What is Digital Transformation? A Practical Beyond-the-Buzz Look at How to Adapt in a Digital World
What is Digital Transformation? A Practical Beyond-the-Buzz Look at How to Adapt in a Digital World
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It’s hard to read much about modern business strategies (or attend any panel discussion for that matter) without coming head to head with the idea of digital transformation. Hearing the phrase so many times can start to dilute the meaning.
What does “digital transformation” even mean? And more importantly: why is it essential for your business?
Digital transformation is the latest in a long line of technology-focused shifts. It’s changing how businesses relate to customers and how businesses conduct processes.
The Neolithic Revolution’s creation of agriculture led to a complete overhaul of where and how people lived and worked. The Industrial Revolution changed agrarian societies into manufacturing centers and altered the work people did and the standards of living they could expect. The Digital Revolution has similarly changed how people communicate, shop, and work.
In all of these cases, technology is a catalyst for revolutionizing society. Businesses adapting to these changes are having to innovate and invest in digital strategies to adapt both to new technologies and the fundamental changes they have already created.
This is where digital transformation comes in and why it’s not really a choice. Businesses have to adapt because the changes are happening around them either way.
According to the International Data Corporation, 85% of enterprise decision-makers see the need to make significant inroads in digital transformation in their businesses within the next two years.
In this deep dive, we’ll look more closely at what is driving digital transformation, examples of industries being disrupted, why companies put off optimizing, and how your own brand can adapt smarter.
What is Digital Transformation?
Digital transformation is the profound change that affects business processes, ecosystems, and models as they integrate digital technologies at all levels.
Truthfully, digital transformation can be seen far beyond the reach of businesses into all aspects of society and how people behave. However, for the purposes of this article, we’ll be specifically considering how digital transformation is affecting businesses and ecommerce.
People sometimes make the mistake of equating digital transformation with simply an update in technology.
Digital transformation means adapting to not only new technologies that are available but also changes in customer expectations, societal shifts, and industry disruptions. Businesses, in responding to these shifts, are needing to become more customer-focused, agile, adaptive to new opportunities, and efficient in order to stay competitive. Digital transformation is how they can rise to meet these expectations at scale.
As businesses undergo digital transformation they implement technology, processes, and big data to solve traditional business problems. These digitized strategies and new business models open up the potential for new streams of income, new partnerships, and a broader reach for the brand.
5 Social Trends Driving Digital Transformation
As emphasized in the introduction, change never happens in a vacuum. Historically big shifts in technology have caused major changes in society and transformed how humans live and work together. These societal transformations in turn lead to new adaptations and new digital innovations to solve for them.
Let’s consider how some of these social trends are both created by digital changes and a driving force behind further transformation.
1. Most shoppers look online for purchases.
One of the most fundamental changes in consumer behavior is where people are shopping (which inevitably also influences when, what, and now they’re shopping as well). Current trend projections for ecommerce retail sales in the United States predict over $700 million by 2023. This is a 60% increase just since 2017.
Shoppers are buying everything from clothes and luxury goods to toiletries and food online. In fact, one study estimates that 20% of global grocery sales will be online by 2025.
And shoppers aren’t just buying online in increasing numbers, they’re also using digital means to research purchases that they make in store. A report titled the ROBO Economy (Research Online Buy Offline) indicates that 82% of mobile device users go online to do further research and read reviews on a product they are about to purchase in store.
2. Customers are shopping more omnichannel than ever.
It makes sense that as people spend more and more time online, they will end up shopping there more. However, it’s important to drill down on exactly where they’re shopping. It’s not just on their computers at home but on phones on the go or even doing research on their phones while in the physical store.
As the ROBO stats indicate, people are also still shopping in store, even if they’re influenced by online research. Let’s also not forget about a few other fun acronyms BOPIS (buy online, pick up in store) and BORIS (buy online, return in store). Suffice is to say, customers are far from giving up on in-store experiences, but they are increasingly looking for ways to meld them with online ones.
This chart from the BigCommerce 2019 Omnichannel Retail Report shows the variety of places consumers of different generations shop.
