If you remember the thin red envelope in which DVDs would arrive from Netflix holding a fresh promise of wonder, then you are probably in your 30s or beyond. The 20-somethings don’t even remember that Netflix was once a DVD-on-hire company. And they are not to be blamed for Netflix now consuming 15 percent of the world’s internet bandwidth streaming all kinds of content. But, the fact is that Netflix did not start streaming content as an Over-The-Top (OTT) platform till 2007. You want to know ‘what is digital transformation?’; there can hardly be a better example than the story of Netflix.
Now, let’s take a closer look at ‘what is digital transformation’ and why it holds so much importance in today’s digital world.
What is Digital Transformation?
Digital transformation can be defined as,
“Driven by market demand and fueled by technology, digital transformation means adopting digital-first customer, business partner and employee experiences.” (source)
When we try to answer this question, ‘what is digital transformation’, it could have two potential answers. The first is a business shifting into the digital realm in order to mitigate a single and substantial threat to its profitability. An example of this would be banks going digital and now implementing blockchain technology. This kind of transformation is usually a one-time move.
A better and more holistic definition of digital transformation would be consistent and continuous change to adapt to the needs of a dynamically changing customer base. The key in this kind of transformation is to anticipate the needs of the customer as or even before they arise. An example of this would be a cab aggregator application like Uber that addresses a unique problem that people were facing but were not necessarily conscious of.
In conclusion, digital transformation is aimed at making life for the consumer easier using digital technologies like the cloud, Artificial Intelligence (AI) etc.
Related Content: Examples of Digital Transformation
What is the difference between digitization and digital transformation?
Digitization is the use of digital technologies to record data instead of maintaining manual ledgers. It is basically moving to computers instead of paperwork. But, here comes the difference when we try to understand ‘what is digital transformation’. When it comes to digital transformation, the customer is at the forefront of every decision.
Marc Benioff, Chairman, and Co-CEO of Salesforce sums it up rather well by saying:
“Every digital transformation is going to begin and end with the customer, and I can see that in the minds of every CEO I talk to.”
What are the drivers of digital transformation?
Nothing in the universe happens without just cause. No reason why that should not apply to an overarching phenomenon like digital transformation. If we really break it down to basics, the consumer’s needs would be the first and most important driver for digital transformation. Let us look at some of the other factors that drive digital transformation in industries:
1: Mobile Devices
The proliferation of mobile devices or smartphones to be precise has made digital technologies available to the masses. This has been a huge impetus for transformation in all kinds of industries.
2: Social Media
The growth of the global ‘network’ has been a pathbreaking trend in the history of the world. It has changed how people interact with each other and that has translated into a transformation in how we use technology. The fact that we look up people on LinkedIn or Facebook before we meet them is a testament to how much transformation has happened in the last two decades.
3: Internet of Things (IoT)
Several digital technologies have contributed to the transformation we are talking about. But IoT has been one of the prime drivers owing to its use in smart cities, smart homes, wearable technology devices etc.
4: Threat of Competition
The fear of losing out to the competition that is going through a transformation is one of the major drivers of this phenomenon. Eventually, companies that do not keep up with the technology of the time die a slow death like Nokia.
5: The COVID-19 Pandemic
If anyone on this planet harboring (unfounded) doubts that a transformation is not a necessity, then the pandemic has pushed them over the fence. While people were locked away at home, digital transformation moved at an astonishing pace. Think of all the grocery delivery service apps that popped up during the lockdowns. Edtech as an industry found its footing during the pandemic.
Why does digital transformation matter?
To begin with a quick statistic, the World Economic Forum predicts that the value of transformation that digital for both society and industry will be reaching $100 trillion by 2025. What is digital transformation doing in the post-pandemic era? It is essentially setting the context for positive change with the customer at its forefront. And it is important because of the following reasons:
- It reduces the time-to-market for products and services, leading to a faster and more efficient product lifecycle.
- Digital transformation is responsible for optimizing the internal processes of a company, making them more efficient.
- Without transforming digitally, a company cannot become data-driven.
- Digital transformation empowers employees of a company and also its consumers at the same time.
- Essentially, there is no shying away from technology, and embracing new technologies is a path to transforming digitally.
You can learn more about how digital transformation is a must for small, medium, and large organizations in this Forbes article.
Stages of Digital Transformation
What is digital transformation for a company? Is it a one-time investment or a process? The more holistic transformation is always a process involving different stages. Rome wasn’t built in one day, nor can digital synergies. There are six different stages of digital transformation and they are:
1: Business as Usual
At this stage, the company is set in its old ways and does not want to change. It has its own set of Key Performance Indicators (KPIs) and a tried and tested business model that works.
2: Present and Active
This is the stage at which the company starts seeing the importance of digital technologies. They see the merit of running a pilot project to assess the value of a transformation.
This is the stage of transformation at which companies habitually conduct experiments to see what is working for them. The experimentation is more intentional and has a clear direction.
When different departments and teams within an organization get on a common platform to share the results of their experimentation, the company is in the strategic phase. At this stage, the company is taking a more strategic approach instead of looking at individual experiments.
After looking at all the isolated experiments, when a company has a designated team for digital transformation, it has converged. The processes associated with this transformation and the roles within it are better defined at this stage.
6: Innovative and Adaptive
This is the final stage of transformation when the company’s leadership starts seeing results and understands that this is a continuous process for growth.
Common digital technologies related to digital transformation
What is digital transformation without the technologies supporting it? Wishful thinking, really! So, it is crucial to understand what technologies are associated with the process of transformation for companies. If an organization is looking for transformation, the following are the technologies to incorporate:
- Big Data And Real-Time Analytics
- IoT And 5G
- Augmented Reality (AR)
- Cloud Technologies
- AI and Machine Learning (ML)
- Digital Twin
- Application Programming Interface (API)-based Integration
- Robotic Process Automation (RPA)
- Additive Manufacturing
What are the challenges in implementing a digital transformation strategy?
There has been no revolution in history without bloodshed. This basically tells us that change, in whatever form it comes, is uncomfortable and challenging at first. Change demands that we move out of our comfort zones. Thus, transformation, which is synonymous with change, has challenges too.
According to Forbes, there are some critical challenges to digital transformation and they are:
1: Addressing Inertia
Within companies, there is inertia to change and if not overcome, it becomes a pushback to digital transformation. This pushback can be cultural or come from individual employees who resist change.
2: No Support from Leadership
Something as extensive and expensive as transformation needs sponsors. Usually, it is the leaders or the C-suite of the company that facilitates this change. But if the leadership team is not convinced of the need to transform, the process is ridden with challenges.
3: Unrealistic Ambitions
Digital transformation is by no means an easy task to undertake. So, if you bite more than you can chew, your plans will not go as expected. Organizations need to set doable and realistic targets for themselves while transforming.
4: Lack of Customer Centricity
It is important to remember that the customer is at the forefront of this change. Transformation for its own sake will not add value to the company. The process yields results only when trying to make the customer’s life easier.
5: Compliances and Roadblocks
The use of digitally transformative technologies comes with its own set of regulations and compliances. For instance, if you want to use blockchain technology, you must follow the regional and global compliances for the same. This can pose substantial challenges to organizations that are still learning the ropes.
You can read more about challenges to digital transformation in this Forbes article.
The biggest challenge of all is to have employees who can lead their company in the uncharted waters of digital transformation. This is why organizations value resources that understand how to lead a digital transformation from end to end. If you want to be such a resource, you can consider the digital transformation courses from Emeritus for a solid grounding in this subject.
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