What is digital transformation, and why is it important for my company?

Digital transformation is a concept that is often spoken about in conferences. But much like AI, it’s become diluted and its meaning is vaguer than ever, to the point of a simple IT or cloud upgrade now constitutes as digital transformation.

The truth is that it’s much more grand than that - it’s a rethinking of how an organization uses its tech stack, its people, and its processes to all radically change business performance.

What is digital transformation?

Digital transformation is where you bring technology into all areas of a business - but done so for a reason, with the reason being how you operate and deliver value to customers. But importantly, it requires a culture that keeps on challenging the status quo and being willing to experiment.

It’s worth knowing the distinction between digitization and digitalization. Digitization is the move from analog to digital (a paper invoice to a PDF). Digitalization is the use of digital data to simplify how you work (like using that PDF to automate a workflow). Digital transformation, however, is the holistic leap that might use those newly digitized records and digitalized processes to create an entirely new revenue stream or customer experience - the data may open up new monetization methods or a new way to deliver value.

So a traditional logistics company might undergo digital transformation not just by adding sensors to its factory floor, but by using those sensors to implement more automated robots that achieve a same-day delivery service. From there, they may gather this data and also sell predictive maintenance as a service for secondary income.

Digital transformation matters more than ever

The driving force this urgency comes from customer expectation. Whether in B2B or B2C, customers have grown used to the speed and personalization being offered by larger firms. They expect the same level of service from their bank, their healthcare provider, and jut about everyone. Not being able to track your delivery in real-time, be it an international money transfer or flowers for Mother’s Day, is not good enough. If a company cannot use data to anticipate customer needs or provide more on-demand services, it risks becomine irrelevant. 

Operational efficiency is also relevant of course, as legacy systems are often siloed and slow.  Transformation breaks down these silos, which is admittedly a big project to undergo, but it then allows data to flow freely across the organization. Here, departments can better communicate, share insights, and make decisions much faster. Breading of a data-focused culture can also reduce department tensions and politics as they get used to being resolving conflict with data.

The three pillars of transformation

1. Technology: The tools and platforms like cloud computing and scalable architectures. These are the enablers that allow for new capabilities - it’s the replacement of infrastructure.
2. Processes: Implementing new tech into old, broken processes is a recipe for disaster. Organizations need to rethink their workflows to eliminate bottlenecks and get the most out of automation.
3. People: This is often the most challenging, surprisingly, because it means changing the mindset of many workers (who may have been there for a decade or two) towards innovation. Any resistance is a bottleneck on the potential of what can be reached with the new data and software.

The difficulty of legacy modernization

Established companies often have to get around the issue of technical debt which accumulates (the cost of maintaining outdated systems). These legacy systems can be fragile to integrate with modern tools. Of course, new implementation can also create new technical debt if it’s been poorly designed or has unclear code that is difficult to maintain.

Modernization isn’t always about rip and replace, which certainly can be disruptive. It must be well thoroughly thought through and planned, and it may involve wrapping legacy systems in modern APIs and migrating only specific workloads to the cloud. It’s not digital for the sake of it - only when it can deliver new efficiencies and leave you with more agility.

To achieve this, many hire consultancies and transformation experts like Accenture and Deloitte Digital - both of which are well-known for their broad scope and ability to handle massive, enterprise-wide organizational changes. Boston Consulting Group (BCG) is another heavyweight too, though these three are often suited to larger firms.

For a more agile and tech-focused side, companies like Making Sense focus on end-to-end software development and UX, especially for mid-sized firms, helping businesses execute their troadmaps. The likes of EPAM Systems bring engineering together with product design to drive this modernization.

Continuous evolution

Digital transformation requires measuring its own impact with KPIs. Its inherent quality is having richer data and being able to perform more analysis. So, this analysis can judge its own ROI and what value it has created. 

The goal will be to build an organization that is digitally native in its mindset. Outsourcing the implementation isn’t enough here, as it must welcome the change in order to leverage data to its full potential.