​What is digital transformation? Everything you need to know about how technology is reshaping business | ZDNet

What is digital transformation?

Digital transformation involves using digital technologies to remake a process to become more efficient or effective. The idea is to use technology not just to replicate an existing service in a digital form, but to use technology to transform that service into something significantly better.

Digital transformation can involve many different technologies but the hottest topics right now are cloud computing, the Internet of Things, big data, and artificial intelligence.

However, it’s not just about the technology: changing business processes and corporate culture are just as vital to the success of these initiatives. Digital transformation projects are often a way for large and established organisations to compete with nimbler, digital-only rivals. These projects tend to be large in scope and ambition, but are not without risks.

While digital transformation is one of the most commonly used phrases in the IT industry, definitions vary. What everyone can agree on is that, beneath the hype, the fluff and the confusion, digital transformation involves some pretty important changes to business culture.

What is included in a digital transformation project?

Digitalisation is not, as is commonly suggested, simply the implementation of more technology systems and services. A genuine digital transformation project involves fundamentally rethinking business models and processes, rather than tinkering with or enhancing traditional methods.

This creative requirement remains a tough ask for business leaders. Most organisations do not have a major problem generating new ideas, but many firms fail when it comes to implementing fresh business models or turning good ideas into organisational objectives, according to research from Cass Business School.

This gap between innovation and execution helps explain why digitalisation and disruption have traditionally been seen as the preserve of nimble start-ups. But it doesn’t have to be this way – there are great examples of digital transformation in the enterprise sector, too.

What does digital transformation look like?

The transition of legacy systems to cloud platforms is an oft-cited example of digital transformation. By moving older systems to the cloud, it becomes easier for organisations to update and change applications in response to new user demands. In this case, digital transformation is helping to support nimble and flexible IT operations – it is, in short, making an existing process much more efficient and effective.

Using technology to change or remove an inefficient working process is another good example of digital transformation. Think, for example, of the digitisation of paper records. By using technology to transform how an organisation records its information, it becomes possible to search digital records and run reports in a way that would have been unthinkable or at least unmanageable in an era of paper records.

While digital transformation often involves using cloud-based platforms and services, it can also involve the adoption of emerging technologies. Think of a retailer allowing customers to use virtual reality glasses to visualise its furniture from the comfort of their home. In this case, digitisation transforms the traditional physical retail interaction into a virtual relationship, where customers can try and then buy products at a distance.

How important is digital transformation?

For those who weren’t convinced about the positive benefits of digital transformation, the power of digitisation won over many doubters during the coronavirus pandemic.

When lockdown and social distancing started, it was digital transformation – and the IT departments that carried out the work – that helped businesses carry on functioning as normally as possible in the most challenging of conditions. CIOs and their IT teams had to spin-up technology solutions to the challenges that their businesses faced overnight.

Digital transformation strategies were fast-forwarded at breakneck speed. Executive teams, that might once have hesitated over the implementation of a multi-year investment in video-conferencing and collaborative technologies, tasked their IT departments with establishing remote-working strategies in days or even hours.

CIOs and their teams stepped up and delivered – from the support of home working to the provision of online learning and onto the establishment of new online e-commerce channels and even the creation of whole new business models:

The general consensus from experts around the tech industry is that the rapid digital transformation pushed by CIOs and their teams has helped to change the perception of IT for good. Rather than being seen primarily as a service to other functions, such as sales and finance, technology is now recognised as critical factor for long-term business success.

What are the criticisms of digital transformation?

However, recent success doesn’t mean every cynic has been won over. While most experts can agree that digitisation involves using technology to make a process more efficient or effective, just about every project that involves using technology gets badged as a digital transformation initiative.

Digital transformation has become the go-to marketing phrase for almost any adoption of new technology. In fact, the phrase is applied so broadly that it is in danger of becoming meaningless. Such is its ubiquity that it’s no surprise when an attention-craving organisation badges its creation of a new app or even something as mundane as a laptop refresh programme as a ‘digital transformation initiative’.

SEE: Digital transformation: Five ways to help your business boost customer experience

Tech workers also express cynicism about grand talk of digital. No technology employee spends their working day digitally transforming, rather than coding, programming, and developing. For their part, CIOs will tell you the implementation of technology is simply the conduit to help the business meet its objectives, whether that’s selling more widgets, making more money and raising customer satisfaction levels.

To critics, digital transformation simply offers tech vendors another opportunity to rebrand their offerings: it’s not uncommon to see systems and services being sold as a golden bullet for digital transformation. Such hype is just more fuel for detractors who feel that digital transformation is simply a solution searching for a problem.

None of this criticism should come as a shock. Even back in 2017, analyst Gartner warned that over-selling meant digital transformation was fast-approaching the trough of disillusionment. Four years later and critics would say we’re now at the bottom of that trough.

What else could we call digital transformation?

One way to help silence the critics would be to find another name for digital transformation. If we stop using the term blindly, and instead focus on what we’re trying to achieve with technology, then we might find a more useful moniker.

