Digital Transformation: Why should companies adopt a digital transformation strategy?

Executive Summary

It is no longer just a technical buzzword; Digital Transformation affects every industry in the current economy.?Digital transformation is the approach used to drive the organization's plan to capture opportunities enabled by digital technology (Treehouse Technology Group, n.d.). C-suite executives must understand that growth, innovation, and competitive edge in the market hinge on a carefully planned digital transformation strategy.

Digital transformation integrates both business goals and information technology (IT) initiatives.?Digital transformation is also about delivering a better customer experience and being agile to adapt quickly to changes. Most consumers have easy access to mobile devices, and they want information and services fast and reliable.?Consequently, cybersecurity and cloud computing are the top priorities in business technology roadmaps.?Using these drivers for digital transformation, leaders must set a vision and ensure that the organization to ready to adapt to the changes.

Some of the existing challenges in the traditional business model include long processing times and in-person business transactions or purchasing in physical stores. Many businesses still use error-prone manual processes. In addition, the time to market is lengthy and expensive due to traditional delivery processes like the waterfall method. As a result, organizations cannot adapt to changes in customer needs or market demands quickly.?

A digital transformation strategy should address the growing demands for speed, innovation, and customer satisfaction. There are six critical elements in a digital transformation strategy. First, providing exceptional user experience by creating a fast, responsive, and continuously improving value stream for the customer. Second, fostering a culture that adapts rapidly to customer needs and market changes with nimble and agile processes.?In addition, the organization leaders must be committed and supportive of the new vision. Equally important is reskilling employees and getting the right talent for the work ahead. Lastly, adopting the latest technologies as required to accelerate the transformation.

As companies widen their digital footprint, the potential for cyber threats to the business also increases. The measures taken as part of a digital transformation strategy reduces the risk of a cyber-attack. CTOs and CFOs need to invest in cybersecurity during planning for a company-wide digital transformation.?According to the research, a digital transformation undertaking is an iterative one, and according to the study, it is a continuously improving process (Chanias et al., 2019).?C-suite leaders must be committed to the journey and ensure that the organizations are aligned with the vision for the transformation to be successful.

Introduction

Figure 1 Digital transformation in the broad ecosystem (https://enterprisersproject.com/what-is-digital-transformation)

The IT (Information Technology) industry is known for buzzwords, such as IoT (Internet of Things), VR (Virtual Reality), AR (Augmented Reality), UX (User Experience), and Cloud, to name a few. However, alongside these technology trends, the industry recently saw a surge in using a new business terminology - Digital Transformation (DT).

In 2017 McKinsey and Company published a report stating that companies who integrate bold digital transformation strategies moving forward are the ones that will outpace their competitors and stand out as the most significant differentiators (Jacques Bughin, 2017).??Their research also showed the areas where companies were investing in shifts to digitized ways of doing business, as shown in Figure 1.

However, a recent survey done by McKinsey & Company shows that most companies are lagging on this crucial investment strategy.?The report states, “The latest McKinsey Global Survey on the topic suggests that companies are making little progress in their efforts to digitalize their business model” (McKinsey Digital Survey, 2019). ?

In the current landscape, companies need to change their operating model and adopt a digital transformation strategy to move the business into future areas of growth and innovation.?The traditional approaches used for business processes, investment decisions, and organizational changes should realign with the new vision set by the company leadership. ?CIOs or CTOs should create a strategy to guide their organization to digital transformation. A business strategy integrated with digitization initiatives enhances customers’ experiences, opens new revenue streams, and uses technology, allowing companies to stay ahead of the competition.?

What Is Digital Transformation?

Digital transformation is best described as a series of initiatives leveraged across the organization, using advanced and modern technologies to enhance existing processes, products, and business decisions while increasing customer value, managing risks, and generating revenue (Schmarzo, 2017). In the last decade, we saw an increase in the use of mobile devices globally. Consumers want easy and fast access to services online. ?Figure 3 depicts some of the contributors to digital transformation.

When companies integrate agile frameworks, cloud computing, data analytics, and artificial intelligence technologies into business processes, they transform their business and organizational structures to deliver products and services efficiently and cost-effectively. ?By combining the business strategy with the IT technology roadmap, the company leadership can lay out the digital transformation strategy for the organization (Chanias et al., 2019).

