Digital transformation

Digital transformation involves the incorporation of current technologies into the products, processes and strategies of an organization in order to better compete in a digital economy.

As such, digital transformation requires an examination and reinvention of most, if not all, areas within an organization, from its supply chain and workflow, to its employee skill sets and org chart, to its customer interactions and its value to stakeholders.

Digital transformation helps an organization to keep pace with emerging customer demands now and, if sustained, in the future. Digital transformation enables an organization to better compete in an economic landscape that's constantly changing as technology evolves. To that end, a digital transformation strategy is necessary for any business, non-profit or institution that seeks to survive into the future.

Importance of digital transformation

Successful organizations need to adapt to meet changing market forces or face extinction. Companies that don't anticipate how emerging technologies could make their own products obsolete run the risk of going out of business, shuttered either by new competition or existing competitors who were more nimble and able to transform themselves.

The danger of market leaders being displaced and disrupted will continue in the future, as emerging technologies enable new business models, more engaging customer experiences, novel products and services, and other innovations.

Moreover, the pace of digital business transformation is accelerating. Organizations are having to transform much more rapidly, more often and at a faster pace today as a result of a confluence of technologies shaping modern customer expectations.

Digital transformation drivers

Mobile technologies, artificial intelligence, cloud computing, social media platforms and other digital innovations have drastically changed how quickly customers can get information, thus changing the kind and quality of products and services they expect from the businesses and other agencies with whom they interact.

Similarly, this same collection of digital tools has changed what employees and other stakeholders -- i.e., business partners and investors -- expect from organizations.

Customers -- both individual consumers and companies in business-to-business transactions -- expect organizations to be responsive, as well as to provide a personalized customer experience and products tailored to their needs. That's true of customers interacting with for-profit businesses, non-profits or government agencies. They also expect intuitive, easy-to-use interfaces, and they generally prefer digital interactions that can happen anytime from any device. Organizations find their own employees expect that in the workplace, as well.

Workers have come to expect digital, fast, highly social and intuitive experiences in their personal lives and in their personal business transactions -- whether they're sharing real-time video with friends and families around the globe or seeking near-instantaneous details on the amount of money they can borrow for a mortgage.

Goals of digital transformation

The goal of an organization's digital transformation strategy is twofold: to better serve its customers and to better serve all its stakeholders -- most notably its employees, who are critical to success, and its shareholders.

To do that, organizations must use digital technologies to achieve a number of objectives that help support the overarching goal of better anticipating and meeting customer needs.

Those supporting objectives include the following:

• increasing speed to market with new products and services;

• increasing employee productivity;

• increasing responsiveness to customer requests;

• more insights into individual customers to better anticipate and personalize products and services; and

• improved customer service, especially in providing more intuitive and more engaging customer experiences.

Organizations that successfully meet these targets are well positioned to understand their customers and deliver the products and/or services they want to buy, thereby increasing their organization's strength and competitiveness in the marketplace and the likelihood of its short- and long-term relevance and success.

Key technologies

Technology drives the need for digital transformation and supports the digitization of an organization. Moreover, there is no single application or technology that enables digital transformation.

There are multiple key processes an organization generally must have to transform. Cloud computing, for example, grants an organization quicker access to its needed software, new functionalities and updates, along with data storage, and enables it to be nimble enough to transform.

Meanwhile, mobile platforms enable work to happen wherever and whenever. And robust data programs that fuel machine learning and artificial intelligence technologies provide organizations with insights to drive more accurate decisions around sales, marketing, product development and other strategic areas.

Other technologies that drive business transformation include blockchain, augmented reality and virtual reality, social media and the internet of things (IoT).

Digital transformation strategy

Authorities on digital transformation acknowledge that emerging technologies both drive and support actual transformation, but they stress that successful transformation starts with a vision that articulates how to harness those technologies to achieve strategic objectives based on the organization's own digital business model.

They note that implementing cutting-edge technologies, no matter how promising they are, without understanding how they'll deliver value to the organization and its customers, will not lead to transformation.

Each organization must have its own vision for its future, but there are some common elements to most strategic plans. Experts generally advise organizational leaders to understand the market and their place in it, as well as their existing and potential customers. They should also analyse where the market is heading, so they can anticipate the potential for digital disruption and how they can be the disruptor vs. being disrupted by others.

Benefits of digital transformation

Transformation enables organizations to succeed in this digital age: That is the single biggest benefit of digital transformation. For businesses, that success means higher revenue and bigger profits. For other types of organizations, such as non-profit institutions, the digital metrics for success they've implemented enables them to better serve their stakeholders.

Although digital transformation's ultimate benefit is survival and strength in the future, transformation initiatives deliver many other advantages to organizations. They include the following:

• higher worker productivity -- a bump that often comes from increased use of automation and robotics technologies, as well as machine learning and AI;

• increased customer satisfaction, generally resulting from a more intense focus on understanding customer needs and deploying the technology required to meet those needs; and

• more agility, as an organization's culture and capabilities shift to support ongoing change.

These benefits actually help fuel ongoing transformation, as automation allows employees to shift to more innovative and higher-value work, and more agility enables the organization to better identify opportunities and pivot resources toward seizing upon them.

Challenges of digital transformation

In reporting those 2016 findings, McKinsey stated, "Common pitfalls include a lack of employee engagement, inadequate management support, poor or non-existent cross-functional collaboration, and a lack of accountability. Furthermore, sustaining a transformation's impact typically requires a major reset in mind-sets and behaviours -- something that few leaders know how to achieve."

The research found the top barriers are the following:

• data privacy and security concerns;

• budgetary constraints;

• limited in-house skills and expertise;

• regulatory and legislative changes; and

• an immature digital culture.

Many organizations still struggle with older, so-called legacy technologies that cannot easily be replaced. Many organizations are unable, or unwilling, to allocate the money to replace old technologies. Many also have a hard time finding qualified leadership at the executive and board level to guide such initiatives; many cannot find digital and IT staffers with the right combination of industry knowledge and the ability to execute on transformational building-block projects.

Leaders need to create an organizational culture where continual improvements happen and where stakeholders are open to ongoing transformation. Everyone must be willing to identify and abandon dated and ineffective processes and replace them with something better.

Without such attention to these sweeping requirements, an organization could end up with modern technologies that enable more efficient or effective processes or procedures -- such as ordering raw materials, taking inventories or handling payments -- without truly transforming how the organization operates, what it has to offer its stakeholders and what value it produces for all involved.