Digital Transformation in Business
One of the most relevant factors for the survival of businesses, regardless of the sector, is related to the transformation of processes through technology. Technological development is a factor that differentiates any company from its competitors and consumers. To address this new digital paradigm while avoiding serious consequences for their activity, organizations must adopt a systematic approach that allows them to technologically enhance their business through their digital transformation.
However, although technological evolution brings many advantages, it is accompanied by new challenges such as financial investment and the need to train employees to move towards a new technological paradigm.
For businesses to be successful in their digital transformation journey, they need to understand the specifics of this process and the key factors to consider before implementation.
Goals and Objectives of Digital Transformation
Digital transformation requires the coexistence of two distinct concepts that must be understood: digitization and digitalization.
Digitization results from the transition of non-digital information to a digital format through the representation of signals, sounds, images, and objects in binary values (represented by 1 or 0). As a result, the data will be stored on electronic devices where the information is protected from external attacks.
On the other hand, digitalization considers the changes suggested by the implementation of new technologies, such as Big Data, the IoT (Internet of Things), blockchain and cryptocurrencies among others. In this case, one of the main mistakes made by organizations is to consider digitalization as an increase in the use of technological resources. When in fact, digitalization requires the integration of elements that suit the company’s activity and enhance its operations.
Thus, digital transformation ultimately results in the technological progress of organizations, impacting not only the companies’ activities, but also the environment surrounding them. The effect of the companies’ digitalization on society is seen, directly or indirectly, through the development and optimization of their processes.
Therefore, it is possible to state that digitization consists of the conversion of information while digitalization is the process of technology implementation. In this sense, digital transformation is the result or the effect of these processes in organizations and in society. As such, digital transformation results in the replacement of manual processes with digital alternatives in all business areas. To digitally transform an organization, it is necessary to reinvent processes, automate operations and integrate the necessary technology to optimize business activity, enhancing the growth and the company’s success.
Each organization must define its digital transformation path according to the specific objectives it wants to achieve. This process should follow the needs of the business and not vice versa. Hence, the objectives may be related to increasing the collaboration and agility of the teams, improving employee’s performance, increasing process efficiency, developing new business models, or even gaining competitive advantages in the market in which the company operates.
Why does digital transformation fail in organizations?
Over the past few years, several companies have started their digital transformation journey. Carrying out such a profound restructuring poses additional difficulties and challenges for the organization’s management. Regardless of the company’s size or the investment made, this journey does not always unfold as planned. In fact, 70% of digital transformation projects do not achieve their intended objectives. We have gathered below the most frequent reasons why organizations fail in their digital transformation.
1. Underestimate the impact of data architecture
The pandemic may have accelerated the digital transformation of some companies that had not yet been willing to rethink their data structure. However, it is essential to ensure the systems’ interoperability (the way different systems/platforms communicate), as well as to identify the type of data appropriate to each team’s operational needs. Architecture optimization envisages the organization of data that may be spread across clouds, systems, machines, and platforms in order to improve business operations.
2. Failure to create a change management process
The success of the digital transformation implementation will depend on the management’s commitment – who must communicate internally the objectives of the process. This ensures the integration of all departments, not just the IT team, which avoids unnecessary loss of information.
3. Lack of understanding of the difference between digitization and digitalization
It is necessary to understand the difference between the process of digitization and digitalization in order to avoid invalid efforts in designing a strategy that is mismatched with the organization’s objectives. As previously mentioned, digitization is the transformation of the company’s processes or products into a digital format, while digitalization foresees that the company makes the most out of digitized processes or products. Digitization is therefore a tool only to achieve digitalization.
4. Not developing internal skills and talent
Without the right talent to manage a process as dynamic as digital transformation, the company runs the risk of initiating efforts that will not translate into the operation’s expected success. Considering also the need for recruitment for positions related to artificial intelligence and cybersecurity – which are essential functions for companies at a stage of high digital maturity – the development and demand for internal skills becomes even more challenging. The development of leadership skills and soft skills associated with managing resistance to change, along with the development of hard skills relating to digital tools and data systems management, has proven to be crucial to the success of digital transformation.