Previous Approaches - Traditional Business Model

??????????????In the traditional business model, a company typically operates within a brick-and-mortar building.?The company serves the customer with products and services developed using standard business processes that are slow and inefficient. ?The following scenarios describe some traditional methods of doing business in various industries. ?They also represent cross-sections of multiple industry operations that are now run more effectively after a digital makeover.

??????????????For instance, there could be long processing times for loan approvals in the banking industry or creating accounts for investment banking. In addition, customers can complete certain banking transactions by being physically present at the bank.?The long waiting time and the delays experienced by customers are the effects of manual paper-based processes. These processes also expose errors and operational risks (Harizan & Azura, 2018). ??Furthermore, when business processes use better tools and integrate automation, these challenges go away.

??????????????Traditional business operating models also have a high cost in maintaining infrastructure and renting or purchasing office space. In addition, business expenses increase when the company expands, and there is a need to hire more staff, increase store space, improve the cost of doing business in various locations. By integrating an e-commerce or online business model into the expansion plans, companies can reduce costs using electronic processes.?Improvements include using a digital platform for consumers to buy products, online payments, servicing clients, manufacturing control, remote employee management, and more (Alonson, n.d.).

??????????????The use of paper documents for contracts, agreements, and signature approvals is inconvenient and expensive. ?When companies use paper artifacts to do business, the risk of exposing confidential data is of great concern (McCafferty, 2016).?Many traditional companies still use office printers, according to a survey in the same article. As a result, employees leave printed documents in the open, lending to information breaches, unintended exposure of confidential data, and finally, errors and loss of records.?Therefore, paper documentation usage reduction also becomes a step in the digital transformation strategy.

??????????????Another traditional approach to product development or service delivery is using the waterfall method.?The company vision and roadmap are rolled out as big projects with project managers driving teams to deliver on fully scoped out work (Bendor-Samuel, 2019).?As noted in this study, some of these projects can take up to two years to complete and deploy.?This approach is more prone to failures to meet the customer needs and will be costly to readjust.?Most importantly, digital transformation is also about embracing an agile development mindset focusing on customer needs.?

New Findings – A Case for Digital Transformation

With the global increase in the use of the Internet and ease of access to mobile devices, the era of the digital revolution began in 2010 onwards. As consumers demand faster and easy access to services, a reimagination of an effective business operating model unfolded.?To stay competitive and to innovate faster, CIOs had to look at fusing business and technology strategies.?Some refer to this new transformation as Industry 4.0 (Digital Adoption Team, 2019).?Digital transformation has the following key elements, applicable in most industries, as shown in Figure 4.?????????????

Customer Experience

Businesses and products must refocus to deliver better customer outcomes. ?By using cloud technologies and data analytics, companies must produce faster and evolve quickly and efficiently to changing customer requirements (Boulton, 2021). In addition, there must be multiple digital channels for consumers to obtain services and products. For example, E-commerce platforms are also access points for users to shop online without entering a physical store.?

Operational Agility

Being agile and adaptable is another crucial factor in the digital transformation journey (Treehouse Technology Group, n.d.).?Teams and organizations must be able to change course based on customer feedback quickly. ?Change happens iteratively with regular insights from the customer. The flow of information from the customer to the development team must be frictionless for improvements and enhancements to be released efficiently. Both business and engineering processes must align to adapt to market changes quickly.

Culture and Leadership

Leaders in the enterprise must remain laser-focused during a large organizational change such as digital transformation. The commitment to the new company strategy must have buy-in at all levels of the organization. There must be change management plans prepared and a rollout schedule. A collaborative culture in the company creates a win-win situation for stakeholders, employees, and the company (Treehouse Technology Group, n.d.).

Workforce Enablement

Some of the policies required to equip the company workforce in preparation for the digital transformation include these plans. First, leaders must set the example to encourage a quick adaptation principle to failures and move on to the next course of action – a fail-fast-then-succeed mindset (Dell Technologies, 2020). Second, both talent acquisition and employee retention programs must invest in obtaining new digital skills. Third, the culture must shift to a community of practice behavior with knowledge sharing at the core (Dell Technologies, 2020).?Finally, workplace efficiency and employee engagement increase when the right tools are available (Digital Adoption Team, 2019).

