1. What is digital transformation?
There are many interpretations of what ‘digital transformation’ is.
In the words of Gartner, “digital business is the creation of new value chains and business opportunities that traditional businesses cannot offer”.
While according to Accenture, “digital businesses create competitive edges based on unique combinations of digital and physical resources. They do things that others cannot and in ways that build comparative advantage.”
For the purposes of this blog, let’s say digital transformation is the changing of business models and processes to capitalise on the benefits of new digital technology and often requires the coordination of teams across an entire organisation.
2. Why is digital transformation important?
Successful implementation of digital change can help enterprises gain competitive advantages by improving customer experience and efficiencies. But succeeding is no easy feat...
"The reality is that over the past 10 years most companies trying to digitally transform their businesses have failed. Some reports show the failure rate is as high as 90%.
"The main reasons so many companies fail at digital are because their focus is on technology, they take a big programme approach driven from the inside-out and the organisation tries to transform without validating with customers or its people." (Founder of Atamai Digital, Peter Fletcher-Dobson)
Taking an holistic approach to digital transformation, this blog focuses on three main business areas where digital transformation can occur: customer experience, operational processes and business models. We also touch on the biggest elements of a digital strategy: starting small and people.
3. The customer
According to Forrester, technology advances in the past five years have created the “Age of the Customer”. Customers have the power - they decide when and how they wish to interact with a business. Customers interact with businesses across many channels with expectations of speed, consistency, ease of use and personalisation.
Every business has customers at its core. With this in mind, businesses should look to use new digital capabilities to develop experiences that adapt to these changing needs. Exceptional customer experience is increasingly becoming a key differentiator in digital business, and the process of digital transformation should be guided by a customer-centric digital strategy.
Advances in marketing, sales and analytics software enable the business to collect more detailed customer insights, refine their product offering and offer tailored, personalised digital experiences. Digital customer experience transformation can look like the following for enterprises:
- Delivering personalized experiences across channels are frequently and easily used be the customer
- Developing self-service products and services
- Collect data at every touchpoint about the user and their activity and use that further tailor the experience
Digital innovation can streamline operations as well. Here’s some ways to transform the enterprise in this way:
- Break down departmental data silos for better collaboration. For example, both product and marketing departments sharing more detailed analytics insights and data will streamline processes like product design, strategy, development and to-market messaging.
- Automating processes like automated quoting, purchase order, or account management systems can reduce paperwork, and the time and cost to serve and acquire customers.
- Making strategic decisions based on detailed data trends. Instead of creating projections based on the previous year's data, managers can make change based on trends validated by data.
5. Business models
Industry incumbents often disrupt established brands and industries (like insurance for instance) by using business models that take advantage of new technology.
Such established companies may wish to evolve their business model to similarly take advantage of new technologies and compete with industry incumbents.
Here are a couple of examples of new business models:
- Digital self-service - for instance, online quoting and purchase of customisable insurance policies, updating policies, managing accounts and balances etc.
- Introduction of dynamic pricing so people can tailor the product to their exact needs
Overcoming entrenched systems can be a hurdle for established companies when implementing digital change, but developing a solid strategy is the best place to start.
Just like the term ‘digital transformation’ itself, there are varying opinions about how to best strategize for implementing digital change successfully.
According to PwC, the blueprint for digital success looks something like the below:
McKinsey & Companyhowever, recommend that it looks like the 10 steps below.
Whatever way you look at it, there are two common elements: (1) start small; and (2) people.
Creating a strategy is arguably the most important part of the transformation, and ensures that technology is being implemented in a way that aligns with your enterprise’s objectives. I won’t go into too much detail on how to create a strategy but will touch on these two common elements of digital strategy.
Pilot projects are a great way to learn which approaches work (and don’t work) for your company. They offer potential efficiency gains but with a minimal level of risk due to their size.
Small successes can help with getting buy-in from leaders and the rest of the organisation and also secure funding.
Examples of small pilots might include redesigning the way you quote customers or make an insurance policy claim. Even though the scope isn’t company wide, you can still increase consumer satisfaction, gain a competitive edge, and make cost savings.
Whether at the pilot stage or later down the transformation pathway, the following are important considerations in the strategy:
- Choose your pillars: look at what pillar(s) you wish to change - customer, organisation or business model. Customer or operations is probably a less risky place to start with a pilot project.
- Vision: what is your company vision and how much money and disruption are you willing to invest to achieve this.
- Solution: will you develop the technology internally, choose an agency or a partner. Choosing a partner solution can be an efficient way to introduce technology, compared with developing your own solutions which can be hugely costly and disruptive. A partner that is willing to collaborate and communicate with your business can be a huge asset and mitigate risks. Choosing a solution that can assist with future changes, not just the current pilot, can mean future transformation is far more efficient.
The fourth important consideration, people, is described more fully below…
People - leadership, teams and culture
Choosing a leader is arguably the most important part of creating a digital strategy. This might land on the CEO or a designated Chief Digital Officer depending on the business. The leader should align with the company culture, vision, and scope of the digital changes required. Being an effective communicator of the vision and 'the why' will also encourage buy-in from the whole team for a better chance at success.
Cross-functional teams dedicated to a digital change unit allow expertise across the business to collaborate. Being dedicated to the task allows them freedom to focus on the project with an element of separation from established company systems and processes - arguably more important for established companies with legacy systems to overcome. The team could include people from departments like IT, business, human resources, and customer experience. Collaboration or input from experts outside your organisation can also accelerate digital innovation, like working with startups, students, or related industry organisations.
How the team works together is also crucial of course. Agile product development and test-and-learn methods can speed up the progress while keeping the focus on customers (PwC).
In terms of culture, a survey completed by PwC found that the biggest implementation challenge isn’t the right technology, it’s a lack of digital culture. Communication is important here between the digital team leader and overall company leaders, as is a successful pilot project. IT literacy and training can be a reasonably big task but staff understanding how to use any new technology and why it’s being used is another way to assist a positive digital culture.
You can find more discussion on digital culture in our blog “How to Foster a Culture of Digital Innovation in Your Organisation”.
7. Summing up
Digital transformation is not just about technology. It’s driven by a vision to gain a competitive advantage by using the latest technology and can affect structures across an entire business like customers, operations and the business model itself. Success will require a holistic approach with a solid strategy that starts small and is people oriented. A focus on digital transformation is particularly relevant for New Zealand SMEs.
Founder of Atamai Digital, Peter Fletcher-Dobson, says it's absolutely key that businesses take a holistic approach to digital transformation:
"In New Zealand, 40% of SME businesses don't have an online presence which means the backbone of the NZ economy - SMEs - risk being left behind digitally. That's appalling and we're passionate about changing that metric by helping SMEs to digitally transform in a smarter way.
"Digital transformation has to be focused on delivering massive customer value - and to do that the company needs to be set up to transform well.
"Atamai takes a holistic approach that benchmarks the organisation's capability across 5 areas: culture, brand, operating model, infrastructure and customer value.
"We show the business's current and aspirational states and use the benchmarking to map out a path to transformation, but taking an iterative approach, validating each step to de-risk the transformation.
"Digital transformation is a marathon, but it's a marathon done in many small sprints - so as an executive team you're not betting the farm, you're in control all the way."
Although only a brief touch on elements of digital transformation, I hope this blog has triggered focal points for anyone who is thinking of transforming their business with digital technology.
More relevant content