What Is Digital Transformation?
Organizations across all industries are undertaking "Digital Transformation" projects. But, what exactly is it? And, are they doing it right?
At its core, Digital Transformation is driven by the tangible shift in the role of technology within an organization. No longer as purely a support function that enables business processes, technology is now capable of much more. Technology now allows for new, innovative business models (e.g. XaaS), drives sales growth, and can even be a source of Competitive Advantage.
There are numerous emerging technology trends that drive Digital Transformation. Notable ones include Robotic Process Automation (RPA), Artificial Intelligence (namely Machine Learning), Mobile, Internet of Things (IoT), Cybersecurity, Big Data & Analytics, Cloud, Social Media, Blockchain, and so forth. The applicability of technology is largely dependent on the industry and organization.
With these technology trends, businesses are armed with the capability to fully digitize, transform, and grow their organizations. These technologies, in fact, mobilize 8 levers to Digital Transformation—spanning both Growth (business drivers) and Operational Improvement (business enablers). These 8 levers are listed and depicted below; and are at the core of Flevy's approach to Digital Transformation Strategy.
Let's take a deeper look into the 4 levers that drive growth for the organization.
1. Demand Generation
Emerging technologies, particularly Social Media (and Social Media Marketing), are facilitating Demand Generation by building awareness and brand interest. With an increasing number of customer touch points and ability to collect and unify customer data across these various touch points, we are better able to understand our customers and their interests—leading towards customer "micro-segmentation."
Likewise, advertising platforms (as they, too, are collecting more and more customer data) also allow for more targeted ads. You can reach consumers by demographics, behavior, location, interests, and so forth.
Furthermore, ad platforms, such as Google and Meta, leverage Machine Learning algorithms to analyze large amounts of data about users and their behaviors. This allows the system to identify patterns and connections that can be used to target ads more effectively. For example, the system might use data on a user's previous searches, purchases, and other online activities to determine which ads are most likely to be relevant and engaging to that user. Typically, the more data the algorithm has been trained, the more accurate the results. By using Machine Learning to improve ad targeting, these advertising platforms help organizations reach the right audiences and maximize the effectiveness of their ad campaigns.
2. Search & Selection
We can now be where customers can easily find us—and likewise, can easily find customers wherever they may be. This has been largely made possible through Mobile and Internet technologies.
This includes across channels (online and offline), across devices (e.g. PC, mobile), and across platforms (e.g. website, search, email, social). GPS and location-based services allow us to find customers based on where they are and where they have been.
3. Customer Experience (CX)
Prior to the Internet era, customers had limited interactions with a company—e.g., retail salesman, telephone customer service. With emerging technologies—namely, Social Media, Mobility, Internet of Things—the number of customer touch points has increased dramatically. This is both an increase in number of ways for the customer to reach the company and an increase to the number of people within a company to reach the customer.
Companies now have the ability to constantly engage with the customer. In fact, this has become the customer's expectation—to be able to reach a business at all hours and receive a prompt response.
Thus, Customer Experience has grown in increasing importance. Immediate growth opportunities tends to come through Customer Experiences and relationships that adapt to their dynamics and demands.
In fact, of the growth drivers, Customer Experience (CX) is the most impactful and at the core of Digital Transformation-driven growth. Refer to these best practice frameworks on CX for more on the topic. Typically, Customer Experience Strategy is a focal point within any Digital Transformation Program.
Customer Experience has evolved from a traditional linear process (with few touch points) to a continuous, circular process (with constant touch points). This change in Customer Experience is so significant that many top management consulting firms have developed their own frameworks addressing this behavioral and operational change, such as McKinsey's Customer Decision Journey and Accenture's Nonstop Customer Experience Model.
Our complimentary primer to Digital Transformation Strategy provides an overview to the 8 levers to Digital Transformation. This presentation also touches on 6 technology trends driving Digital Transformation.
