Like a lot of industry buzzwords, ‘digital transformation’ has become a bit nebulous and confusing.
Obviously every business these days, with the possible exception of cobblers and blacksmiths, is (in some capacity) a digital business. But ‘digital transformation’ (DT) means a lot more than modernisation or migrating legacy systems to the cloud. It’s a complete re-think of how businesses use technology, people and processes to improve overall performance. And it’s hitting the mainstream. According to marketing intelligence firm IDC, 40 percent of all technology spending is currently going towards digital transformation, with companies investing more than $2 trillion into the process.
But where exactly is that money going? What will digital transformation look like in the next decade? And how can businesses prepare for it? These are the questions technologists are scrambling to answer right now.
What is digital transformation?
Digital transformation is basically using digital technologies – including cloud processing, machine learning, automation, blockchain and so on – to meet changing business needs. Salesforce calls it the “reimagining of business for the digital age”. The ultimate goal of digital transformation, apart from simple profit, is to improve the customer experience and become more competitive. Marc Benioff, the Chairman of Salesforce, has talked a lot about this: how digital transformation and customer success go hand-in-hand. “Every digital transformation is going to begin and end with the customer,” he said, “and I can see that in the minds of every CEO I talk to.”
Martyn Toney, Managing Director of Interactive at Accenture, agrees. “Today’s companies compete for the best customer experience,” he says. “They’re hyper-focused on the consumer and must adapt to accommodate changing customer expectations and market needs.”
What does it mean for business leaders?
In a word, it means disruption. Benioff might have actually overstated the industry consensus on digital transformation. According to reports from Ernst & Young’s ‘Global Capital Confidence Barometer’ leaders are somewhat divided on the subject. EY surveyed 2,900 executives from 49 countries and found that, while 22 per cent said digital transformation helped remove barriers to entry and created positive customer experience, 21 per cent said it had increased competitive pressure, and 16 per cent claimed DT actually made it harder to enter certain professional industries.
Business leaders did agree on a few things. The majority said that DT was a) pretty much inevitable, and b) economically essential. And companies are putting their money where they think it will do the most good: more than half of EY’s respondents said they allocated between 25 and 50 per cent of their investment capital towards their digital future.
Why is digital transformation tricky?
Like most change, digital transformation becomes harder as the size of the company increases. Its success also hinges on a range of hard-to-measure metrics: senior management’s willingness to change, the complexity of existing internal systems, the level of cohesion between departments, and external stakeholder management. This stuff isn’t easy. Forbes estimates that 70 per cent of DT initiatives will fail, leaving a $900 billion hole in enterprise strategy.
Why does this happen? The clue’s in the title. ‘Transformation’ can’t be achieved by one or two teams working in isolation. It requires buy-in from the entire company. You need to align every employee behind one purpose, and then assign everyone a role in achieving that purpose. And you have to achieve all this without substantially increasing the “shadow work” of the average employee: Forbes also found that only 39 per cent of the average worker’s time is dedicated to their primary duties, the rest is taken up with email, meetings and administrative tasks. DT can potentially add to that burden, at least in the short term.
“Many Australian businesses today still have a lot to accomplish in moving their business to harness the power and opportunities of Industry 4.0,” says Toney. “Current jobs are evolving, and new ones require more flexible training systems. Businesses need to create a workforce with the right skills, as well as connecting devices, data and experiences to unlock and deliver more value.”
How to manage a successful digital transformation
Before you make sweeping changes, upskill employees, run a hack-a-thon or establish an ‘Innovation Lab’, you need to answer one simple question: what business outcomes do you want to achieve for your customers? This will be your guiding star. Any digital processes that help answer this question will be beneficial; processes that distract or slow the process down will not. Genpact CEO, ‘Tiger’ Tyagarajan puts it this way: “It starts with the business outcomes and the new business models you’re going after, and working backwards from there.”
A lot of experts recommend starting with your customer journey. If you haven’t comprehensively mapped it, do that first. If you’ve already plotted your customer journey, look at DT that will alleviate pain points and enhance customer value along each step. Laura LaBerge from McKinsey has also suggested setting out clear objectives, holding staff accountable for specific outcomes, and pitching change that is ‘enterprise-wide’, rather than incremental. Change starts with small steps, but a successful digital transformation requires a slightly bigger leap.
Toney says the key is long-term thinking. Keeping one eye on your existing customer base and one eye on the future. “For brands to thrive and drive continuous growth, they need to build enduring experiences that satisfy both current customers and attract new ones.”