That’s something that resonates with the CIO community: almost every IT chief will tell you that their organisation is running business transformation, not technology transformation, projects. Other industry commentators suggest culling the phrase digital transformation and creating a slightly modified alternative, such as ‘digital landscape’, ‘underlying digital environment’ or ‘data-led plumbing’.

The big problem with all these alternative names is that they mean even less than digital transformation. For all its inherent faults, we now all have a perception of what digital transformation means, even if it’s just relying a lot more on the cloud and pushing technology into areas that were previously dominated by manual means.

Yes, the concept of digital transformation has its flaws, but – in some ways – the IT industry should just be pleased that the business has begun to recognise the great work that the technology team is undertaking, regardless of what it’s called.

Remember that the rest of the business tends to have a problem with big IT concepts. Take the example of the phrase ‘cloud computing’, which used to be met with non-plussed expressions from non-IT execs 10-plus years ago. Now, the cloud is a broadly understood and accepted term.

Cloud found its footing by proving its value – and so it is with digital transformation. 2020 and 2021 have been dominated by digital transformation projects. This dominance is likely to be a tipping point in terms of its acceptance. The business has seen the value of digital transformation – and now it wants a whole lot more in 2022 and beyond.

Why does digital transformation matter?

Beneath the buzzwords, there lies a crucial concept: digitalisation is helping smart entrepreneurs and pioneering executives to change the established economic order – and the effects are everywhere.

From Amazon’s influence over retailing to Facebook’s impact on publishing and onto fleet-of-foot FinTechs that are destabilising banking and insurance operations, traditional firms are being challenged by nimble, digital-savvy operators.

Consultant McKinsey reports that many executives believe their companies’ business models are becoming obsolete. Only 11% believe their current business models will be economically viable through 2023, while another 64% say their companies need to build new digital businesses to help them get there.

Logicalis’ recently released global CIO survey suggests tech leaders must build agile and adaptable infrastructures to deliver digital-led business transformation. They report there’s been a notable shift in the defining aspects of the CIO role during the past 12 months, with most tech chiefs increasing the time they spend on innovation (79%) and strategic planning (77%). 

Can you give me an example of what digital transformation looks like?

Beauty company Avon International has used a direct-selling model for 130 years. The company normally sells its products through reps who call at clients’ doors and collect orders from a paper brochure. But that model was all-but-impossible to continue during the coronavirus crisis and lockdown.

The solution to this challenge came in the form of a rapid digital transformation that allowed reps to carry on selling. The IT team focused first on putting in place a mechanism that allowed reps to ensure that the orders they were taking – through WhatsApp, a text message, an email, or a phone call – were delivered directly to Avon’s customers rather than by hand.

As the company had 60 different enterprise resource planning systems around the world and more than 200 back-office systems, changing the delivery address meant modifying a range of ordering and invoicing processes. The team implemented that new approach on top of its legacy platforms in 30 markets in just six weeks.

SEE: Digital transformation: Keeping e-commerce moving even when everyone is stuck at home

Avon also started to develop a stronger e-commerce platform, such as via mobile and web. Sales through e-commerce channels grew by six times in the first three weeks following lockdown. The company also started to produce digital brochures that could be updated far more easily and shared through social channels.

Today, 30% of the company’s sales contacts are made online in the UK, up from less than 10% before the pandemic. By finding ways to maintain sales and beef-up its e-commerce channels, Avon kept its customers served and its reps busy, gaining new clients along the way.

In short, digital transformation has helped to change the company’s business model – and that’s going to last forever. Chief executive Angela Cretu confirmed recently that the company wants to become fully “omni-channel”, linking different methods of selling from stores to the doorstep, over the next three years.

How much are companies spending on digital transformation?

Total spending on digital transformation will be more than $6.8 trillion between 2020 and 2023, according to tech researcher IDC, which represents an annual growth rate of 15.5%

Analyst Gartner also reports that tech spending will increase across the board for most IT organisations through 2021 and beyond. However, it says top performers have made an early start, suggesting companies that have already increased their funding of digital innovation are 2.7 times more likely to be top performers than trailing performers.

Something to note, though: digitisation is far from easy. The average enterprise has more than 200 technology solutions in its tech stack across the organisation, according to Futurum Research. The advisory firm’s analysis of digitisation suggests the vast majority of digital transformation initiatives don’t consider the user and ultimately result in inefficient adoption.

How do companies enact digital transformation successfully?

Digital transformation projects have traditionally been associated to multi-year strategies. Here, CIOs work with their peers to think about how technology might help their organisations react to the threat of digital disruption. They then create a long-term business strategy that uses technology to help the organisation meets its aims.

The problem with many of those long-term strategies is that they take too long to come to fruition. While incumbents are good at creating spot digitisation projects, such as moving systems to the cloud or creating new digital channels to market, they’re much slower when it comes to digitally transforming the whole business to support new operating models.

