What is Digital Transformation? A Best Guide for Businesses — Xekera Systems
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The Covid-19 pandemic in various industries has forced many companies to accelerate their digital transformations in order to be competitive and even survive.
As the world and its consumers become more digital, a company’s success depends on how digital it can become. This applies to both B2C and B2B sectors as consumer behavior, knowledge consumption and processes have now changed.
Spending on digital transformation technologies and services is projected to reach $1.8 trillion in 2022 and will increase to $2.8 trillion by 2025, according to Statista. This growth shows how much companies plan to invest to be competitive.
So how can your business manage its transformation to be where your customers are? And what strategies are different industries using to ensure long-term survival in the digital world?
In this blog, we dive into the details of digital transformation and explore:
- Definition of digital transformation
- Steps to digital transformation
- Examples of digital transformation
- The benefits of digital transformation
- Digital transformation trends
- Digital transformation mistakes
Definition of digital transformation
So what is digital transformation? If you type this question into Google, you will get billions of results. There may be a misconception that digital transformation is only about technology, but it is not.
Digital transformation is a fundamental change in how an organization operates, communicates and interacts with customers. It is the disruption of the “traditional” way of working to become more digital. It’s also about cultivating a digital culture and upskilling the people in your company, because transformation requires a team.
As Brian Corish, CEO of Accenture Interactive, puts it simply: “Digital transformation is reinventing the business model. Reinventing Processes”
What is the difference between digitization, digitization and digital transformation?
There are many terms when it comes to business and digital technology, so it’s easy to get confused. The most commonly used are digitization, digitization and digital transformation. Let’s look at each of them to see the difference.
Digitization, or digitalization, is the process of making something digital or creating it in digital form. For example, if you create an online version of a printed newsletter or magazine, or use an electronic signature to sign documents online.
Digitization is about using digital technologies to change your business model or provide a new revenue stream. It’s about using online technologies and channels to become a digital business. Examples include the use of cloud computing to store data or automation to streamline workflows.
Digital transformation is a process of reinvention. It focuses on using digital technologies and processes to build new systems, cultivate digital thinking and take advantage of new opportunities.
Types of digital transformation
Many organizations focus on organizational transformation, but there are four types of digital transformation you need to consider to realize its full value. These include:
Process Transformation – Focuses on your processes such as data, analytics, artificial intelligence and any process that can work to reduce costs and increase operational efficiency in the business. Healthcare retail giant Walgreens is a good example of this in how it relaunched its MyWalgreens app to centralize its digital assets and provide a better customer experience.
Business model transformation – This involves making fundamental changes to how a business or organization runs, which can include personnel, processes and technology. Consider, for example, the powerhouse that is Netflix and how it has revolutionized the video distribution industry by completely turning the model on its head.
Domain Transformation – This area offers a great opportunity to move into a new domain or area that the business may not have explored yet by acquiring new technologies. Think of Google and its many business offshoots, such as Google Nest, an Internet of Things (IoT) product that provides home thermostats and smoke detectors.
Cultural/Organizational Transformation – This is about redefining mindsets, processes, capabilities and skills for the digital world. It’s about how to drive digital transformation forward through growth initiatives that are based on a new culture and mindset. Pitney Bowes is a great example here as it has gone from a mail solutions company to a shipping and e-commerce technology company that has transformed into a digital business.
6 Steps To Digital Transformation
Digital transformation is a long and complex process, so it is important to take a strategic approach from the very beginning. This means you should create a digital transformation framework so you can always go back and see if improvements can be made. The next six steps….
1. Understand why you are doing it
A key part of digital transformation is understanding the motivation to become more digital. No two businesses are the same, so it’s important to know why your business is embarking on this journey.
Think about the main reasons for your transformation. Is it about improving the customer experience, increasing the efficiency of your processes or managing your data? Once you know the reasons, you can plan ahead to ensure they are met.
