The phrase “digital transformation” has been thrown around to the point where it’s confusing. Partly because it’s a broad term that does not reference specific action or technologies.
But at it’s core, digital transformation is less about specific technologies and more about using an IT strategy to build a competitive business that leverages digital technology.
A good analogy might be the changes in business and culture enabled by the widespread adoption of steam-powered locomotives.
In 1829, Richard Trevithick built and displayed The Rocket. This steam-powered locomotive disrupted many industries, including obvious ones like mass transit and less-obvious ones like financial services, real estate, and hospitality.
- What is digital transformation?
- How can digital transformation help businesses?
- Who looks after digital transformation?
- What are the four types of digital transformation?
- IT Strategy and digital transformation
- What role does culture play in digital transformation?
- What drives digital transformation?
- How can I measure ROI on digital transformation?
These disruptions not only changed the way businesses worked – they also changed business culture. New industries boomed, taking advantage of the speed and relative convenience that fast, reliable steam transport enabled.
What is digital transformation?
At its core, digital transformation refers to the process of using digital technologies to modify business processes, organisational culture, and user experiences. From a corporate perspective, digital transformation is the process of integrating business processes and systems with digital technology stacks to achieve organisational goals.
Together, these changes allow for a fundamental rethinking of service delivery, business models, and operations that generate value and improve efficiency. But the reason why digital transformation becomes so hard to define is that the specific actions and technologies involved can vary significantly between organisations, industries, and projects.
How can digital transformation help businesses?
Digital engagement – digital transformation allows businesses to engage with stakeholders in new and different ways. With the right technology stack, it’s possible to identify and address critical barriers that produce adverse outcomes for users and customers alike.
Improving data accessibility and control – aligning resources with cloud technologies will let enterprises gain more control over service delivery, enabling secure access for remote users across a wide area.
Extend sales channels– integrating sales technologies into multiple customer touchpoints allows businesses to grow their reach across multiple channels. The challenge is to transform business capabilities to enable customers to make purchases wherever they are – not just on the sales page.
Unify workflow and automation – organisations that use enterprise resource planning (ERP) software will be able to differentiate their solutions by centralising their back-office business tools into a single point of access. Known as a digital operations platform (DOP), these processes will replace ERP solutions by actively improving customer outcomes.
Cybersecurity and privacy – consumers are becoming increasingly security-conscious in the wake of growing cybersecurity breaches. In turn, this awareness drives demand for enterprises of all sizes to make profound changes to support data privacy. And digital transformation projects that automate and enforce data privacy measures will lead the way.
Who looks after digital transformation?
In traditional IT structures, the role of identifying, planning, managing, and reporting on IT-related projects belongs to the chief information officer (CIO). A CIO manages all aspects of your IT deployment, from annual strategic IT planning to managing your organisation’s infrastructure performance.
These skills make a CIO the ideal person to take responsibility for any digital transformation projects your business aims to deploy. They can take the project requirements, measure them against your current IT deployment, address gaps that might impact the roll-out, manage the transformation project, test the infrastructure, and report on the project outcomes.
While these skills are invaluable in any digital transformation project, not every organisation has the full-time resource needed to manage IT in this way. However, a virtual CIO (vCIO) can make a world of difference.
A vCIO service gives you ongoing access to a senior executive who can assess your organisation’s IT performance and outcomes, consult with your key stakeholders, and form strategic IT transformation plans. The virtual CIO assesses your existing IT infrastructure and correctly prioritise the areas that need transformation. Their experience means they know where to spend your budget to maximise business impact and avoid over-investment.
What are the four types of digital transformation?
There’s no one digital transformation project that meets every industry’s needs, let alone every organisation. However, there are four broad categories that, together, cover the majority of digital transformation projects.
1) Business process transformation – everyday business processes stand to benefit the most from digital transformation, with deep data, machine learning, and other technologies offering valuable new ways to streamline or reimagine common tasks. This transformation can take the form of digitising traditionally analogue methods such as data collection or automating regular interactions such as invoicing.
2) Business model transformation – this operation is similar in nature to business process transformation but on a much broader scale. Rather than improving one specific area of an organisation’s operations, a business model transformation focuses on improving how the business generates and delivers value. This transformation could include switching service and solution delivery methods from physical interactions to a completely digital experience. Or it might involve reorganising internal structures to a flat management structure with automated reporting.
3) Cross-domain transformation – simply put, a cross-domain transformation involves leveraging existing expertise and investments to expand an organisation’s reach into entirely new areas of business. A business might traditionally focus on, say, selling books online. To do this efficiently, they invest heavily in digital capabilities to support its core retail business, with experts on hand to run the infrastructure. With a bit of work, this business finds it has the opportunity to offer cloud computing solutions. This kind of transformation helps non-traditional competitors open doors to entirely new industries – providing profitable business opportunities in completely different verticals.
