Developing a Digital Transformation Strategy: How To Succeed In Producing More Value And Revenue
Third Stage Consulting Group issued an incredibly substantial report on what modern digital transformation strategy is, about top challenges experienced by transformation executives, top trends, and recommendations for 2021. They notice digital transformation is “the force driving a business”. They describe the 2021 state of transformation as “flexibility and change”. A lot of theory, findings, and metrics are in their precise observation, but we treat live examples of the market leaders like Amazon or Nike as the best way to motivate changes.
In 2005 Amazon was selling books and performing at a decent operational revenue level. Today, they are bigger than any other retailer in the world. After they implemented a new and pivotal digital e-commerce strategy, the company has gained 1,934% in value and is one of the most successful companies in the world.
Let’s shed some light on what digital transformation is, its advantages, 2021 tech changes trends, how to make an efficient digital transformation strategy, and who can guide you through changes with minimal risks.
Understanding digital transformation
The logic of going deeply digital is clear in the world living fast. On Acquire.io, a unified customer engagement platform, they described the change process smartly: “Adjust or die”. The Institute of Digitalization reports on 500 companies and strong brands disappearing since 2000 because they failed digitalization. Integrating the right tech solutions in the right way, business gains:
- Operational efficiency;
- Meeting fast-changing customer needs;
- Product costs reduced;
- Products quality improved;
- New revenue streams introduced.
Before you select a technology vendor, estimate the duration and cost of changes, technology configuration, integration, and customization, it’s worth understanding the very essence of digital transformation in terms of its models, key components, and types of digital infrastructure.
Is digital transformation the same as digitization or digitalization?
You may often hear “digital transformation” and “digitization” words to describe tech shifts. They are close but still different.
Digitization is a plain transition from analog information to a digital format. If you scan or take a photo of a paper document and store it in .jpg or .pdf format, you perform digitization. When we change physical document format, we use digital solutions to choose a new way of running the business, and, hence, obtain new growth potential. At this point, we come across digitalization (Gartner’s IT Glossary).
Digitizing is converting the format, digitalization is the way to perform operations. Digitalization leads to easier access, processing time reduction, simplification of the operations. Automation is a part and parcel of the digitization process. As the US Brookings Institution reports “Both digitization and digitalization change the world of work significantly. Nowadays one can not succeed professionally or individually without obtaining digital skills”. Moreover, in Ukraine, much attention is paid to digitalization: the “Diia. Digital State” project even launched digital skills certification for all the citizens.
Digitalization refers to IT modernizations: new digital business models, launching online services, new digital tools. Digital transformation is an overall outcome of organizational change as a result of utilizing digital solutions to automate, digitize operations, and make them smooth, less time-consuming.
To recap: we digitize the document; digitalize the operation, and as an outcome, we transform the whole company digitally.
What are digital transformation models?
In the business world, you always have a variety of directions to follow. Digital transformation is not an undifferentiated concept. As Andrew Annacone, TechNexus Managing Partner, notes in his LinkedIn blog, any vector of change you choose will be the start of “building the next-generation business model”. Four paths exist: business process conversion, business model or domain transformation, and cultural (organizational) change. It’s reasonable to deal with all of them in complexity, because every issue contributes to transformation execution, making it a team activity driving innovative culture, supporting digital initiatives, and transforming the whole business.
As it is stated in the practical growth manual, the first three models described above are connected with essential growth strategies, and cultural transformation is not one about growing directly, but it’s a huge motivator and change enabler. You would hardly doubt that innovative and change-accepting organizational culture eases the change, makes it go smoother, and gives desired outcomes rather than you implement transformational changes with a team unwilling or fearing shifts.
The key components of digital transformation
Firstly you come across software lifecycle changes. Customers are willing to get the products making their customer experience better, so it’s worth innovating faster to satisfy clients’ needs better. Agile gives us the opportunity to iterate, get feedback, improve, and innovate continuously. So, the waterfall approach is getting less popular.
When business is digitalized more and more information is stored in the cloud because access and security issues are in focus. So, a multi-cloud environment becomes one of the key components. Flexibility is granted by cloud solutions: you are able to run your software in the environment with any physical characteristics you need.
