Digital Transformation: an Introduction
Digital transformation strategies have become essential for businesses to survive. But there are some real dangers in the pursuit of digital transformation. In this 3 part series, we look at digital transformation strategies and the common pitfalls. This is the first part of our digital transformation series.
The rise of Digital Transformation
In 2015, Accenture published their annual Technology Vision. The document, rarely read at the time outside of CIO circles, contained one line that, in retrospect, has proven remarkably prescient: “increasingly, platform-based companies are capturing more of the digital economy’s opportunities for strong growth and profitability”. Just six years on, and IDC report that by 2022, 65% of global GDP will be digitised.
As correctly predicted by Accenture, the phenomenal rise of the platform economy over the last few years has been driven by the promise of efficiency, growth, and profitability. By transforming business models away from physical delivery of services and products to highly automated experiences, businesses can improve customer experience, grow their customer base as a result, and drive profitability from automation. The model works. Deloitte reports that businesses which achieve high levels of digital maturity are 17% more profitable on average than their counterparts.
Beware, though. The costs of achieving digital maturity are high, as are the risks. A survey by Deloitte found that US-based businesses spent an average $11 million in the year to 2020 on digital transformation, and yet more than 70% of digital transformation programmes fail to deliver significant improvements in efficiency or profitability.
In this article, we explore the traditional model of digital transformation, weigh up the risks against the opportunities, and consider what you can do differently to put your transformation programme on the path to success.
What Is Digital Transformation?
Let’s start with the basics. In broad terms, digital transformation is simply using digital technology to enable a business to do things differently with the goal of better outcomes for the customer and for the organisation itself.
Of course, the motivator for businesses is usually to drive growth in revenue and profitability. However, what distinguishes the disruptive use of technology over the last decade from previous software-driven revolutions is the emphasis on “customer experience”. Whereas, say, the ERP revolution of the 1990s was motivated by operational efficiency, the most successful disruptors of the platform era recognise that digital technology enables slicker ways for customers to achieve their goals, and that growth and profitability are the natural consequence.
Digital Transformation for Customer Experience
This is not just about meeting the customers’ needs faster through automation – though this is obviously a major benefit of digital technology. It is about influencing how the customer feels about the products or services they buy from you, and it is about enhancing your value proposition for the customer.
Advances in digital technology might allow you to offer your customers something now that you couldn’t offer them before. Possibly the service hasn’t changed, but you’re finding ways to make the customer feel safer and better protected. Maybe apps are allowing you to create a more visual experience for the user, enabling you to create a stronger sense of your brand through colours, images, and branding than was previously possible through call centres. Or perhaps your service is just more joined up – they no longer need to repeat themselves every time they talk to your customer service team.
Whatever the opportunity, digital transformation works best when it creates great experiences that add real value for the customer. Great experiences create a powerful sense of connection that keeps customers coming back and will get them spreading the word. Long-established industries have time and again fallen prey to digital insurgents because the young app developer often has a better instinctive sense of what good could look like than the established CEO who has spent their life in the industry.
Digital Technology is the Enabler, Not the Goal
Of course, digital transformation is heavily reliant on digital technology. But here’s the critical point: the technology is the means, not the end. If adoption of technology is your starting point, then your programme is unlikely to deliver the value you expect.
Technology can unlock amazing potential in an organisation, but only if applied to achieve business goals. The CTO who adopts digital technology needs to have a clear view of what new products or services, improvements to customer experience, operational efficiencies, or revenue streams they will unlock through the change programme. It is also essential to have clarity about how the chosen technologies will enable the operational plans that unlock the value. This value chain needs to be realisable based on the technology choice.
To give an example, many Cloud Service Providers (CSP) and Cloud Partners (CP) market their services on the basis that cloud adoption enables innovation. The rationale is that managing traditional on-premise infrastructure can be a significant consumer of effort in technology delivery programmes. The automation that cloud platforms offer removes many of the headaches associated with on-premise infrastructure, through techniques such as infrastructure-as-code. This automation can deliver a clear, quantifiable benefit in time and cost savings, and by doing so can enable engineering teams to deliver new products and services faster. However, this is not sufficient to guarantee increased innovation.
An engineering team which delivers on an objective to migrate its products to the cloud will likely be precisely as innovative as it was prior to the cloud migration. This is because true innovation – of the kind that really generates value for the enterprise – is enabled (or inhibited) by organisational factors: the level of autonomy that individuals within the enterprise have; the roles and assignment of responsibilities; culture. Businesses which encourage and reward innovative thinking and give employees the time and space to deliver on their ideas will inevitably be more innovative than those who control innovation as a top-down process.
A programme which has cloud migration as its primary objective will probably not affect these organisational factors, and therefore will not impact the extent to which the organisation is geared up for innovation. It follows that if the organisation was highly innovative prior to the cloud migration, it will be able to leverage the cloud to reduce its time-to-market for new products and services. If it was lacking in innovation, then it is unlikely to now be getting optimum value out of the automation and efficiency savings that the cloud offers.
Similarly, building mobile apps or exploiting the Internet-of-Things does not inherently improve the customer experience. There is a particular set of features which mobile devices have (inbuilt cameras, GPS tracking, closeness to the user, ubiquity), which makes mobile technology particularly suited as a vehicle for delivering certain experiences. Taxi booking, for example, makes much more sense as a mobile experience than as a web experience because the most common usage scenarios mean that the features of a mobile device can add value – people who need cabs tend not to be at their computers when they need the car, the GPS is helpful to identify the nearest cars, the ability to call the driver in-app can help make linking up the traveller and the driver easier.
But there are also plenty of experiences where mobile native technology offers no discernible benefit over existing mobile responsive technologies. Booking flights, for example, is a user journey which does not significantly benefit from mobile technology. Most flights are booked well in advance of travel, so it can be done conveniently enough when the user happens to be near a PC. Location information only needs to be precise to the city, so GPS offers limited value. Few users book flights frequently enough that ubiquitous service is needed. So, as with cloud, adoption of mobile technology is not an end but is a means of unlocking benefit to the customer and to the organisation when applied in a way that enhances the use case at hand.
Read Part Two: Digital Transformation Strategies and Pitfalls
At Volanto we are digital transformation specialists. We have decades of experience in developing and delivering digital transformation strategies. Contact us to now to see how we can help you realise the power of digital.
