The pressure is on for all companies to become digital. It’s essential to survival and leads to improved customer experience and therefore retention; increased traffic across all channels; and ultimately higher revenue.
Although the imperatives are clear, transformation isn’t easy. There are a number of challenges, including the right leadership and vision to drive the change; instilling a culture of innovation and openness; leveraging data; adapting to technology change; anticipating customer needs; and tracking results.
The strategic routes to transformation can be summarized by three basic approaches. One focuses on customer value propositions and another on transforming the operating model and the third on transforming operational processes. In the digital world, even companies in the primarily physical industries will not start their digital transformation journey from “zero”. Instead, most organizations are already finding ways to use digital information by providing interactive websites, improved customer service or enhanced customer experiences. Similarly, they are creating basic operating capabilities such as online channels or digital supply chain tracking. From this starting point, a company’s strategic approach to transformation typically follows one of the three paths shown in the figure below
Digital transformation: Key domains
Whatever your approach, these are the key areas to focus the transformation.
One key area is to transform the whole customer experience. Businesses have started to take advantage of previous investment in systems to understand market segments and specific demographics. Some ways in which businesses are transforming customer experiences include:
- Exploration of social media to understand customer de-satisfaction and satisfaction.
- Promotion of brands through digital media
- Building of new online communities to build loyalty with clients.
- Building products that improve branding in lifestyle communities.
- Building analytic capabilities to get to know customers more in detail.
- Usage of technology to improve in-person sales communication.
- Integration of customer purchase data to offer better and personalized sales and customers services.
- Service companies now offer self-service through digital tools
- Usage of mobile apps
The transformation of the internal process or operational processes of a business is also very important.
- Process digitization: Businesses now are going beyond using automation to enable themselves to refocus on more strategic tasks. It now goes beyond efficiency — going digital often reduces the need for shipping physical prototypes in both directions, thus reducing the lifecycle of product development.
- Worker enablement: With the increasing use of collaboration tools, email and video conferencing etc., employees can now stay in contact with clients and customers who they have never met or in areas they never visit. Digital transformation replaces one-way communication mediums to broad communication methods and remote work.
- Performance management: Digital transactional systems offer business executives more knowledge of regions, customers and products thus making it possible to make decisions on real data and not just assumptions. Managers can now compare status across several sites and adjust product manufacturing capacity.
Besides transformation of operational processes and customer experiences, digital transformation is also about the transformation of business models. Companies are finding ways to bundle physical and digital offerings and using digital methods to share information across company silos. They are now building service wrappers on traditional products to bring about major changes in their business model. Global shared services make way for better flexibility and reduce risk.
Business architecture – Digital enterprise
Digital initiatives require each building block to be developed and used to the same degree. Some blocks will also serve as more natural starting points, depending on a company’s circumstances. For instance, a company whose IT constraints make it hard to deliver a cutting-edge customer experience will naturally want to focus on the technology and process elements first. But this framework provides executives with a coherent structure for thinking through and managing large-scale digital programs. While each of these building blocks is important, the real value is in being able to integrate them and manage the cross-business contingencies and dependencies of a large-scale digital initiative.
The digital revolution has given birth to an interconnected world that binds customers, employees, managers, and systems together in a network of unprecedented complexity and opportunity. Making sense of those connections and building value requires a new interdisciplinary model of work that is redefining companies.
Target operating model
The challenge is to move toward a structure that is agile, flexible, and increasingly collaborative while keeping the rest of the business running smoothly. Successful incumbents become agile by simplifying. They let structure follow strategy and align the organization around their customer objectives with a focus on fast, project-based structures owned by working groups comprising different sets of expertise, from research to marketing to finance. While companies often obsess about the “boxes and lines” of organizational structure, it’s more important — and significantly more difficult — to focus on processes and capabilities.
Having a clear view of what we call a company’s ‘digital quotient’ is a critical first step to pinpoint digital strengths and weaknesses and highlight those management practices that can bolster financial performance.
To be successful, however, these capabilities need to be integrated into the main business. The most successful digital companies are zealous about metrics that focus on the customer journey, such as customer lifetime value, omnichannel behavior, and share of influence across stages of the decision journey.
Most enterprises have been through waves of IT transformation in the past and understand that overhauling legacy architecture is a multi-year process. Today’s fluid marketplace requires technology that can drive innovation, automation and personalization much more quickly. So, the best are moving to a two-speed IT model that enables rapid development of customer-facing programs while evolving core systems designed for stability and high-quality data management.
This typically means that high-speed IT teams are charged with rapidly iterating software, releasing updates in beta, fixing kinks and bugs in near-real time, then re-releasing. Their goal is to continually fuel an accelerated development infrastructure that can support near-instant cross-channel deployment and real-time decision making. New developments in DevOps (the integration of technical development and operations) and continuous delivery (the automation of testing, deployment, and infrastructure processes) have introduced capabilities that radically increase speed to market and lower costs.
Process automation – BPM
Business process automation or BPM results in massive competitive advantage because initial investments, when well implemented, can scale quickly without substantial additional costs. Over time, cost performance can improve as the automation effort scales across formerly siloed functions, reducing redundant processes.
New business models, in fact, are emerging as companies that create revenue from sales of physical assets evolve into service businesses that focus on data as an asset.
Digitizing processes has less to do with technology and more with how companies approach development. While there is often the assumption that process automation is a large project focused on a major platform, digital leaders in fact drive value quickly by focusing on a series of small but important solutions that target high-value customer journeys and expectations (for example, real-time availability and personalized treatment).
This is more than just automating an existing process. Becoming digital often requires reinventing the entire business process to cut out steps altogether or reduce the number of documents required. Automating processes at speed requires small teams employing agile development techniques to continuously build out elements of the product as prototypes, then testing and adapting them based on feedback, often within days or weeks. When well executed, digitizing processes can unlock significant value by compressing timelines and eliminating duplication or inefficiencies. Digitizing is as much about customer satisfaction as efficiency.
A wealth of opportunity
Companies are increasingly transforming from multinational to truly global operations. Digital technology coupled with integrated information is allowing businesses to gain global synergies while remaining locally responsive.
These companies benefit from global shared services for finance, HR and even core capabilities like manufacturing and design. Global shared services promote efficiency and reduce risk. They even promote global flexibility.
Digital transformation requires strong leadership to drive change. But it also requires a vision for what parts of the company you want to transform.
Companies in all industries and regions are experimenting with — and benefiting from — digital transformation. Whether it is in the way individuals work and collaborate, the way business processes are executed within and across organizational boundaries, or in the way a company understands and serves customers, digital technology provides a wealth of opportunity.