It’s still not uncommon to hear CIOs talk about five-year digital transformation strategies. In an age where fleet-of-foot digital challengers can move into a new sector almost overnight, then multi-year strategies are simply too slow. Many businesses have been stuck running digital projects, says analyst Gartner – and while some of these initiatives are large, a collection of digital projects is not simply a synonym for becoming a true digital business.

That over-reliance on multi-year approaches has stopped recently. Many long-term strategies have been fast-forwarded through 2020 and 2021; McKinsey reports that companies’ overall adoption of digital technologies sped up by three to seven years in a span of months. The consultant says this acceleration is also happening at the level of core business practices: what was considered best-in-class speed in 2018 is now seen as slower than average. 

This need for speed has an impact on digital transformation strategies. Instead of talking about five-year plans, many CIOs now talk about how their board demands constant iteration. In many cases, that shift has required a new Agile way of working.

What’s the relationship between Agile and digital transformation?

As the World Economic Forum concludes, digital transformation is as much about establishing the right cultural change programme as it is about introducing new tech. Digitisation needs organisations to work out quickly what their business needs and how they’re going to get there. For many CIOs, the best way to find these answers is by adopting Agile methods.

Agile management has its origins in software development, but as Harvard Business Review suggests, it has spread far beyond its product development and manufacturing roots. While Agile won’t be applied the same way in every organisation, the basic principles – decentralised decision making, cross-organisation teams and cross-team empowerment – are likely to resonate with most tech leaders.

CIOs suggest the big benefit of an Agile approach is cultural. By working in small, cross-business groups to explore challenges and deliver solutions, IT staff and line-of-business employees can iterate around a problem and apply digital systems and services quickly.

Compass Group CIO Jon Braithwaite says these joined-up journeys mean no one gets a nasty shock at the end of the experiment. They also mean people across the business iterate to find the best possible return from an investment in digitisation.

“It means you’re all in the same boat as opposed to the opposite of that approach, which would be where you’ve asked for some cash and you haven’t delivered at the end of the project. I like the joined-up journey. It’s really fast-paced and shows how working closely with people is critical to digital transformation success,” he says.

What’s the future of digital transformation?

Business leaders have seen the benefits that digitisation can bring. From supporting new hybrid working models to building new channels to market, boardrooms have seen how technology can help their organisations – and now they want more.

Gary Delooze, CIO at building society Nationwide, has spent the past 12 months helping his globally disparate IT organisation to embrace what he refers to as a distributed Agile way of working to help counter the challenging circumstances of the coronavirus pandemic.

Delooze says success stories during this challenging time have created a blueprint for further digital transformation initiatives. People across the business have seen how small groups of people can work to deliver big business outcomes – and others want to become involved, too.

“All of that has led to us actually taking people on a journey, not because we’re telling them to, but because we’re showing them what’s possible,” he says. “And that has allowed us to create a pull – it’s creating a demand from people to say, ‘I want to be part of this’, rather than having to spend a lot of time constantly laying out the vision and communicating.”

Who is responsible for digital transformation projects?

As the traditional guardians of technology investment, CIOs tend to have a big say in digital change projects. Yet CIOs are far from the only executives with a role in digital transformation management, and the pressure for change has led to the rise of other C-suite specialists, such as chief digital officers (CDOs).

Analyst firms fanned the flames by suggesting the appointment of CDOs could hasten the demise of the traditional IT leadership role. Gartner originally claimed a quarter of businesses would have a digital chief by 2015, and IDC said 60 percent of CIOs would be replaced by CDOs by 2020.

Today, those predictions look way off beam. While line-of-business employees are good at buying discrete digital technologies, CIOs have the experience of integrating systems and services. In most cases, appointed CDOs work with their CIO colleagues to exploit advanced technology on behalf of the business.

In fact, CIOs have used their experience to maintain a tight grip of digital transformation. With companies now looking to get more from recent digital transformation projects, even greater focus will be placed on the tech leadership capabilities of CIOs – and that means building even stronger bonds with the chief executive and the rest of the C-suite.

As Boots UK CIO Richard Corbridge says, tech chiefs need to think very carefully about what they do next: “For me, that’s about being a transformation agent – it’s about being the person stood next to the executive committee, taking the things that we must do to transform this business and translating that into what digital can do to help us get there quicker, more efficiently, safer, or to help us make more money.”

When does digital transformation stop?

It doesn’t. Many people make the mistake of thinking of digital transformation as a discrete project. As Forrester suggests, true transformation is a journey, not a destination. Digital transformation remains a slippery concept that involves the delivery of value to the business and its customers in new – and perhaps unexpected – ways.

Just as digital transformation constantly changes, so do its constituent elements. Right now, most business transformation activities involve the innovative use of data, whether that involves analytics, IoT, artificial intelligence or machine learning. In many ways, as digital transformation has evolved it has become more about data-led change than anything else.

So the form of digital transformation continues to evolve, meaning the process of defining digitalisation remains complex and contested. The one thing we can be sure of is that transformation – in whatever form it takes – is here to stay, which means CIOs and the rest of the senior team must build a sustainable business strategy.