Digital transformation – what is it and why do you need it?

07.04.2020 Angelika Siczek

Digital transformation is nothing more than the integration of digital technology in all areas of the company’s operations and a change in the way you operate and provide value to customers. It is also a cultural change that requires organizations to constantly challenge themselves, experiment, but also reconcile themselves to failure.

Digital transformation is an unavoidable process, regardless of the size of the enterprise. There is no doubt that it is not obvious to everyone. This is discussed during panel discussions, articles or studies on how companies can remain competitive as the environment is increasingly digital. However, many business leaders do not fully understand the importance of digital transformation. Is this just a catchy placeholder for moving to the cloud? What are the specific stages of transformation? Do you need to design new jobs to help yourself create a framework for digital transformation or hire an external company? What parts of our business strategy should be changed? Is it really worth it?

Some leaders believe that the term ‘digital transformation’ has become so widely used that it has lost its value. However, entrepreneurs need to know this concept. It means rethinking old operating models, experimenting with digital solutions, and greater efficiency in responding to both customer needs and rivals’ progress. Because technology plays a key role in the ability to organize change according to market requirements and to continually increase customer value, IT directors play a key role in a digital transformation.

It is also worth noting that today’s organizations are at various levels of technological advancement. One of the most difficult moments in digital transformation is to overcome the initial turns on the way to implementing the plan. Many IT directors believe that they are unable to cope with such a difficult task. Even organizations that are far on the path of digital transformation face obstacles related to budgeting and a lack of qualified staff.

What is digital transformation?

Since the digital transformation will look different for each company, it can be difficult to indicate one definition that will apply to everyone the same. In general, however, we define digital transformation as the integration of digital technology in all areas of activity, which causes fundamental changes in how the company operates and how services are delivered. In addition, it is a cultural change that requires organizations to constantly challenge the status quo, experiment often, and cope with failure. Sometimes this means a departure from the long-standing business processes on which companies have been built in favor of relatively new practices that are still being developed.

Thanks to numerous articles and different definitions of digital transformation, it is easy to understand why there is some confusion around this topic. For example, Greg Verdino focuses on what companies undergoing digital transformation can expect – “Digital transformation bridges the gap between what digital customers expect and what analog companies offer.”

The definition from the Agile Elephant lists the segments in which companies will have to change their existing practices: “Digital transformation is associated with a change in leadership and mindset. It is also associated with the introduction of innovations and new business models, including the digitization of resources and increasing the use of technology improving the comfort of employees, customers, suppliers, partners and stakeholders of the organization. “

And the Wikipedia definition describes the effects of digital transformation and its overall impact on society – “Digital transformation is the change associated with the use of digital technology in all aspects of human society.”

Let’s think about what digital transformation will mean in practice for your company. “The digital word means a lot of different things to many people,” says Jim Swanson, Senior Vice President / Chief Information Officer and Director of Digital Transformation at Bayer Crop Science (formerly CIO at Monsanto). When you talk about digital transformation, explain what it means.

James Swanson, CIO of Monsanto, discussed digital transformation in terms of customer orientation: “We’re talking about automation, people, and new business models. (…) These concepts include data analytics, technologies, and software. They are all activators, not controllers. (…) At the center of all this is leadership and culture. (…) You can refine all these aspects – customer perspective, products and services, data, and excellent technologies. But if leadership and culture are not the most important thing, the effect will be meager. The most important thing is to understand how important digitization is for your business – whether we are talking about a financial, agricultural, pharmaceutical, or retail institution. “

Melissa Swift, from Korn Ferry’s Digital Advisory Services for North America and Global Accounts, agrees with Swanson’s view that the term “digital” is not perfect because it means a lot of things to many people: “The first person” digitization “will understand the transformation to the digital platform but another might think about data analysis and artificial intelligence, another might imagine Agile teams. ” Leaders must remember their assumptions and conduct a dialogue around the digital transformation in order to educate employees about the concept itself.

Why does digital transformation matter?

A company can undertake digital transformation for several reasons. Most often, however, it is forced to do it, because it is simply a matter of survival. Howard King in an article for The Guardian put it this way: “Companies don’t change by choice because it’s too expensive and too risky. Companies are undergoing transformation when they have stopped growing. “

John Marcante, CIO of Vanguard, points out: “Just look at the S&P 500. In 1958, American corporations had an average of 61 years on this index, according to the American Enterprise Foundation. In 2011 it was only 18 years. Today, companies drop out of S&P every two weeks. Technology has changed the dynamics of development and companies that want to succeed must understand how to incorporate technology into their strategy. “

Corporate leaders have recognized this need and have taken the appropriate steps. IDC (in the Worldwide Semiannual Digital Transformation Guide Guide) forecasts that global spending on technologies and services enabling digital transformation in 2022 will reach $ 1.97 trillion. “IDC predicts that by 2020, 30% of G2000 companies will allocate 10% of their capital budget of at least 10% of their internal revenues to support digital strategies,” says Shawn Fitzgerald, Research Director at Worldwide Digital Transformation Strategies. “This transition to funding capital is important because business executives have recognized the digital transformation as a long-term investment.”

Dion Hinchcliffe, vice president and chief analyst at Constellation Research, writes: “IT management in modern fast-changing organizations must adapt to the pace of change. This is the biggest challenge in the digitally saturated era, where bold actions must be supported by extraordinary solutions. This should be done while keeping an eye on the pulse of daily operational problems, provision of services, and unpredictable events such as cyber-attacks or theft of information. The IT Director must be a multi-tasking person, but above all an effective leader. “

Improving the quality of customer service has become a key goal, and thus the most important part of digital transformation. Hinchcliffe calls trouble-free customer service “the most important factor that distinguishes a company’s performance. “

What does the structure of digital transformation look like?

