What is Digital Transformation? All You Need to Know

What is Digital Transformation?
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What is Digital Transformation?

Digital transformation refers to the cultural, operational, and organizational changes a company goes through when implementing the modern digital technologies, processes and standards needed for successful customer centric business strategies.

When a company engages on a digital transformation initiative, they attempt to modernize their technical infrastructure, business processes and core competencies to be more agile, data-driven, and customer centric. This enables businesses to be more adaptable, scalable and flexible when impacted with unpredictable events and changes in customer demands. This integration of digital technology and agile business processes in all aspects of a business is intended to change how your business interacts and responds to your customers, making you able to react, with the right technology solutions, to customers in real-time with relevant and valuable offerings and messaging.

The COVID-19 pandemic has only increased the need for businesses to accelerate their digital transformation project plans. As customers moved, almost overnight, to being digital-first in their interactions with brands, businesses were forced to react and accelerate their plans to meet both emerging demand and respond to unpredictable global events. Today, digital transformation is an imperative for businesses of all sizes and in all industries. Engaging on a successful digital transformation program is no longer a nice-to-have and an exercise in innovation, but is now mission-critical to ensure future survival and success. Digital transformation is a critical step if you plan on improving the overall customer experience and digital experience across digital and physical channels.

Not every organization is at the same place in their digital transformation. A software company that is 10 years old will have significantly different culture, processes and technologies than a 150-year-old insurance company. How challenging a digital transformation strategy will be to implement and see benefits from will be directly related to how willing and able your organization is to adopt these more modern, agile processes.

The CIO should be one of the leading figures in the digital transformation process, working closely with the CEO, CMO and CTO to ensure the right technology platforms and internal processes and skills are deployed to ensure corporate-wide success. CIOs need to step up and serve as culture-change agents, working to move IT from corporate centric and project-based to customer centric and outcome-based.

What are the Benefits of Digital Transformation?

Since digital transformation initiatives touch every aspect of an organization, its benefits are varied and broad. Digital transformation can enable companies to modernize their legacy processes and make their workflows more agile, understand their customers wants and behaviors more completely, tailor the customer experience to reflect those needs, as well as improve data security and increase profitability. The top benefits of digital transformation include:

  1. Improved Data Ingestion and Integration.

Running a modern data-driven business is all about understanding your customers and being able to deliver to them value wherever and whenever they may be. A digitally transformed business has the technology infrastructure and the skills and process needed to gather and leverage that customer data to improve business performance and reduce operational inefficiencies. In order to gather and make sense of that data, you will need a centralized data management solution like a customer data platform (CDP). A CDP will allow you to produce a single, unified view of the customer to leverage across your whole company for a single-source of truth regarding the customer.

  1. Improved Customer Experience.

Being able to understand your prospects and customers’ needs and behaviors over time is one of the most important elements to improving the quality of the customer experience and customer service. Your customers expect a cohesive and smooth experience across whatever channel they interact with you on, and their expectations have only increased since COVID-19. Using a CDP to gather and integrate customer data, and then deliver it to the appropriate technology platforms to tailor the customer experience is one way to deliver a valuable experience to every customer.

  1. Improved Operational Efficiency.

Modernizing your entire business, its infrastructure, it’s software, processes and culture can have a significant impact on your operational overhead. A cloud-based infrastructure can allow for quick spin-up of applications for improved time-to-market, digital workplace software can improve your employee’s productivity and communication, while solutions like enterprise resource planning (ERP) software can be used to significantly improve operational efficiency. Modern technologies like artificial intelligence (AI) help to automate business processes.

  1. Improved Cost Savings.

Just running all that legacy software and infrastructure at your organization is costing your company tons of money. When you undergo a digital transformation, you not only save money replacing aging inefficient software, you also save time and money doing integration with the rest of your technology stack with more efficient processes.

  1. Improved Flexibility and Scale.

With digital technology platforms and tools, your organization will be more able to react to extreme and unpredictable events, as well as ever-changing needs of customers. IaaS and SaaS platforms make it easy to spin-up projects quickly, while they can also be scaled by adding more allocated cloud resources. 2020 saw the largest upset in standard business practices in our lifetime, so it is incumbent on businesses to make themselves as adaptable and flexible as possible to unpredictable events.

