Digital Transformation

Digital Transformation vs. Digitalization vs. Digitization

Consider the differences between digital transformation, digitization, and digitalization:

Digitization – moving from analog to digital. Remember when records were written and kept on paper? Collecting data meant handling physical documents, like papers and binders—analog. When computers became mainstream, businesses converted their records to digital computer files. This process of converting information from analog to digital is called digitization. 

Digitalization – simplifying work by using digital data. Digitalization marked the move away from using digitized files in an analog way. It involves making simpler, more efficient workflows using digitized information. It’s not about changing how business is done or creating new business. Digitalization allows businesses to operate faster, accessing data instantly, rather than searching through filing cabinets.

Digital transformation – adding value to customer interactions. Digital transformation does involve changing how business is done, and sometimes even leads to entirely new classes of business. Through this process, companies can take a step back and rethink how they operate. The goal being to perform better, more efficiently. Digital transformation can also lead to increased customer satisfaction and more personalization.

Digital Transformation Strategy

In a report by Constellation Research surveying 100 Fortune 500 CIOs, 77% of the respondents named digital transformation as their top priority for 2021.

A DT strategy means having an action plan regarding how your business can reposition itself in the digital economy. It involves innovation, changing operation and business models, and taking advantage of emerging technologies.

A DT is not as simple as finding and adopting new technology to help your business become more efficient. Digital transformation is the reshaping of a business as a whole. A DT strategy must align the operating model with new business models. Products and services can be more digitally infused, reducing operating costs and increasing profits. Technology used in the right ways can transform a business. New value should be produced for customers, while at the same time, the business should become more efficient. 

According to Richard Rumelt (who McKinsey calls “Strategy’s Strategist”), Emeritus Professor of Business and Society at UCLA Anderson School of Management, a good transformation strategy contains the following:

• Diagnosis. The definition or explanation of the nature of the challenge. A good diagnosis helps simplify the problem by identifying certain pieces of the situation as critical.
• Guiding policy. A policy for dealing with the challenge. This is the overall approach that will be taken to overcome the obstacles defined in the diagnosis.
• Coherent actions. This set of actions are designed to carry out the guiding policy. They are steps that are coordinated with one another to collaborate in accomplishing the guiding policy.

Without a diagnosis, teams might take unnecessary actions that result in mayhem and uncertainty. It can likely lead to disjointed projects and random tech infusions that don’t add value or make sense. 

The guiding policy answers the question: How do you want to do that, exactly? If the guiding policy can be applied to any organization at any time, it won’t be very helpful in guiding your business’ digital transformation. 

And of course, nothing is accomplished without a set of coherent actions. If there isn’t a clear path with specific actions to take, resources will be wasted. 

Simply having a to-do list is not a strategy, though. Data enables companies to find new opportunities easily. Leveraging new technologies and launching new opportunities requires a transformed way of working. 

In developing your DT strategy, consider the 5 Building Blocks of Digital Transformation:

1. Operational backbone – A set of integrated, standardized systems, processes, and data that support a company’s core operations. 

2. Shared Customer Insights – Organizational-wide knowledge of what customers will pay for and how digital tech can meet their demands.

3. Digital Platform – A repository of business, technology, and data aspects that facilitate fast innovation of new offerings and improvements. 

4. Accountability Framework – Clear distribution and ownership of a growing set of digital offerings and components, balancing autonomy and alignment.

5. External Developer Platform – A repository of digital components that’s open to external partners who can contribute to and use the platform.

Ultimately, understanding both what you can do and what customers want will help evolve your strategy. Digital transformation is not merely installing technology for technology’s sake.

Successful Examples of Digital Transformation

Comcast

Comcast innovated new products, including voice-activated controls and a cloud-based video platform for watching TV. However, this didn’t result in the boost in customer satisfaction they expected. So, the $84-billion U.S media and communications company reorganized, putting product innovation and customer experience together. With this transformation, the company was able to create a very personalized experience that uses machine learning to recommend content. Additionally, Comcast tracked the impact of their offerings through IT investments, customer care, technology usage, and accounting to ensure a smooth, cost-effective customer experience. 

This example shows how basing digital transformation on the customer lets companies understand and address all their touchpoints and how they interact with their audiences—from marketing campaigns they see, to the sales personnel and processes they encounter, and to where they first connect with a company.

