What is Digital Transformation and Why is it important?

Introduction

Digital transformation is a very common word businesses use today but when you try to research it, you will find many – relevant and irrelevant topics that make things harder for the researcher, consultant, leader, or c-suite to have a full and bird-view understanding of what this term means to different people.
My objective in this post is to explain in very simple terms the building blocks of digital transformation and understand its essence so you can apply and tailor the underlying frameworks, methodologies, and processes to suit your needs.

WHAT is Digital Transformation

I won’t confuse you with tons of theoretical, accurate, practical, nonsense, incomplete, inclusive, and debatable definitions. Let me just put a clear baseline for you to link every topic I discuss to this scope (or definition) for an integrated view.
I love exclusions when it comes to defining a topic or explaining it. So before talking about what digital transformation is, let me first highlight what digital transformation is NOT about..
To cut it short, digital transformation is NOT about:

• About technology or AI, big data, robotics, or the cloud (surprise?)
• Identify how emerging technologies can help us transform the organisation (!)
• Nor about automating or digitising processes and interactions – this is mainly called digitisation (or digitalisation) but not digital transformation.

Digital transformation is a process or journey that organisations undertake to define a 

• new focus for the organisation (by transforming business models),
• new ways of working within the operating environment,
• new expertise for our people (by transforming the organisation’s capabilities and leveraging ecosystems),
• and creating new experiences for our customers, employees, and partners

… using digital technologies. Yes.. digital technologies are not the aim, nor the start of the process. While digital technology is an integral part of the transformation, it is just an enabler of what we want to achieve throughout the journey. When you try to investigate how specific technology is going to help your business, it is not a digital transformation, it is a tactical approach to deliver value to the organisation (which can be needed for sure – but it is different).

WHY you need to embrace and invest in digital transformation now

I will not (again exclusions!) start by comparing how Uber, Airbnb, Netflix, and others disrupted the taxi, real estate, and film industries. Not talk about “The ‘Uber syndrome’ that is defined by Judy Lemke, CIO, Schneider as – “where a competitor with a completely different business model enters your industry and flattens you.”. I will just briefly talk about the reality of what we are facing today…

• Our customers are exposed to a massive amount of technology forces (AI, IoT, Analytics, Cloud,..etc) every day. These technological forces do 2 things:
  • Evolve every day around customers at an exponentially great speed.
  • Transforming how customers are experiencing services and products (creating new experiences)
• Which, by default, set the customer’s bar very high when it comes to interacting with organisations and brands.
• And their demands increase dramatically (and as Paul Papas – IBM Interactive Experience Global Leader –  said before “The last, best experience that anyone has anywhere becomes the minimum expectation for the experiences they want everywhere.”
• Someone – either you or someone else – will, for sure, invest restlessly (money, resources, and capabilities) to fulfill these demands (disruption!)
• And FYI, usually, startups manage to fulfill new demands easier and quicker because there are no massive assets, infrastructure, rigid processes, or operations as a liability.

So for you to fulfill these demands, you will need to shift your organisation to a new focus, new ways of working, and new expertise to meet the increasing demands in customer experience. And the best way of creating these new experiences is by using digital technologies… In other words, why do successful companies/industries get disrupted? Simply because of better customer experience, new/different business models, and agility to adapt. Full stop.

On the gain side.. digital transformation is important now because it can help businesses become more efficient, adapt to changing market conditions, and better serve their customers. It can also open up new revenue streams and business models, and provide a competitive edge in an increasingly digital marketplace. Additionally, the COVID-19 pandemic has accelerated the shift towards digital, with many companies having to quickly adapt to remote work and online sales. Investing in digital transformation now can help businesses not only survive but also thrive in the current and future business environment.

What are we aiming to achieve by transforming our organisation?

• Protecting the business from disruption
• Revenue growth
• Larger market share
• More satisfied and engaged customers and employees
• Efficient and integrated operations
• Productive employees
• Strengthen business partnerships
• Make better decisions, faster..
• Greater collaboration across departments
• You name it!

HOW do successful leaders manage their digital transformation journey?

It is essential to define what are the steps that organisations and leaders need to follow in order to reach/achieve the intended vision/outcome.

I love the statement I heard before (which I’m going to use a lot in my blog) which is

“Digital Transformation journey starts with a digital strategy, delivered by technology, and sustained by the people.”

1. Develop a digital strategy (sometimes called the envisioning phase)
   
   I wrote an article to explain the digital strategy in detail here, but for simplicity, there are 4 main steps any digital strategy engagement will need to do in order to develop a digital strategy:
   
   • Understand the context and assess where you are now.
   • Envision the future and identify where you want to be
   • Identify the steps and actions you need to perform in order to move from (where are you now state) to  (where do you want to be) – design the end-state and come up with the digital transformation roadmap
   • Formulate the benefits/investment models for the roadmap for baseline.