2. Audit your company
To know where you need to go, you need to know where your company is now. Check what processes and systems are in place and how effectively they are working. If you use digital tools and technologies, what are they and do they actually work? Explore the workings of your organization, how is it structured and how does it work?
3. Find your gaps
The reason you are trying to drive digital transformation is because there are inefficiencies or opportunities in the business that you haven’t taken advantage of. What gaps need to be filled? For example, are you getting value from your customer data? Do you have a way to attract and retain potential customers coming into your business? What is your customer experience like from one channel to another?
You can take a look at some of our case studies to see how global companies are identifying gaps in their business.
4. Look at your internal abilities
Beyond technology, this stage is about looking at your talent. There’s no point in transforming your business if you don’t have the digital skills to drive it. What digital skills are needed to manage the transformation and do you have any in your company? Do you have a training program that can upskill existing employees so that they have basic digital skills or at least digital literacy?
5. Create a digital transformation strategy
Once you understand your motivations, capabilities, gaps and internal talent, it’s time to create a digital transformation strategy that can drive your business. This should act as a plan that you should follow and that will be linked to KPIs with a funding plan in place.
6. Check and come back – be agile!
Your digital transformation strategy should not be set in stone. Digital and customer ecosystems are constantly changing, so it’s important to create room to revise your strategy if external or internal factors require it. Agility is essential when navigating this type of transformation, and your company must be able to pivot and adapt when necessary.
3 Great Examples Of Digital Transformation
There are some great examples of organizations that are on the cusp of digital transformation. Here are three well-known brands in different industries to give you inspiration of what can be achieved.
Domino’s
Well-known pizza chain Domino’s started in the 1960s and has transformed into a “truly digital enterprise”. In 2021, 91% of its sales were made through digital channels, according to Marketing Week.
Where bankruptcy was once considered, the brick-and-mortar business turned around in 2011. The CEO at the time tasked the IT team with making it easy for any customer with a smartphone to order a pizza in the 17 seconds it takes for the light to turn green!
Domino’s was born (and the restaurant industry was disrupted), and delivery is now even easier as e-bikes and autonomous delivery transform the business into a $4.36 billion business in 2021.
Nike
As one of the biggest brands on the planet, the Nike logo is instantly recognisable. But even Nike needed to go through a digital transformation to stay competitive and be where their customer was – online.
Armed with strong leadership, Nike transformed the company’s mindset, supply chain and brand. The company focused on more powerful data analysis, updated its e-commerce strategy, designed powerful digital marketing campaigns and increased its direct sales to customers. In addition, concepts were tested in 2018 and membership options were expanded.
IKEA
Everyone who has decorated their home will know IKEA. Founded by Ingvar Kamprad when he was just 17 years old, the company has become one of the most successful brands and one that is not afraid of innovation.
Its transformation to digital has always been aggressive as it constantly strives to use technology and channels to engage customers and drive sales. It includes an omnichannel approach that allows customers to easily move from one channel to another.
IKEA’s decision to stop producing its well-known printed catalog shifted investment to other areas. IKEA’s acquisition of Geomagical Labs will allow customers to create a 3D representation of a room, “erasing” existing furniture and adding new pieces virtually. The brand is also planning a ‘Shop and Go’ payment service, a geolocation system for in-store products and chatbots for easier customer service.
How has COVID accelerated digital transformation?
E-commerce sales surged during the Covid-19 pandemic. US consumers will spend $870 billion online in 2021, up 14% from 2020. According to Digital Commerce 360, had the pandemic not occurred, e-commerce sales would not reach this level until 2023 (two years from now later).
As a result of the pandemic, companies have turned to digital technologies and networks to reach and serve customers. For businesses that already had an online presence, this meant ramping up operations to meet demand. For those just starting out on their digital transformation journey, it required an unexpected middle ground.
Companies have accelerated the digitization of their customer and supply chain interactions and internal operations by three to four years, according to McKinsey’s global survey of executives. Meanwhile, the share of digital or digitally enabled products has accelerated for seven years.
