What is digital transformation in business?
Before embarking on any transformation led by technology, it is important for everyone — from the CEO to middle management — to know the answer to this question.
Digital transformation is a very broad topic, and it covers a number of different types of initiatives. But, what it boils down to: is changing how a business interacts with customers and employees using technology; and also using technology to significantly improve internal processes, by making them more efficient.
Digital transformation in business has two basic parts: there is the customer-facing and then the internal aspect to it.
What is digital transformation then? Well, it is the digitization of both internal and outward-facing processes via technology, which help a business improve operations and combat the growing threat of disruption — which during the coronavirus pandemic, could be the most useful of allies.
The beginning of digital transformation: Step by step
To be successful with digital transformation, “the starting point has to be the customer,” according to Nitin Seth, CEO of Incedo — a technology solutions provider.
Beginning digital transformation starts with “knowing who your customer is, how their needs are changing, and what you now need to offer them,” he continues.
To understand this we need to look at a case study, Fidelity for example. Historically, the asset management company would sell through advisers. But now in the digital economy, there is the opportunity to sell to the investor and consumer directly, and you can bypass the adviser. This is a good example of what the digital economy can do.
In the digital economy, the customer is changing from the intermediary, that is the adviser, to the direct consumer and that’s what businesses, in this case, Fidelity, need to think about: how do I engage the direct consumer, what are their needs, what is it I can offer to them?
This is step number 1, says Seth, “which is really understanding how your industry value chain is changing, who your customer is and what you are offering to them”.
From there, step number 2 is to “anchor the entire digital transformation and some business KPIs on some numbers,” continues Seth.
The problem with digital is that it’s all-pervasive and that’s a huge opportunity, but it’s also a problem. It’s very easy to get lost with the digital transformation initiatives. It is necessary, therefore, to anchor the initiatives and define some business KPIs. Is it about revenue growth, is it about higher customer engagement, is it about customer retention, is it about product upsell? Having some numbers on which you can anchor the digital journey will keep you focused, because it is very easy to lose focus in a digital transformation initiative.
Step number 3 is “really around data,” says Seth. “Data is the secret source of the digital world.”
“The great opportunity you have with digital is that for each customer you can optimize the offering. So one of my clients, one of the largest telecom companies in the US, I asked them how do you look at segmentation? And they said that we now have 130 million segments, because each customer is now well identified. You can identify each customer and can customize the offering for each customer. That’s the great possibility with digital and that is really made possible through data. That’s the third step, which is how do you figure out, how do you solve your customer problem, what data is needed and how do you make that data available?”
Step number 4 is “organizational implication”. By its very nature, digitization tends to be cross-functional; it is not about just IT or marketing, it’s about many of these functions coming together. The question is: how do you organize your business, so that you’re able to execute on these cross-functional projects?
And finally, the beginning of digital transformation in business concludes with step number 5, “which is a strong belief of mine, and what I call the two-speed strategy,” says Seth.
“Digital projects, if you implement them as a big bang, the chances of failure are very high and that’s a common theme: while the promise of digital is very high, the success rate is not very high. The way to execute them is what I call the two-speed strategy, which is focused on specific use cases within an organization [small wins]; don’t make it too pervasive, focus use cases and as you’re doing that, as you’re implementing them, base your platform along with that, as opposed to trying to do it across the whole organization.”
So, to begin a digital transformation project, start by identifying the customer problem; define the business KPIs; figure out the data; bring different organization functions together; and start with very specific use cases.
Who should lead digital transformation?
Before addressing how to lead digital transformation, it is important to understand who should lead digital transformation in the enterprise; because this is becoming an awkward problem for organizations.
Should the CIO, CEO or CTO lead the change, or should a new role be created? It is a tough battle that often creates friction. No one person can really lead digital transformation fully, because digital cuts across marketing, technology, operations, and finance — as mentioned, it is pervasive. The moment that any one person tries to lead it, therefore, creates a problem.
