What is Digital Transformation? Definition and Benefits | Guide for Businesses
Find out how digital transformation can make your business responsive to the evolving customer needs and market changes.
Digital transformation is something every forward-looking company is thinking about today. However, the exact digital transformation definition has become problematic because the term is so widely used that many people believe it’s no longer helpful.
Still, the concept behind this phrase is more valid than ever. It focuses on rethinking old operating models, encouraging experimentation, and becoming more agile in responding to the changing market requirements. These business mandates are going to become critical for businesses looking to stay competitive in the next decade.
But the idea of digital transformation raises many questions:
- Is it just another way to say that a company is moving its operations to the cloud?
- What are the specific steps an organization needs to take to launch a digital transformation program?
- Which parts of our business strategy need to change?
- How do we go about creating a framework for digital transformation? Is it something companies can do in-house or by hiring a consulting service?
- Is it all really worth the effort?
In this article, we provide the answer to these and other common questions about digital transformation.
Read on to find out how technology can make your business nimbler and more responsive to the constant market changes.
Table of contents
- What is digital transformation?
- What is a digital transformation framework?
- Digitization vs. digitalization vs. digital transformation
- Key digital transformation statistics
- Benefits of digital transformation
- Challenges of digital transformation
1. What is digital transformation?
Since digital transformation looks different for every company, pinpointing a general definition is challenging. In its essence, digital transformation is the process of integrating digital solutions into various areas of business. This changes how your company operates and delivers value to customers.
On the surface, digital transformation seems to be about the increasing use of technology to improve the experience of employees, customers, and other stakeholders.
But digital transformation isn’t only about technology. It’s also a cultural change that moves organizations towards a culture that:
- encourages experimentation,
- challenges the status quo,
- allows failure to become part of the process.
Digital transformation involves a change in leadership styles and leads to reinventing the business models to serve customer needs better.
As the author Greg Verdino said: “Digital transformation closes the gap between what digital customers already expect and what analog businesses actually deliver.”
2. What is a digital transformation framework?
Even though digital transformation will take on different shapes and sizes based on the specific needs and challenges of your company, there are a few common themes in such projects.
These issues lead to the development of digital transformation frameworks business leaders can use.
Here are four examples of inspiring digital transformation frameworks:
- A Framework for Digital Business Transformation (Cognizant)
- The Nine Elements of Digital Transformation (MIT Sloan)
- Six Stages of Digital Transformation (Altimeter)
- A Step-By-Step Guide to Digital Transformation (Ionology)
3. Digitization vs. digitalization vs. digital transformation
Another way of understanding digital transformation is by contrasting it with two very similar terms: digitization and digitalization.
Digitization refers to moving from analog to digital. For example, until quite recently, most businesses kept their records on paper. During this time, business data was analog. Gathering or sharing information was based on physical documents like binders or faxes. Once computers became mainstream, most businesses started to convert these paper records into digital ones.
Digitalization is the process of using digital data to simplify your processes. Once digitized, information became much easier to find and share. But businesses still used it similarly to the old analog methods. Their systems and processes were designed around ideas about finding, sharing, and using information from the analog era.
That’s where digitalization came in. Digitalization initiatives focused on helping businesses become faster and better at what they do. Note that digitalization didn’t involve any changes to their business models.
As digital technologies developed, new ideas for using them in business emerged – and this time, it wasn’t about doing the old things faster.
This is how we got to the point of digital transformation. New technologies enable businesses to create entirely new ways of doing things. The essence of digital transformation lies in the fact that it adds value to customer interactions. It inspires businesses to critically assess what they do, and rethink their processes with efficiency and customer value in mind.
It all started with businesses like Netflix, Uber, and Airbnb. They created new and disruptive ways of leveraging technology that affected their entire sectors.
Thanks to digitization, Netflix can stream video content directly to users but also collect data about their viewing habits and preferences. The company then uses this data to design user experience and even develop first-run shows and movies at in-house studios. The available technologies inform how Netflix runs its business.