I posted an article explaining the key KPIs that you will need to start baselining and measuring your journey and the value you are aiming to deliver by undertaking a digital transformation. How to measure your Digital Transformation Journey’s progress

2. Establish a digital transformation office to prepare and organise the execution of the digital strategy
   
   • Define the goals and objectives of the transformation office: Establish clear and measurable goals for the office, such as cost savings, revenue growth, or improved customer experience.
   • Identify and prioritize initiatives: Identify key initiatives that will help achieve the office’s goals, and prioritize them based on their potential impact and feasibility.
   • Create a cross-functional team: Assemble a team of individuals from different departments and functions to lead and execute the initiatives.
   • Develop a communication and engagement plan: Create a plan to communicate the office’s goals and progress to stakeholders, and engage them in the transformation process.
   • Establish a governance structure: Define roles and responsibilities, and create a governance structure to ensure accountability and alignment.
   • Define metrics and KPIs: Identify key performance indicators (KPIs) to measure the success of the initiatives and track progress towards goals.
   • Implement and monitor: Begin executing initiatives and regularly monitor progress and results. Make adjustments as necessary.
   • Continuously improve: Continuously review and improve the office’s processes, initiatives, and governance structure to ensure the transformation remains relevant and effective over time.

You can refer to this article on how to establish a transformation management office for more details

3. Develop MVP (minimum viable product)
   
   • Define the problem: Understand the problem that the MVP is trying to solve, and define the target customer and their pain points.
   • Conduct market research: Research the market to identify potential competitors and understand the current solutions available.
   • Identify key features: Identify the most important features that the MVP should have in order to solve the problem and meet the needs of the target customer.
   • Create a minimum viable product: Develop a prototype or minimum version of the product that includes the key features identified in step 3.
   • Test and validate: Test the MVP with a small group of target customers to gather feedback and validate the product’s effectiveness.
   • Iterate and improve: Based on feedback, iterate and improve the MVP before launching it to the market.
   • Launch and measure: Launch the MVP to a small group of users and measure its performance using key performance indicators (KPIs).
   • Continuously improve: Continuously gather feedback, iterate and improve the product based on user feedback and market changes.

4. Scale
   
   • Build foundation capabilities for successful MVPs to scale
   • Refine MVP to make it profitable and operationally sustainable
   • Implement a target operating model in alignment with key stakeholders and customers
     
     Notes:
     
     • The “Scale”  phase approach needs to be integrated with mature  and organised change management activities across:
       • Stakeholder management and engagement
       • Change impact assessment (across the whole operating model)
       • Training and development
       • Communications (internally and externally)
       • Business readiness
         
     • The “Scale” phase can be combined with the “develop MVP” phase together depending on the organisation’s capability/readiness to undertake change as well as available funds.

5. Harvest the value created (value capture)
   
   • Remember the benefit models you designed earlier? Let’s monitor the benefits realised against what has been promised
   • It is common to see some variations against the baseline benefits designed earlier so it is important to capture the action plan and get it fed into the digital transformation office for prioritisation and adjustment of the course.

Back to our statement that summarises the digital transformation. We talked briefly about digital strategy, so let’s talk briefly about people..

I’ve participated in, seen, and read about many digital transformations that failed because of people, and it is quite a series to get the “people” building block well under control because it is almost impossible to have a successful transformation without proper change management.

Quick hints in managing the change:

• Have your staff and leaders in the organisation understand the change before it happens.
• Assess what this change means to the people in the organisation and the potential impact and follow a very well-agreed-upon plan to address the key risks and impacts.
• All business areas (including support teams, audit, compliance, and contract management) must have a plan to implement to accommodate the changes (including adjusting/requesting budgets for opex, resource allocation/development, KPI adjustments, and if applicable, planning the rollout for the partners i.e. help with service delivery).
• Communicate the change – easier said than done. Communicating (progress, expectations, requirements, ground rules, successes,…etc) is key to a successful transformation. Knowing that communication needs to be expanded beyond the organisation employees where applicable i.e. stakeholders, partners, and for sure customers!)
• Having well-trained people by taking care of all aspects of the development and training (this can include work instructions, business rules, upskilling, succession planning, and new system training). And we shouldn’t forget about our partners if they are impacted by the change.
• Make sure the business (including partners) is ready for the change. This includes how we are going to communicate with stakeholders, customers, FAQs, key contacts,..etc (don’t forget the exact timing – min matter!)
• Implement the change (people across the organisation – not only the project team are implementing the change according to the plan)

For more details, please check my other article around the Essential things you must know about Change Management

I believe it is clear now why digital transformation is not about technology, and technology alone won’t deliver nor sustain the business value you are aiming for out of the transformation without a proper digital strategy in place or well-prepared, trained, excited, and ready people to sustain it.

Conclusion

In summary, Digital transformation is the process or journey that organisations undertake to have a new focus, new ways of working, and new expertise to create new experiences for customers, employees, and partners to stay relevant and achieve business benefits. We are doing this because our customers’ demands are increasing and either we or someone else will fulfill these demands so it is an inevitable activity and investment. We start this by developing a digital strategy and keeping an eye on our people as they are the only answer to whether or not your digital transformation journey will succeed.