Today's Customer Journey and Purchase Process is dynamic, accessible, and continuous, because the digital touch points consumers are exposed to are always on and customers can constantly re-evaluate their purchase options. Enabled by technology, customers expect to easily control and vary their routes within and across channels to suit their needs at any given moment. Customers now expect their experiences to be continuous, constant, customized, and cross-channel.
The key, then, is for us to deliver a continuous Customer Experience via an integrated Omnichannel Strategy. Otherwise, in today’s "switching economy," a customer may quickly look for a different provider that does provide the continuous experience she desires.
4. Customer Purchase Process
As highlighted above, with the evolution of Customer Experience, so has the Customer Purchase Process evolved. Customers can now be reached via:
- New and optimized products and services
- New and optimized channels
- New pricing models
Likewise, existing channels, services, and products can also be improved and better leveraged.
As we can better target customers and tailor our offerings, customer profitability (or revenue per customer) is a metric that should see considerable improvement. Technology also shortens product development cycles and reduces the time to market for offerings.
For a more in-depth discussion on the 4 growth drivers to Digital Transformation, as well as the 4 levers to operational improvement, take a look at our Digital Transformation Strategy methodology document. In addition to discussing the levers to Digital Transformation Strategy, this document also provides a framework for Digital Transformation Execution. We lay out key phases and functional layers. Furthermore, we provide a framework for Digital Maturity—i.e. know where you stand and how to gradually improve/mature across the areas of Customer Experience, Operations, and Information/Technology.
If your organization already has a Digital Transformation Strategy underway, we also recommend you familiarize yourself with the 4 business ecosystems critical to a successful Digital Transformation Program. These ecosystems are:
1. Customer Solutions Ecosystem
The Customer Solutions Ecosystem includes distinctive products and services that companies can best offer to customers. It undertakes personalization, customization, enhanced features, improved logistics, creative revenue models, and innovative designs and applications.
This layer integrates external entities to create additional value. As a matter of fact, an established partner network is essential in building a cutting-edge Customer Solutions Ecosystem.
2. Operations Ecosystem
The Operations Ecosystem encompasses the physical activities and flows that supports the Customer Solutions Ecosystem.
This layer includes external partners in operations, such as:
- Contract Manufacturers
- Logistics Partners
- Academia
3. Technology Ecosystem
The Technology Ecosystem drives and supports improvements and breakthroughs in the Customer Solutions, Operations, and People ecosystem.
This layer includes pivotal, emerging technologies for the Fourth Industrial Revolution (4IR) that embody the essence of Digital Transformation initiatives, such as:
We can say Digital Transformation is achieved when technologies are available to connect and collaborate along the end-to-end Digital Value Chain.
4. People Ecosystem
As it's true with all business initiatives objectives, especially those that are transformational, without the right people and talent in place, then we won't be able to successfully and effectively execute on our plans. Thus, the People Ecosystem is an enabling layer.
It is the domain of organizational competence and culture. This layer supports Digital Transformation initiatives.
Studies have shown organizations that have excelled in Digital Transformation (i.e. "Digital Leaders") distinguish themselves through their mastery of these 4 critical business ecosystems, characterized by:
- Value Creation through Integrated Customer Solutions Ecosystems.
- A cutting-edge Customer Solutions Ecosystem established to serve customers with a complete digital product and service solution.
- A fit for purpose Operations Ecosystem with the right set of technologies, people, and organizational culture.
Digital Leaders align their organizations around a clear and coherent overall strategy made up of a Value Proposition and distinctive capabilities. More information on the Digital Transformation: Integrated Business Ecosystems methodology can be found here.
The 3 documents below highlight the core concepts of Digital Transformation discussed in this article. In building your organization's Digital Transformation Strategy and Program, we recommend consulting these best practice reference guides.
Source: Digital Transformation Strategy [source material], Digital Transformation: Integrated Business Ecosystems [source material]