During this time, there have also been significant changes in companies, such as remote working (including the explosion of people working as digital nomads across cities), changing customer needs and preferences, along with the migration to the cloud. A McKinsey survey found that many executives believe these changes in business are here to stay.
Ultimately, the pandemic created a new way of working for companies across sectors.
Digital Transformation Across Industries
No industry has been untouched by digital transformation. To serve their customers and compete, companies across sectors are investing in digital transformation to embed digital into their processes and culture.
Let’s look at a few industries to see areas of transformation and future trends.
Digital Transformation In Governance
Privacy and compliance are key in this sector, which is why its digital transformation has been slow. A report by Deloitte found that only 30 percent of organizations surveyed rated their digital capabilities as ahead of their public sector counterparts, while 70 percent said they were lagging behind the private sector.
The challenges of digital transformation for governance are:
- Data collection and protection
- Information sharing
- Siled strategy
- Cost and budget pressures
- A culture of risk aversion
- Skills gaps
Key to overcoming these challenges and becoming a more digital sector are:
- Moving to the cloud
- Secure access to communication
- Cross-functional information sharing
- Digital skills training
Digital Transformation In Healthcare
The global digital health market is expected to grow to more than $500 billion by 2025, with health information technology accounting for the largest share. The sector faces a number of challenges in its transformation:
- Patient delivery and service
- Speed of care
- Privacy
- Data collection and management
However, the pandemic has rapidly accelerated changes in the sector due to changing consumer preferences and innovations in care delivery, which include:
- Remote patient monitoring
- AI-based automation, eg image-guided therapy
- Tele-ICU
- Calf prescription
Digital transformation in financial services and banking
While 92% of finance leaders have started their journey towards implementing digital interventions, only 11% believe they are at an advanced stage, according to EY’s digital survey.
The challenges facing the financial sector are related to the protection of sensitive information and data.
- Managerial reporting
- Transaction accounting
- Real-time data analysis and management
- Compliance and Privacy
In 2022 and beyond, digital transformation initiatives will come in to improve security and provide a better customer experience.
- Contactless transactions
- Hyper-personalization
- Super app
Big tech giants like Google and Apple are developing activities in this sector
Digital Transformation In Production
Digital transformation in the manufacturing market is expected to reach $767 billion by 2026 with increased IoT spending.
The challenges facing the industry are:
- E-commerce – sales to the company
- Big data and data analytics
- Real time data
Like the financial sector, the industry had to accelerate its digital transformation during the pandemic and step up activities in certain areas to make improvements such as:
- Robotics
- AR for assembly lines
- 3D printing
- B2B e-commerce
- IoT for real-time data
Digital Transformation In Small Businesses
According to “Digital Transformation of Small Businesses 2020”, 72% of small businesses are accelerating their digitization rate to meet the challenges of COVID-19.
Unlike large corporations, small businesses can use the fact that they are smaller to their advantage. This can facilitate changes in corporate mindsets, enable specialized training programs that focus on key areas, and digital technologies and strategies to have an immediate impact. The challenges facing small businesses are:
- Improving operations and service delivery
- Customer experience
- Market expansion
- Sales and Marketing
- Talent acquisition
However, there are strategies to deal with each of them
- Automation or digitization of processes
- Investment in talent and digital skills
- Improving online sales and digital payments
Digital Transformation In HR
The HR market is expected to reach $43 billion by 2028. Growth is driven by the adoption of HR software. The challenges facing the sector are:
- Optimize the work experience
- Increasing efficiency
- Upskill and train staff
- Workflow automation
- Talent management
These barriers are being addressed by the HR industry worldwide by introducing:
- New ways of working – remote, hybrid
- Digital educational platforms
- Acquiring social talent
- People analytics
- Continuous performance management
- Cloud HR
The Benefits Of Digital Transformation
Digital transformation has many benefits for the company and its employees, including:
- It transforms the customer experience
- It supports data-driven statistics
- It encourages collaboration
- Improves employee experience
- Increases innovation and agility
- Updates skills and knowledge
- It supports digital culture
- It consolidates processes and operations
Digital Transformation Business Trends 2022
From a commercial perspective, companies are trying to integrate digital technologies across the enterprise in the most efficient way possible. Some of these ways are:
Consider a new digital business model – each model should be tailored to your own business. Take a look at your products or services and see how online technologies and channels can help you create a seamless customer experience and increase sales. It could be as simple as starting an e-commerce store or focusing on social commerce.
