What is digital transformation? What are its challenges?
No company today can risk avoiding a digital business strategy. If you talk to the CEOs of 20 companies, they will all tell you that their industries are adopting digital capabilities and they must change with them or fall behind. Eighty-three percent of CEOs agree that digital transformation is already at the top of the business plan. They know that competitive pressures and changing expectations means constant adaptation is required.
Digital technology and new platforms have been evolving at an accelerated pace over the last five years. This acceleration is not only not slowing down, it’s actually increasing annually by three times. Therefore, as companies look at moving business platforms, processes, and technologies forward, corporate leaders face an endless list of initiatives to consider, prioritize, evaluate, validate, and execute on. The challenge is to ensure priorities are aligned wisely. Without a strategic direction, attempts at digital transformation can end up disjointed and ineffective — without any essential forward movement. That’s not transformation. That’s just a bunch of IT projects.
To get started on understanding what digital transformation is, here’s a broad definition of the term: digital transformation means using cloud and other technologies in ways that change business operations, interactions, and business models with profound impact for customers, vendors, and employees. In contrast, here’s what digital transformation is not: a specific project or projects with a beginning phase, an implementation phase, and a maintenance phase. As implied by the word transformation, digital transformation is a process. It’s a long-term requirement for success in a world characterized by changing technology and changing expectations.
Digital transformation is one of the largest and most complex challenges facing companies today. A company’s transformation from non-digital/partially digital to fully digital is a journey that will affect all aspects of an organization. This journey will not only alter your technology systems, platforms, and applications but also your business strategy. That’s because technology changes alone will not realize a digital transformation. Real transformation requires business leaders at all levels in the company to be onboard with the journey and what it means to all segments of the business. Digital transformation will impact how you engage and interact with your vendors and partners, how you collaborate and sell to your customers, and how you recruit, train, and manage your employees.
One of the major challenges of digital transformation is the fact that it requires perpetual adaptation.
Compared to what ERP (enterprise resource planning) did for companies 20 years ago, digital transformation will have a similar reach — but no end state. With ERP, most companies knew that its implementation had a beginning, middle, and end. There was an adoption — you brought in the applications, stabilized them, and operated them for a long period of time. In most instances few new changes were introduced after the core functionality was deployed. Even if the deployment lasted five years, there was always an end state.
This is different. There is no end state yet identified in a digital transformation. Most experts predict that over the next decade, companies will be in perpetual transformation adopting new technologies, changing business models, and defining new products and offerings. The speed at which technology is evolving is the main driver of this perpetual change but it is not the only driver. As companies switch from human labor model to the digital labor model, entirely new challenges will affect the global economy, and these changes will have an even larger impact on one’s digital transformation. This circular dynamic will create waves of digital transformations with each wave accelerating.
If you think about the technologies that companies have had to embrace in the past five years and the speed in which they have impacted the marketplace, you’ll have a small glimpse of the perpetually changing environment that is coming. Mobile, social, cloud, big data, and most recently IoT are just a few examples of technologies that have changed the way organizations do business. These technologies have impacted not only IT but business strategies and core business models, as well.
The data revolution
It’s no surprise that digital transformation is poised to be perpetually evolving, since it’s not just a single disruptive technology that is causing this. It’s an ongoing wave of new technologies, new bundles of technologies, new capabilities, and the unprecedented pace at which these technologies are coming at us.
If you review one area as an example, we can see why this is true. Data has emerged as the new business currency in the past five years. We are generating, combining, recreating, and consuming data at never before seen levels. Data has gone from 1) traditional transactional information that for most purposes lived in data centers, to 2) mixed structured and unstructured warehouses where business transactions, documents, and web content is combined, to 3) internal and third-party data combinations, to 4) extremely large data sets combining information from sensor, bots, and internet traffic. This progression has taken place at most companies in the past five years. When you add in machine learning, predictive analytics, and AI, you get a sense as to just how much has changed around data alone.
Scope of impact
Another large challenge in the digital transformation arena is that it affects everybody. Digital transformation will have an impact on your internal operations, external sales team, manufacturing environments, customers, suppliers, and employees. NO ONE will be spared — it literally will impact everybody.
Given the speed of evolution and scope of impact, companies must face the question, “How far should our digital transformation take us?”
There are obvious limits to how much time and money a company should invest in any aspect of a business, but before this can be answered one needs to fully understand the opportunities to be gained and lost, the existing competitors in the marketplace, future distributive competitors, and clients expectations.
From Henry Ford to Steve Jobs, leaders have fearlessly created new products that customers never asked for. Had Henry Ford asked people what advancement they wanted in transportation they would have answered “faster horses.” Had Steve Jobs asked customers what they wanted in portable music, “five-hour cassette tapes” might have been the response. Unfortunately, in most cases, customers don’t know what they want until they see it.
While understanding the needs of an industry, market, or product differs for all companies, what is clear is that never before has doing nothing been a riskier play. Sitting on the sidelines and not responding to market conditions and threats is the quickest way to extinction.
Bill Topel is vice president of sales and marketing for Concurrency Inc., an award-winning IT consulting agency with offices in Brookfield, Chicago, and Minneapolis.
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