Netflix

Where Blockbuster went wrong, Netflix went right. Netflix based their DT strategy on the customer, and now they’re hugely successful while Blockbuster is no more. Netflix began with the customer experience, deploying an online recommendation engine to help customers find shows they like based on their interests and tastes. It also let customers know which videos were out of stock—meaning they could avoid going to video rental stores altogether. Blockbuster tried to protect its bottom line with tactics like late fees, which garnered hostility and were disliked by customers.

Nike

When Nike felt they were getting a bit dated and sluggish, they underwent a digital transformation. Nike transformed the company’s mindset, supply chain, and brand to better connect with its customers. They focused more on data analytics, updated their e-commerce strategy, developed stronger digital marketing campaigns, and amped their direct-to-customer sales. Nike was able to open concept stores, create more membership opportunities, and improve the online customer experience by using digital consumer data more effectively. 

Digital Transformation Trends

Some of the top trends for digital transformation in 2021 include:

Democratization of Innovation

This marks a shift away from provider-driven innovation to user-driven innovation. Individuals and smaller businesses are pushing aside these rather uniform products that are created for general audiences in favor of innovations specific to their field. Developments will be made available to a much wider group of users. What does this look like? For starters, it involves including everyone in the innovation process—employees and users alike. This inclusion can lead to bigger, more useful innovation that is more applicable to a larger audience. 

The Expanded Cloud

We’ve heard so much about it in every aspect of tech and business these days, but it truly has incurred an immense impact on digital transformation, especially in the world of COVID. With teams being more dispersed than ever, employees need to access organizational information from wherever they are. In 2021, technology is moving toward the use of multi-tenant clouds and hybrid cloud solutions.

Toyota is one example that highlights how cloud technology can enhance offerings. The car company used the cloud to transform its vehicles into connected platforms. Apps link the cars to Microsoft Azure-hosted social media sites which track electric vehicle rewards points and offer other components that bolster the customer experience.

Real-Time Data Processing

The need for instant answers is growing. Initially, it was financial establishments that required immediate data processing to provide service, but the use of this technology is now exploding. The processing power must be fast, but also reliable and automated.

The benefits of real-time processing include:

• Flexibility 
• Cost-effectiveness
• Scalability 

Another automotive example: Nissan uses Google analytics e-commerce tracking to gather product preference data—like colors, models, and categories of vehicles in demand—in each market to make decisions about their offerings. 

Contactless Solutions

Another side effect of COVID is the major shift away from in-person interactions towards virtual connection. Everyone probably thinks of Zoom, or some other video conferencing software. However, there’s a whole lot more to the contactless era. Contactless payments are becoming more popular for businesses, as is contactless fulfillment. Certainly, online shopping has been a mainstay for some time now, but the surge in other contactless shopping for groceries and other more local, small business products is unprecedented. Whether it’s door-to-door delivery or curbside pickup, more companies are adapting their fulfillment methods to meet customer needs.

Composable Enterprise

Hyper-specialization has created a whole host of specific applications. This has led companies to construct composable enterprises, making them more agile and better able to adapt and innovate. The idea that digital capabilities can be composed of existing apps and no-code solutions, rather than being built from scratch each time, is reshaping how companies develop and build their architecture.

Digital Transformation Tips

A key component of digital transformation is understanding your technology’s potential. You don’t want to just do the same things faster. 

Ask the questions: 

• What are our technology’s capabilities? 
• How can we adapt our business and processes to make the most of our tech investments?
• What business outcomes do you want to achieve for customers?

Here are some tips to get you on your way to total transformation:

• Focus on the customer. Let them guide your journey. 
• Adapt your business to provide a better customer experience.
• Adapt your service offerings to embrace social media.
• Reconsider traditional ideas about teams and departments. Tear down those siloes! 
• IT and business functions need to co-create to solve problems and deliver value.
• Pick strategic partners with common values.
• Retrain employees on the digital front. Get everyone on the same page.

Technology in Digital Transformation

A diverse range of people and disciplines is necessary for the digital transformation journey.

Big Data & Real-Time Analytics

As mentioned previously, collecting and analyzing data is critical to digital transformation. Big Data includes structured and unstructured data in large quantities, as well as the processing methods that make it easy to distribute and analyze data.

When integrating new tech, there’s more data to measure and evaluate. It needs to be properly processed to generate reports that allow for prompt decisions by management. The ability to produce reports in real-time, as well as the ability to organize effort and teamwork, is crucial. 

