Where and How Does Digital Transformation Actually Create Value?

Editor's Note: Take a look at our featured best practice, Digital Transformation Strategy (145-slide PowerPoint presentation). Digital Transformation is being embraced by organizations across most industries, as the role of technology shifts from being a business enabler to a business driver. This has only been accelerated by the COVID-19 global pandemic. Thus, to remain competitive and outcompete in today's fast paced, [read more]

Also, if you are interested in becoming an expert on Digital Transformation, take a look at Flevy's Digital Transformation Frameworks offering here. This is a curated collection of best practice frameworks based on the thought leadership of leading consulting firms, academics, and recognized subject matter experts. By learning and applying these concepts, you can you stay ahead of the curve. Full details here.

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Most would agree there is tremendous potential for Digital Transformation initiatives to drive value within the organization. However, when we dig a little deeper, people may struggle in answering some basic, qualifying questions…

• How do our Digital Transformation initiatives drive value? (And, how much value?)
• Exactly where within the organization is the value coming from?
• Are our efforts focused on the right functions and initiatives?

To address these questions, we can leverage the Digital Value Chain Model (depicted below).

At the core of this framework (in the navy blue), we have the 4 general sources of value from Digital Transformation. This touches upon our first question. Through Digital Transformation, value is generated from 4 primary areas:

1. Enhanced Connectivity (often driven by Social Media, Mobile, IoT technologies)
2. Automation of Manual Tasks (often driven by RPA, AI/ML technologies)
3. Improved Decision Making (often driven by Big Data, Analytics technologies)
4. Product or Service Innovation (essentially all emerging tech can drive this)

These benefit areas can be applied to nearly every function within the organization.

Pictured around these benefit areas (in the light blue), we have the 6 core functions where value can be created by Digital Transformation. This answers our second question, regarding where value comes from. These 6 functions are:

1. Customer Experience
2. Product and Service Innovation
3. Distribution, Marketing, and Sales
4. Digital Fulfillment
5. Risk Optimization
6. Enhanced Corporate Control

Although digital investments are often selectively applied to certain more “obvious” functions (the most prevalent being Customer Experience), Digital Transformation initiatives should embrace the full Digital Value Chain, including support functions, e.g. Risk Optimization.

Now, let’s take a deeper look at these functions and what our Digital Transformation projects should be focused on.

1. Customer Experience (CX)
The Customer Experience should be a seamless, consistent multi-channel experience. There is a plethora of frameworks and tools centered around this thinking, known as Customer-centric Design (CCD) or Customer-centricity. More and more organizations are adapting their processes to be more customer-focused. (At Flevy, we have a Stream offering dedicated to this topic of CCD here.)

The goal of CX Strategy is to attain a service proposition of “whenever, wherever.” This type of experience is becoming of a requirement, rather than a nice-to-have, as customer expectations evolve.

2. Product & Service Innovation
Introduce new digital products and services enabled by emerging technologies, e.g. Social, Mobile, Cloud, Big Data, Analytics, Blockchain, RPA, etc. Digital Transformation also enables better collaboration and co-creation of new products among different organizations.

3. Distribution, Marketing, & Sales
Invest in digital marketing campaigns, where results can be clearly tracked, attributed, and finetuned to increase the return on investment of marketing spend.  Detailed attribution is a significant advantage over traditional channels of distribution, marketing, and sales.

4. Digital Fulfillment
For e-commerce sites, digital fulfillment allows for the complete payment to provisioning process to be completely and seamlessly automated. Depending on the offering, virtual servicing and administration features are also enabled.

5. Risk Optimization
With customer insights and other data and analytics, we can improve customer targeting. Enable embedded/automated controls and risk profiling.

6. Enhanced Corporate Control
Digital technologies enable an improved, real-time management information systems and decision making. We can also seamlessly integrate with third parties.

Now, to address our final question on whether we our Digital Transformation efforts are properly optimized, this answer is a bit more complicated. There are a number of factors that impact this–e.g., competition, industry, timing, organizational structure, culture, etc.

To answer this question, we should perform an assessment on our Digital Transformation opportunities portfolio. On a high level, such an assessment follows a 4-phase approach —

1. Estimate the Value at Stake
2. Prioritize Opportunities
3. Take an End-to-End View
4. Align the Business Portfolio

Interested in learning more about Value Creation through Digital Transformation? Take a look at our framework presentation on the topic, Digital Transformation: Value Creation & Analysis here.

This framework is part of the Digital Transformation Stream.

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Digital Transformation is being embraced by organizations of all sizes across most industries. In the Digital Age today, technology creates new opportunities and fundamentally transforms businesses in all aspects—operations, business models, strategies. It not only enables the business, but also drives its growth and can be a source of Competitive Advantage.

For many industries, COVID-19 has accelerated the timeline for Digital Transformation Programs by multiple years. Digital Transformation has become a necessity. Now, to survive in the Low Touch Economy—characterized by social distancing and a minimization of in-person activities—organizations must go digital. This includes offering digital solutions for both employees (e.g. Remote Work, Virtual Teams, Enterprise Cloud, etc.) and customers (e.g. E-commerce, Social Media, Mobile Apps, etc.).

Learn about our Digital Transformation Best Practice Frameworks here.