competition, and see if your team is on top," Williams said.
Digital transformation is essential for every business, according to Veague. "Using modern digital transformative techniques allow you to get closer to your customers, allow you to see how your products are really performing, and whether they're meeting those customer expectations. In our world, if you're not on a digital transformative strategy, your competitors are, and you're going to get left behind," he said.
Digital transformation gives IT employees a chance to better integrate IT with a company's goals, said Art Langer, a professor and director of the technology management programs at Columbia University. "Digital transformation is just an absolute fundamental requirement to get that done. This is about technology becoming clearly in the frontline of strategy," he said.
"One of the things I always talk about is the old statement, 'All roads lead to Rome,'" Langer said. "Well, all roads today lead to a consumer. I believe that this whole digital transformation is about the consumerization of technology. If you're a B2B [business to business] company, eventually all roads will lead to a B2C [business to consumer]. Somebody along that supply chain will be servicing the demand side, which is a consumer."
One of the most difficult industries to transform, but that needs it the most, is manufacturing.
"Traditional manufacturing remains extremely siloed, with deployment of best practices across different cultures and systems difficult at best," said Richard Lebovitz, CEO of LeanDNA.
Digital transformation breaks down silos to deploy best-practice analytics across multiple sites and suppliers in weeks versus months or often years. With a focus on improving working capital efficiency and on-time delivery performance, manufacturers, for example, can use digital transformation to work faster, cheaper and achieve better results, Lebovitz said.
The COVID-19 pandemic quickly and drastically shaped digital transformation. Companies had to get as many employees as possible working from home in March 2020, and many are still working remotely.
Research has shown that many workers want and expect remote work to continue after the COVID-19 pandemic ends. A March 2021 survey of remote workers done by Caprelo, a work relocation company, found that 87% said being able to work remotely would be a part of their future employment decisions. Likewise, an April 2021 report published by the global staffing company Robert Half found that as many as a third of workers may quit if they were asked to return to the office full-time. The number of employees likely to leave their job if remote work is taken off the table is even higher among working parents. An April 2021 survey of over 1,100 working parents conducted by FlexJobs found that 62% of respondents said they "would quit their current job if they can't continue remote work."
Tata Consultancy Services in September 2021 predicted that companies will need to maintain that level of nimble innovation to meet the demands of the market for the next four years.
The survey of 1,200 business leaders from Asia, Europe, North America and South America also found that leaders rank innovation as the first priority for company culture, while shareholder value comes in seventh.
The survey found that companies are likely to choose innovation when considering where to compete (new sectors, regions or business models) and how to compete (new business processes). Optimization takes priority when the questions are what to compete with and how to lead. Survey respondents said they plan to improve existing products and services as well as existing talent management approaches instead of developing new tactics in those areas.
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What are the components of digital transformation?
There are three components that comprise digital transformation.
"There is infrastructure at the bottom of the pyramid," Langer said. "At the top, which is your CEO and C-level people, you're trying to transform new types of business opportunities and marketing opportunities and give them a competitive advantage. On one hand you're trying not to be disrupted because what you really want to be is the disruptor. Then in the middle, which is significant, is the operating model of the organizations."
In a digital transformation, people will have new roles and responsibilities, with some jobs lost and others added.
Langer said, "The biggest part about digital transformation is an old Burger King cliché, 'Have it your way.' That's what digital transformation demands. The consumer wants choice. The consumer wants options. When you look at the success of Amazon, what are they giving you? They're giving you multiple ways of doing business, and they're charging you for different things. You want something delivered right away? Amazon has Amazon Prime. Will you pay more? Yes. All right, so it's a myriad of options. The other aspect of digital transformation is 24x7x365. Amazon is a store that never closes."
During the pandemic, Amazon's 24-hour operation proved invaluable to those stuck at home–it saw a 220% increase in profits.
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What are the most important technologies for a digital transformation?
"Digital transformations that leverage multiple technologies at the most effective points will be the most successful. For example, LeanDNA leverages cloud computing, AI and ETL for data connection and extraction. We also leverage new web technologies to create powerful user experiences and interactive collaboration tools. The combination of these technologies allows customers to perform powerful analytics on extremely large and complex business data on the back end while providing a simple web-based front end that makes results easy to understand and actions easy to execute," Lebovitz said.
IoT, blockchain, big data, AI, machine learning and cloud computing are among the most common technologies used in digital transformations.
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What are the biggest challenges to digital transformation?
Digital transformation projects fail when they're too ambitious, Veague explained. "What we've seen in our customers who have gone down this journey, whether it's implementing IoT or AI-type technologies or big data or whatever, is that they learned an awful lot along the way. And they changed their expectations about the value and what they're going to get from it, based on what they learned."
A digital transformation is truly about digitizing every aspect of a business, but not every company realizes that when it begins down the path to change.
Langer said, "Where you see companies failing at it is mostly in the cultural assimilation area. They're just not digital people. They don't have the cultural aspects on how to do that. There is this incredible opportunity, in my mind, through the technology people to also transform themselves."
There is inherent risk in digital transformation.
"You have to deliver lots of things, and not everything is going to work. You have to develop what I call a batting average. A baseball player gets up to the plate, and if he gets a hit one out of every three times, he goes to the Hall of Fame. When you talk to IT people, they think they have to deliver everything on time and on budget. The reality is in digital transformation you fail fast, and you go on to the next thing," Langer said.
Lebovitz said, "What many companies call 'digital transformation' is simply more of the same manual and static processes. Business Intelligence (BI) has been rather hot over the last 10 years, but it is really just a better form of Excel, and it's nothing new. To be successful, organizations must focus on deploying solutions that can be adopted across all levels of the company. Successful digital transformations need to make working both easy and improved. Unfortunately, many initiatives fail to target specific improvements. Teams get excited about terms like big data, predictive analytics, and AI, yet remain too focused on the technology instead of solving an important business problem with a clear ROI."