Businesses need digital transformation to not only make these options available to their customers and potential customers, but also make sure they connect with each other.
3. Most shoppers seek instant-purchase gratification.
As technology continues to deliver more and more convenience to customers, they understandably start to expect more and more. Amazon introduced its Amazon Prime offering that included free two-day shipping on eligible purchases back in 2005. Now, of course, it’s hard to imagine those dark days when we as consumers were expected to wait 5-7 days (or more!) for our items to be delivered.
Sites like Amazon have made it the default to expect your goods soon after you hit the checkout button. In 2019 when Amazon announced it was now upgrading that standard from two-day to one-day shipping, a new gauntlet was thrown.
As this chart from Statista indicates, Amazon Prime is only growing in popularity with 103 million users in early 2019.
Businesses are having to transform their processes in order to keep up with these new expectations. If not, they are likely to see impatient would-be customers balking at once-standard-now-unreasonable wait times.
4. Many brands need an online presence to show value.
Long gone are the days of looking through store windows to research a product. People don’t just want to see your website to get information about your products, but also to a sense of your brand. A well-made website creates not only a frictionless buyer journey, but also an overall positive user experience.
A recent Global Brand Shopper Survey found that 59% of shoppers are drawn to a brand’s website because they use it to research new products. Additionally, 37% said they expect a more engaging overall experience than when they shop through a third-party retailers.
5. Most of today’s work is done online.
Today, people spend, on average, 24 hours out of every week online. From work to shopping and maintaining social relationships, people’s digital time makes up a significant portion of their work and personal lives.
Even B2B businesses, which have traditionally had more of an offline presence than B2C are moving more and more into the ecommerce space.
As more and more work is done online, businesses need to digitize their brand presence to provide customers (including other businesses) with the frictionless online experience they have come to expect.
5 Examples of Industries Undergoing Digital Transformations
As often as we hear about digital transformation, we also hear about “digital disruption.” The phrase comes with an undercurrent of fear: if you delay innovating and adapting your business practices that you will be disrupted and outpaced by more agile competitors.
And there is some truth to this fear. Businesses across industries are having to adapt to new consumer expectations and influence from competitors. It can be easy to get hyper-focused on certain tech industries experiencing massive changes, but a number of industries have dramatically changed the way they are doing things based on digital technologies and processes.
1. Consumer retail.
Perhaps one of the first industries people think of when it comes to a complete transformation is consumer retail. Technology and the proliferation of ecommerce have completely revolutionized how people buy things.
Digital business strategies are continuing to redefine traditional retail through omnichannel opportunities that blend the boundaries between marketplaces, online stores, and traditional retail.
Businesses are creating flexible commerce environments that are driven by a customer-first mentality. Modern consumer retailer (and again this is applying more and more to B2B as well) are using technology to blur the lines between physical and digital worlds.
2. Enterprise software.
Enterprise software is both a major disruptor for other industries and an industry that is internally having to adapt. Enterprise software like Slack and Microsoft Teams have changed the way many companies do work and how their employees communicate.
Similarly, software being available on a cloud platform through Software-as-a-Service options have changed the way businesses approach hosting their necessary business tools. For example, enterprise ecommerce businesses are now able to use SaaS to meet their complex business needs. SaaS companies generated $72.2 billion in 2018 according to Gartner and are projected to grow to 113.1 billion by 2021.
3. Health and Pharmaceuticals
Another industry that is being altered both by technology and by customer expectations and behaviors that result from access to technology is the healthcare industry.
One study found that 70% of people use the internet for health information and over 40 percent of patients diagnosis themselves through Google before arriving at their doctor’s office. In addition to more (if not necessarily better) informed clientele, there are a number of technologies that are disrupting the industry and providing better, more efficient patient care and treatment. These include using electronic health records, wearable technology, and Internet of Things (IoT) tech like drug packaging that can monitor optimal storage temperature in real-time.
Blockchain technology can also be used in healthcare as a way to increase security and protect patients from counterfeit drugs. Blockchain provides a secure way of tracing pharmaceuticals because each block of data attached to the chain is immutable and impossible to hack.