4) Organisational transformation – an organisational transformation focuses on promoting business-wide changes through long-term digital transformation. These changes enable future growth by redefining internal processes and capabilities, as well as the operational mindset. An organisation transformation brings about agile workflows that do away with solution silos, replacing them with real-time testing that decentralises decision-making processes. These effects enable new methods of collaboration and innovation that, in turn, can produce new ways of delivering value.
IT Strategy and digital transformation
In the past, business strategies typically focused on elements that contributed to overall organisational success. These strategies referenced KPIs such as market share growth, increased wallet share, and reduced operational expenses. Simultaneously, IT strategy was traditionally considered a back-office affair with inward-facing projects that supported business capacity.
Today, IT enables a vast range of business capabilities, from supporting service delivery and innovation to forming the core of client-facing solutions. This shift means IT strategy is now an integral part of business strategy and should be treated as such.
The activities that comprise a digital transformation should address the needs laid out by the IT strategy while also reflecting the needs identified in the business strategy as a whole. Failure to link the two will lead to disparate activities that do not add value to business operations, and in some cases, may detract from service delivery.
Five components of an iterative IT strategy
An iterative IT strategy is not a one-and-done approach. Instead it is a cycle that builds on past efforts, letting a business self-correct its strategies over time as new technologies and opportunities become available.
Understanding business requirements – your CIO consults with key stakeholders to identify desired business outcomes related to IT, taking into account internal projects and c-level business planning documentation.
Define future states – your CIO interviews a wide range of internal stakeholders to identify the desired future state of the organisation. This process can include everything from innovations in solution delivery to controlling costs of outsourced operations.
Current state review – while it’s possible to build an IT environment from scratch, the chances are that your organisation already has some valuable IT assets they can leverage. Even if the assets currently in play may not be of use in the ideal IT environment, they may help get the business where it needs to go or support daily operations during the digital transformation.
Identify IT gaps – using the information drawn from the first three stages, your CIO will now identify the gaps that exist between your current IT infrastructure and the business outcomes and capacities needed to get there.
Road map & budget – no IT strategy is complete without knowing how much it might cost to realise the ideal outcome. Your IT roadmap outlines all of the relevant actions, costs and governance needed to set your organisation up for future IT success.
What role does culture play in digital transformation?
Your organisation’s culture encompasses how people interact with each other and how they interact with organisational workflows.
When changing the way people work – such as when undergoing a digital transformation – it’s only natural that the processes involved will change their workplace culture. The tricky part is that some people resist cultural change. They like certainty – and if their business-as-usual culture includes a static way of doing business, then the workplace culture will be at odds with the agile, dynamic workflows that digital transformation offers.
Breaking through this barrier is complex and can be time-consuming but is necessary for effective digital transformation. According to a study from McKinsey, culture is the most significant self-reported barrier to digital effectiveness. Alongside understanding digital trends and the need for talent in the digital space, an organisation’s culture is essential for an effective digital transformation.
Digital transformation isn’t aimed at growing technological capacity – it’s about improving organisational agility. A flexible culture leads to the flexible adoption and use of technology, enhancing the potential for innovation within the organisation. This enhancement makes an organisation’s culture a central component of any digital transformation project.
What drives digital transformation?
It’s clear that the right technology stack and a well planned IT strategy can empower digital transformation, but it doesn’t drive the process. According to a study by Deloitte, the one element that drives digital transformation – including cultural changes – is effective leadership.
The keyword here is “effective”. Because a digital transformation affects the business culture, the people in charge must know the technology and can explain how it impacts the organisation.
Interestingly, the study shows these leaders don’t need to be experts in their field, but they do need to demonstrate a certain level of digital fluency. These influential leaders understand the need for change and can translate how their chosen digital technologies will impact both the organisation and the culture.
How can I measure ROI on digital transformation?
The value your organisation gets from its digital transformation project can be hard to measure without a clearly defined set of goals and measures.
1) Identify critical goals– translate your desired outcomes into clear objectives.
2) Select metrics– use objective measures directly related to your project outcomes, with realistic timescales and milestones.
3) Take a business snapshot– a successful digital transformation must consider the impact on all business operations areas, not just the IT department.
4) Measure everything– one common pitfall encountered during a digital transformation project is the practice of comparing metrics solely to prior business performance. Instead, it’s more effective to compare metrics over time, while keeping your goals in mind. This method gives you a clear view of cause and effect while also making it easy to address potential issues within the project before they can impact business performance.
5) Expect a learning curve– any changes in the way things work will affect your workplace culture, and it can take a while for people to adapt their workflows to match. Avoid the pitfall of assuming that slow figures at the start of a project means failure by allowing some time for stakeholders to learn how to use their new digital platforms effectively.
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