Focus on employee onboarding – You can have all the technology and tools in the world, but if your employees don’t know how to use them, there’s no point in having them. Make sure you create a program for new hires so they know what digital tools are available and how to use them.
Implement personalization without impacting privacy – The problem with more personalized communications is that you need customer data to do it. And today, many consumers are concerned about providing confidential information. The best way to do this is to be transparent and look for ways to collect zero-party data.
Digital Workplace Tools – Hybrid and remote work is now the new standard and this requires collaboration tools to function properly. There are many communication, project management and document sharing tools on the market such as Zoom, Slack (which blew up business communication) and Monday.
Digital upskilling – There is no denying that there is a global digital skills shortage across businesses. If you can’t find talent, what’s the solution? Upskill existing employees in new skills so they can not only perform new functions and be innovative, but also develop their careers.
Digital Transformation Technology Trends For 2022
As digital technology continues to accelerate across industries, it is important to maintain the process and mindset we set out above. However, these are the key technology trends in 2022 and beyond.
5G – The fifth generation of mobile networks is here, enabling faster connections, ultra-low latency and greater bandwidth, changing industries and improving everyday experiences. This will enable advanced services in eHealth, connected vehicles and transportation systems, and mobile cloud gaming.
Zero-Trust Security – With the rise of hacking and cyber-attacks, businesses are trying to implement a zero-trust security model. This will help secure applications, identity, data, networks and infrastructure.
Hyperautomation – can be defined as “automation on steroids” where companies can perform business and IT processes through robotic process automation, low/no code adoption or AI and machine learning (ML).
Predictive analytics – By analyzing historical data using AI and ML and correlating it with factors such as the economy, business environment and consumer behavior patterns, predictive analytics tools will enable businesses to make predictions.
Customer Relationship Management and Customer Data Platforms – As customer data becomes more valuable and important (learn about zero-party data), companies will invest in better platforms for their customer data. Cross-referencing data across these platforms will make it easier to get insights.
Generative Artificial Intelligence – These are artificial intelligence programs that can use existing content such as text, images or sound to create new content. For example, use FaceApp to upload a picture and see what a person would look like at different ages.
5 Digital Transformation Mistakes To Avoid
According to a BCG report, 70% of digital transformations fail to achieve their goals. This means that there may be a lot going against you on your digital transformation journey. So let’s take a look at the things you should avoid to ensure a successful transformation.
Having the wrong data – When it comes to data, it’s not about quantity, it’s about quality, and companies need to make sure they’re looking for the right data and driving insights to move forward.
Employee Resistance – When employees do not understand the reasons and benefits of change, resistance occurs. Make sure your employees know the motivations for digital transformation and the benefits for the business and customers.
Underestimate the cost – Digital transformation is a costly process because it is a business transformation. Make sure you approach this with a budget that can meet your expectations and goals.
Lack of commitment – This is a long process that will take time and commitment. Make sure your business has a multi-year plan to guide the process, and expect across the company that time is needed.
Skills shortage – Transforming your business requires manpower and companies often don’t have the required knowledge and skills. Training can have a huge impact on employee skills, so think about creating or implementing a tailor-made program that covers the specific areas your company needs to thrive.
Drive Digital Transformation Success For Your Business And Employees
Digital transformation is a complex process and the people part of it is as important as the technology. At Xekera Systems, We can help you drive e-commerce sales, build channels, develop online relationships and implement digital across your organization.
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