What is Digital Transformation? Overview of Benefits, Roadmap & Metrics, What to Know
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What is Digital Transformation?
Digital transformation uses digital technologies to create new or enhance existing business processes and workflows. As the definition of “transformation” implies, digital transformation is a “complete” or “major” change in how an organization performs designated business processes. It is not simply an enhancement, or automation. An organization's business strategy and business goals typically include improving customer experiences and customer relationships; accelerating growth and innovation; streamlining business operations; finding new ways to deliver value; generating revenue, and improving efficiency. Digital transformation is often driven by an organization’s decision to rethink how it uses people, processes, technology and analytics in pursuit of new business models, to innovate and to deliver a differentiated customer experience. With this definition in mind, it is important to note that digital transformation differs from two similar terms: digitization and digitalization.
Digitization vs Digitalization
Digitization – This procedure involves converting information into a digital format. One example is scanning a document and storing it on a computer.
Digitalization – This process uses digital technologies to achieve a change in business processes that can provide new value-added and value-producing opportunities.
Digital transformation takes this one step further by making the use of digital technology and implementing it across the entire organization, fundamentally changing the culture of the business.
Why Businesses Need a Digital Transformation Strategy
An organization may initiate a cohesive digital transformation strategy for several reasons, but the most likely scenario is that it must implement major changes in order to adapt and/or survive. In the wake of the pandemic, businesses had to adjust quickly to supply chain disruptions; worker shortages; time to market pressures; rapidly changing customer expectations, and digital disruption in which traditional enterprises were threatened by the rise of digital business models. Maintaining agility in today’s business environment has become critical. Spending priorities reflect this reality. In 2021, industry analyst firm IDC (International Data Corporation), pointed out in its “Worldwide Digital Transformation Spending Guide” that spending on the digital transformation of business practices, products, and organizations continued at a solid pace despite the challenges presented by the COVID-19 pandemic. IDC estimates that global spending on digital transformation technologies and services in 2021 totaled approximately $2.8 trillion, more than double the amount allocated in 2020. (“New IDC Spending Guide Shows Continued Growth for Digital Transformation as Organizations Focus on Strategic Priorities”). These trends indicate a significant acceleration in the adoption of new digital technologies. What was once considered to be best-in-class speed for many businesses prior to the pandemic, is now slower than average, according to a Mckinsey study. In addition, many executives surveyed believe that in order for their business model to meet the demands of their customer, they must make significant investments in technology and offer new capabilities, products and services. Vital to this improvement strategy is obtaining the support of technology leadership within the decision-making teams of the business.
How has the COVID-19 pandemic changed digital transformation?
Before the COVID-19 pandemic, businesses were paying attention to digital transformation. It was part of their strategy roadmap, but not always the top priority. With the onset of the pandemic, digital transformation took a quantum leap in importance for many organizations across all major industries.
This occurred because businesses, as well as their clients, responded to the crisis by shifting to operating remotely. This created many challenges. One was the need to implement technology quickly and efficiently, such as providing secure network access and launching applications like Zoom and Microsoft Teams. These solutions were necessary to support employees who no longer worked in a physical office. Connected with this challenge was helping employees and clients to embrace new ways of interacting and getting the job done. Meeting these objectives created a tipping point, in which digitally transforming business processes became an urgent mandate for many organizations.
The Benefits of Digital Transformation
Often the main driver for digital transformation is cost-related. Moving data to a public, private, or hybrid cloud environment can lower operational costs. It can also help reduce hardware and software costs while freeing up team members to work on other projects. Another potential benefit is the ability to better leverage data collection. Organizations collect a significant amount of customer information and want to analyze this data so they can find ways to grow the business. Digital transformation creates better approaches for collecting the right data and incorporating it fully for business intelligence at a higher level. A third benefit is that digital transformation initiatives can improve collaboration. By giving teams state-of-the-art tools and methodologies, digital transformation can help foster a digital culture. While digital technologies can provide an easier way to collaborate, they also help advance the entire organization digitally. This culture will be crucial in the digital future. It motivates team members to improve their skills, learn new digitally based methodologies, and take advantage of the benefits of digital transformation. Finally, digital transformation can help create a more agile organization; one with greater speed-to-market and increased ability to adopt continuous improvement strategies. Agility can lead to faster innovation, better adaptation to changing market conditions, and a more efficient path to future growth.
