What Is Digital Transformation?
Digital transformation is as much a cultural and business transformation as it is a technological one. It is a fundamental rethinking of customer experience, business models, and operations. It’s about finding new ways to deliver value, generate revenue, and improve efficiency.
In the first of the four Industrial Revolutions, steam power was the disruptive technology that changed the world. In the second, it was the assembly line; in the third, it was the computer. Today, we are in the fourth Industrial Revolution and it is digital. Intelligent digital technologies like AI and machine learning, Internet of Things (IoT) networks, advanced analytics, and robotics have the power to reinvent how we work and do business – and how companies engage with their customers and the world.
Modern digital transformation takes existing business processes and systems and integrates a digital technology stack that is customized for the unique needs and goals of each business. Digital transformations are business transformations – they begin with good communication – with clear goal-setting, strong leadership, and solid change management strategies.
The evolution of digital transformation
In the pre-digital business era, documents and images were shared on paper and produced by manual means. As a result, corporate data generation was minimal. But with the rise of e-mail and word processing – and the launch of the World Wide Web – data volumes began to burgeon. Digitization was in full swing. In response, tech industries raced to produce more memory, faster processing, and increasingly useful and relevant hardware and software solutions – and thus began the rise of the modern digital enterprise.
Today, intelligent business technologies have evolved to where they not only automate all the processes and devices across a business, they also deliver powerful analytics and real-time insights on the best ways to optimize and improve those processes, every day.
Core technologies for digital transformation
Intelligent technologies are built for integration – with each other and with existing processes. New devices, modules, or applications can gradually be integrated into the tech stack – becoming part of the cross-business network. And if the business model changes or an unexpected risk or opportunity rears its head, an intelligent network can automatically adapt to deal with it in real time (and use predictive analytics to anticipate it in the first place).
Modern ERP and database technologies
The best cloud ERP solutions use in-memory database technology, making them highly scalable and adaptable. This is important because they are essentially the “brains” behind digital business transformation. ERP takes all the core processes needed to run a company (such as finance, HR, manufacturing, and supply chain) and integrates them into a single system. And when a modern ERP is powered by AI technologies, it has the power to not only manage and process Big Data, but to analyze and learn from it.
In order to deliver value, data needs to be harnessed and understood. Using AI and machine learning algorithms, advanced analytics provides insights and reports that are deep, accurate – and actionable. Businesses can also customize data analysis configurations on demand. This gives business leaders the power to act quickly and decisively – by seizing an opportunity or responding to risk.
IoT network data, video feeds, and social media content all contribute to the growing data sets that modern businesses have to manage. To manage these expanding data loads, companies need to know they can ramp up their memory and computing power, and are increasingly relying on cloud solutions to do so.
AI and machine learning solutions
Big Data grew up alongside AI and machine learning. In order to process and make sense of Big Data, it’s necessary to have the power of AI and machine learning. For AI and machine learning to deliver accurate and meaningful results, both must have large enough data sets to support robust learning and analysis. The partnership of Big Data, AI, and analytics is at the core of business and digital transformation – driving predictive planning and responsive automation.
Internet of Things
Devices and machines in an IoT network can send and receive digital data. Machine logs and maintenance reports are analyzed to optimize performance and efficiency. AI-powered business systems continuously analyze this information for patterns, trends, and correlations. These insights help drive predictive maintenance and automated workflows, increasing efficiency and productivity over time as the machine learning applications “learn” from the IoT data.
Robotics and robotic process automation (RPA)
Both robotics and RPA use automated processes to accomplish repetitive or pre-programmed tasks. Robotic devices are comprised of moving, mechanical parts set to execute specific, physical tasks. RPA processes are similarly programmed and automated – however, they exist as software processes rather than physical devices, and the tasks they perform are administrative in nature.
Three steps of a digital transformation strategy
- Digitalize manual processes
Digitalization requires intelligent technologies to be integrated into existing business processes. First, analog documents and assets must be converted into digital data. Then look for ways to optimize your processes. For example, to integrate existing devices and machines into an IoT network, gateway devices and sensors need to be installed. Other devices such as virtual reality (VR) wearables can also be incorporated to augment human processes such as customer service and inventory management.