Find out Why CDPs Are Key Digital Transformation Platforms

How COVID-19 Accelerated Digital Transformation

The COVID-19 pandemic accelerated the digital transformation from a forward-looking exercise in innovation and modernization to a matter of survival in the space of just a few months. Modern organizations must not only deal with an unending series of disruptions and unpredictable events like pandemics, supply chain stability, extreme weather, and political instability, but must also react to evolving customer demands for more relevant customer experiences and real-time interactions.

The pandemic has only increased companies’ commitment and spending on digital transformation efforts, products, software and services. According to Laura Laberge, director of capabilities for digital strategy for McKinsey, companies’ adoption of digital technology has increased by up to 3 to 7 years in a matter of months.

And the numbers do not look good when it comes to how executives think their digital transformation is going. Only 11 percent of business executives believe their current business models will be economically viable through 2023, with 64 percent of those executives saying their companies must build digital businesses, according to a survey by McKinsey.

What are the Pillars of Digital Transformation?

By defining the core pillars of the digital transformation process, business leaders can assess where they are on their digital transformation maturity journey, create short- and long-term plans, and plan technology investment priorities against those pillars. The pillars you establish and align around are intended to keep the focus on customer centric strategies and being digital-centric and digital-first.

Strategy:

Your digital business transformation strategy is embedded within your overall business strategy, and is focused on how the business transforms and improves operations to increase its competitive advantage through digital initiatives.

Culture:

Since digital transformation initiatives span business units, affecting all parts of an organization, it takes strong leadership to make digital transformation work, enforce behaviors, and keep everyone focused on aligning around a customer centric perspective. And since digital transformation initiatives require re-designing traditional business models and processes, it needs an innovative, agile and collaborative culture to embrace change. Finally, advanced digital skills need to be embedded in all areas across the organization in order to leverage modern tools and techniques.

Technology:

The centerpiece of any digital transformation strategy is the technology that powers it. This is a broad list and includes software and applications, the data that fuels them, as well as the networks that move data around and the infrastructure it is all based on. Modern as-a-service software models are more agile, flexible and scalable that traditional on-premises solutions and have become the standard for companies that need the flexibility and quick time-to-market of SaaS solutions. Adding to flexibility is more adaptive infrastructure-as-a-service (IaaS) solutions like private and hybrid cloud which allow companies to react quickly to unpredictable events and spin up services in an agile and timely fashion.

Organization:

This refers to how you execute and optimize your internal processes and organizational structure using digital technology in order to improve business performance. This can include change management, governance, resource allocation, automation and process refinement. Since digital transformation initiatives have a broader and deeper impact across a company than traditional initiatives, change management programs should take a more holistic view across a wide range of stakeholders. And since digital transformation initiatives span traditional business units and silos, effective digital governance is important to promote the right levels of coordination and sharing in an organization. This will minimize risk and cost to ensure close alignment with strategic priorities.

What is a Digital Maturity Model?

Digital transformation needs a clear roadmap to succeed and provide value to an organization and its customers. A Digital Maturity Model is a framework to provide that roadmap.

A Digital Maturity Model is a tool that provides guidelines to navigate the digital transformation journey. While you will still have a detailed operational transformation action plan to execute tasks, think of a digital maturity model as a guide to keep you on track for higher, more strategic priorities.

Digital Maturity Models helps you plan your organizations digital maturity by offering strategic guidance on how to advance to higher levels of maturity. A key part of any digital maturity model is setting benchmarks for culture, organization, technology, and strategy for digital transformation success. Digital maturity models evaluate how well companies have incorporated digital into their operating models and how effective they are at executing on digital initiatives.

There are a variety of digital maturity models out there for you to use as a template. Two example are the Deloitte-TM Forum digital maturity model and Forrester’s Digital Maturity Model 5.0 (reg. required).

Looking Forward

Digital transformation is a journey, not a destination. Even once you reach digital maturity across all pillars, there will still be a need to optimize business performance and operations, as well as react to challenges and opportunities as they arise. One of the benefits of moving along a digital transformation maturity curve is that you incorporate next-generation skills and capabilities as you go along, so that agility becomes an intrinsic part of your organization’s operating model. Digitally re-designed business processes are experience-centric, automated, personalized, dynamic, real-time, and scalable.

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