4. Key digital transformation statistics
Here are a few statistics and research findings that show the current state of digital transformation investments and its key challenges.
The current state of digital transformation
- A survey from Tech Pro Research found that 70% of companies have a digital transformation strategy in place or are working on one right now.
- The majority of digital transformations are driven by the following three motivations: growth opportunities increased competitive pressure and new regulatory standards.
- Another survey revealed that the top benefits of digital transformation are improved operational efficiency (40%), faster time to market (36%), and the ability to meet customer expectations (35%).
- According to IDG, the key industries for digital-first business models are services (95%), financial services (93%), and healthcare (92%).
- 60% of companies that went through digital transformation created new business models.
- Companies that are digitally mature are 23% more profitable than their less mature competitors.
Challenges of digital transformation
- 70% of digital transformations fail – most often that happens due to resistance from internal staff.
- In one survey, only 16% of employees said that their company’s digital transformation initiatives actually improved performance and may be sustainable in the long term.
- The Harvard Business Review surveyed executives at 1,350 businesses – they reported investing over $100 billion between 2016 and 2018 in digital transformation programs and showed dissatisfaction with their results.
- In 2018, over 50% of digital transformation efforts stalled out completely.
- According to Accenture, 90% of companies contract third-party solution providers to help them with one or more components of their digital transformation initiatives.
5. Benefits of digital transformation
Now that you know what digital transformation is and how challenging it can become to organizations trying to implement it, here are a few reasons to show you why it’s all worth it.
Taking the customer experience to the next level
Consumers today are constantly looking for solutions to their problems that offer tangible value. They want these solutions to be accessible, fast, and personalized. This demand is shaped by the rise of digital products like Uber Eats or Airbnb. They use data like geolocation or shopping history to provide users with personalized services available at all times and from anywhere.
That’s why the primary motivation behind digital transformation is improving the customer experience. Research shows that a smashing 92% of leaders who are now busy developing digital transformation strategies do that specifically to enhance the consumer experience.
Digital transformation programs allow companies to:
- Design and digitize buyer journeys,
- Increase their speed and agility in gathering and using customer insights,
- Achieving a high rate of customer adoption,
- Personalizing customer experience to increase conversion rates and brand loyalty.
Actionable data-based insights
One of the greatest advantages of digital transformation is that it empowers businesses to implement a truly data-driven management thanks to the variety of tools for tracking metrics and analyzing data. Using insights derived from this data allows companies to optimize their strategies and processes so that they deliver even better results.
By integrating data-based insights into your company’s key management decision-making processes, you will drive massive changes to your cost and revenue.
Businesses that gather and process data about customer behaviors can understand their customer base better and feed these insights into their strategy. That enables hyper-personalization, real-time feedback, higher relevance, and greater operational agility.
If you successfully encourage data-driven decision-making throughout your organization, you’ll be set on a pathway to higher ROI and resource optimization. And you can be sure that every decision you make is in line with what your customers actually want.
Increase in agility and innovation
What does agility mean in business? In its essence, agility is the ability to improve business processes to deliver better value to customers continuously. This is closely related to another term, innovation.
The need for greater agility relates to the current situation in practically every industry, which changes more rapidly than ever. The perpetually evolving technological landscape leaves no time for companies to rest on their laurels and stop innovating. They need to keep up with their competitors – and the only way to do that is by becoming nimbler and more responsive to change.
Even companies occupying the top positions in their respective industries must be ready to adapt and innovate. There will always be new trends, tools, and competitors ready to question the status quo and offering a brand-new customer value. And this is the core benefit of digital transformation – it allows businesses to respond to all of these changes.
