What is Digital Transformation?

Digital transformation is the process of rethinking one’s business model or business process in light of the availability and affordability of digital technology. It requires coordination across the entire organization since it applies new technologies to fundamentally change the way business is done. For many enterprises today, the driving motivation of digital transformation is the chance to gain competitive advantages by improving customer experience.

Technology Advances Created the Age of the Customer

More and more, exceptional customer experience is a key differentiator in digital business, and the process of digital transformation should be guided by a customer-centric digital strategy.

According to Forrester, technology advances in the past five years have created the “Age of the Customer”, in which consumers choose when and how they interact with businesses. Companies today can’t fully control the experience they want to deliver to customers; instead, customers encounter businesses across many touchpoints with high expectations of consistency, ease of use and personalization.

It is up to businesses to use new technological capabilities and organizational change to create experiences that adapt to these changing needs. More and more, exceptional customer experience is a key differentiator in digital business, and the process of digital transformation should be guided by a customer-centric digital strategy.

Key Elements of Digital Transformation

Digital transformation is enabled by new technology, but successful transformation requires a reorientation that goes beyond the implementation of new technology to reach every part of the business.

MIT Sloan Management Review has identified three pillars of the transformation process for companies to focus on: customer experience, operational processes and business models. Companies also need to invest in and develop their digital capabilities, as this element enables digital transformation in each of the three main pillars.

Customer Experience

Advances in marketing software and data-gathering capabilities allow for better customer insight and greater personalization in digital experiences. Enterprises are pursuing transformation in the following ways:

• Managing personalized experiences across channels that are easy and seamless for customers to use.
• Developing digital products and services for new devices, such as smartwatches.
• Drawing in data at every touchpoint and using that to deliver more effective personalization.

Operational Processes

It can be tempting to think of front-end customer experience as the main focus of digital transformation since that’s the most visible part of the process. However, using technology to redesign operational systems has just as much, if not more, impact on a company’s ability to successfully provide great experiences.

For example, a customer getting their package sooner means a more positive impression of the company, and having a representative already know what specific problems a customer is having because the product sends diagnostic information over the internet, allows for shorter call times and faster solutions. Companies are successfully transforming operations by:

• Breaking down departmental and data silos for better collaboration on digital projects, such as including both IT and Marketing on product teams so that both departments are fully informed during the process of design, strategy and development.
• Automating processes through better software capabilities or with the creation of new tools, such as implementing automated purchase order systems in order to reduce paperwork and rejected orders.
• Making strategic decisions based on data with increasing levels of detail. Instead of reusing or modifying a previous year's distribution process, for instance, leaders are able to make changes based on real data, rather than assumptions.

Business Models

Often, startups are able to disrupt long-standing brands because they use innovative business models that take advantage of new technology, without being weighed down by legacy systems. Established brands should look to models that offer services that wouldn’t be possible without new technology. Examples of new business models are varied, but can generally include:

• Expanding the scope of current business through digital services, such as a toy company that crowdsources designs online.
• Evolving with changes in customer behavior due to new technologies. For instance, when customers see a product in store, they may do an online search order to check reviews and end up purchasing it at a lower price somewhere else. Some businesses have countered this by creating an app that allows customers to scan the product and read the reviews, ensuring that they stay within the business’s platform instead of purchasing elsewhere.
• Rebuilding services to be digital-first, such as banks that create mobile apps for cashing checks, paying bills, applying for loans or other services.

Where to Start

A common misconception is that digital transformation begins and ends with technology. Companies shouldn’t define digital transformation as simply an increased investment in IT. Customer experience must drive the digital strategy behind transformation if companies are to see significant gains from customer insight and engagement.

To stay competitive in digital business, enterprises should look at where they are now and determine what core elements of digital transformation they need to focus on. Your enterprise may only be able to begin with one of the three pillars mentioned above; what’s important is that you start somewhere.

Though no one has a comprehensive roadmap for digital transformation, the following best practices have emerged over the past five years:

• Vision + Investment – How far your business can go depends on the reach of your vision and the level of investment you commit to.
• Digital Strategy – Have a strategy that accounts for the full scope of your vision, rather than the implementation of individual technologies.
• Leadership – Because digital transformation requires in-depth organizational change and coordination, it is more effective when led from the top layer of the business.
• Uniting Business and IT – Breaking down the barriers between Business and IT goes hand in hand with operational change. As digital business increases software needs, it will be important for Business and IT to merge their work so there are no conflicts in adapting technology.
• Third-Party Solutions – Look for partners who have specific strengths in your areas of weakness. Structure relationships as partnerships, with an expectation of knowledge sharing and frequent communication. This mitigates the risk of creating siloed information across multiple vendors and becoming dependent on a vendor's availability or timeline.