Digital Transformation in Business
By: Colleen Atwood - Virtual Assistant & Editor
"Today, companies have to radically revolutionize themselves every few years just to stay relevant. That's because technology and the Internet have transformed the business landscape forever. The fast-paced digital age has accelerated the need for companies to become agile."
What is digital transformation? Is it a single one-and-done project, or is there something more to it? To help answer these questions, we briefly explore:
- A working definition for digital transformation.
- Why it is essential for every company.
- The most common components of digital transformation.
- The benefits of implementing digital transformation initiatives.
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Additionally, throughout the upcoming year, we will add new discussions covering distinctive yet related topics that companies may adopt for themselves (or gain added insights on how it may apply to their digital transformation journey).
What is Digital Transformation (DX)?
Business is rife with buzzwords, which can be confusing if not applied properly. One such word is digital transformation. At first, people might assume it simply means adding innovative technology to a business and continuing as previously planned. However, digital transformation is much more than you might believe; it is a fundamental change to how companies conduct business and respond to ever-changing customer expectations completed in phases that can last for weeks, months, and even years.
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Digital transformation does not have a single definition. Because of the complexity of the term, we include a four-part list to help explain what it means. Digital transformation includes
- Business process analyses and enhancement to increase employee productivity and agility.
- Innovation of new (or modification of existing) products and services.
- A customer-driven approach using technology to increase competitiveness within a shifting marketplace.
- Promotes a cultural change that requires acceptance of experimentation and the possibility of failure while simultaneously challenging the status quo.
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In other words, digital transformation is an end-to-end approach that touches every business area, even if only initially applied to one company domain (or part). As such, digital transformation does not have a specific endpoint; it is continuously evolving, allowing companies to pivot as needed without too much disruption.
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Businesses must remain aware of the fact that when implementing a digital transformation initiative, it will change how your firm interacts and responds to customers, how employees work together, and likely require a complete overhaul of each workflow, which may cause tension if the company culture does not shift as well.
Why Digital Transformation is Important
Large and small businesses must find a way to remain competitive in a busy and changing marketplace. As such, let us briefly discuss the most common rationales for why a firm may adopt a digital transformation initiative and why doing so helps everyone in the organization. Company rationales include (1) competitive advantage, (2) data-driven decision-making, (3) global connectivity, (4) improved customer experiences, (5) increased efficiency, (6) innovation and adaptability, and (7) quickly adapting to industry needs.
Competitive Advantage
With continually shifting customer expectations, a business must find a way to offer its clients the most contemporary products and services, use innovative technology to enhance internal processes, and quickly respond to market changes as needed. If done correctly, a company will experience increased revenues, lower overall costs, improved customer experience, and be of higher value to its clients than rivals.
Data-Driven Decision-Making
Businesses contend with abundant data in the digital age and can use the information supplied to help make strategic decisions more straightforward. By using analytics to help understand the market better, forecast where it may be going, and use customer feedback to its advantage, a company can adjust its current forward momentum as needed with higher confidence about the potential impact of its decisions.
Global Connectivity
The ability to communicate with others via the internet and other digital technologies has grown in the last twenty years. With the prevalence of innovative technologies entering the market so often, it is no surprise that businesses can now collaborate in real-time with companies worldwide. Digital transformation allows companies to enter new markets and gain fresh perspectives.
Improved Customer Experiences
Companies that undergo digital transformation take a customer-driven approach to all aspects of the business. By understanding their clients deeper, they can use technology to help fuel growth and reach their audience in new and innovative ways. They can implement more personalized services while continually improving the customer experience.
Increased Efficiency
Businesses hate wasting resources, and using digital transformation to help find wasted materials, time, and energy is crucial. By thoroughly reviewing existing processes and systems, companies learn where areas of improvement exist and can implement ways to improve these processes and systems to help achieve new goals.
Innovation & Adaptability
By fostering a culture of innovation, companies allow employees to experiment and explore how emerging technologies can help the firm quickly adapt to a changing market. Instead of implementing a single innovative product or service, innovation becomes a continual effort by everyone in the company, enabling them to stay ahead of the changing business landscape.
Quickly Adapting to Industry Trends
Companies that undergo digital transformation have an easier time processing and responding to changing trends, new regulations, and shifting customer preferences.
Key Components of Digital Transformation
One of the biggest things companies must remember is that digital transformation means different things to each person and company. Further, depending on where you look on the internet, the key components of digital transformation may vary. Today, we look at the essential elements of digital transformation, which include a client-centric approach, a fundamental cultural shift, data-driven decision-making, and technological integration.
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Now, let us look at each in more detail.
The Client-Centric Approach
A client-centric approach means businesses focus on what customers need, their preferences, and how they interact with the company. Specific areas of emphasis include user experience and personalization.
User experience (UX) focuses on deeply understanding users, what they need and value, their abilities, and limitations. Businesses typically improve client satisfaction, engagement, and brand loyalty by understanding these areas and creating new products and services to meet these needs.
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Whether interacting with the company website or completing the onboarding process, businesses should make the process as seamless and enjoyable as possible. Considering that 44% of users will tell their friends if they have a terrible online experience with a company, and another 80% are willing to pay a higher price for a better user experience, there is ample reason to improve UX as much as possible. The more complications (i.e., slower website, too many steps in the sales process, unclear onboarding process) arise, the less likely your user experience will remain high.