The Challenges of Digital Transformation
For many organizations, due to the comprehensive nature of digital transformation, the main challenge is knowing where and how to get started. For this and other reasons, crafting a strategic, planned approach to transformation and engaging the right transformation services partner can help address these issues. This includes designing and implementing the digital transformation approach that works best for your needs. Other challenges include: the complexity of migrating legacy systems; costs of implementing new technology; determining which solutions are the right solutions for your organization; the need to effectively loop in key stakeholders and decision-makers within the business; and the importance of creating realistic expectations about what can be done and how quickly it can be accomplished.
Digital Transformation Roadmap – Key Elements
In our view, three pillars support a good digital transformation roadmap: people, process and technology. Many corporations look at technology as the panacea for their business challenges; however, to achieve best-in-class business process performance all three pillars of digital transformation should be considered.
- People. In our experience, it is critical to have the right people with the right skillsets doing the right type of work as a well-integrated team to succeed at any type of transformation. To do this successfully, companies need to consider at least two workforce challenges: acquiring and retaining key talent and dealing with the shifting demographics of today’s workers.
- Process. If you’re not planning for significant process change when it comes to your digital transformation initiative, you may want to take a step back and re-assess the goals and strategy of the project. This can help ensure that you’re not going down the wrong path simply because it’s easier. A best practice for overcoming this hurdle is to build a team of key internal and external stakeholders who are responsible for defining the requirements of the project. For the group to be effective, the internal stakeholders must have the backing of senior executive sponsors within the organization.
- Technology. The road to success here starts with breaking down information silos as much as possible so that teams can seamlessly share data. In some cases, such as sourcing and procurement, this data will have to be shared outside of the company’s four walls, including business partners and suppliers. The key point is that your technology strategy needs to include collaboration to drive innovation. Your team must be able to share the right information with the right stakeholders at the right time.
What are some of the top areas of digital transformation?
One key area for virtually any organization is to convert physical data into digital format, then automate the processing of that data. One example is automating the extraction of metadata from various information media and providing that data for review as part of a continuous improvement initiative.
Another top area is using robotic process automation (RPA) to streamline the processing of insurance claims, unemployment applications, and similar types of documents. Automating these processes can potentially free up time and resources, enabling employees to better focus on making higher-value, more complex decisions that promote the organization’s core competency.
RPA and Digital Transformation
A simple description of robotic process automation (RPA) is that it leverages software robots (bots), artificial intelligence, and machine learning to automate repetitive tasks and streamline business processes. RPA and digital transformation have an interdependent relationship. RPA can be used to assist application development groups and business users with evolving digital transformation requirements and projects focused on advancing internal processes. RPA also can help improve communication and collaboration across different groups within the organization. This kind of efficient teamwork is essential to overcoming operational challenges and streamlining efficiency. The basic procedure is to teach software robots to simulate employee actions and leverage natural language. The software robot version can do anything from executing simple copy-and-paste activities (i.e., in computer terminology, transferring information from one place to another) to managing larger processes, such as invoicing, digitizing data or processing claims.
Examples of Digital Transformation
There are examples of digital transformation in virtually every major industry. One is insurance, particularly in response to changing customer expectations. For instance, self-service portals now make it easy for consumers to comparison shop, enroll in coverage, use multiple agents and carriers for different types of insurance (home, car, life, etc.), and file claims. Much of this is now possible without the need to speak to an agent, which saves time for consumers and money for the insurance companies. Another example is the retail industry, where digital transformation can automate and optimize logistics networks – customizing and speeding up delivery. And as in every consumer sector, the growing demand for personalized services is also driving digital innovation. An Epsilon study saw 90% of respondents say they are much/somewhat more likely to do business with grocery/drug store websites/apps offering personalized experiences (“New Epsilon research indicates 80% of consumers are more likely to make a purchase when brands offer personalized experiences”). A third example is the supply chain industry. If enterprises are to flourish and improve their supply chains, they must consider innovative technologies and new operating models. These and other strategies can significantly streamline operational efficiency and deliver enhanced competitive advantage. The key point is that digitally transforming supply chains and manufacturing processes can provide greater visibility – from receiving raw materials to creating finished products and delivering them to end customers – which in turn drives organizational resilience.
What is a Digital Transformation Service Provider?
Digital transformation service providers offer a range of capabilities. These include systems integration, strategic consulting, industry expertise and change management. Digital transformation service providers must have a sufficient range of business capabilities to be able to engage in multiple projects using multiple technologies as part of a company-wide transformation process. Canon for example enables organizations to digitally transform their business processes. We utilize a holistic approach that includes an analysis of current staffing, processes, technologies and analytics to develop the roadmap for a successful transformation.
Why do some digital transformation projects fail?
