Digital transformation is not simply another passing trend, but rather an entirely new way of doing business; it now has become “the new operating system” under which businesses now operate.
Businesses in all industries around the world are changing the way they operate to provide more value to their customers, compete, and create strong and positive margins in the global marketplace. The scope of this movement goes far beyond simply acquiring new software or hardware, and has created new business models based on data, connectivity, automation, and intelligence.
Regardless of the industry within which they operate (retail, manufacturing, healthcare, or finance), businesses are all undergoing technology-based transformations that have fundamentally altered how they do business across the entire organization. The historic model of doing business based on manual processes and physical infrastructure is quickly being replaced by new digital-based business models that utilize advanced data analytics and AI.
In fact, many businesses including Microsoft, Amazon, and Google are the primary drivers of this transformation by converting traditional computing capabilities into on-demand electricity-like resources for business users.
This article will help the reader better understand what digital transformation really means; where this trend is headed; and how digital transformation will change the future of business.
What Is Digital Transformation?
Digital transformation is the integration of digital technologies throughout an organization, which results in a fundamental change in the way the organization operates and provides value to its customers.
However, digital transformation is not just about technology; there is also a deeper-mojo to it.
This includes:
- Creating new business processes that have been re-thought
- Creating data-driven decision-making processes
- Creating customer-centric services
- Automating these processes
- Creating new revenue models
In the past, companies had to implement technology to operate their businesses. Today, technology is the operating system for businesses.
For example, retailers traditionally sold products via brick-and-mortar locations. Today’s companies sell their products using an integrated mix of physical locations, mobile devices, AI-powered recommendations, and delivery options — all integrated into one cohesive customer experience.
Main Drivers of Digital Transformation
1. Cloud Computing
Cloud computing provides companies with a platform to store their data and run their applications while allowing them to scale quickly and efficiently without having to own any hardware.
Cloud computing has fundamentally transformed the IT function by turning the IT function into a strategic asset rather than a cost center.
As a result of cloud computing, the world has become a much “smaller” place:
- Start-ups can establish a global presence in days
- Enterprises can reduce their infrastructure costs
- Collaborative work can be accomplished from anywhere in real-time
2. Automation and artificial intelligence
In several ways “AI” is driving the current digital transformation.
Today, AI is being used by organizations for the following applications:
- To predict customer behavior
- To automate customer support
- To detect fraudulent activities
- To optimize supply chain processes
- To create new content
OpenAI is one of many companies that has facilitated quick adoption of advanced forms of AI through APIs and integrations with traditional business applications.
AI does not replace human workers but rather augments their capabilities, allowing one worker to produce similar results to those produced by many.
3. Big data and analytics
All of our digitized interactions result in the generation of data.
Businesses utilize data analytics to answer the following types of questions:
- What are my customers likely to purchase next?
- What marketing activities will work best for my business?
- Where do I anticipate growth in customer demand?
- What products or services should I stop providing because they are no longer viable?
The value associated with data today is worth much more than the total value of all “hard” assets. The majority of today’s most successful companies operate as “data platforms” and not “product manufacturers”.
4. The mobile and connected customer
Customers are online!
They expect:
- Immediate responses
- Personalized recommendations
- Always available support
- An easy and integrated experience
If a business cannot create an easy shopping experience, the customer has moved on within seconds; therefore, customers are driving digital transformation rather than just innovating.
Business Functions being Transformed via Digital Transformation
Marketing – Moving from Mass Marketing to One to One Marketing
Old marketing mainly used one-way methods to distribute information to mass audiences.
New marketing functions create methods to identify, select, and communicate with individuals.
For instance, when Netflix generates a suggestion of a movie or TV show for a user, they have already determined that specific user will want to watch that title by reviewing their viewing patterns.
Getting to this predictive engagement level (the standard today across businesses) requires sophisticated technology tools.
With modern marketing technology tools, you are now able to (among other things):
- Segment your customers
- Create campaigns
- Optimize advertising
- Personalize your offers
Thus, marketing has gone from being primarily intuition-based to data science-based.
Sales – Moving from Transaction Processing to Relationship Building
Old sales organisations focused on transaction completion.
New sales organisations focus on managing relationships.
Salesforce and other Customer Relationship Management tools track every interaction with customers across all channels.
Today, sales organisations can base responses on real insights, instead of guessing at what to do next.
This results in:
Companies now sell solutions rather than products.
Operations – Moving from Human-Driven to Autonomous
Manufacturing, warehouse, and logistics are rapidly becoming automated/ autonomous.