According to recent data, there are currently over 3 billion smartphone users globally, and that number is expected to increase to 3.8 billion by 2021.
It’s a mobile-first world now, and it has fundamentally changed how, where, and when people communicate.
McKinsey posits that the telecom businesses that have the most successful profit margins are those that establish strong customer-analytics capabilities, digitize order management, digitize customer relationship management, streamline IT applications, and standardize the company’s IT infrastructure and data analytics. To meet these goals, companies are investing in AI and other modern technology as well as optimizing customer experience.
5. Shipping Logistics.
A renewed use of digital transformation strategies can also be seen in the shipping industry.
Shipping organizations feel increasing pressure to operate more efficiently because consumers are expecting–in large part thanks to Amazon–faster and faster delivery of items.
Digital transformation trends in the shipping industry can affect everything from the supply chain through core business systems. The path to increased operational efficiency involves digitizing logistics workflows.
This is being accomplished with IoT, artificial intelligence and machine learning, blockchain, and other innovations in warehousing and transportation.
The 5 Elements of Digital Transformation
As you’re starting to understand how digital transformation is disrupting businesses throughout industries, it’s important to fully understand the essential elements of a digital transformation. What are the primary steps a business has to take to begin rethinking and reimagining how they do business?
1. Integrating digital tech.
While we have been emphasizing that digital transformation isn’t just about the tech, it is obviously still a component. Digital tech can optimize efficiency in most businesses. However, when adding new technology to your business it’s important to consider what your intended business outcomes are. Don’t add additional tech just for the sake of innovation. All additions or changes to your tech stack or new software added to your business operations should be outcome-focused.
2. Improving customer experience.
In addition to improving business operations, a good digital transformation is customer-driven.
A great user experience is now needed to get sales. Focus your advancements on the things your customers value.
The goal of your transformation should be to streamline your teams, processes, and operations to better service your customers and provide them the effective and connected customer experiences that will differentiate your brand from competitors.
3. Modernizing company culture.
Digital innovators don’t just change their processes but their company culture. Everyone working in service for the business must be in lockstep in terms of the outcomes being worked toward.
Adopt a culture of experimentation where testing and learning are embraced. This doesn’t mean just throwing ideas at the wall to see what sticks, but empowering employees to share ideas and take measured risks to spark new innovation.
4. Focusing on core business needs
Your business teams and resources only extend so far. Don’t waste energy or talent on nice-to-have features and operations. This again goes back to focusing on your desired business outcomes.
Look to the core business functions that will help you achieve those outcomes when preparing your roadmap of transformation initiatives.
5. Strategizing based on tech/digital landscapes.
Strategic thinking needs to change to a more digital focused strategy. Disruptive business models will continue to overturn industries. Your digital transformation efforts should take into account what your competitors are doing, what customers are expecting, and what the current emerging technology landscape is capable of.
Why Companies Put Off Digital Transformations
Digital leaders are quickly coming around to the idea that digital transformation is a question of “when” not an “if.” However, some businesses have been dragging their feet in terms of creating full transformations, versus just doing the bare minimum to keep up. So what’s the hold up?
1. Requires system-wide overhauls.
For large enterprise companies especially, being nimble and making company-wide changes can be a slow decision-making process.
Additionally, true digital transformation is usually not a simple out-of-the-box solution. It takes time and a unified effort to not only adopt new technologies but to make them work for your business.
2. CIO/CEO need to believe in it.
For a digital transformation to be successful, senior leadership has to be completely on board. The budget and human resources needed for a company-wide overhaul are steep and require unified buy-in. Which leads to our next point…
3. Upfront costs are high.
Changing your whole integrations stack to digital or upgrading legacy technology can be expensive at first, but will pay off in the long run.
According to the International Data Corporation (IDC), 40% of all technology spending in 2019 is going toward digital transformation. The amount spent on technologies and services related to digital transformation is expected to reach $1.97 trillion by 2022.
4. Requires specific technology for their industry.
Some companies need highly specific tech for what they are doing.
