Technological change has been around since the invention of the wheel. As such, whilst it may not be a new phenomenon, it is transformative and happening faster than ever before. Here we look at digital transformation and what it specifically means for business.
There is plenty of science to demonstrate that a simple exponential curve can be used to represent the phenomenon of accelerating technological change – and it can be projected forward all the way to the basic proposed hypothesis of the technological singularity; the point at which the rate of technology progression surpasses human biological evolution.
For businesses, embracing the accelerating evolution of technology is a matter of survival, even if it comes at the cost of short-term disruption. There is no opt-out and the alternative is to risk being forced into oblivion.
To put this imperative into perspective, in 2017, worldwide spending on digital transformation technologies – hardware, software, and services – came to $1.3 trillion dollars.
The latest digital technologies are enabling drastically new ways to deliver value to customers, altering competitive landscapes, and changing the underlying economics of markets. This means there are significant opportunities being created by new technologies – in particular with cloud computing, the Internet of Things, big data, and artificial intelligence.
What is Digital transformation?
Digital transformation is the process of using digital technologies to modify or create new business processes and customer experiences to meet changing business and market requirements. This reimagining of business in the digital age is called digital transformation.
However, digital transformation should be seen as a journey, not a destination, as there is rarely one concrete project that converts a traditional business to a digital one. The transformation usually comes from a digital business strategy with many component parts, and the idea of ‘transformation’ is to use digital technology not just to replicate an existing service in a digital form, but to use the advantages of the technology to transform that service into something significantly better.
One of the goals of digital transformation is to achieve an ongoing state of responsiveness that lets your business continually adapt to changes in customer preference and marketplace dynamics.
Digital transformation involves the integration of digital technology into all areas of a business, thereby fundamentally changing how you operate and deliver value to customers. As such, digital transformation can be categorised into four types:
- Business process
- Business model
- Domain transformation
- Cultural/organisational transformation
Business processes include data, analytics, APIs, machine learning and other technologies – and improving these processes using new technology can mean lower costs, reduced cycle times and increasing quality. Process transformation can also enhance the customer experience by reimagining the way customers interact with products, particularly via mobile devices.
Whilst process transformation focuses on finite areas of the business, business model transformations are aimed at the fundamental building blocks of the business – such as how products or services are delivered. Examples include Netflix for video distribution, Spotify for music distribution or Uber’s transformation of the taxi market.
Changing a business model is usually a complex matter that generally involves continuing with the traditional business whilst the new initiative is established. Those businesses that succeed achieve significant new opportunities to grow.
Domain Transformation is where an area that a company traditionally specialises in spills over into other markets, as a result of new technology redefining or blurring the boundaries of existing products or services – thereby opening new business opportunities. For example, an equipment manufacturer that adds a digital platform offering solutions to its clients, such as remote tracking or supply chain optimisation; or an industrial engineering company that adds IoT capabilities to its offering. One specific example is Amazon, which expanded from an online retailer to offering a cloud computing/infrastructure service – AWS.
The important takeaway is that any digital transformation exercise should include a discussion of new domain opportunities that might be afforded by the new technologies.
Organisation transformation involves adopting new digital workflow practices and changing existing organisational norms. As such, it means redefining cultural mindsets, skills, processes and workflows for the digital world, with a bias towards decentralised decision-making and a greater focus on business ecosystems. To be a technology company there must be a culture of innovation and a shift towards greater data use and customer-centricity.
Digital transformation boils down to rethinking old operating models, experimenting more, and becoming more agile in your ability to respond to customers and rivals.
How you engage customers and how your business processes meet the changing market requirements in a world that is firmly entrenched at the digital level are fundamental questions that need to be answered in a digital strategy.
Even small businesses that are just getting started should begin to plan their digital strategy and learn how to leverage new technology if they’re hoping to build a business that is future proof.
For larger, established companies, digital transformation can be a massive undertaking. But, when done correctly, it will produce a business that is more aligned with customer demands and resilient in the fast-moving digital future.
If you’re just beginning to think about digital transformation, there is much to be learned from IT leaders who have already begun to make changes to their businesses. Talk to experts, get advice and start planning. Importantly, remember that digital transformation is a journey, not a destination, and there is rarely one specific project that does it all in one go. You just need to take that first step.