Modern supply chains are becoming wired with:
- Sensors (IoT)
- Robots
- Predictive maintenance capabilities
- Real-time tracking capabilities
Many manufacturers can now predict equipment failures before they occur; logistics companies can optimise delivery routes without human involvement; and most 24/7 warehouses now operate with very few people.
Automation dramatically decreases error rates, improves speed, and reduces costs.
Finance – From Reports to Real-Time Decisions
The Finance Department has historically analyzed past performance on a monthly or quarterly basis, but now the use of Dashboards provides real-time updates, allowing for immediate insight into current financial performance.
The use of ERP platforms such as SAP have provided a way to utilize real-time data for financial decisions rather than relying solely on historical data.
The role of the Finance Department has changed from Accounting to Strategy.
Human Resources – From Administration to Talent Intelligence
HR departments are utilizing analytic tools to assist with:
- Employee Turnover Predictions
- Hiring Optimization
- Performance Measurement
- Engagement Improvement
Recruitment tools are now screening hundreds (if not thousands) of applicants through machine-learning software, creating considerable decreases in time to hire.
Also, the Future of Work is a Hybrid Workforce – Humans & Digital.
New Business Models Resulting From Digital Transformation
Digital transformation not only improves businesses, it also creates new types of businesses.
Examples of Platform Businesses
Platform businesses create user-to-user connections, rather than producing and distributing physical goods.
Examples of platform businesses include marketplaces, app ecosystems and gig-platforms.
Due to the leveraging of networks, these businesses can grow at a much faster pace than businesses that produce and sell physical goods.
Subscription Based Economy
The concept of ownership is being replaced with the concept of access through subscriptions.
Examples of subscription-based products include:
- Software
- Media
- Transportation
- Equipment
- Educational Services
Recurring revenues allow businesses to predictably forecast revenue and create stronger relationships between businesses and their customers.
Servitization
Manufacturers are now focused on selling outcomes rather than products.
For example, rather than just selling a machine, businesses often create a new offer to sell uptime or performance guarantees, powered by the use of sensors and predictive analytics.
Benefits of Digital Transformation
- Efficiency and Cost Savings
Automation reduces operational overhead and the chance of human error. - Improved Customer Experience
When a customer gets personalized services, they feel more loyal to and continue doing business with that company. - Accelerated Innovation
Product launches can now be completed in weeks instead of months or years. - Global Reach
Small businesses can immediately stand up and operate internationally. - Competitive Advantage
Companies who have reached a level of digital maturity have consistently outperformed their traditional competitors.
Challenges for Businesses
Despite the growth in benefits from a digital transformation, there still are significant challenges.
- Cultural Resistance
Employees often resist change and/or automation. - Skill Gaps
Most organizations lack the necessary digital and data-related skills. - Cybersecurity Risks
Increased connectivity presents larger attack surfaces for organizations to defend against. - Legacy Systems
Old systems can slow down organizations attempting to modernize their operations.
Companies that achieve success will focus on their people and processes before their technology.
The Future: What Will Happen Next?
Digital transformation is in the infancy stage. Over the next 10 years, there will be several trends that will further shape our businesses.
Autonomous Operations
Businesses will use AI decision systems for operating with little or no human intervention.
Hyper-Personalization
Every customer will receive service tailored to them in real time.
Intelligent Enterprises
Organizations will operate like biological systems that continuously sense, learn and adapt.
Collaborating with AI
Employees will work with AI agents as relational partners, rather than tools.
Tesla and many other companies are already moving in this direction. They continuously update software, have connected products and data-learning loops to continue improving performance after purchase.
How to Prepare for a Digital Future
For an organization to be successful in the digital future, they need to do the following:
- Build a digital business culture instead of only building digital tools.
- Invest in data infrastructure for their organization.
- Continuously train employees.
- Experiment by using agile techniques.
- Focus on the customer and their outcomes instead of focusing on the business processes of the organization.
Digital transformation isn’t a project; it is an on-going capability.
In Summary:
Transformation through digital means has transformed all industries and has changed how businesses compete with one another. Companies are changing to be smarter service providers capable of delivering service based on data, automation, and connectivity, rather than being solely product-based.
The major change is a change in philosophy. Businesses are no longer defined by what they produce but rather by how they learn.
The future of the economy will belong to the organizations that embrace ongoing change. Organizations that do not are doomed to be irrelevant for the simple reason they do not change their way of thinking to accommodate change.
Technology is no longer a way to support a business strategy.
Technology has now become part of the business strategy.