Either the tech isn’t widely or commercially available yet or it’s cost prohibitive. Both factors can cause delays in digital transformation.
5. Company is comfortable with the status quo.
The “if it’s not broke, don’t fix it” mindset is high, especially with small businesses. If the brick-and-mortar shop is doing well, they find no need to go online.
The reason many businesses finally transform is because their current system does “break” so to speak and is no longer tenable in the market.
When the business’s operating model can no longer compete and meet customer needs and expectations, they’ve reached a tipping point that requires major change.
More Digital, More Personal
As mentioned above (and throughout this article), digital transformation is not just about the technology.
Change is fueled by customer experiences and customer expectations. It is similarly given power by human innovation and the people who can creatively make good use of technological adaptations and advancements.
While technology is seemingly at the core of all things digital, no transformation will be successful without putting people first.
1. Strategic positions still are highly pursued.
Regardless of digitization, companies still need intelligent people to strategize for the future of the company and handle change management.
One issue that many businesses have when considering digital transformation is that they focus on the what and not the who. Digital transformation can’t just be accomplished by implementing new technology solutions in a vacuum. Human resources are essential to an effective transformation.
Here are some of the necessary roles a business will typically require in order to effectively undergo a digital transformation.
- Software engineers.
- Data architect.
- Data scientists.
- UX designers.
- Cloud computing specialists.
- Product managers.
Having a well-defined team that is committed to transformation is the most important resource you can employ.
1. Customer service and support remains heavily “human”.
Customers expect to talk to a human, not an operator. Even as chatbots and other AI grows more sophisticated, people still prefer interacting with other humans to serve their customer service needs.
In fact, according to a Sitel Group Index Report, 70% of consumers prefer speaking to a human customer service representative. Since the goal of digital transformation is consumer-driven, it’s important to be aware of these preferences.
AI has a place in customer service and is often most effective when used in conjunction with human counterparts. A well thought out business transformation figures out the best way to integrate the two.
2. Customers want a more personal feel from companies.
Customers have access to more information and more options than ever before. What draws them to buy a certain product from one brand instead of just buying the more inexpensive version of it that Amazon provides?
Many customers will only invest in companies that they believe in, making companies switch to, for example, a far more eco-centered than profit-centered approach.
Digitize to Survive
The wheels of commerce continue to turn and businesses are adapting to keep up with changing social trends and new technological innovations. Businesses that don’t continue to innovate with new technologies risk seeing their industries disrupted and struggling to catch up.
1. Most companies have an online presence.
Pretty much every large business has some kind of presence online. Customers expect it. They’re using online research to make decisions on which product to buy and which brands to connect with.
Consumer behavior surveys show that 62% of people read online reviews before making a purchase, and 47% visit the company’s website. While it’s essentially compulsory for large businesses to have an online presence, small businesses are also quickly realizing the necessity. In fact, two thirds of small businesses now have a website of some kind.
2. Most brick and mortar stores have built online shops.
Jumping off of the above, more and more brick and mortar stores now have a complementary digital experience. Customers don’t just want to be able to continue their relationship with a brand online and have access to their products 24 hours a day, but they want those connections to be seamless. While customers increasingly say they want a frictionless omnichannel experience, only 7% of retailers currently provide that.
3. Many small businesses have moved to online-only storefronts.
In addition to adding an online store to their offline one, many businesses are also moving to a fully online presence.
It is far more cost efficient to run an online shop than have a brick-and-mortar store, so small businesses and direct-to-consumer brands are getting their start online only before diversifying into offline markets and their own storefronts.
Digital transformation is no longer a nice-to-have. In the digital age, it’s an imperative for everyone from small businesses to enterprises. Understanding what that means and how to implement it for your business is the key to competing in the current technology and customer-driven landscape.
Business leaders who embrace transformation have to consider current operating models, processes, and technologies. They have to be willing to both innovate and experiment to outpace rivals who are also adapting.
When done well, digital transformation benefits a business by making them more efficient and better aligned with customer expectations.
A business that truly embraces digital transformation is one that will be agile and flexible in the face of what’s next.
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