Digital technology integration

The most critical driver of a digital transformation effort is choosing the right technology (Digital Adoption Team, 2019).?Depending on the industry, companies will map out a technology roadmap that fits their business goals. For example, some companies invest in building new digital platforms to host services using cloud computing. In addition, data analytic tools and artificial intelligence applications provide valuable insight into business intelligence (Gurumurthy et al., 2021).?Other technologies implemented during a transformation effort include machine learning, trend-sensing, dynamic scenario tools, simulators, and automated tools to scan content for emerging technologies (Gurumurthy et al., 2021). The latest report from Deloitte also mentions Cybersecurity solutions and Data Privacy software as areas of technology where companies will invest (Dell Technologies, 2020). ?A focus on metrics collection is also part of the approach to provide quantitative and qualitative results in key areas of the transformation plan.

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Conclusion

In today’s market, digital transformation is imperative for any business to remain competitive, think ahead, and harness innovation for accelerated growth. Business leaders must understand the core principles to evaluate their current business models, adopt the relevant strategies required to be more agile, and respond quickly to market changes, customers, and competitors.?Technology plays a critical role in every industry, and organizations must leverage these trends as the world becomes more digital.?More importantly, as companies widen their digital footprint, the risk of cyber-attacks also increases. Therefore, the measures taken as part of the digital transformation are critical to protecting the company assets and confidential customer information. ?Successful change management activities require commitment from the organization and consistent leadership.?To this extent, a clear vision, a well-thought-out execution plan, and the proper organizational structure are the key components required for any company to lead the digital transformation strategy. Companies that embrace this change have a competitive advantage over peers and increase their staying power.

References

Alonson, J. (n.d.). Traditional and Digital Businesses and Their Differences. https://www.thejonathanalonso.com/small-business-seo/traditional-and-digital-businesses-and-their-differences/

Bendor-Samuel, P. (2019, August 26). Digital Transformation Success Depends on Agile Approach to Change. https://www.forbes.com/sites/peterbendorsamuel/2019/08/26/digital-transformation-success-depends-on-agile-approach-to-change/?sh=5e7ccbee751e

Boulton, C. (2021, June 24). What is digital transformation? A necessary disruption. https://www.cio.com/article/3211428/what-is-digital-transformation-a-necessary-disruption.html

Chanias, S., Myers, M., & Hess, T. (2019). Digital transformation strategy making in pre-digital organizations. Journal of Strategic Information Systems, 18. doi:https://doi.org/10.1016/j.jsis.2018.11.003

Dell Technologies. (2020). DIGITAL TRANSFORMATION INDEX 2020. Dell Technologies.

Digital Adoption Team. (2019, November 3). Digital Transformation 101: The Only Guide You’ll Ever Need. https://www.digital-adoption.com/digital-transformation-101/

Gurumurthy, R., Nanda, R., & Schatsky, D. (2021, April 21). Putting digital at the heart of strategy. https://www2.deloitte.com/us/en/insights/topics/digital-transformation/digital-acceleration-in-a-changing-world.html

Harizan, A., & Azura, A. (2018, June 1). Why Do We Need Digital Transformation? https://juristech.net/juristech/why-do-we-need-digital-transformation/

Jacques Bughin, L. L. (2017, February 7). The case for digital reinvention. https://www.mckinsey.com/business-functions/mckinsey-digital/our-insights/the-case-for-digital-reinvention#

McCafferty, D. (2016, 10 13). Why do we still need paper docs? Retrieved from CIO Insight: https://search-ebscohost-com.ezproxy.umgc.edu/login.aspx?direct=true&db=heh&AN=118810401&site=eds-live&scope=site.

McKinsey Digital Survey. (2019, January 23). A winning operating model for digital strategy. https://www.mckinsey.com/business-functions/mckinsey-digital/our-insights/a-winning-operating-model-for-digital-strategy#

Schmarzo, B. (2017, May 31). What is Digital Transformation? https://www.cio.com/article/3199030/what-is-digital-transformation.html

Treehouse Technology Group. (n.d.). Why Digital Transformation is More Important Today Than Ever Before. https://treehousetechgroup.com/why-digital-transformation-more-important-today/