In recent years, the COVID-19 pandemic has added urgency to achieving digital transformation goals and compelled many organizations to accelerate their transformation efforts. To delve deeper into this transformation, let’s explore with Replus through the following article.
What is digital transformation?
Digital transformation involves embedding digital technologies across an organization to fundamentally alter its operations and service delivery. This process not only aims to enhance efficiency and agility but also seeks to create new value for all stakeholders. It encompasses a shift in culture, requiring businesses to consistently challenge existing norms, embrace experimentation, and accept the possibility of failure.
Ultimately, digital transformation strives to leverage technology to gain a competitive edge by improving customer experiences and reducing operational costs.
Jay Ferro, the chief information and technology officer of Clario, recently explained that digital transformation should start with a problem statement. According to Ferro, the “why” behind your organization’s digital transformation could involve improving customer experience, reducing friction, increasing productivity, or boosting profitability. Alternatively, if it’s an aspirational goal, it might focus on becoming the best company to do business with by utilizing digital technologies that were not available in the past.
According to the new McKinsey book Rewired: A McKinsey Guide to Outcompeting in the Age of Digital and AI (Wiley, June 20, 2023), the goal of digital transformation should be to create a competitive advantage by consistently deploying technology at scale to enhance customer experience and reduce costs.
Why is it important?
At an MIT Sloan CIO Symposium series event, IT leaders concurred that consumer behavior has rapidly changed in many ways since the pandemic began. Sandy Pentland, a professor at the MIT Media Lab, explained how optimized automated systems in areas such as supply chain management failed when confronted with sudden changes in both demand and supply — a challenge nearly everyone experienced personally during the pandemic.
Digital transformations have a significantly higher probability of success when teams focus on changing entire domains (such as a customer journey, process, or functional area) rather than just use cases (a single step within the domain, like answering a customer service call).
For example, instead of focusing solely on one step of a process creating the process for a customer to open a bank account through an app domain approach would include all other activities (account setup, verification, workflow automation, etc.) required to open the account. Addressing all these activities allows the solution to deliver its full value. A domain should be large enough to be valuable and noticeable to the company but small enough to be transformed without excessive reliance on other business parts. Managing the interconnectivity of use cases and solutions within a domain is key to successful transformation.
According to a Bain & Company study, “only 8% of global companies have achieved their targeted business outcomes from their investments in digital technology.” One distinguishing strategy among leaders is their emphasis on investing in transforming their businesses rather than merely operating them.
Digital transformation is crucial as it enables organizations to adjust to dynamic industries and continuously enhance their operational efficiency. For enterprises, this entails consistently pursuing ways to enhance the end-user experience. This may include offering enhanced on-demand training, transitioning data to cloud services, harnessing artificial intelligence, and other methods.
Digital Transformation Strategy
Effecting significant change within an organization is challenging without a well-defined plan. There are five key areas that companies need to address, often simultaneously.
Business Strategy Transformation
In today’s landscape, every company is a tech company, and every CEO is a tech CEO. Digital transformation in business places technology at the heart of business strategy, which can reduce operating costs and inefficiencies, potentially altering the direction of your business. With a unified model that integrates business and technology, achieving future goals becomes more feasible. The technology path you choose now will critically determine your company’s success.
People Change Management
Digital transformation influences all facets of business. For it to be successful, the digital foundation, operations, and a digitally proficient workforce need support from leadership and a culture aligned with the adoption and integration of new technologies.
Considerations include envisioning the future of work, evolving roles and responsibilities, enhancing knowledge sharing and collaboration through technology, and training leaders to communicate effectively, exhibit empathy, and build trust in remote work environments. While technology introduces new challenges for workers, it also offers solutions to many of them. To foster sustainable change, companies often need to develop new skills as employees adapt to new ways of working.
Operational Restructuring
Revamping business processes and adopting new methods for agility and experimentation are vital for success. Understanding the needs of your customers and employees, and determining how digital processes can meet those needs, is a good starting point.
This approach can enhance processes across the board, from improving customer service with better data and analytics to migrating key services to the cloud and fostering sustainability across engineering, manufacturing, and supply chain functions.
An Adaptive Tech Infrastructure for Lasting Transformation
Avoiding commitment to a single technology is important. Maintaining flexibility allows for innovation and easier formation of ecosystem partnerships that enhance speed and scale. A modular approach enables quick and sustainable change, with a continuous focus on customer needs being paramount.
Implementation of Innovative Practices for Flexibility and Testing
As customer expectations and the pace of change grow, introducing new work methods combined with modern engineering capabilities becomes essential. Many companies are not optimizing their tech investments effectively. Welcoming change and innovation is essential. Successful digital transformation requires a fundamentally different approach—one that views technology as accessible and people as adaptable.