The third cluster of changes concerns the architecture. Under transformation, architecture moves from what is called three-tier one (designed to run only on physical servers) to microservices architecture. If you use physical servers in three-tier architecture, it’s always necessary to think whether it’s possible to do this or that considering server capabilities (e.g. is it possible to run five databases on this server). When you undergo digital change and start using microservices architecture, it becomes possible to iterate and modify your software components as many times as you need.
To sum up under transformational change you experience:
- Change of software development methodology (adaptive agile instead of the sequential waterfall);
- Environmental change (you experience digitalization under fast-changing situation);
- Architectural changes.
Digital transformation changes in the environment, architecture, and approach resulted in new software development trends, and influences on digital infrastructure formation.
What are the types of digital infrastructure?
Digital infrastructure is a key issue for an interconnected and instrumented world making IoT (Internet of Things) possible. This phenomenon changes the lives of people using numerous devices, which are interconnected, able to collect, analyze, and share data. The concept of digital connectivity is implemented through a certain digital infrastructure, which enables varied functional improvements in devices and services. It can result in meaningful improvements in the quality of life. End-user is able to use things making him or her safer, healthier, and more engaged.
Digital infrastructure is brought into action via cloud computing as a paradigm allowing on-demand network access, being a model of managing, storing, and processing data on the Internet. The main characteristics of cloud computing digital infrastructure are:
- You use it when you need it (apply service on demand);
- Internet is a medium (you need network access to exploit the service);
- Multiple clients are using shared resources;
- Possibility to scale the resource (enlarge resource capacity, when you need it).
Three delivery models of cloud computing exist. They are known as SaaS. PaaS, and IaaS.
Software as a service model (SaaS) provides necessary software on-demand with no necessity to install it on your PC, and pay-per-use. One can use it via browser or lightweight user application, being relatively cheap and managed by the vendor. Examples of SaaS are Google or Microsoft 365 ecosystems. SaaS infrastructure is accessible from any platform, available from anywhere, and perfect for collaborative teamwork.
In the case of the platform as a service (PaaS) usage, programming language, web server, database, and operating system encapsulate the environment, where end-users can build, compile, and run their programs with no thinking of underlying infrastructure. PaaS such as Amazon web services or Google app engine is frequently used by developers. On the one hand, they get cost-effective fast development, smooth and easy deployment of web applications, on the other hand, they are limited by the languages and tools delivered by the provider, the risk of vendor lock-in.
When you deal with infrastructure as a service (IaaS), you get all computing resources in a virtual environment: data storage, virtualization, servers, and networking. IaaS is mainly designed for sysadmins. Among IaaS we can name Rackspace multi-cloud solutions, Amazon web services EC2. In this case, dynamic workloads are supported, great scalability is possible, and the provider contributes great flexibility.
Every company striving to improve the service, increase user engagement, boost internal collaboration, optimize processes, and become more agile in the fast-changing environment, should consider developing a successful digital transformation strategy to hit the market. In this way, it deploys different digital infrastructures to collect, process, and store the data to perform the better product for the end-user.
Developing a successful digital transformation strategy: a step-by-step guide
Uber transformed the entire taxi industry, Amazon hit the retail market and went further opening cashier-free Amazon Go stores, governments legalize self-driving vehicles. These revolutionary changes illustrate the practice of improvements. And when looking at the success stories you got interested in what is the recipe for such global comprehensive change.
Many companies worry whether investments in updating operational processes will result in higher revenue and market capturing. A lot of companies start the change process, but few of them are considering a transformation framework rooted into reality and more likely to bring a return. Statistics says tech investments will reach $2 trillion in 2022, but one of five companies is still not satisfied with the outcome they got. There are some US-based companies sharing their successful experience, and mainly in their development strategy, we find the following key elements being arranged in different ways (approaches).
Clear Objectives: Empowering Your Digital Transformation Journey
When driving objectives forward it’s reasonable to arrange the analyses of the current company state:
- Evaluate the organizational structure;
- Assess your employees’ mindset, values, and skills to be aware of whether you can move on with this team;
- Outline operational company life issue and team roles;
- Identify pain issues and main challenges you may face while further development;
- Learn key opportunities to be addressed while digital transformation.
Every time the organization is undergoing some changes, you’d better remember it’s not just transmitting from one digital platform to another, it’s a global change, which will influence your future organizational structure, product features, user experience, and, hence, the business growing level. That is why before implementing some change, you are welcome to clear up your goals, to think about what you are willing to achieve, and what experience you propose to your customers.