Digital transformation will vary depending on the specific challenges and requirements of the organization. There are several permanent and common elements in existing case studies and published cases that all business and technology leaders should consider when starting the digital transformation.

The most frequently mentioned elements of digital transformation are customer experience, operational agility, culture and leadership, mobilization of the workforce, and integration of digital technology. Each expert has his recommendations, but IT directors should look for the most important common elements when developing their own digital transformation strategy.

What role does culture play in digital transformation?

The role of IT has changed significantly in recent years. CEOs increasingly want IT directors to help generate revenue for organizations. However, among IT directors, the highest operational priority is “developing innovative products”. Instead of focusing on savings, IT has become the engine of business innovation

Bryson Koehler, CTO at Equifax, says: “The mindset changes completely when IT ceases to be part of the operating mode. (…) If you look at the vast majority of startups, you can see that they did not start with giant software packages as the basis. Wanting to create an innovative environment is not the way. You are no longer here to manage your mainframe. You don’t need a workforce to manage servers, databases, or networks. This can be outsourced. “

IT plays an important role in implementing the digital transformation strategy. The work of implementing and adapting to the huge changes accompanying the digital transformation rests with employees. That is why digital transformation is a human problem.

IT leaders work in cross-functional teams. Digital transformation initiatives often transform workgroups, workstations, and lengthy business processes. When people are afraid of the loss of value of their position and thus of the workplace, IT leaders will feel opposition.

CTO at Mattel, Sven Gerjets believes that transformation begins with empathy. “When your empathy is honest, you start building trust. If the organization does not support transformation efforts, success is impossible. You should have leaders who know what a good transformation looks like and who are motivated to help organizations understand why they do what they do. “

Mellisa Swift, working for Korn Ferry, runs Digital Advisory for North America and Global Accounts. She argues that in consulting work, three groups of employees tend to slow down the pace of transformation: old, routine, and loner. Companies cannot ignore these groups, but involve them.

What drives digital transformation?

Technology is of course an important element of digital transformation. But it’s often more about abandoning outdated processes and older solutions than just adopting new technology. The Federal IT Dashboard shows that in 2017, over 70 percent of government funding went toward maintaining existing systems.

In the healthcare industry, despite the widespread use of smartphones and other mobile devices among healthcare providers, “nearly 80% of clinicians still use pagers provided by hospitals, and 49% of these doctors say they receive patient-related messages mainly through the pager “.

Such examples apply to all industries, and the spread of older technology makes it difficult for IT directors to successfully implement a digital transformation strategy. Research carried out by Forrester suggests that CIOs spend on average 72% of their budgets on existing IT problems, and only 28% is spent on new projects and innovations. If companies want to evolve at the pace of global digital change, they must act immediately to increase efficiency as much as possible through technology. Automation also helps many IT organizations reduce technical debt.

What are the key trends in digital transformation in 2020?

As Stephanie Overby of Enterprisers recently reported: “The ongoing digital transformation in various industries has become commonplace in 2019. At the same time, fatigue in digital transformation has also become very real.” You should think about whether your team is getting tired or less involved.

The year 2020 will be a year of settlement with digital initiatives. Organizations that still underestimate the need to change culture do so at their own risk. “In 2020, there is still rapid development of digital initiatives in various industries,” says Steve Hall, partner and president of ISG’s global research and consulting company. “In many areas, IT directors have prepared their organizations for change, but have not made the leap in transforming their culture to fully accept this change.”

There are eight key trends in digital transformation that business and IT leaders should know in 2020:

– Rapid adoption of digital operational models, including integrated multi-functional units.

– Restructuring – those who have invested in the analysis and management of large databases will overtake the competition.

– Better use of artificial intelligence and machine learning.

– Continued mergers and acquisitions in the IT outsourcing industry.

– Consultations creating new digital partnerships.

– Further implementation of the public cloud.

– New indicators of digital transformation success.

– Increasing attention to the long-term value of digital initiatives.

How can I measure the return on investment from digital transformation?

Leaders need to calculate return on investment to prove the success of their digital transformation efforts. This is not easy for projects that exceed the functional and business boundaries and change the way the company enters the market, and often even change the interaction with clients and employees. A mobile application modernization project can bring short-term benefits, but other projects are seeking long-term business value.

Determining the measure of success is crucial to continuing your investment. Brian Caplan, director of management at Pace Harmon, says “Just implementing technology is not enough.” Technology must be closely linked to the monitoring of key performance indicators in terms of customer information and the efficiency of business processes. “

“When determining investment performance in digital transformation, it’s best to have a holistic view rather than a project level,” says Cecilia Edwards, a partner at the Digital Transformation Consultancy and Everest Group research company. Similarly, the mutual fund manager or venture capital company would do. It is especially important that the worse results of one particular project do not have a negative impact on overriding IT efforts. It also builds a place of risk-taking that needs to be taken to achieve true digital transformation.

Then consider best practices for digital transformation indicators. These include the setting of preliminary data in advance. Next, take into account the business results. The strategic impact (e.g. revenue growth, customer value over the whole period, time to market), operational impact (e.g. performance improvement, scale, operational efficiency) and cost impact should be taken into account.

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