03 core areas of Digital transformation in business
- Customer experience: Focusing on deeper customer satisfaction, leveraging technology to drive customer expansion, and increasing the number of customer touchpoints.
- Business operations: Enhancing internal operations through digitization and automation, empowering employees with digital tools, and utilizing data for performance monitoring and strategic decision-making.
- Enterprise strategies: Evolving business strategies by integrating digital tools and services alongside physical offerings, introducing digital products, and leveraging technology for global shared services.
A variety of digital technologies are available
Artificial intelligence (AI) utilizes computers to simulate human cognitive functions, enhancing workflows with real-time decision-making. It drives innovation in product intelligence and customer experience, powered by technologies like machine learning and augmented reality.
- Blockchain is a distributed, transparent ledger ensuring transaction security and accountability, fostering trust and community integrity.
- Cloud computing serves as a foundational technology for transformation efforts, offering elastic computing and data storage services. It supports initiatives such as cloud-based CRM and ERP systems.
- Mobile platforms enable work flexibility, facilitating productivity anytime and anywhere.
- IoT generates large datasets through sensors in various devices, enabling data analytics in cloud or edge environments.
- Machine learning (ML) leverages extensive data programs to provide organizations with insights for quicker, more precise decision-making in areas like sales, marketing, and product development.
- Edge computing offers additional tiers for enterprise computing and storage, supporting applications across sectors such as manufacturing, healthcare, and retail.
- Hyper Automation encompasses technologies like ML, AI, RPA, and business process management, enabling scalable automation throughout an enterprise.
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- Commoditized information technology allows organizations to concentrate investment and personnel on customizations that distinguish them in the market.
Examples of successful digital transformation
To be digital, every company needs to rewire how it operates. For a long time, Amazon was just another start-up: it had to invest in its technology, data, performance management, and talent practices over the years to become an industry leader. The good news is that successful digital transformations aren’t limited to tech titans. Established companies of all kinds can succeed in their digital transformation journeys:
In the industrial sector, Freeport-McMoRan achieved next-level performance by building and deploying an AI model at an ore-concentrating mill in Bagdad, Arizona. Leadership aimed to increase the site’s copper output without a massive capital injection. The company assembled cross-functional teams to build, test, and iterate on the AI model, shifting the culture to focus on rapid iterations and continuous improvement.
Furthermore, Vistra, one of the largest power producers in the United States, developed a multilayered neural network model to improve overall efficiency, and reliability, and reduce emissions. The model analyzed two years of plant data to identify optimal efficiency factors at any given time, converting them into an AI-powered engine that generates recommendations every 30 minutes for operators to improve heat-rate efficiency while extending asset life.
In the agricultural sector, an AI bot helped Emirates Team New Zealand win its fourth America’s Cup in 2021. Using deep reinforcement learning, the bot learned to become a professional sailor. The team invested significant time in determining the right learning models, the best coaching methods for the bot, and appropriate guardrails. To support the required scale of computation, the team hosted many bots and applications on the cloud.
Or simply in retail, Target encourages its users to download the Target App, enabling direct communication with customers through in-app and push notifications, and also generating additional revenue through its online store.
The Prospects of Digital Transformation
The rise of generative AI and its swift adoption by many businesses is set to redefine digital transformation.
In the coming years, we can expect a closer integration of these two trends. Eventually, the distinction between digital transformation and AI transformation may become indistinguishable. This shift will influence the goals of digital transformation and the methods used to achieve them.
The rapid adoption of generative AI will shape digital transformation as businesses strive to reinvent processes, boost productivity, and gain a competitive edge. The proliferation of generative AI also risks widening the gap between technology leaders and laggards. The fear of falling further behind might motivate digital transformation efforts in organizations striving to catch up with technological advancements.
Dion Hinchcliffe, VP and principal analyst at Constellation Research, writes: “The top IT executives in today’s rapidly evolving organizations must match the pace of change, fall behind, or lead the pack. That’s the existential issue at stake in today’s digitally-infused times, where bold action must be actively supported by out-of-the-box experimentation and pathfinding. This must be done while managing the inexorable daily drumbeat of operational issues, service delivery, and the distracting vagaries of the unpredictable, such as a major cyberattack or information breach.”
In the area of government IT, more government agencies are on the verge of realizing the full potential of the cloud model – beyond cost-cutting to using the cloud for strategic advantage, notes Dave Egts, chief technologist, North America Public Sector, Red Hat. “Deloitte recently released a list of nine technology trends transforming government, and one, in particular, will be key to enabling the future of technology in government: the cloud as an innovation driver,” Egts says.
Digital transformation is challenging yet full of opportunities across industries. Customer demand for faster, cheaper, and more convenient solutions drives growth and competitive pressures. Product leaders play a crucial role in driving transformational efforts, and aligning business needs with technological capabilities to support enterprise and small business initiatives.