5. Not starting by understanding the business needs
Starting a digital transformation process without identifying the specific needs of the business will certainly be a recipe for failure. Before acquiring or redesigning any technological solution, it is necessary to analyze the company’s processes, which means that the journey must begin by simplifying current processes in order to get the most out of digitalization.
The digital transformation pillars
To ensure the successful implementation of digital transformation, four pillars must be aligned and developed in addition to technology: Customer experience, Data, Innovation, as well as Culture and People.
The customer should always be the main focus of an organization’s efforts and dedication when defining their digital transformation strategy. According to an IBM survey conducted among 12,800 Chief Experience Officers, 68% expect that in the future their organizations will value their customers’ experiences more than the technical features of their products. Therefore, before investing in technology, it is crucial to understand the customer journey, such as, their expectations and behaviors. In this sense, digital transformation provides a set of tools that allow organizations to connect and understand their customers in various ways, beyond traditional forms of communication.
The digital transformation of any organization requires the use of data. In order to drive this process, it is necessary to understand how to optimize data collection as well as defining concrete objectives for its use. This pillar highlights the need to increase the data availability by making the process faster and more interactive. Today, it is possible to make decisions immediately using big data which speeds up the process of decision-making, forecasting and discovering unexpected patterns.
To digitally transform a company, it is necessary to move processes, methodologies and operations to a new reality. Innovation proves to be a fundamental skill that companies must be prepared to embrace in an integrated manner throughout their activity. In other words, innovation promotes digital transformation by encouraging creative thinking and a problem-solving mindset.
Culture & People
The digitalization of organizations requires teams to change their behaviors. The use of technology must enable the creation of disruptive experiences for the customer, but also for the company’s employees, as overcoming resistance to change is crucial to the success of any digital transformation program. By communicating the objectives and expectations of the process and creating a collaborative environment, internal barriers to successful digitalization can be overcome.
Digital maturity refers to an organization’s ability to respond and adapt to the latest technology trends. It is a continuous process that supports the survival and growth of companies. Furthermore, around 43% of the most digitally mature global companies have profit margins that are significantly higher than the average for their sector.
It is essential that the process of implementing digital transformation is aligned with the company’s activity in a way that is sustainable for the business. For this reason, some organizations show a high degree of digital maturity earlier than others, even though there is no rule of thumb regarding the duration of this process.
In order to assess the digital maturity of global organisations, Dell conducted a study in which it indicates that 15% of global organisations are digitally lagging behind, 32% are keeping up with market trends following major disruptions from market leaders, and 34% are assessing the possibility of digitally transforming their organisation. Overall, only 19% of organisations are willing to explore and integrate digital transformation into their businesses to boost their sales, expand into new business areas or improve customer experience.
Adapting to digital transformation requires companies to be versatile. Thus, the larger the size of the company, and the slower its adaptation to digital transformation, the greater the potential revenue losses will be. Conversely, smaller companies with lower market share, such as start-ups, gain momentum through their risk tolerance and ability to innovate through digital transformation.
To assess the digital maturity of organisations, Google has developed one of the most widely- used models, which predicts four stages centred on data quality and availability.
The first stage of maturity is centred on the organisation that, with quality data, is able to connect the different departments or areas. At this stage, the impact the management’s leadership has on the start-up of the process is evident.
Focused on improving processes and experiences, this stage of digital maturity takes a step forward in converting and communicating data between departments through new technologies.
At this stage of the digital maturity process, productivity is expected to increase through online and offline interconnections to promote the achievement of technology-focused goals.
Finally, at this stage, the company’s strategic decisions are fully derived from data and the defined processes enable the optimisation of all channels and departments within the company.
The goal of starting a digital transformation process is the escalation of the four stages of digital maturity until data becomes part of the organisation in a natural way and part of the teams’ daily lives.
How to successfully digitally transform your company
Teams must be prepared and investment must be made in the acquisition of new technological, analytical and procedural skills. Digital transformation is an ongoing process as market trends and the behaviours of customers and competitors are constantly changing. Therefore, the success of investing in digital transformation depends on how capable and agile the organisation becomes in transforming its internal processes using technology to meet the needs of the market.
