The Essentials of Digital Transformation
Digital Transformation: Everyone is talking about it. It’s impossible to keep up with industry news without encountering articles on the topic. And conference goers can expect at least 1 or 2 panels/presentations on it. Our very own Director of Marketing Geoff Talbot gave a talk on Digital Transformation at SPTechCon this year.
What exactly is digital transformation? Is it just the trendy buzzword of 2017, or should your business be taking it more seriously? In this white paper we will discuss these questions and more, going over the essentials every business needs to know about Digital Transformation. Here’s a quick glimpse of what’s to come:
- The definition of digital transformation via 3 of the most popular viewpoints.
- Why digital transformation is relevant to you and 3 benefits of embracing the process.
- The “how-to’s” of digital transformation, with 5 important areas of focus.
Ready to embark on the digital transformation journey? Let’s get started.
Defining Digital Transformation Through 3 Different Lenses
Clearly describing digital transformation is a challenge. It’s an abstract concept that is talked about but rarely defined. The reason that digital transformation is difficult to pin down is, asWharton School of Business puts it,“Digital transformation will look different at each company…tools will be deployed differently to meet the unique needs of each business.” Here are the 3 most common viewpoints of digital transformation: Disruption, Evolution and Relationship.
1. Digital Transformation as Disruption
A large number of people see digital transformation as a disruption, including Kadamb Goswami of Digitalist Magazine. He says that “the role of digital technology is rapidly shifting, from being a driver of marginal efficiency to an enabler of fundamental innovation and disruption.” While the word disruption might sound dark and ominous, Kadamb goes on to say that it isn’t necessarily a bad thing: “it’s just another way of describing change and evolution.” As technology advances and continues to advance, disruptive technologies cause a change in company business models and the way organizations deliver services and products.
The biggest disruptive technologies according to a BT CIO 2016 Report are the cloud (58%), mobility and collaboration (54%) and data (52%). The Internet of Things, although not part of this report’s data, is also being mentioned as a contributor to changing business models. These disruptive technologies create a heightened ability to connect, changing customer expectations for businesses and services. But disruption isn’t the purpose of digital transformation. Only 15 of executives say their number one expectation for digital is to disrupt their own or other industries (Global Digital IQ Survey). Rather, digital transformation is a byproduct of evolving technology, responding to the changes created by disruption. Engaging in digital transformation is meant to continually close the “gap between what digital customers already expect and what analog businesses actually deliver,” (Greg Verdino).
2. Digital Transformation as Evolution
Another common viewpoint sees digital transformation as an evolution. Jim Whitehurst, CEO and president of Red Hat, says digital transformation is “retooling the capabilities of enterprises to exist, survive and thrive in a vastly different world than they’ve been successful in in the past…” There’s an underlying sense of urgency attached to this viewpoint that isn’t present when looking at digital transformation through the lens of disruption. Disruption connotes a fad, something that causes a brief disturbance and promises quick revenue. But looking at Digital transformation as evolution suggests that it is a continual process of changing and adapting to the constantly changing digital environment in order to survival.
A 2013 Capgemini Consulting report found that 27% of senior executives rated Digital Transformation as being a matter of survival. Jump forward 3 years to 2016 and 96% of organizations see digital transformation as critical or important (Progress). The message of this viewpoint is clear: Evolving your business model is seen not just as a suggestion but as a necessity. The world is changing and to cling to technology that no longer fits in the present world causes businesses to fall behind. You must change and evolve along with the world in order to be successful.
3. Digital Transformation as a Relationship
The last common viewpoint sees digital transformation as a relationship. Google startup mentor Lucia Adams says “Digital is 10% tech and 90% human.” We at Emgage agree, defining digital transformation as the evolving process of embracing technology to enable people to succeed together. Digital transformation is a relationship with technology and those invested in your business (stakeholders, customers) that is constantly growing. In a way, digital transformation is actually more like “digital up-keep.”
An important aspect to discuss here is that looking at digital transformation as simply a one time retooling of technology in order to survive is a mistake and can harm your business. 71% of digital disruptors continually look for opportunities to digitize the business (Global Digital IQ Survey). If you treat digital transformation as a one off event while the rest of the world keeps growing, you will inevitably fall behind. Another important thing to note is that the end goal of digital transformation isn’t the one time sale, though that is a welcome benefit. Rather, the end goal is creating a relationship with people that encourages them to take ownership of your brand and become a lifetime supporter. Digital transformation allows that to happen. Something about digital makes the people-business relationship more equal, and allows businesses to communication, connect and collaborate in a way that the people expect.
