Digital Transformation (DX): A Beginner’s Guide

Digital transformation is disrupting every industry and organizations need to understand what it is and why they need to adopt it. This article covers the basics along with the benefits of digital transformation and its current challenges.

Elements of Digital Transformation Benefits of Digital Transformation Challenges of Digital Transformation Digital Transformation Trends FAQ

What is Digital Transformation (DX)?

Digital transformation is the integration of digital technology into all aspects of an organization to deliver increased value to customers. It’s an evolution beyond traditional analog methods to drive business process and performance. It requires an organization to make major shifts in how it fundamentally operates and should be driven by the CEO. True digital transformation involves the creation of new business models rather than business process optimization.

Elements of Digital Transformation

1. Customer experience improvements

Organizations are using data from new digital platforms to gain greater insight into their customer’s needs. For example, social media channels provide demographic, geographic, and behavioral insights into what their customers like and don’t like. They also allow brands to communicate directly to their customers to resolve disputes and build lasting relationships. Another example is the growing use of chatbots on corporate websites. According to ConvinceAndConvert.com, 15% of American adults have used a chatbot and 37% would use one in an emergency.

Companies are also using digital transformation to increase top-line growth by utilizing the latest technology. They’re replacing traditionally paper-based methods in sales situations with mobile analytics solutions such as tablets to communicate customized 1-to-1 pitches.

Digital initiatives are also transforming customer touchpoints. For example, many fast-casual restaurants now utilize online ordering through an online portal or phone app. Customers can then go to a location and pick up their order without even speaking to a single employee. This increases sales due to convenience and shorter wait-times in line.

2. Operational Process Transformation

Process digitization decreases the amount of time and resources needed to maintain operations and to innovate. Many accounting departments have implemented digitized workflows for employees to self-service purchase order requests and invoice processing. The result is a streamlined approach to billing that saves valuable employee time and improves the accuracy of record-keeping.

Companies are also increasingly enabling workers with digital tools to improve collaboration, which decreases the need to be in the same physical location. Tools such as WebEx allow for screensharing and file collaboration across the globe while intranets like SharePoint create a central repository for business files and communications. Slack is another online collaboration tool that has over 8 million active users as of April 2018 and provides a simple way to create collaborative groups online within an organization.

Decision-makers can also streamline their operations with automation of data capture and analysis. IoT sensors can be used in location management systems to track deliveries and can also be used for inventory tracking in warehouses and store locations as well. When partnered with an optimized big data platform, predictive analytics can provide executives with the data they need to make informed decisions.

3. Business model transformation

Many companies are transforming their traditional businesses with digital modifications. Giant grocery market allows customers to order groceries online or through an app and then pick up in the store. They also work with a company called Peapod to offer grocery delivery to their homes for fee.

Some companies take this a step further and innovate new business models on top of traditional products. Carvana is innovating the car marketplace by offering customers delivery of a car purchased online instead of at a dealership. Customers can return the car at no cost if they’re not satisfied with the purchase.

Benefits of Digital Transformation

Cost reduction

Streamlining operation processes reduces costs because it takes less time to accomplish the same tasks and provides timely, insightful data for decision making.

Improved customer experience

Digital touchpoints supported by enterprise data systems enable customers to accomplish what they want, when they want, and how they want. This creates a data-rich, personalized experience that’s consistent at every touchpoint.

Consolidated operations

Digital transformation incorporates agile digital systems, which take the place of legacy processes and systems for record keeping, decision making, and production. Systems can be consolidated, and tasks can be automated as new digitized systems are implemented.

Analytics

More data can be captured, structured, and analyzed once systems are digitized. The increased volume and variety of data enables companies to create self-feeding decision-making systems which improve experiences and streamline processes.

New products/services

Technology utilization is driving many new products and services. For example, General Electric is using 3-D printers to create fuel nozzles which are stronger, faster to create, and less expensive to produce.

Accurate market segmentation

Digital CRM systems and data integrations allow companies to view their customer databases like never before. They can take an incomplete customer profile and append data from third parties to see a more accurate view, as opposed to manual research to complete profiles. This is a key component to customers’ increasing expectation for personalization.

Challenges of Digital Transformation

Organizational resistance to change

Digital transformation embodies change at the fundamental level to drive innovation. Many within an organization resist rapid change because it disrupts the way things have always been. This can be particularly difficult for workers who have been with a company for an extended period. There is also an element of risk for executive sponsorship because if a large-scale project fails, the blame will be laid on them.

Lack of vision

It’s often difficult to see the path to disruption in the market when a company is only focused on itself and what worked in the past. Blockbuster is a perfect example of this, when at its peak had over 9,000 stores worldwide, but filed for bankruptcy in 2010 because it failed to see customer demand for streaming services like Netflix.

Inability to capitalize on big data

Data is the driving force behind so many decisions and is quickly become a competitive advantage for companies in fast-moving industries. They must be able to effectively gather, clean, structure, serve, and analyze data to take advantage of this. Unfortunately, the complexity of fragmented data and in-demand skills needed to build these systems lead to ineffective data strategies. Some organizations also have trouble prioritizing the data they need and end up focusing on the wrong KPIs.

Legacy systems

Old systems and processes may hinder the ability of an organization to implement agile processes to iterate on their workflows and products. Additionally, these systems may be so woven into the fabric of the company, that it requires costly changes. Systems must be updated on a continuous basis and regularly evaluated against alternatives.

Focus on process optimization vs. business model innovation

Process improvement is vital, but business model innovation must be considered to ensure business survival. A lack of attention to competitors and changing customer needs will blindside companies, as seen with Blockbuster.

Digital Transformation Trends

1. Organizational restructuring

Many companies are not optimally structured for digital transformation because the rate of change in technology has outpaced internal restructuring. Many job functions are outdated, and the right skillsets are not present in these organizations. We will start to see new job roles such as Digital Innovation Director and VP of Customer Experience, which will bring native digital experts to the forefront.

2. IoT adoption

12.86 billion IoT sensors and devices will be in use in the consumer segment by 2020, growing at a 34.89% CAGR per year from 2017 according to the GE Digital Evolution Index. As the technology matures, we will see more use cases deployed utilizing the nascent technology. For example, many industrial companies use IoT to remotely measure temperature and chemical levels, so they can take quick action when needed.

3. Focus on agile business platforms

We will increasingly see business platforms come to market with digital transformation in mind. API-driven platforms will help integrate legacy systems and bring disparate data to together for analysis. They will also help bring together a cohesive customer experience because they will act more intelligently together.

FAQ

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