Digital transformation projects typically are complex and include critical components spanning people, processes, and technology. Not obtaining buy-in from the appropriate organizational leaders, as well as from teams implementing the solutions and employees who will have to embrace change, is one key reason that projects fail.
Another barrier to success is failing to engage the right experts to help facilitate the process. For many enterprises, digitally transforming business processes is not a core competency. While you might be able to manage some elements internally, also teaming with a proven business process outsourcing provider could ultimately be the difference between success and failure. The right partner, for example, could provide critical help in onboarding and managing staff, assessing current business processes and workflows, creating an efficient digital transformation framework, implementing performance management metrics, providing continuous process improvement recommendations, and more.
What is a digital transformation framework?
A digital transformation framework is a blueprint of what digital strategies guide a business in a competitive evolving business landscape. The framework is a tool, used across the enterprise, which guides all levels of the organization through the digitization process with the ultimate goal of improving the business.
From the Canon perspective, a digital transformation framework incorporates digital transformation services—spanning people, processes, technology and data—and the delivery of these services. Regarding the latter, Canon’s integrated service delivery model includes the ability to deliver services onsite at the client’s location, as well as offsite and/or offshore. In addition to implementing solutions, Canon’s framework also includes using data to support continuous process improvement initiatives.
Finding the Right Digital Transformation Partner
For most transforming organizations, automating business processes and workflows are not core competencies — nor should it be. But there is no one-size-fits-all when it comes to managed services providers, and choosing the wrong transformation partner can often hinder rather than help. As a primary engine fueling your business transformation, it’s critical to find a provider that can meet your needs and match your goals. Here are two important factors to consider when selecting your partner:
- Visualize the Roadmap. The right managed services provider won’t approach your needs ad-hoc. Transformation requires a comprehensive approach to people, process and technology — and aligning these forces requires a clear, systematic game plan. Your services partner should be able to assess your current state, quickly identify opportunities for improvement, and implement a plan in phases so no steps are missed, ensuring that capabilities grow organically.
- Value Expertise. Your document management needs are complex, and the right services provider will understand the unique circumstances of your organization and your industry. Look for a partner who has worked across industries, especially those with a high level of controls and compliance needs like financial services, insurance and healthcare.
The Keys to a Successful Digital Transformation
Many digital transformation projects aren’t successful. The main reasons are that organizations do not properly outline a plan and the business objectives that they hope to accomplish with the project. They also expect to achieve digital transformation all at once instead of doing so incrementally while being agile.
- Create a digital transformation strategy. Have a clear vision in your digital transformation strategy that is focused on the value that the project will provide to the customer. The strategy goes beyond a digital capabilities that the company will achieve, but instead should be viewed as a business transformation that will align their goals with the business outcomes they are trying to realize.
- Deploy an agile approach. Implementing an agile approach to working allows companies to quickly pivot when there is change. Fostering a culture of innovation is a behavioral change that leadership can help deploy throughout an organization so that they can adapt at speed. A modular system helps keep the focus on the customer.
- Attract and retain top talent. Upskilling, reskilling, promoting and hiring top top talent within an organization are some of the most effective methods to long-term digital transformation success. These individuals should have a transformative and upscaling mindset to augmenting current capabilities and create sustainable change. Companies must invest in areas like data science, analytics, engineering, customer and user experience, and technology.
- Business Leaders as Technology Advocates. Today, all leadership needs to have the mindset of transformation through technology. This kind of commitment needs to trickle down from the CEO and executive team through to team managers. This approach improves efficiency and creates a culture that embraces change and encourages collaboration between different functions of the business. Breaking down silos is key to meeting the needs of the customer.
Metrics for Digital Transformation Success
Digital key performance indicators (KPIs) are metrics for evaluating the performance of digital business initiatives. These benchmarks can help an organization assess progress on its digital strategy and how well it is improving its digital business outcomes. According to Gartner analyst Paul Proctor, one way of crafting digital KPIs is for the company to assess progress in digitizing its current business model by measuring goals in sales, marketing, operations, supply chain, products/services and customer service. For instance, many enterprises in retail, casual dining and other sectors use chatbots to digitize order taking. Company executives can evaluate such digital operations using metrics that assess adoption rates and business impact relative to traditional operating modes. It is important to set KPIs and goals that create a roadmap for the digital transformation business journey and clarify expected business results. For example, Proctor points out that a healthcare organization might shift from considering digitally transformed healthcare activities as a vision to proposing the potential percentage of patient "visits" that will employ telemedicine, and then describe the expected benefits of achieving this goal.