The creation of new roles also doesn’t wholly address the challenge. For example, the chief digital officer is emerging, but the role is not fully empowered. The CIO and the CMO roles still exist, so the chief digital officer still depends on them, and “it ends up being like a cosmetic role,” explains Seth.
Those approaching this issue of digital transformation leadership should look towards the digital natives — the likes of Google, Facebook, and Amazon — and see how they have done it.
“If you ask these three companies the above question, they would never say that they’re going through a digital transformation and the CIO is leading it or the CMO is leading it — “the entire company is organized around delivering on customer problems,” according to Seth. “The product manager should be the one leading specific initiatives for different customer problems. At somewhere like Google, you will see hundreds of product initiatives and hundreds of product managers. And each is organized around a customer problem,” says Seth.
“I strongly believe that that’s the way to go; that’s the way to go for legacy enterprises to really succeed in digital. I think the heart of the problem is actually about organization structure. They need to reorganize themselves into this product-based structure, which is a cross-functional structure and organized around customer problems. This is how the digital natives have done it and I think the time has come for legacy enterprises to adopt the same philosophy.”
How to lead digital transformation?
There are a number of key attributes that leaders (or product managers) need to possess, to make a success out of digital transformation. The first is having a deep customer insight. In any business, the customer is king. In the digital economy, this philosophy becomes even more critical. A deep understanding of the customer, what they need now, and what they will need in the future is the most important starting point in understanding how to lead digital transformation.
The second is the ability to understand both technology and business. This will require a new breed of leader or manager, who is equally comfortable with technology and business. This tends to be an issue in the large legacy enterprises where the IT function doesn’t necessarily understand the business, and where there are business functions that don’t understand IT.
Being able to bridge these two worlds is essential, and is becoming a requisite of roles, such as the CIO, CTO, and product manager. There are more aspects, but a deep customer understanding and the ability to bridge both IT and business are the key attributes of these product managers leading digital transformation.
The technology enabling digital transformation
There are four technologies enabling digital transformation: data science, AI and machine learning, automation, and the cloud. These are the four pillars, or the four key emerging technologies covering digital, and each has a certain role to play.
“Data science to me is at the heart of digital,” says Seth. “That is how you are able to optimize the specific customer journey and internal processes.”
He continues: “The power of AI and machine learning is at the core of personalization, necessary for enhancing the customer experience on an individual level. With machine learning, what is happening is that the role of data is moving from insight to action.”
Automation brings a lot more efficiency to internal processes. As mentioned earlier, ‘what is digital transformation in business’, surrounds internal, not just external. The optimization of internal processes is where automation technologies, like RPA and intelligent automation are making a big difference.
Finally, the cloud enables digital transformation, but this is more on the infrastructure side. Embracing the cloud makes entire infrastructure and applications a lot more scalable. “The thing with digital is that your demand could grow very significantly and cloud provides you a scalable and efficient way of building your infrastructure,” confirms Seth.
Digital transformation: Succeed or crumble
Digital transformation should be a strategic priority.
In the digital economy, customers are getting a very different value proposition to what they did before. If businesses do not shape up, it’s a question of survival and probable, extinction — especially given the current situation with the coronavirus, which has forced businesses to embrace digital alternatives to their usual physical operations.
We have seen it very vividly play out in the retail industry; the likes of Kmart and even Walmart in the US and others all over the world being severely challenged by the likes of Amazon. “I think that’s a trailer of the movie that’s likely to play out in industry after industry, simply because the customer is getting a value proposition from these digital companies which is an order of magnitude superior, lower cost, higher convenience, and better customer service,” explains Seth.
“If you do not embrace the digital, as a legacy enterprise, you do not offer it, you will be dead.”
“One of the ways to ensure success for legacy enterprises is to connect from strategy to execution. The way digital transformation companies are structured today is that you have either strategy consultants or IT execution shops — this is a problem. Digital is a space where if strategy and execution are not integrated, not connected, then the chances of execution failure are very high. This is a key point.”