It doesn’t matter whether you decided to improve a single process in your company or transform the digital underlying of the entire business, according to McKinsey (‘Finding Your Digital Sweet Spot’, 2019) technology pushes your development in four directions.
And namely in case of continuous connectivity with the customers, constant innovation and improvements, overall automation, and responsible decision-making you should clarify your business goals, answering the questions about:
- The reasons you’re investing in your company development;
- Business priorities;
- Success measurements;
- Assets, which is the resource for starting change.
The main thing worth remembering is that you interact with your employees and customers, not a single time. While reaching the set objectives you have multiple touchpoints, so developing a winning transformation strategy will succeed once you implement an integrated approach.
An Integrated Approach Is Imperative
Customer journey creates a number of touchpoints, where consumers face your company processes. In this context, there are several areas of digital transformation, each of which should be addressed.
Digital marketing is about providing the right communication to target the right audience. You need to find the proper tools to arrange communication mechanisms perfectly well and create intimacy, understanding, and satisfaction in a relationship with your customers.
Digital marketing is just a focus on separate functions (call response, returns processing, claim deals). Further, it becomes an underlying of digital strategy as an overall organizational change (team commitment to innovation, team leaders support for an organizational change), and both of them result in global digital transformation (you start running a business in a totally different and more effective manner).
If we want to drive radical changes in the company value chain, we do need an integrated approach with bottom-up and top-down interactions throughout the company. You should understand that a marketing cloud implemented in marketing areas is not enough to drive changes in your company image (how customers perceive it). So, to develop a winning company development strategy it’s worth differentiating tactical function-focused digital marketing improvements and changes in the way you deliver the products and services, which refer to your digital strategy. But still, neither clear objectives nor strategy subset plans can be helpful if you don’t have the pool of leaders and employees able to drive, support, and initiate changes.
Human Asset: How To Drive A Successful Change
International consulting company Deloitte issued a special review observing whether people are still an asset under digital transformation. They state digital issues are not just apps or platforms you “plug in” into your company, you need continuous management of implementation process, monitoring, finding development gaps, and constant iterations of improvements. So, you can do nothing without a pool of talented, innovation-driven, and committed specialists.
In Deloitte research, they count 87% of companies still think they do not have the right leaders for global change. They provide the following advice on leveraging leadership potential:
- Focus on “digital will”: it’s necessary to push and support organizational culture, where people are ready to innovate, adapt, and evolve;
- “Digital skill” conversant leaders: your professionals are getting acquainted with the brand-new tech issues, the more they are willing to support your changes;
- Keeping leadership in the heart: they motivate you to use empathy, persuasion, passion, verbal communication comprehension — all the features, which can not be performed by new AI technologies.
It’s always possible to teach the staff once you prioritize people when the company undergoes digital changes.
Digital Transformation Roadmap: Guided Move On
It’s critically important to match your goals with tactical and strategy tools as well as human resources to implement change to identify gaps (bridges necessary between the company owners and employees or between the company and the customers). You should be ready to design a step-by-step plan of organizational development, which is called a transformation roadmap.
The roadmap is a precise plan of how you will reach the set goals moving from A to B point of your development.
You should consider the following issues:
- Change of company infrastructure;
- Employees retraining;
- Cross organizational communication change;
- Shift to a more agile development process.
Once you know what exact tools you apply on every roadmap stage, and how you measure the movements, it’s high time to start your change striving for outstanding outcomes like in the inspiring examples below.
Successful Business Performance Driven By Winning Digital Transformation Strategy
When famous brands launched changes it seems that they didn’t expect it would result in raised profit immediately overnight. They did their best to invest in digital transformation, follow the roadmap, and reach bigger revenue levels and higher stock price rates. In the chart below you are welcome to look through the figures depicting increased stock price rates and period length having taken to adopt changes. Either you see Microsoft spent 5 years to get 258% price rise or Nike implementing changes during 2 years and resulted in a 69% price higher, we are sure it will motivate you to move persistently, to believe in your targets and team as well as streamlining all processes in sync with the overall plan.
Many years ago Nike’s Director of footwear product development operations said: “We’re striving for a seismic change in what the developers focused on”. In this saying he outlined the very sense of transformation itself: one should focus on global issues rather than think just of improving and digitalizing separate processes.