Putting It All Together
All of these viewpoints of digital transformation are different. Yet they all come together to say that digital transformation, at its core, is what happens when a business continually keeps up with a shift in technology and a shift in the way the world views technology. The overall goal is to strengthen a business’s ability to connect, communicate and collaborate, which we call the three C’s of digital transformation.
Technology is changing fast and continues to change. Business models, procedures and tools that worked 10 years ago are outdated. Even models, procedures and tools that worked a year ago are not ideal. Altimeter Group says it best, “To effectively compete, and eventually thrive, businesses must become agile rather than reactive and customer-centric rather than presumptive. Enter digital transformation.”
Why Digital Transformation is Important to You: 3 Key Benefits
Now that we have explored what Digital Transformation is, it’s time to address the question on everyone’s mind. Is digital transformation really vital for your business’s survival? Or is it just the current, hot buzzword or a trend that will fade with time?
The Enterprisers Project says that, “Digital transformation is imperative for all businesses, from the small to the enterprise. That message comes through loud and clear from seemingly every keynote, panel discussion, article, or study related to how businesses can remain competitive and relevant as the world becomes increasingly digital.” There are many statistics supporting this statement, making it unmistakeable that businesses that embrace digital transformation experience clear benefits over those who don’t. The most pronounced benefits companies report are profitability, competitive edge, and stability.
1. A Business that Embraces Digital Transformation is More Profitable.
All of the data we found points to businesses that have adopted a digital ethos being generating more revenue. MIT Center for Digital Business says that companies that have embraced digital transformation are 26 percent more profitable than their average industry competitors and enjoy a 12 percent higher market valuation. And according to a Forrester Research report, executives predict that nearly half of their revenue will be driven by digital by the year 2020. Higher profits are great for business for obvious reasons: the company enjoys financial longevity, employees enjoy financial stability, and stakeholders enjoy continued investment in a successful business.
Why are profits higher for these companies? Adopting the digital mindset and allowing your business to grow and change with the world around it opens the door for different revenue possibilities not available to those that are stuck on legacy systems (old method and outdated technology.) It allows for an improved customer journey, increasing loyalty to your brand. It also increases your ability to remain competitive with the world around you, which brings us to the next point.
2. A Business that Embraces Digital Transformation Stays Ahead of the Competition.
Organizations report having a competitive advantage after they adopt a digital business model. Capgemini Consulting found that the majority (87%) of companies think that Digital Transformation is a competitive opportunity. Similarly, 81% of senior executives assert that digital maturity efforts have differentiated their company according to Adobe.
Aside from the data, there are real life examples of companies that failed to embrace change and digitally reorganize themselves. As a result, they were unable to remain competitive regardless of their prior success. Like Blockbuster for instance, which was extremely popular in the 90’s and early 2000’s. Then Netflix entered the scene, offering the convenience of sending videos straight to users homes and eventually evolving into a streaming service. Blockbuster declined to embrace digital transformation, refusing to change the way they delivered their service to customers, even though customer expectations began to change. They even had a few opportunities to purchase Netflix and turned them down. In the end, Blockbuster lost $1.1 billion and filed for bankruptcy, closing their doors for good.
Blockbuster was left behind because of it’s inability to adapt a digital mindset and business model and their resistance to embrace digital transformation. And other businesses, like Yahoo and Myspace, have been left behind because they treated digital transformation only as a one-off event, and failed to continue digital up-keep. Kadamb Goswami from Digitalist Magazine says, “It is our job to collaboratively work with our customers to understand what infrastructure changes need to be made to achieve and take advantage of digital transformation.”
3. A Business that Embraces Digital Transformation Experiences Increased Stability.
Organization’s that have engaged in digital transformation report a number of advantages that contribute to their businesses being more stable overall. For instance, Altimeter reports that benefits already being witnessed from digital transformation efforts include increased market share (41%), increased customer engagement in digital channels (37%), more positive employee morale (37%), greater web and mobile engagement (32%), and increased customer revenue (30%). Similarly Forrester reveals that 54% of mature digital organizations believe that fostering a culture of digital innovation is a critical enabler to develop their business. Other noteworthy benefits include an updated company vision, thriving culture of innovation, increased internal collaboration, more empowered workforce, and improved efficiency. So although it may seem like embracing digital transformation will just cause instability and upset to the company, it actually leads to increased stability.