When a team is too focused on technology rather than solving a problem, the project is likely to fail and the team will resist starting over.
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"There are many cases in the manufacturing sector where a failed system implementation has nearly killed a business. This sector tends to be more risk-averse than others and requires more examples of successful digital transformations. I am working to change the paradigm with LeanDNA demonstrating what can be done with real results," Lebovitz said.
The most recent challenge is a tight labor market as the Great Resignation begins to hurt businesses. The right talent is hard to come by regardless of how successful firms are with their enterprise modernization efforts. Successful firms recruit, invest and retain knowledgeable staff (71%) and work with trusted partners (76%) to compensate for whatever skill and culture gaps exist within their organization, according to the report, "Secrets of Successful Digital Transformation," by Forrester and global software consultancy ThoughtWorks.
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What are examples of successful digital transformation projects?
BMW, Apple and Amazon are among the many companies that have undergone digital transformations and thrived as a result. The financial industry is also changing, as blockchain makes an impact, and the education and airline industries are ripe for change.
Langer said, "If you're BMW, you're B2C, but there's a whole bunch of companies that are supporting BMW that are B2B. Ultimately what is going to shake its way down is if a consumer wants something from BMW, that's going to have a domino effect all the way down every B2B. What I'm telling all the B2Bs is you better be very close to your inevitable C [customer], because the consumer is in charge. They demand a lot. They're very smart. They're very technology savvy. Why is BMW changing their cars every two years when they used to do it every six or seven? Because of technology and because people want the latest and greatest in these cars and more innovations and driverless cars and parking and cameras. If you're a B2B and you're not on top of what's going on in the C [customer] level, you're going to lose touch with your clientele."
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Staying on top of the need to change is the key to successful digital transformation.
"This whole idea where you used to be a vertical and you used to be able to be in one industry and do it really well, everybody's becoming more horizontal. Some are struggling, right? Look at GE, where they created GE Digital. Let's look at Uber. I know they've had problems, but look at how they have transformed the way people travel. Or Lyft. We see these individuals, that these small companies, the Davids are beating up on the Goliaths because they're more agile. They're catering more to the buyer or the consumer," Langer said.
Where should our company start with digital transformation?
For some companies it's difficult to know where to start when it's time to implement a digital strategy. Overcoming the initial inertia is the key to starting down the path to digital change.
"I'm a big believer that you start in the beginning and adopt a crawl-walk-run approach, especially if some of these technologies are not familiar or not in widespread use within your organization. Pick some small projects and get started with them. Because the hardest part to a digital transformation journey is just getting started. And I'm not so sure it matters where you start because the insights you gain and the experience you get will tell you what the next step is," Veague said.
If an executive starts with a modest set of expectations, and doesn't oversell the value of the project, it can serve as an innovative and learning experience. Whatever knowledge is gleaned from the first project can be reapplied to the next project. By repeating this a few times, it results in an agile approach and that will give the best results.
Within companies that have started thinking about how to develop a digital transformation pathway, there is typically a moment when it becomes obvious how technologies could be used to do a task differently. Veague said, "The real objective of getting started and pushing that strategy is to get to that moment where you can say, 'Wow, now that I can see this, if I only had this or that or a little bit more information, if I could only gather one more piece of data, I could get to the next step.'"
Once that process begins, it spurs more changes and becomes a self-driving exercise and the transformation begins rolling out, Veague explained.
Forrester and ThoughtWorks suggested a number of steps organizations can take as they begin to executive their transformation initiatives:
- Take a broad approach to building out your skills portfolio. It takes time to develop or recruit people with the skills required to execute and maintain the transformation. Partners can fill gaps.
- Prioritize customer-facing applications and those where velocity matters. Applications and workloads that serve customers can drive business value.
- Align transformation efforts to expected business goals. When the benefits of modernization decision-makers expect were compared with what they actually attain, "we find that modernization goals are largely attainable. And even though operational and technology improvements might not be as important, these benefits are also achieved."
- Plan on a 12-to-18-month horizon but expect to adjust along the way. Organizations should see indications of success or failure before the 18-month midpoint for most successful transformation efforts. They should also see early indicators by the 6-to-12-month mark. Use frequent feedback to identify blockers and take corrective action. If progress is not demonstrable at the 18-month mark, then it's time to consider stronger corrective actions.
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Who should lead digital transformation projects?
For digital transformation efforts to succeed, who you hire matters.
"Regardless of industry, talent is the number one tool of any digital transformation undertaking. It's part hiring, part development and part inspiration of talent (culture) that sets an IT team apart from others. A company can have a great business model, but without a great culture and workforce behind it, it will fail. If you're not actively seeking new talent or elevating existing talent, you'll never transform digitally," Williams said.
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Opinions vary about who should spearhead digital transformation within a company.
"Simply put, digital transformation is the CIO's job and should be at the forefront of what he/she thinks about. He or she should have an up-to-date understanding of business problems and what IT can do to address them with people, technology, improved processes, models, and IT competencies. CIOs should be in the business of transforming their company with the assets at their disposal all the time," Williams said.
Lebovitz said, "There is an emerging role in manufacturing called chief transformation officer—they are often a key driver of these projects. For other companies, the typical leader would be the CIO, chief procurement officer, VP of operational excellence, or VP of supply chain."
Digital transformation doesn't have to be radical; instead, it's about ongoing innovation.
Langer said, "The sayings 'Either you're growing or you're going,' and 'Stagnation breeds failure' are more relevant today than ever before. Successful organizations have to grow. If you don't like change, you've really got a big problem. There's never been a research article that says organizations love change, but you have to be change ready."
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