AI & Machine Learning

Artificial intelligence will have its place in the digital transformation of both small businesses and big industries for the foreseeable future. These smart tools automate tasks of all kinds, making tough decisions easier and processes more efficient. AI, along with the current computing power and machine learning tech, can provide analytics at unprecedented levels. 

As AI is developed and its applications expanded, its implementation into various industries continues to grow, already in use in IT, financial services, car manufacturing, healthcare, and more.

Cloud Technologies

The cloud can drastically transform existing business models. Cloud technologies offer a range of benefits and contribute to digital transformation in many ways, such as:

• Increasing flexibility 
• Making access to resources easier
• Storing and processing data on demand 
• Reducing hardware and infrastructure expenses 
• Ensuring efficient work by remote teams
• Storing large amounts of data

Augmented Reality (AR)

Already fully implemented in automotive, medical, and marketing fields, AR is understood by many business owners as having great potential. In the commercial sector, expenditures on AR continue to rise.

AR offers seamless connectivity between physical and digital, skyrocketing the idea of the human-machine interface to another level entirely. 

IoT (Internet of Things)

The Internet of Things being a system of connected devices capable of transmitting and exchanging data without human intervention. Consider how many objects we use on a daily basis that are outfitted with sensors and exchange data with other devices in order to facilitate the best user experience possible. 

In terms of wearables as a digital transformation technology, it’s currently being most actively developed in the healthcare field. They make monitoring patient health much simpler.

Robotic Process Automation (RPA)

The power of robotic automation is growing in many niches, particularly manufacturing. Robots aren’t just used for simple, repetitive tasks, they’re spreading into analytics and decision-making. RPA’s role in digital transformation includes accelerating tasks while ensuring greater accuracy and operational efficiency. Overall, it frees up human resources for higher-level jobs.

Digital Business Transformation

So how does digital transformation come into play in business? It’s not just about adding technology. In fact, it’s more about organizational change and learning how to use technology to improve performance. The use of AMPs (analytical, mobile tools and applications, and platforms) has exploded and is completely changing business, as well as competitive dynamics within many industries.

When it comes to digital business transformation, there are 4 types:

• Process Transformation – This involves reworking processes, using APIs, data, analytics, machine learning, and other technologies to reinvent corporate processes. The goals being: lower costs, reduced cycle times, and increased quality. Consider Domino’s Pizza and their AnyWare ordering; this innovation of making ordering available from every device increased customer convenience so much that it overtook Pizza Hut in sales. Other companies are utilizing robotic process automation to streamline back-office processes such as accounting and legal.
• Business Model Transformation – As mentioned, the available technology allows companies to pivot on their traditional business models. This type of transformation is aimed at the basic building blocks of how value is created and delivered in a given industry. Think again of Netflix and how they delivered video content in an entirely new way, or Uber’s reinvention of taxi service. Insurance companies are using data and analytics to unbundle services and charge customers solely for what they actually use. By rethinking business models and how value is provided, there’s a whole world of opportunity.
• Domain Transformation – While there’s not much focus here, there’s abundant opportunity. Evolving technologies are redefining services and products, blurring boundaries between industries, and creating new non-traditional competitors. Executives tend not to like this side but the flip side presents radically new business for their companies beyond the audience they currently serve. Take Amazon for example; they started AWS and entered an entirely new domain for them that had been previously dominated by Microsoft, IBM, and other giants. A huge part of their ability to enter this market was their digital technology and capabilities. AWS is unique from Amazon. It’s not unobtainable either—today’s digital world no longer consists of technology gaps as a barrier for businesses.
• Cultural/Organizational Transformation – Complete, long-term digital transformation necessitates reworking organizational mindsets, processes, talent, and capabilities. Digital culture requires agile workflows, more testing and learning, decentralized decision-making, and more dependency on business ecosystems. Consumer credit agency, Experian, is a success story for digital transformation. They adopted agile workflows, development, and collaboration and changed the employee focus from equipment to data. While consumers and tech might be the driving forces behind digital transformation, company culture and organizational change is a fundamental requirement for long-term digital business transformation success.

Digital Transformation in Banking

Banks are largely run on dated platforms from past decades due to security expectations and how deeply rooted the systems are. However, technological advances have made it possible for banks to modernize. Emerging vendors now offer next-generation, cloud-based banking, and configuration-driven solutions that aren’t so disruptive in transforming banking systems.