New skills and knowledge
Another advantage of digital transformation comes in the form of new skill sets and knowledge required to complete such projects. As new technologies arise every year, the demand for specialized skills is bound to grow. Experts predict that in the near future, businesses are going to heavily rely on skill sets in areas such as Artificial Intelligence (AI), Augmented Reality (AR), cloud computing, growth hacking, and data exploration/analytics.
However, companies are struggling to find the right experts. One report showed that 31% of organizations lack digital talent and experience among their workforce and leadership.
Investing in the development of digital skills is inhibited by the common fear of change. That’s why so many companies see digital transformation as a huge cost instead of a smart investment.
By facing the challenge of making a change, however, companies can help their employees develop skills for the future and equip their business with the in-house knowledge required to sustain their growth. Digital transformation initiatives encourage this attitude, ultimately helping to prepare businesses to face future challenges and maintaining a competitive edge in the digital age.
Creating a productive digital workplace
Digital transformation is about using new technologies to deliver value not only to customers but employees as well. Quality digital transformation programs allow the workforce to be productive and engaged in the evolution of business processes, without feeling overwhelmed or disconnected from them.
By investing in digital tools, companies can bring their workforce together and streamline the connections between various points in their entire architecture. This may include aspects such as social media, analytics dashboards, and project management interfaces. Digital transformation leads to consolidating company processes and operations.
Fostering a new digital culture
It’s not enough to have the right technology in place. If you want to succeed in the future, you must adopt a company culture that embraces this change. A company culture that immerses your employees in digital environments helps them to upskill for the years to come and become truly digital-savvy experts.
Digital transformation enables companies to achieve that because it makes an impact on leadership and drives the new culture from the top-down.
6. Challenges of digital transformation
People are a key pillar of any business. Employees often inspire change in organizations, but they may sometimes resist change. Some of them may feel that their jobs are threatened, or their skill sets will no longer be relevant. Implementing a digital transformation in this atmosphere is challenging, as it affects team morale and productivity.
Most of the time, digital transformation programs reveal a skills gap in the workforce. But if you want to build a company culture that deals with potential employee pushback and focuses on becoming agile, focus on creating a truly customer-centric culture. By motivating workplace changes with the evolving needs and preferences of customers, you’ll help your people understand that they need to acquire new skills in order to deliver higher value to customers.
Lack of an effective data management strategy
Another common challenge in digital transformation programs is the inability to gather and leverage customer data effectively. And customer data is the root of every digital success. How can you deliver the service your customers want without knowing their pain points and needs?
Most digital success stories are based on companies being successful in gathering, storing, processing, and leveraging customer data. However, many businesses still rely on a number of siloed systems that contain data about customer interactions in separate boxes. To succeed, you need to find a way to put it all together and create a coherent picture of your customer base.
Fixing this situation is one of the greatest challenges in any digital transformation program. That’s why many companies turn to outsourcing as a way to objectively assess their current data management strategies and improve them with expert advice.
Lack of flexibility in development processes
To create great digital experiences, most teams rely on an iterative approach. The idea is always to iterate using the build, measure, learn model. For example, instead of rolling out a massive update to your product, you can release new features on a regular basis. That way, you can measure, adjust, and change them based on usage data and customer feedback.
If your development process is rigid, and based on quarterly release cycles, this will be impossible. To succeed, companies need to let go of these outdated approaches and take advantage of agile processes and technologies that support frequent (or even continuous) integration and product release.
We hope that this digital transformation definition shows that it’s not just one project. It’s not about sprinkling various departments with new digital tools. It’s not a switch that you can turn on and magically transform your business.
Digital transformation is a holistic process that doesn’t just happen overnight. It’s made of many different components and intermediate goals that mark key moments in the incremental implementation of digital strategies.
That’s why the best way to approach digital transformation is by creating your personal roadmap. Many times, mobile applications become critical to developing business processes in this direction.
If you’re looking for an expert company to support you on your digital transformation journey, reach out to us.
Our mobile applications have helped companies across different industries to reach their digital transformation goals and deliver a great experience to customers.