Nike set the common objective “to take on more highly innovative projects”, and then created subsets of the digital tools (from marketing to overall strategy) helping to innovate more.
What actually they do to drive a positive digital change:
- Introduce new ERP system;
- Implement Knowledge Transfer Workshops throughout the company;
- Create measurable consistent digital transformation plan considering risks;
- Drive unique SDP models (skill development plans) to arrange sequential staff teaching;
- Identify five key job responsibilities to manage change better (in product development, chemical engineering);
- Develop a digital marketing strategy to enhance close communication with the customers (new slogan, Reuse-a-Shoe loyalty program, Eco-friendly shoes introduction).
They do not stop innovating nowadays: collaborate with art institutions, design demanded and socially valuable footwear, and showing an example of how continuous digital change contributes to business growth.
In spite of the fact you can experience a lack of expertise, resistance to change, or some failures in digital tools implementation, the benefits of digital transformation will be clear over the course of time.
Benefits of digital transformation for your business
If you improve separate operations (RFID for warehouse management), follow some strategic digitalizing (implement new software for your supply chain management), and develop your company innovative culture, it brings you benefits for sure:
- You gain better efficiency as a logic result of integrated technologies (e.g. sensors, app-based control, smart vehicles);
- Productivity (due to tech solutions output is maximized);
- Sustainability (modern digitized energy management leads to substantial emissions cut, gives new possibilities in spotting energy wastes);
- ROI during a short period (Schneider reports an average period of payback on the invested funds as five years);
- More safety in your business framework.
And all the described above leads to greater customer satisfaction, smoother decision-making inside the company, growing client loyalty, and the boost in sales as a desired outcome.
Digital transformation of the future: what to expect in 2021 and beyond?
Forward-thinking companies want to plan strategically and know what to expect in the future. A lot of consulting companies elaborate reports, where they present main 2021 trends.
They outline the main digital transformation challenges you may face in the nearest future as well describe trends for 2021 and beyond:
- Remote work will become a normal tradition;
- Acceleration of cloud adoption (especially hybrid clouding as winning architecture declared by Forbes);
- Company flexibility is still a key change competence;
- Program management will be the most demanded skill;
- System integration will still remain a challenge;
- Risk mitigation become a hot commodity;
- Change management will be even more crucial than ever;
- Privacy and confidential computing gain the top, because security issues are of great importance.
Declaring global trends, experts identify top recommendations for 2021 change, among which are:
- Faster decision-making;
- Constant assessing your IT infrastructure;
- Selective technology leveraging (do not believe blindly in famous ERP systems, just check every time whether it suits your tasks or not);
- Focus on internal learning to mitigate the risks and make your team robust under change;
- Human capital management is a priority.
The tech world expects a great year ahead, during which digital transformation will continue to be a focus in company development.
The bottom line
So far we’ve touched on digital transformation as the change exploiting technologies for better business performance. We focused on the following issues to ease your understanding of what digital transformation really is and how it contributes to your business success:
- There’s a difference between digitizing (conversion of the physical document in digital format), digitalizing (the manner company operates after digital processes introduction), and digital transformation (overall organizational change as a result of both digitizing and digitizing);
- Main digital transformation technical components are software development methodology change (from waterfall to agile), environment shift (moving to multi-cloud computing), and change in the architecture (transit from three-tier one to microservices easily scalable structure);
- SaaS, PaaS, and IaaS were compared as examples of digital infrastructure and way of digital services delivery. We outline the pros and cons of SaaS, where all the delivered items are managed by the third-party as well as PaaS, where applications and data is managed on your own;
- Clear goals, integrated approach, human assets, and precise digital transformation roadmap were presented as the key issues of transformation strategy development;
- Digital transformation grants you more precise data collection, analyses, and processing; improvements in your resource management; drive your innovative organizational culture; increases agility and productivity; boosts revenue and ROI;
- In 2021 experts forecast strong data and software focus, full-stack automation embracement, considering 5G as mainstream while service delivery, as well as CDP (customer data platforms), boost.
We’re confident that the tips contained in this article will assist you in finding a perfect match for cooperation. Innovecs is a digital transformation tech company. We can guide your digital change process incorporating modern 2021 trends and driving you to scale the business, boost the revenues, and grow as much as it’s possible. You are always welcome to get in-depth consultation on how to increase business efficiency via digital transformation tools.