The Bottom Line
Marketing Week says, “There is no question that digital transformation is no longer an option as the need to build an organization that can change both its technology and its culture rapidly will be core to not only surviving in the time of business disruption, but building a business model that is agile, adaptable and designed to thrive long into the future where change is the only constant.”
But wait a minute, the basic challenges facing businesses today are the same as they’ve always been right? Organizations’ primary concerns are still trying to attract customers, enable employees, and optimize revenue. So why is Digital Transformation suddenly so crucial to a businesses’s survival? The difference is that our society is so reliant on technology that even though the challenges may seem to be the same, they are happening in a vastly different world. The bottom line is that digital transformation is expected to boost the bottom line by more than 50% for some companies over the next five years (McKinsey).
47% of companies haven’t started to embark on Digital Transformation, with 55% saying they have a year or less to make digital inroads before suffering financially and competitively and 59% are worried that they may be too late with their digital transformation effort and will fall behind their competitors (Progress). According to the Center for Digital Business Transformation, digital disruptors will displace 4 out of 10 incumbent companies over the next five years. You and your business must embrace digital transformation or get displaced by those who do. Don’t get left behind.
Implementing Digital Transformation: 5 Areas of Focus
So how does a company engage in Digital Transformation? There are certain aspects to focus on in order to ensure your initial transformation and subsequent digital up-keep is as successful and profitable as possible. For the rest of this white paper, we’ll take you through different areas of focus as well as common mistakes and digital transformation tips.
There are 5 key areas to focus on when engaging in digital transformation: tools, mindset, environment, personnel, and security. Keep in mind that digital transformation is not a one off event. These are tips for the initial transformation but should be incorporated permanently into your organization’s infrastructure in order to continually adapt your relationship with always changing technology and customer expectations.
1. Modify Your Mindset
The first step is to convince those in your organization to adjust their mindset. 63% of companies report changing company culture to be agile as a challenge of digital transformation according to the Huffington Post. It is important to encourage all leadership to adopt a policy of flexibility toward change.
Ensuring that everyone, especially the decision makers, fully commit to the decision to digitally transform is imperative. “[Digital transformation] involves a change in leadership, different thinking, the encouragement of innovation and new business models, incorporating digitization of assets and an increased use of technology to improve the experience of your organization’s employees, customers, suppliers, partners and stakeholders,” (The Agile Elephant).
In order for all these things to occur, leadership has to fully commit to devoting adequate resources and budget. There will undoubtably be resistance to allocating more money towards digital transformation. But Edward Humphrey, the director of digital at BFI stresses the point that it “isn’t a waste of money, it is the necessary cost of change.”
Another thing to point out here is that it doesn’t automatically have to be about asking for more money, although initially there may be a need for a larger budget. But Owen Pringleasserts that “in successful transformation a lot of changes aren’t about asking for new money…but spending it differently.”
Companies are often hesitant to make the shifts that are necessary in order to move towards true digital transformation. The mindset will trickle down through the rest of the organization once leadership is involved. If everyone isn’t fully committed, your company’s digital transformation will fail. If your company isn’t willing to allocate the necessary resources, your digital transformation will be unsuccessful.
2. Embrace Your Digital Environment
The digital environment of your company will have to undergo a change as well, if it hasn’t already. Gartner states that “Digital business is the creation of new business designs by blurring the digital and physical worlds.” The real world of your business should fully embrace everything digital and vice versa. Your organization should shift away from a physical workplace and towards a digital one, in order to create a digital identity.
One way to do that is to establish an Intranet Platform where employees can communicate and collaborate, quickly and easily all in one place. Whether you are just creating an Intranet, or already have in one place, make sure your portal is a digital representation of the physical office space, allowing the user to move seamlessly between the two. It should create a dynamic, genuine, identical presence in both places. Be sure to avoid “Digital Decoration”, which is only seeming to be digital, just on the surface, while maintaining legacy business structures.
3. Reevaluate Your Tools
One thing that will help you shift your environment towards digital is to reevaluate your tools.Nigel Fenwick of Forrester says “Digital business goes beyond social business and certainly beyond Marketing or ICT. It’s about business and people…and those experiences are shaped, among others, by having the proper information, resources, tools…”
Evaluate your organization’s needs and the knowledge worker’s needs. Make sure that your digital environment provides tools that solve big work problems for employees. Forrester says that “Only 14% of executives have the right technology to execute their digital strategy.” If you take a step back and analyze the systems you need for the business model you want to achieve in the digital age, you will ensure you have the right tools to remain successful.
