What is digital transformation?
Because digital transformation will look different for every company, it can be hard to pinpoint a definition that applies to all. However, in general terms, we define digital transformation as the integration of digital technology into all areas of a business resulting in fundamental changes to how businesses operate and how they deliver value to customers. Beyond that, it’s a cultural change that requires organizations to continually challenge the status quo, experiment often, and get comfortable with failure. This sometimes means walking away from long-standing business processes that companies were built upon in favor of relatively new practices that are still being defined.
Digital transformation is imperative for all businesses, from the small to the enterprise. That message comes through loud and clear from seemingly every keynote, panel discussion, article, or study related to how businesses can remain competitive and relevant as the world becomes increasingly digital. What’s not clear to many business leaders is what digital transformation means. Is it just a catchy way to say moving to the cloud? What are the specific steps we need to take? Do we need to design new jobs to help us create a framework for digital transformation, or hire a consulting service? What parts of our business strategy need to change? Is it really worth it?
The business mandates behind the term – to rethink old operating models, to experiment more, to become more agile in your ability to respond to customers and rivals – aren’t going anywhere.
It’s also worth noting that today’s organizations are in different places on the road to digital transformation. If you are feeling stuck in your digital transformation work, you are not alone. One of the hardest questions in digital transformation is how to get over the initial humps from vision to execution. It creates angst: Many CIOs and organizations think they lag far behind their peers on transformation, when that isn’t the case.Even organizations that are well down the digital transformation path face tough ongoing hurdles, like budgeting, talent struggles, and culture change.
Why does digital transformation matter?
A business may take on digital transformation for several reasons. But by far, the most likely reason is that they have to: It’s a survival issue for many.
In 1958, U.S. corporations remained on the S&P 500 index for an average of 61 years, according to the American Enterprise Foundation. By 2011, it was 18 years. Today, companies are being replaced on the S&P approximately every two weeks. Technology has driven this shift, and companies that want to succeed must understand how to merge technology with strategy.”
Enterprise leaders have largely gotten the message – and are prioritizing accordingly. IDC forecasts that worldwide spending on technologies and services that enable digital transformation will reach $1.97 trillion in 2022, per the (IDC) Worldwide Semiannual Digital Transformation Spending Guide. IDC predicts that digital transformation spending will grow steadily, achieving a five-year compound annual growth rate of 16.7 percent between 2017 and 2022.
What does a digital transformation framework look like?
Although digital transformation will vary widely based on organization’s specific challenges and demands, there are a few constants and common themes among existing case studies and published frameworks that all business and technology leaders should consider as they embark on digital transformation.
For instance, these digital transformation elements are often cited:
- Customer experience
- Operational agility
- Culture and leadership
- Workforce enablement
- Digital technology integration
While each guide has its own recommendations and varying steps or considerations, CIOs should look for those important shared themes when developing their own digital transformation strategy.
What role does culture play in digital transformation?
In recent years, IT’s role has fundamentally shifted. CEOs increasingly want their CIOs to help generate revenue for the organization. According to the 2018 Harvey Nash/KPMG CIO Survey of more than 4,600 CIOs, the CIO’s top operational priority is “improving business process.” But among CIOs at ‘digital leaders’ – companies identified as top performers – the CIO’s top operational priority is “developing innovative new products.”
Rather than focusing on cost savings, IT has become the primary driver of business innovation. Embracing this shift requires everyone in the company to rethink the role and impact of IT in their day-to-day experience.
What drives digital transformation?
An important element of digital transformation is, of course, technology. But often, it’s more about shedding outdated processes and legacy technology than it is about adopting new tech. The Federal IT Dashboard shows that in fiscal year 2017, over 70 percent of IT spend government-wide went toward operating and maintaining legacy systems.
In the healthcare industry, despite widespread use of smartphones and other mobile devices among healthcare providers, “close to 80 percent (79.8 percent) of clinicians continue to use hospital-provided pagers and 49 percent of those clinicians report they receive patient care-related messages most commonly by pager.”
Examples like these span all industries, and the prevalence of legacy technology hinders CIOs’ ability to successfully embark on a digital transformation strategy. Research from Forrester suggests, on average, CIOs spend an average of 72 percent of their budgets on existing IT concerns, while only 28 percent goes to new projects and innovation.
If businesses want to evolve with the rapid pace of digital change today, they must work to increase efficiency with technology wherever possible. For many, that means adopting agile principles across the business. Automation technologies also help many IT organizations gain speed and reduce technical debt.
What are the key trends in digital transformation in 2020?
Here are eight key digital transformation trends that business and IT leaders should be aware of in 2020:
- Rapid adoption of digital operating models, including integrated cross-functional teams.
- A shakeout as those that have invested in big data governance and analytics leapfrog their competitors.
- Better use of AI and machine learning.
- Continued merger and acquisition activity in the IT outsourcing industry.
- Consultancies forming new digital partnerships.
- Expanding public cloud adoption.
- New digital transformation success metrics.
- More attention to long-term value of digital initiatives.
How can I measure ROI on digital transformation?
To prove the success of digital transformation efforts, leaders need to quantify the return on investment. That’s easier said than done with projects that cross functional and business boundaries, change how a company goes to market, and often fundamentally reshape interactions with customers and employees.
A project such as revamping a mobile application may have a short-term payoff but other projects are chasing longer-term business value.
Quantifying success is crucial to continued investment. Just implementing the technology isn’t enough – the technology needs to be specifically tied to monitoring key performance indicators on customer insights and business process effectiveness.
How can I get started on digital transformation?
If all of this makes you feel woefully behind, fear not. One of the biggest misconceptions CIOs have about digital transformation is that all of their competitors are much further ahead of the game than they are. That’s because “there’s much admiration of (and popular press around) the fastest transformers, but little critique of how hard transformation is or how long it may take for a typical Global 2,000 company,” says Tim Yeaton, CMO of Red Hat.
As businesses formulate their own digital transformation strategy, there is much to be learned from CIOs and IT leaders who have already begun their journeys. Below is a collection of stories and digital transformation case studies you can explore further.
Where can I learn more?
Digital transformation is a massive undertaking, especially for larger, established companies. When done right, it will produce a business that is more aligned with customer demands and resilient in the fast-moving digital future.