Digital transformation. Everyone seems to be doing it – even more so during the pandemic – and you’d be right in thinking so. Companies made record-breaking investments in digital transformation last year, spending 65% more than in 2020, with the pandemic speeding up digital transformation by several years in a matter of months.
Digital transformation can mean many things to different businesses. For some, it might be transitioning to a remote-first workspace or upskilling employees to use new digital tools. For others, it could be implementing artificial intelligence to improve efficiency, modernising IT operations to cloud computing, or switching from manual paper-based processes and spreadsheets to an automated digital system. But fundamentally, it is about adopting digital technologies to change how a company operates internally or delivers services to customers. Moving from analogue to digital.
The benefits of digital transformation are wide-ranging. In one survey, executives said the top benefits of digital transformation are improved operational efficiency (40%), faster time to market (36%) and the ability to meet changing customer expectations (35%). In another study, 80% of organisations that have completed their digital transformation reported increased profits and 85% said they increased their market share.
If you’re reading this now, there’s a good chance you’re thinking about embarking on a digital transformation of your own. This might feel big and scary if it’s not something you’ve done before – especially if you’re a small or medium-sized business. Thinking about factors such as time, resource and cost, perhaps it could even feel like an impossible task. But at Dial A Geek, we know that isn’t true.
Which is why we’ve compiled this ultimate guide to tell you everything you need to know about digital transformation, how to get started and how to avoid any potential challenges along the way.
Digital transformation in the post-covid era
It is widely recognised that the coronavirus pandemic has had a significant and long-lasting impact on digital transformation. In the first year of the pandemic, a study by McKinsey found companies had accelerated the digitisation of their customer and supply-chain interactions, and of their internal operations, by three to four years, while the share of digital products in their portfolios had accelerated by a whopping seven years.
A follow-up survey reinforced just how much Covid-19 has fundamentally changed the pace of business, highlighting that companies with the strongest “tech endowments” are operating at an even faster pace. What was once considered best-in-class speed for most business practices in 2018 is now actually slower than average.
Moving into the post-pandemic recovery, six in 10 senior executives believe digital transformation will be critical for business growth. For many, this means adopting new strategies and practices, making changes to business models and operations, and ensuring employees are supported to keep up with the pace of change, too. Let’s explore some of the ways digital can transform various parts of a business.
The key areas of digital transformation
There are four widely recognised areas of digital transformation, although a fifth is increasingly becoming a key focus area for many businesses for reasons you’ll discover below.
A business process transformation is considered to be a more radical type of digital transformation that involves making significant changes to existing elements of processes – such as functions, workflows or technologies – in order to achieve new business goals. These goals are usually centred around implementing new digital technologies and capabilities, which sometimes involves a complete overhaul to replace existing legacy systems with automated processes.
This kind of transformation is usually driven by external factors such as compliance regulations and changes in the economy, so it is important to understand the context you are working within before embarking on the transformation. Think of a business process transformation as a long-term project that will be best achieved with a robust and detailed plan in place. We’ll be talking more about creating a digital transformation strategy in a later section.
Business models ultimately determine how an organisation creates value, makes money and achieves its strategic vision. So when thinking about this in the context of digital transformation, a business model transformation is about using digital technologies to reinvent business models to create new value and find new opportunities for growth.
This makes it a key driver of disruption. Take Netflix and Uber, for example, both of which used digital technologies to meet evolving consumer needs and transform the industries they operate within. They spotted a gap in the market and used digital to fill it.
Domain transformation is when a business uses digital technologies to help it effectively transition into another industry. This kind of transformation has gained more attention in recent years, with a combination of new and existing technologies increasingly blurring market boundaries and making it possible for non-traditional competitors to extend their products and services into new markets.
Amazon is often cited as a prime example of domain transformation with its expansion into streaming (Prime) and web (AWS) services. A space formerly dominated by the likes of Microsoft and IBM, Amazon Web Services is now the largest cloud computing / infrastructure service and accounts for almost 60% of the company’s annual profit.
Cultural / organisational
Cultural transformations are about making sure everyone is on the same journey and that no one gets left behind. Employees are key to driving change and so a fundamental part of digital transformation is ensuring employees have the skills, capabilities and talent needed to thrive in the digital world.
This might mean investing in digital skills or new talent, fostering open work environments that encourage communication and collaboration, and regularly reminding everyone of the purpose of the transformation. All of this feeds into a company’s overall ability to improve processes, productivity and efficiency in the long-term.
Digital transformation of the customer experience is becoming a key focus point for many businesses in line with the integration of digital technologies into customer service models, such as artificial intelligence and chatbots.
When looking at the numbers, it is perhaps no surprise that businesses are investing more and more into customer experience transformation. According to McKinsey, a fundamental change of mindset focusing on the customer, along with operational and IT improvements, can generate a 20-30% increase in customer satisfaction, a 10-20% increase in employee satisfaction and economic gains ranging from 20-50% of the cost base addressed in the various journeys.
Case study: Microsoft’s digital transformation
There are hundreds of examples of successful digital transformations, but Microsoft’s is a great one to look at as it involves a number of key areas of transformation that everyone can learn from – whether you’re a multi-billion pound global business like Microsoft or an SME operating on a much smaller scale.
Importantly, it recognises that IT is directly engaged in business value, and that it is up to IT leaders to help drive innovation across the full range of their company’s operations – whether or not the IT organisation owns the technology.