This also involves evaluating your organization’s current tools and letting go of technology and systems that are outdated. “Nine out of 10 IT decision-makers claim legacy systems are preventing them from harnessing the digital technologies they need to grow and become more efficient” (Enterprisers Project). If you have already taken the step to remove legacy systems from your business, get feedback from those in the company to ensure successful adoption.
Remember again that this is not a one off retooling. The technology and systems that you pick should fit your business’s needs and fit into the current technological processes of the world around you, while still being able to change and adapt as time goes on. Some sort of an analytics/feedback system will help your company stay in the know about how things are working, and when it is time to adjust again.
4. Nurture Your People
Don’t focus too much on tools and technology while ignoring the people of your organization: i.e. your employees/customers/stakeholders. Whether you have already embraced digital transformation, or are just starting to make the transition to a digital ethos, this is useful advice. Make customers feel like they have stake in the services you are selling and in the company. Ensure stakeholders feel invested in the digital transformation process. Make employees feel empowered to learn and contribute.
“It’s important to make everyone feel like they have ‘skin in the game’ for digital transformation to work across departments,” says Perry Hewitt, the CDO Harvard. Equip current employees with necessary and relevant knowledge to ensure a successful embracing of digital ethos. Encourage a culture of digital learning to help employees keep up with changing technology trends. Continually strive to develop and support collaboration and communication.
The same philosophy should be applied to customers. Recognize that an important aspect of digital transformation is closing the gap between what customers expect and what businesses actually deliver. “Technology changes and develops simultaneously with customer behavior so a vital piece of any transformation project is constantly checking if it serves a real customer need. The long-term view should change, and should change often, because customer behaviour changes often,” (Marketing Week).
Listen to your customer base in order to provide services that they have come to expect from businesses in your industry. Use your tools as resources to create a relationship with the customer that encourages them to take ownership of your brand and become a lifetime supporter.
5. Strengthen Your Security
Security isn’t always seen as a necessary step of digital transformation. But as your business moves closer toward being more digital, cyber attacks will become a very real eventuality. “As companies embark on their journeys of digital transformation, they must make cybersecurity a top priority,” says Michael Golz, CIO, SAP Americas. Establish a digital security plan from the beginning, in order to protect your digital identity. If you already have a digital security plan in place, use this section as a checks and balances in order to confirm you’ve covered all your bases.
Agility is key when creating your security plan to ensure your protections can change easily as new technology emerges. Set up all the usual perimeter protections like encryption, permissions, authentication, digital infrastructure, etc. But also take precautions to protect your connected environments. Safeguard data that is spread across multiple systems, devices, and the cloud.
Delegate employees to implement your security plan, or hire new personnel if necessary in order to form a cybersecurity team. And make sure that your IT team and cybersecurity team work closely together to ensure a successful and unified approach to digital protection.Gartner predicts that by 2020, 60 percent of digital businesses will suffer major service failures due to the inability of IT security teams to manage digital risk.
In conclusion, here is a quick recap of the key points in this white paper:
- Digital transformation can be defined as a disruption, as an evolution or as a relationship. But the simplest way to define it is: the process of continually keeping up with a shift in technology and a shift in the way the world views technology, with the overall goal of strengthening a business’s ability to connect, communicate and collaborate.
- Digital transformation is absolutely imperative to your business, and causes an increase in profits, stability and competitive advantage.
- Treating digital transformation as a one off event is a mistake and will be detrimental to your business. The only way to ensure success is to continually transform, adapt and grow with the world around you.
- Increase the success of your digital business by modifying your mindset, embracing your digital environment, reevaluating your tools, nurturing your people and strengthening your security.
Digital business is the future whether we like it or not. Just 33% of executives in a 2007 survey by Harvard Business Review said that their CEO was a champion for digital; that number has doubled to more than 68% today. And most importantly, CEO’s expect that 41% of enterprise revenue will come from digital business by 2020, almost double what it was in 2015 (Gartner). Digital innovators like Google, Netflix, Ikea, Under Amour, and Starbucks are paving the way forward and embracing digital transformation. We all have to do the same or get left behind. Yet, even though this may feel unfamiliar, it is not a journey you have to go alone. Take advantage of the community of people and resources that are available to help your organization and embark on your digital transformation journey today.