What is Digital Transformation and how it marks a radical rethinking of an organization to transform business performance fundamentally?

Digital Transformation (DT) Defined:

Digital Transformation is the adoption of ‘digital technologies,’ to create new or modify existing business processes, customer experience, and culture by replacing non-digital or manual processes with digital processes or replacing older digital technology with advanced digital technologies to meet the ever-changing business and market demands. Digital Transformation is also the concept of going paperless and reimagining how an organization uses people, technology, and processes to fundamentally change business performance and create value and impact for both the individual and businesses. 

DT requires collaboration across teams, departments and business units in pairing focussed philosophies with rapid application developmental models. These transformations are undertaken in pursuit of venturing into new business models for creating new revenue streams, driven by changes in customer experience around product and services offerings. Digital technologies are enabling radically newer ways of delivering value to the customers, altering competitive landscapes, and transforming the underlying economics of markets. 

Key Pillars of Digital Transformation:

Organizations often embark on DT to counter the potential disruption from incumbents or startups. For the DT to be successful, organizations need to focus on the six major pillars beyond technology and perhaps think of DT as “Tech-enabled transformation. However, this change is only possible when we develop the right kind of organization which will embrace what is possible. According to Forbes, the following are the seven key pillars of Digital Transformation, which I too strongly champion and recommend:

  1. Customer Experience (CX): Every business must understand the customer behaviours, expectations, and journey before investing in technology. The customer expectations should be the basis of any investment, instead of suggesting to the customers to change to fit new processes, perhaps losing them altogether in the process. The only way to achieve this is by first focussing on the “Customer Experience.” In fact, in a study conducted by IBM, sixty-eight per cent of 12, 800 CXOs surveyed across twenty industries said that they expect the organizations to emphasize and focus on CX instead of their products or services in the future. Companies such as Apple or Google has become an icon in their respective industry. They lead with experiences and build deeper connections with their customers that goes far beyond the product or service. 
  1. Employee Experience (EEX): Is your organization providing your employees with the right technology tools in helping them do their jobs? Is your organization culture making the workplace productive and efficient? Each interaction of your employee with the organization is critical. The positivity of the EEX has the potential to build or break the productivity and employee effectiveness to your business. 
  1. People: People might become the most critical part of the six pillars of digital transformation. Without Top and right talent or focus on your employees, the organization will struggle significantly. The leaders need to put their employees first, which circles back to the EEX and CX as it is essential to emphasize the nurturing of the people along with their experience with you. Organizations that invest in their people commit to their professional and personal development; respect their ideas or creativity, build loyalty which makes change management easier to realize within the walls of the organization. While emerging technologies such as AI, Cloud, or AV/VR make their way within the businesses, the organizations cannot forget who they are. The key is to use these emerging or deep technologies to develop meaningful experiences that reach the customers, employees and others at a much deeper level – still connecting human to human. The organizations need to understand that talent is extremely critical, despite every advancement taking some of the work through automation and ensure the employees are all on the same page to progress the digital transformation efforts forward. 
  1. Change: Digital transformation or any other transformation is inevitable without ‘Change.’ Therefore, change is one of the critical pillars of DT. As discussed above, people must get behind the change to realize it. One cannot force change, and if you do, the results are of short-term at best, and it might be challenging. The organization should communicate the expectations to its employees. They should build a strategy to encourage change and manage the push backs effectively at the same time, which is but normal. The companies should provide the right environment and tools to embrace and succeed in the proposed change. Once the organization is successful in this, it will then lead to the next most important seven pillars of DT. 
  1. Innovation: Innovation and Transformation are the same. To transform, every organization must innovate. Innovation could be defined as a sudden spark of creativity, which leads to the development of something that changes the face of your business. These sparks can be either incremental or more sudden. Some of these innovations are massive and completely disruptive either the business models or while others make a small and meaningful difference that increases customer satisfaction or differentiates an offering in the market. Regardless, every employee should think of innovation which forms the foundation of DT. Innovation requires collaboration across the ecosystem for open communication and freedom for co-creation, co-innovation through co-funding models. Innovation is a continuous process. and is constant for furthering your business of its product or services. Innovation drives the DT forward by enabling the open space for problem-solving the going gets tough. 
  1. Leadership: For any transformation to happen, the Leadership must come from the Top, simply referring to Lead by example. Majority of the tech initiatives fail when the CEO is not involved. Besides, the CEO should not only be involved, but he or she should lead. Leaders should always be proactive and on the lookout for things coming down the pipeline. As a leader, you must bring order and command. While technology could sound like a perfect plan, a leader should analyze every aspect in depth all options. As a leader, you must be a visionary who can think beyond your life span and lead others within your company to do the same, then the DT will follow, and you will Lead it. 
  1. Culture: The last six pillars can all be wrapped in one package deal tied together to form your culture. As an Industry Thought Leader, I have been often asked where, when, and how an organization should kick-start their DT journey. Often the companies do ask about, “What technologies should they invest in first, to speed up their DT effort. My response always is, the organization and leaders should begin with “Culture.” DT cannot survive without the right business culture. The organization should develop an open space where people matter most, change is planned for, and innovation takes centre stage and only then you will lead your organization into a culture that transforms on its own. 