Let’s take a look at the four pillars Microsoft identified as the core drivers for its roadmap to digital transformation and some of the benefits of each. We hope this will get you thinking about how you could apply these to your own transformation.
In a hyper-connected, digital-first world, Microsoft wanted to get a consistent, 360-degree view of its customers across all touchpoints and channels. This led to the creation of its Global Engagement Program, which aimed to provide always-on, connected experiences with contextually relevant and personalised information to “actively nurture customers to conversion and ongoing usage and engagement”.
This was achieved by using marketing automation tools for demand generation and email marketing, its cloud computing service Azure for data management, and a host of various analytics capabilities: Azure Data Lake, SQL Azure, Azure ML, Azure Stream Analytics, Power BI… all of which contributed to an enhanced customer experience, increase in customer satisfaction and a reduction in operating costs.
Microsoft echoes the critical role employees have to play in driving transformation: “Organisations can’t digitally transform unless their people do. Digitisation and automation are outpacing organisations’ skill level and the workforce’s ability to become proficient with new technologies.”
There were two key elements to Microsoft’s cultural transformation. The first focused on improving its remote work capabilities and mobile technologies to enable Japanese employees to work anywhere at any time. The launch of its telework initiative has since gained Microsoft Japan 3,281 productivity hours and made real-estate savings of $10,000 per year per employee.
The second element involved altering its approach to managing employee performance and development. This led to the creation of a cloud-based, self-service HR portal that allows employees to update personal information and managers to track and approve HR transactions, which Microsoft says has both increased productivity and made cost savings.
The Internet of Things (IoT) has been integral to Microsoft’s operational transformation, enabling the company to improve the utilisation of buildings and office space by learning more about how, when and what types of public meeting space employees are using.
By deploying low-cost IT sensors to learn more about the work environment and optimise resources, Microsoft was able to capture input from motion, sound and temperature sensors in each room to learn about room occupancy, noise level and temperature. Employees are able to see available rooms with the right attributes via a central dashboard, while data science helps to predict which rooms are never used – therefore optimising energy efficiency.
Microsoft has used digital to transform many of its products. Perhaps most notably is how it used data to help it enter new markets with the launch of its first digital assistant, Cortana. By combining 10 years of Bing search assets and technical capabilities with foundational technologies like natural language processing, Microsoft was able to bring its own AI assistant to market to rival products from Google, Amazon and Apple.
A great example of domain transformation.
How to start a digital transformation in five steps
Having looked at the different types of digital transformation and some examples of real-world application, perhaps you’re feeling inspired and wondering where to begin. We’ve broken the process down into five, easy-to-understand steps which should help you on your way.
- First and foremost, it is crucially important to identify your objectives and / or motives for the transformation before anything else. Start by asking yourself: what are you trying to achieve and what does it mean for your business? Consider key factors such as the industry you work in, who your competitors and customers are, and what some of the challenges of the transformation might be.
- Once you’ve answered all of those questions, you will need to carry out a thorough audit of your current processes and systems to clearly establish how your organisation works, how it is structured and how it operates. Look at your internal capabilities to identify the gaps and opportunities. Here, you will need to decide whether you have the talent you need to undertake a digital transformation or if you will need to upskill internally or source externally.
- Next, it’s time to create a detailed digital transformation strategy with clear actions and KPIs. Outline where you will start, how the transformation will progress over time, and how you will measure your progress and success. Make sure you include any risks and how you might be able to mitigate them, too.
- Once you’ve got all the formalities in place and your strategy has been approved by all the relevant stakeholders, you will now need to prepare the most important people in your transformation: your employees. Make sure they understand the business objectives and ultimate goal of the transformation. Give them the opportunity to ask questions and raise any concerns they may have.
- You’ve got everyone on board and are ready to go, but you’re not sure what to do first. Small-scale lighthouse projects that focus on fast delivery with manageable risk are usually a good place to start because they help demonstrate the benefits of digital transformation to the organisation early on. This will help to create a positive culture, boost morale and build momentum, ultimately adding fuel to the long-term transformation.
Navigating the potential challenges of transformation
While digital transformation comes with the promise of revolutionising companies’ ways of working, they can be complex undertakings. That’s because they are not only about adopting new technologies and processes; they are an entirely new way of working and require a huge shift in mindset across the board.
This is perhaps why only 16% of executives say their company’s efforts are succeeding. In our experience, some of the most common barriers to digital transformation may be:
- lack of a clear strategy
- a lack of the skills, resource and capabilities needed to drive the transformation
- software and technologies being too complex, resulting in them being difficult to implement and understanding how they work
- budget constraints
This is why it is so important to identify your objectives and motives prior to launching a transformation. It is worth considering whether your business would benefit from hiring a chief transformation officer, change management team or new talent to spearhead the transformation. They could help with the day-to-day running of the transformation while the rest of the team is free to focus on business-as-usual duties.
If hiring new talent is off the cards for whatever reason, then take the necessary steps to ensure existing employees have the skills they need to support the transformation. And if budget is tight, make sure you have funding and / or investment secured before you start trying to make changes. If you’re a small UK business, Dell has compiled a handy list of grants you can apply for here.
Our team of experts can also advise and support you with anything digital transformation-related. Whether you’d like to talk more about how digital transformation can benefit your business or would like some help creating a strategy, we’re here to help whenever you need it.