Digital transformation should include sequential steps to be implemented as effectively as possible in every organisation – regardless of the sector.
1. Identify critical business needs
Before digitalisation can begin, it is necessary to identify the organisation’s needs and define its specific digital transformation objectives. Only then will it be possible to measure the digitalisation efforts of the business and understand the benefits that this transformation will bring to the organisation.
2. Define the appropriate technology strategy for each of the needs
Once you have decided which way to go, you will need to understand how to start the digital transformation process. Will it be through the transition of managing activities and operations in the cloud? Or through artificial intelligence? The answer to this and other questions will determine which path the organisation will take.
In addition, it is necessary to define the needs in terms of data structure, that is, which architecture and data processing are the most efficient to respond to the critical processes of each of the teams.
3. Simplify processes while identifying the best technological solutions to implement an agile transformation
After reducing the existing waste in critical processes, technological needs should be linked to the best practical execution platforms. It is undeniable that to be successful, digital transformation must be interactive, responsive, flexible and agile.
4. Create a governance model
In order to follow the implementation of the transformation plan and monitor compliance with the defined objectives and the benefits achieved, it is necessary to create a governance model that enables follow-up after the implementation of the digital transformation.
The role of technology in digital transformation
Technology represents a set of means by which the digital development of organisations is made possible. Three of the biggest examples of technology associated with digital transformations are the IoT (Internet of Things), artificial intelligence and cloud computing.
IoT presupposes the connection of human beings to everyday objects such as cars, homes and home appliances through digitalisation. This allows the collection and analysis of information in real-time with the immediate creation of response actions enabling, for example, the creation of personalised experiences for the consumer.
Artificial intelligence, on the other hand, is a technological advancement responsible for enabling machines to learn processes, habits and routines by collecting data. An example of this technology is Amazon’s Alexa robot which allows information to be retained and used to communicate.
As for cloud computing, this involves the use of the cloud as a basis for the development of companies in an agile way. Moreover, IoT and artificial intelligence are concepts that are currently democratised in various organisations due to the role of the cloud in unlocking and developing processes, thus making them of widespread use by digitally active organisations.
Trends for the future of digital transformation
Digital transformation is a dynamic and constantly evolving process, so the emergence of new trends and processes deserves the attention of those who want to anticipate the direction of the digitalisation trends of the future.
The speed and quantity of available data has been increasing, resulting in faster decision-making, as well as in the prevention of operational errors. However, there are also some challenges that companies ought to prepare for.
More than 445 million cyberattacks are reported every year, and this number is set to rise. Therefore, cybersecurity is at the top of technological priorities with regard to the protection of data, processes and infrastructures, and the investment corresponding to its importance in companies must be safeguarded.
Artificial intelligence and machine learning
Artificial intelligence tools are increasingly becoming more widespread in organisations and the trend is rising. Through its use, trends can be identified, decisions can be made, scenarios can be predicted, and processes can be learnt and improved. Artificial intelligence guarantees the optimisation of processes and the development of market potential for the coming years.
The volume of available data is growing by 40% a year which is essentially due to data automation and widespread internet access. However, for data collection to bring added value to companies, it is necessary to analyse it and create quality information to create competitive advantages for companies. Big data enables the understanding and analysis of large amounts of data, thus making it possible to make decisions with less risk and uncertainty.
According to the World Economic Forum, 80% of CEOs are accelerating efforts to digitalise work processes and implement new technologies. This theme, together with the automation of processes to improve the productivity of teams, will enable companies to develop their operations and revolutionise the labour market. Automation will lead to the creation of new jobs that require soft skills and will require companies and their employees to adapt.
5G technology promises to transform and accelerate digital transformation by expanding its boundaries into a yet unknown reality. For businesses, 5G has almost unlimited potential to revolutionise the product or service delivered to the end customer.
Despite the challenges involved in the digital transformation process, its associated benefits are exponentially greater and will determine the survival of any business.
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