Types of Digital Transformation:

Although Digital Transformation is a top priority, most organizations have not been able to realize the true potential of digital technologies. The reason being organizations tend to look at technology implementations in silos. Digital technologies are enabling radically new ways of delivering value to the customers, transforming the underlying market economics, and altering competitive landscapes. Organizations must get exponential technologies to work together to ensure digitization in real-time. Please know that technological change is nothing new, but this round of change is happening at a rate which nobody could have ever imagined. Technologies could threaten established businesses, but they also create unprecedented opportunities. It is not a digital disruption that impels organizations to change; it is the digital “Fear of Missing Out” (FOMO).

However, due to Covid-19 Pandemic, most of the corporations are rapidly adopting the digital transformation, especially within the GBS functions. Also, the organizations view DT as focusing solely on the process or organizational change. Besides, the multi-dimensional nature of digital transformation means execution must be a team sport involving not just the CIO (Chief Information Office) or CDO (Chief Digital Officer), but also the Business Unit Leadership and Strategy Head and championed broadly across the board by the CEO. Many corporates erroneously believe that DT must begin with organizational/cultural transformation. Guiding the organization to be agile, innovative and digital is indeed essential, but the success of DT is seen among organizations that first pursue business transformation initiatives.  

Let us now understand the four key types of digital transformation in detail: 

a. Process Transformation: Significant focus of corporate activities have been in business processes. APIs, Data, Analytics, Machine Learning and other technologies provide organizations valuable ways to reinvent processes throughout the organization to increase quality/productivity, reducing cycle times, lowering cost, and bringing value and impact to the business. E.g., we can see process transformation on the shop floor where companies like Airbus and Boeing have engaged heads-up display glasses to improve the quality of human inspection of aeroplanes. Many organizations have implemented technologies like Robotic Process Automation (RPA) to streamline back-office processes like accounting, finance, and legal. 

b. Business Model Transformation: Many organizations are leveraging emerging/digital technologies to transform traditional business models which are aimed at the fundamental building blocks of how value is delivered for the industry at large. Companies who are leaders in such innovation are the likes of Apple who reinvented the music delivery through its iTunes or Netflix who reinvented their video distribution through online platform disrupting the entire music/entertainment industry. The complex and new-line of strategic opportunities require leadership involvement both at Strategy and Functional levels. Most often, these new business models are launched as separate initiatives to test and experiment the business models. By developing and adapting new building blocks of value, organizations open-up with massive market and growth opportunities that are untapped would have achieved the business model transformation while continuing to operate the traditional businesses. 

c. Domain Transformation: An area where organizations pay little focus which has a huge opportunity. Emerging technologies are re-defining products and services, blurring industry boundaries and creating entirely new sets of non-traditional competitors. Unfortunately, many leaders don’t appreciate the real opportunities for these next-gen technologies to unlock whole new businesses for their organizations beyond the markets currently served. Often, it is this transformation that offers the most significant opportunities for creating new value and impact to the businesses. The organization which has demonstrated in real-time how domain transformation works is the retail giant, Amazon. Amazon expanded its business into a new market domain with the launch of Amazon Web Services (AWS) which is now the largest cloud computing/infrastructure service provider and has overtaken in a domain which was once owned by the IT giants such as IBM and Microsoft. 

What made Amazon’s entry into this domain possible is a combination of robust digital capabilities, built-in storage, computing databases to support its core retail business coupled with an installed base of a strong ecosystem and network of thousands of young, growing companies that increasingly needed low-cost computing services to grow and spend less on Capex. As a visionary Jeff Bezos leveraged this opportunity to build an entire business extension for Amazon, for a different market segment. The AWS business now represents more than 70% of Amazons’ Annual Profit. In today’s digital era, technology gaps are no longer a barrier. The organizations have easy access and can acquire new technologies needed to unlock and tap into the opportunities and growth, and can do so at low-cost and efficiently.

The building block technologies that are unlocking new business domains such as AI, ML, IoT, AR/VR, etc. can be sourced not only from the traditional IT supply-base like Google, IBM, or Microsoft but also from a growing startup ecosystem, where we there is innovation is happening at an unimaginable speed. Corporations who know how to tap into and leverage this innovative ecosystem instead of reinventing the wheel effectively, particularly from new sources, are reaping the benefits of new growth areas. I, therefore, do champion the open innovation model where you leverage the creme-de-la-creme technologies, products, or solutions available within the Partner Ecosystem. The lesson here is to recognize the potential new domain opportunities provided by the emerging technologies and understand they can be captured even by the traditional incumbents. 

d. Organizational Transformation: Long Term Transformation, especially in digital, requires re-defining organizational culture, mindset, process, and talent & capabilities for the world of digital. Best-in-class organizations recognize DT requires agile workflows, decentralized decision-making, a bias toward testing and learning, and a greater reliance on the business ecosystem. Many corporates have been able to transition to become a “technology company” by successfully championing a culture of innovation and shifting the company values to focus on customer-centric approach via co-creation, co-innovation, through co-funding model. However, organizational or cultural change is a long-term requirement for success, but in world-class organizations regarding the development of these capabilities as a product of, rather than a prerequisite for business transformation initiatives. 

To summarize, thanks to the Covid-19 Pandemic which has accelerated the Digital Transformation adoption by enterprises and corporates, especially within the Global Business Services functions. The CXOs must recognize the opportunities of adapting and leveraging the emerging technologies for re-defining the business boundaries, for pursuing these untapped opportunities for reaping the benefits of new growth. In my next article, I will discuss the challenges and pitfalls of Digital Transformation and the critical skills required by the digital leader to be successful in the journey of Digital Transformation.