Part of this process is to ensure your business runs ERP and planning systems that are equal to the upcoming tasks. The best ERP solutions are powered by AI and machine learning, and run on fast and scalable in-memory databases, which makes the next step easier.
- Incorporate intelligent technologies
Technologies like AI, machine learning, and advanced analytics power sophisticated data analysis, real-time automation, and complex learning algorithms. But it’s not just about the technology. To best leverage the insights and capabilities, businesses must have the upskilling and reskilling strategies in place, to ensure their teams can make the most of these intelligent technologies, and bring the most value to their roles and workflows.
- Manage cultural change
A recent Harvard Business Review survey finds that 63% of executives rank cultural challenges as the biggest impediment to their digital transformation efforts. The most successful transformations occur when businesses embrace the fact that change can be hard. People who have been used to doing things and understanding things a certain way (for maybe decades) will need support to not only appreciate the potential benefit of these changes but to adapt their workflows and habits to make the absolute most of them.
Digital transformation benefits
Digital transformation integrates every level and function in a modern business. Intelligent technologies give organizations the essential tools they need to survive and thrive.
- Deep insights to inform real-time decision-making: For many businesses, assessing performance and ROI has often been a backward-looking process. By the time data is gathered, processed, and manually analyzed, the ship of opportunity has long since sailed. With modern ERP and advanced analytics, businesses can see real-time data and customize powerful analysis algorithms to make the best decision in the moment.
- Improved efficiency and productivity: IoT network devices and machines continually transmit data, machine logs, and performance reports. Through the application of advanced analytics, this data can support predictive maintenance and lowered downtime and deliver insights for more productive and efficient workflows.
- Enhanced customer experiences: Your customers want their needs met on their terms. Personalization, omnichannel access, customized service plans, and real-time access to data can help you deliver to their expectations, while helping you increase leads and drive retention and loyalty.
- Increased resilience: Improved resilience and greater agility are two of the most powerful motivators for digital transformation. In 2020, the consulting firm BCG published a paper that talks about how the pandemic called attention to existing operational weaknesses and how businesses are more motivated than ever to embrace digital solutions as a means of delivering greater resiliency and flexibility.
- Sustainability: Digital transformation gives businesses the tools they need to achieve their sustainability goals. Smart technologies allow companies to capture and analyze complex data sets from all areas of their global operations. With these insights, businesses can assess processes such as raw materials sourcing, fuel efficiency, shipping and logistics practices, and much more. Using the power of AI and modern business systems, companies can build supply chains and business models that are predictive and resilient, and that grow increasingly more sustainable and transparent over time.
Digital transformation in business sectors
Whether their customers are governments or online shoppers, the best businesses are turning to digital transformation to help them build value, loyalty, and retention.
Supply chain, procurement and manufacturing
In a report from July 2020, Gartner points out that if businesses are to thrive and optimize their supply chains, “They must look to innovative technologies that have the potential to disrupt supply chain operating models and provide a competitive advantage.” Digital transformation in supply chains and manufacturing provides centralized visibility – from raw materials to end customers.
Service industries and HR
In the past decade, digital technologies have been driving change in the workplace. VR, chatbots, and mobile devices are customizing the onboarding process. Blockchain is securing the privacy and accuracy of information. Machine learning is helping to eliminate bias and ensure that businesses are champions for diversity and inclusion.
Digital technologies in healthcare have a complex workload. Research and diagnostic programs rely heavily on AI and machine learning. Surgical and medical devices require the speed and accuracy of powerful cloud and database technologies. Patient care and support looks to improve mobile and monitoring options so users can feel safe and confident with self-serve mobile technologies.
A 2020 JD Power report states that: “…it is safe to say we’ve reached the tipping point, where banks that get their digital formulas right are seeing strong gains in both adoption and satisfaction.” Digital transformation in the financial services sector delivers customized and hyper-personalized services, better mobile functionality, and free remote access to more complex services such as financial planning and credit management.
