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What is digital transformation?

Posted on: November 23, 2021

Digital transformation is a phrase that creates quite a buzz in organisations large and small, but what does it actually mean? Digital transformation is all about integrating new technologies into every step of the business and ensuring that they synchronise and streamline systems and processes rather than hindering workflow. For this to happen, all stakeholders need to be in support of the changes, which can be one of the biggest challenges. It’s not just a change in ways of working, it’s a change in culture. “This is the way we’ve always done things” is a refrain often heard by those trying to implement digital transformation, even when the “way we’ve always done things” is at best, laborious, and at worst, broken.

As with many business processes, the pandemic has highlighted failures in efficiency and glaring gaps in the smooth running of day-to-day business. Companies that did not have a protocol for remote working or the logistics to support this – such as cloud computing and digital platforms – were the first to feel the pressure. Digital transformation helps companies to be more agile during “business as usual” periods as well as in times of challenge. Digital transformation assesses every process, from recruitment and onboarding of staff through to the end user experience for services or customer experience for products.

Depending on the size of the company, a digital transformation strategy can be created and led internally by the chief information officer (CIO) or outsourced externally to a consultancy. A new role of chief digital officer may even be created to ensure that the process is upheld and is continuously optimised. Either way, it’s important for management to be on board with the digital change roadmap and to help stakeholders understand the benefits for the business as a whole. There is an element of change management that digital transformation professionals will be adept at handling. This is the people-centric side of the digital transformation journey and is a crucial aspect which is not to be overlooked. Start-ups and new businesses tend to have digitalisation built into their business strategy, so they don’t need digital transformation initiatives per se, but simply need to remain agile.

Digitisation, digitalisation, and digital transformation

Digitisation started with the move from keeping paper records to digitising them. The digital age meant everything could be stored in computer memories and servers. However, despite the rise of digital technologies, many still preferred to print out physical copies that could be stored and filed. Even the way that we manage digital files is based on the manual act of filing documents in folders represented by the folder icon on our file managers. Even though digitising documents became the norm, it took some time for business models and practices to fully catch up.

Digitalisation presented the next step in the evolution of business transformation. Once all documents and records were digitised, they were now instantly accessible, making processes much faster. For example, a customer services executive could now retrieve records and gain an overview of a customer’s journey to better understand any issue they were facing. The digital interfaces that they were now using meant that they could quickly rectify issues without having to find a physical paper trail and maybe fill out a form for another department to help resolve the issue. The method, once digitalised, was not necessarily that different from before, but it was much more efficient as the executive had everything they needed in front of them and could action a solution more quickly.

This simplification then led to people thinking about other ways that emerging technologies could be used. From the use of automation to artificial intelligence, many manual processes could potentially be completed by computers.

Digital transformation is the logical conclusion to the “what if” questions that digitalisation posed. From social media as a tool for immediate customer service response to blockchain as a way to ensure ethical supply chains, digital disruption is changing the way that we get things done and creating new business models.

Larger, older organisations may have operating models that need updating but also large archives of valuable data. Healthcare provides us with a number of examples of digital transformation. These case studies include the mining of big data to spot previously un-analysed patterns of symptoms before diagnosis. This has only been made possible thanks to machine learning, which can complete these kinds of tasks in a fraction of the time it would take humans. Big data can also help manage appointments and improve hospital performance by looking at patient numbers and staffing. Decision making in general can be greatly aided by the statistical evidence that big data provides. The Internet of Things (IoT) helps us to connect devices that track heart rate, blood pressure, sleep quality, and activity. This data can then provide insights into an individual’s behaviours and the effect on their health.

The keys to successful digital transformation

In a survey published in 2018 by McKinsey, twenty one keys to unlocking success in digital transformations were grouped into five categories:

  • having the right, digital-savvy leaders in place
  • building capabilities for the workforce of the future
  • empowering people to work in new ways
  • giving day-to-day tools a digital upgrade
  • communicating frequently via traditional and digital methods

The survey measures success by a variety of metrics and shares interesting insights, like the fact that less than one third of all respondents said their organisations had engaged a chief digital officer (CDO) to support their transformations. Those that had were 1.6 times more likely than other organisations to report a successful digital transformation.

Digital transformation creates a powerful argument for future-proofing any business by upgrading how it operates. Whether a digital business needs to build new products that make the customer experience better, or a financial services business needs to streamline and integrate its internal processes, there are always new opportunities for improvement. Digital ecosystems are dynamic and interconnected and change all the time. Digital transformation helps businesses continually keep up with that change so that they can grow.

The International Data Corporation (IDC) is the leading digital transformation (DX) market research firm in the world. Its report, IDC FutureScape: Worldwide Digital Transformation 2021 Predictions notes that despite the pandemic, direct digital transformation investment is still growing at a compound annual growth rate (CAGR) of 15.5% from 2020 to 2023. It is also expected to reach $6.8 trillion as companies build on existing strategies and investments to become digital-at-scale future enterprises.

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