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Personalization means organizations tailor their products, services, or experiences to meet customers’ needs and preferences. According to one recent survey, 64% of businesses segment their website to cater to different audiences, while another 73% of consumers expect companies to understand their needs and expectations. When businesses meet their client’s expectations by delivering relevant content and practical recommendations, overall conversion rates increase by 57%. And another recent survey says that 56% of clients become repeat customers after a personalized experience.
A Comprehensive Cultural Shift
Companies that have run a certain way since first opening typically have more difficulties implementing digital transformation than companies that use a hybrid approach. Whether facing employee resistance to change or the lack of support from higher executives, there are ways to help ensure the process runs smoothly and receives all the support it needs from each stakeholder.
A cultural shift occurs when an organization realizes its current business culture does not align with the business’s vision and core values. Companies will implement strategies and techniques to help align employees and management better with the firm, including digital transformation.
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Employees and management must understand the ramifications of implementing a DX initiative, the ways it can improve their daily activities, how to properly use modernized technology, that experimentation and failure are acceptable actions (and are not associated with negative consequences), and understand that cross-functional collaboration benefits everyone in the firm.
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When preparing to create your digital transformation initiative, seek information from everyone in the business during your first assessment. That way, you understand where the gaps may lie, how employees complete their projects, and the processes used. Based on this information, you can decide where to start your initiative and include a step-by-step process to follow.
Data-Driven Decision-Making
Organizations use data gathered to help make strategic and departmental decisions. However, which analytics to use is the question. The best choices for companies to use are known as big data and predictive analytics.
Big data analytics collects, processes, and analyzes large and complex datasets of information to help uncover patterns, trends, correlations, customer preferences, and other insights.
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Companies will collect data from various sources and input the information into a data warehouse or business intelligence tool. Once stored, the warehouse or tool organizes the data to get exact results and scans the material to remove inconsistencies, duplications, and mistakes. And finally, the tool analyzes the data.
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And although using big analytics is extremely helpful, 95% of businesses say managing unstructured data is a thorny issue. Companies implement predictive analytics to help them make decisions using this information.
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Predictive analytics applies statistical algorithms and machine learning to help discover the likelihood of future outcomes based on historical data. This knowledge allows companies to predict future trends, improve risk management, and enhance the customer experience through predictive modeling. Predictive analytics helps answer the question of what will happen next.
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The analytical methods companies use to help make decisions include forecasting future business trends, marketing changes, which products or services to have (or create), and even human resource actions.
Technology Integration
Digital transformation cannot occur without technology; even more importantly, companies must create a seamless technological ecosystem that works harmoniously across the organization, helps drive business goals, and improves employee and customer experiences.
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There are all sorts of technologies a company can implement based on their goals and needs. Three of the most common types include cloud computing, automation, and the Internet of Things.
Cloud computing requires using remote servers to store, manage, and process data. Typically, a complete digital transformation involves the use of a three-tiered service model, which uses (1) infrastructure-as-a-service (IaaS), (2) platform-as-a-service (PaaS), and (3) software-as-a-service (SaaS) interfaces.
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The infrastructure layer is the lowest level, where a third party supports all infrastructure components and server hardware and manages maintenance and backup tasks. The platform layer supports building and integrating applications for everyone in the same environment. Finally, the software layer gives visual access to the applications within the platform layer and allows easy accessibility. As of December 2023, only 39% of organizations use the hybrid cloud strategy.
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Business automation uses technology to perform repetitive and easily replicated operational business tasks, allowing employees to focus on other, more critical projects. The types of automation a company may implement include business processes, email management, talent acquisition and hiring, artificial intelligence, customer relationship management, social media, accounting and bookkeeping, and more.
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With at least a third of all companies saying they have at least five automated departments and a projected $1.6 billion growth by 2026, it makes sense that 90% of companies see automation as key to their operations.
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The Internet of Things (IoT) is a network of unrelated, varying, and not necessarily connected-to-the-cloud technologies. IoT combines software, sensors, networks, and other technologies that can (but do not always) connect to a system with easy access points. Companies can use various APIs and protocol layers to help connect these devices to the cloud (if desired).
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As much as people might not like the idea of IoT getting more complex with each passing day, it is inevitable that it will grow. A recent survey projects that there will be a 12.7% growth (around 29 billion devices) between 2023 and 2030 (approximately $15.9 billion during the same time). Despite the expected growth over the next seven years, 97% of businesses need help extracting value from IoT-related data.
Businesses have a powerful way to find, analyze, and use the information they receive to help make better business decisions when using each part together.
The Benefits of Digital Transformation
There are a multitude of benefits companies, employees, and customers receive from digital transformation initiatives, including:
- Better business models.
- Continued relevancy.
- Driving growth and innovation.
- Encourages employee excellence by updating skills and knowledge.
- Enhanced customer experience, engagement, and satisfaction.
- Greater agility to pivot as needed.
- Improved products and services.
- Streamlined processes.
- Updated security and scalability.
A Final Word
Digital transformation is not an easy project to tackle and can take months or years to implement and see meaningful results. However, companies cannot disregard digital transformation either. To stay competitive, businesses need to assess their organization to see where changes can help improve the firm and create a step-by-step plan to get to that point (even if only applying to a single portion of the company—businesses are often surprised to learn how much a single change can and does affect another seemingly unrelated part of the company).
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Not only does digital transformation create a change (or upgrade, if you will) to specific areas of the company, but it also requires a fundamental change to how the business runs and the products and services customers receive. Organizations must understand that digital transformation is a complex process with a series of components they cannot ignore.
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See the Business Consulting Resources page for more information on the digital transformation process and roadmap. Until next time.