Digital transformation in retail can automate and optimize logistics networks – customizing and speeding up delivery. And as in every consumer sector, the growing demand for personalized services is also driving digital innovation. A recent Epsilon study saw 80% of shoppers more likely to choose a retailer that offers personalized services – including 24×7 chatbots, personalized product suggestions, predictive recommendations, and fluid omnichannel mobility.
The automotive industry was an early adopter of manufacturing robotics and digital automation. But as one of the world’s most competitive industries, many of its latest digital innovations relate to customer service and retention. Personalization and driver interface applications provide safety and enjoyment to the driver and give the business valuable data to help with more accurate product development, marketing, and customer experience provision.
Preparing for digital business transformation
In a challenging business climate, companies need to seize every competitive advantage – and increasingly, those advantages are digital. By 2018, over 89% of executives had adopted a digital-first business policy. At the start of 2020, that number had only grown. However, the fact is that many digital transformation projects get stalled. But it is not the technology that challenges the process – it’s the strategy. Misaligned goals and poor communication are the leading causes of slowdowns in this process.
- Determine your starting point. Audit your existing systems and assets. Which machines are already digitalized? Which ones will require IoT gateways? Is your ERP modern and scalable, or is it still running on disk-based database memory? To give your project an early leg up, look first for processes within your business that are a high operational priority and have the least complicated path to transformation.
- Define your priorities. Don’t plan a marathon before you’ve even made it around the first block. The beauty of digital transformation is that it does not have to happen all at once. Like building blocks, smart technologies are designed to evolve, scale, and integrate. Ask your software provider about business transformation services and how they can help you get started.
- Build your roadmap. A significant benefit to smart technologies lies in their immense scalability and capacity for rapid adaptation and reconfiguration. A great transformation roadmap should allow for agility and growth, but start with a roadmap that has a few strong and attainable goals. Build solid change management and migration strategies into your plan as well – digital transformation is as much a human journey as a technological one. These are important early steps. Look for support from specialized professionals who understand your unique needs and can help chart the best course for your business.
- Prepare your teams. Thoreau said, “Things do not change; we change.” Smart technologies can help reduce repetitive and tedious tasks, improve employee engagement, and support collaboration. But these benefits can only be realized when all your people are on board. Don’t spring the news on your teams. Learn from their input and ideas, openly address their concerns, and give them time to change. Help your teams to change so they’re ready for new technology.
Digital transformation success stories
Across all sectors, companies are benefiting from successful digital transformation initiatives. Check out the transformation journeys of these companies and see how they have optimized their business models.
FAQs: Common questions about digital transformation
Digital transformation is a business transformation and a company-wide change management project. When digital transformation projects fail or stall, it is seldom a technical problem – it is almost always a cultural one. In reports and articles from McKinsey and others, we learn that poor planning, misaligned goals, and unclear strategies are the cause of the bulk of transformation setbacks.
In their fifth annual “State of Digital Transformation” report, the Altimiter research group finds that typically, the bulk of ownership is shared between the CIO and the CEO. But as digital transformation is no longer seen as an exclusively technological initiative, businesses are starting to rely more upon internal business process specialists to ensure that digital technology integrations have the best benefit for all.
Of course, this varies from business to business, but for most companies, a modern AI-powered ERP with an in-memory database is at the center of any digital enterprise. Within the ERP system are the brains that analyze, direct, and process all the data and information from across the business.
Start simple by choosing a few key metrics that are most important to your specific industry and organization (lead acquisition, manufacturing productivity, predictive planning). Figure out where you are today on those criteria, set realistic target goals, and measure again at fixed points in time.
Unlike software upgrades of the past, digital transformation is not an isolated IT project. Digital transformation affects all areas and functions in a business and requires technological and cultural adaptation and resilience. Before this kind of project, reach out to your software vendor to ensure you are getting the best (and best suited) business transformation services for your unique situation.