These new technologies and solutions mean banks can address their most pressing needs and innovate while still leveraging their legacy platform for the better part of core banking functionality. Legacy vendors are also innovating, generating additional options to modify existing platforms with certain next-gen features.

There are three types of core banking platforms:

1. Legacy platforms – Think “one-stop-shop” solutions that operate on a closed or proprietary platform. They’re usually complex to implement and often have a multi-year licensing term.

2. Service-oriented platforms – These platforms offer service-oriented architecture (SOA) based designs and allow for real-time processing. They generally use a license and subscription-based model and are typically offered as host software as a service (SaaS) solutions.

3. Cloud-native platforms – These leverage microservices-based architecture with APIs, providing access to and from internal and external services. They allow for real-time processing and are typically pay-per-use subscription models.

To determine the right option, a bank must consider all of the following: 

• Current infrastructure
• Market dynamics 
• Customer needs
• Organizational capabilities needed

Other factors affecting the digital transformation of banks and financial services include:

• Declining traffic in branches combined with higher customer expectations
• Rising competition from non-traditional providers like Amazon and Google
• Increasing regulations that are shrinking margins 

The technologies that are changing banking include some of those we’ve mentioned, like AI and cloud computing. These tools provide many benefits, most of which we’ve discussed, such as:

• Ease of access to services
• Enabling remote transactions
• Allowing for remote work
• Data collection from many devices 
• Increased security 
• Automating and speeding up processes and services 
• Improved analytics, monitoring
• Better fraud detection and prevention

In addition to this list of benefits and uses of these technologies, banks utilize chatbots to provide meaningful services for customers outside of business hours. They also allow for omnichannel customer support.

Another powerful technology for banks is blockchain. It helps improve security, protecting the data and funds of banking institutions. It decentralizes transactions, making security tighter.

Digital Transformation in Healthcare

Digital transformation positively impacts healthcare. The technology used to transform healthcare so far includes:

• Telemedicine
• AI-enabled medical devices
• Blockchain electronic health records

These few examples already are reshaping how patients interact with health professionals, how our data is shared and stored, and how decisions are made around our care and treatment. Beyond the effects on patients, other major goals of digital transformation in healthcare are to make physicians’ work more streamlined, optimize systems, improve patient outcomes, reduce human error, and lower costs via web and mobile experiences. 

In 2021, the state of digital transformation in healthcare looks like this: 

On-Demand Healthcare

Due to busy schedules, people are looking for on-demand healthcare. Mobile is big in this area, for content marketing and accessing websites. In 2021, mobile phones account for 54% of web traffic. It’s common practice for people to research doctors, hospitals, medical facilities, and book medical appointments online now. Healthcare professionals also take advantage of the “gig economy” and will hire themselves out rather than be tied to a particular company or practice. 

Virtual Reality (VR)

VR tech has transformed the healthcare industry. There are a bunch of applications for VR in treating patients. Virtual reality is being used to treat pain, PTSD, anxiety, and much more. This is reducing the reliance on narcotics, as well as reducing costs spent on drugs and medicine. 

On the other hand, doctors and surgeons are using VR to practice and enhance their skills through simulations of complicated surgeries and the like. Beyond this, VR headsets are a promising means of helping children and individuals with autism navigate the world.

Wearable Medical Devices

Do you have a smartwatch? This can be used as a wearable medical device. With more people using wearables, like smartwatches, access to patient health data has never been more abundant. Tracking such data has marked more of a focus on preventative measures and maintaining health.

Thus, healthcare companies are investing in wearable technology that provide up-to-date data and monitoring of high-risk patients, which helps predict major health events. 

Some of the most common wearable medical devices include:

• Heart rate sensors
• Exercise trackers
• Sweat-meters—used for diabetics to monitor blood sugar 
• Oximeters—used to monitor oxygen levels in the blood

Predictive Healthcare

Another aspect of the digital transformation taking place in the healthcare field is predictive healthcare. Big data can help hospitals, clinics, etc., predict admission rates and help staff their facilities accordingly. Additionally, it’s easier to predict illnesses and diseases that will become major problems in the near future. 

Using big data, through aggregation and marketing sources, healthcare companies and professionals can better offer healthy lifestyle recommendations for patients. Predictive analysis can also help businesses understand their staffing needs, particularly temporary personnel required for impending outbreaks of colds and flu, etc.