You hear the word “Digital Transformation” across most departments of any organisation irrespective of their size, nature of business and geography they operate in. But few questions persist amongst a lot of people with regards to this jargon.
What exactly is the meaning of Digital Transformation?
Why there is so much focus on it over the past few years?
Is it the same as IT Transformation?
So, let’s first understand the difference between IT Transformation versus Digital Transformation.
IT Transformation has been a popular term being used across organisations for over two decades, triggered mainly by Y2K and the internet era. The main focus of organisations initially was to use technology to automate business processes. Examples are automating HR, Finance, Manufacturing, Customer Relationship Management and several other processes by using products such as PeopleSoft, SAP, MS Dynamics, SalesForce, etc.
The benefits of automating these processes were to eliminate inefficiencies, allow seamless data flow from one process/system to the other and improve the speed of delivering services to its internal and external customers. Over the years businesses have grown/evolved and with this growth, the existing IT systems needed an overhaul. Upgrading or migrating to new platforms, upgrading the hardware technology, improving information security, etc was termed as IT Transformation.
Digital Transformation on the other hand is guided by the broader business strategy.
Strategy, not technology, is the main driver for digital transformation.
Digital transformation involves using technology not just to replicate an existing service in a digital form, but to use technology to transform that service into something significantly better. More often focussed on driving revenue growth by ensuring a more customer-centric approach.
A simple example of this digital transformation is Google Ads.
Google’s initiative to help businesses set their own budget, design adverts using self-service capabilities, define the target audience and then track your advertisement’s performance in real-time to help you fine-tune the advertising campaign.
In this entire journey, there is no human interface with any Google staff and an individual business, either small or big, can manage this from the comfort of his/her desk. With so much information available on the world wide web, searching for information is not easy and with Google being the most favoured search engine, businesses want to ensure that they are listed on the top of Google search to ensure they generate leads and business.
Google has exploited this opportunity and commercialised it effectively. Now Ads that pay Google for the relevant keywords appear on the top page of your search.
Also, remember that IT Transformations are CIO-led initiatives as these are confined to the technology landscape, but Digital Transformations are CEO or Board sponsored initiatives because it triggers a change in your business models.
There are several other examples of world-renowned brands that have digitally transformed to improve revenue and overall shareholder returns in the long run.
Nike, a world-known brand for shoes and athletic clothing, also felt the need to reinvent itself a few years ago. But the immediate natural question coming to our minds is, what can Nike achieve from digital transformation? Is it really relevant for brands like Nike? But the management embarked on its digital transformation journey with an aim to reinvent its brand and supply chain.
Nike’s digital transformation goal was to jump over the middlemen and improve its connection with customers through membership opportunities, stronger digital marketing and powerful data analytics. With the help of the digital transformation journey, instead of selling through other vendors, Nike started selling more directly to customers and partnered with Amazon for an updated e-commerce strategy. Using advanced analytics derived from consumer data-enabled Nike to connect with customers and recommend the right products.
With the use of digital technology aptly, Nike is able to fast track product development cycle, which in turn allows it to launch new products quickly, respond to and set trends and control the number of items to produce. A large part of Nike’s brand is the on-purpose creation of short supply for some of its shoes to generate demand and the coolness factor it creates using social media marketing & presence amongst the target audience globally.
Nike’s digital transformation is ongoing as it pushes for innovative ways to connect with customers and get a leg up on the competition.
At the beginning of 2017, its stock price was $52; it’s now up to nearly $99. In that same time, revenue increased from $33.5 billion to $39.1 billion. Due to the Covid-19 pandemic, like every other business in the world, they have suffered an unexpected quarterly net loss and a sales decline of 38% year-over-year. But the good news is that digital sales soared 75%, representing about 30% of total revenue.
Digital transformation has proven to deliver a positive impact on financial performance.
As per an article from Deloitte titled “Uncovering the connection between digital maturity and financial performance”, “Digital maturity’s impact on financial performance comes from enabling improvements in efficiency, revenue growth, product/service quality, customer satisfaction, and employee engagement—as well as by promoting a greater focus on growth and innovation.
Successful digital transformation requires the coordinated integration of technology-related assets and capabilities—which we call ‘digital pivots’ (click this link for the Deloitte article)—across an entire enterprise.”
Digital transformation is not simple but a complex process. Developing and implementing the right business strategy for your organisation can be one of the biggest hurdles to digital freedom.
Digital strategies need to focus on both the online world and bridge the gap between the online and offline worlds. For example, Manchester City FC has previously experimented with augmented reality (AR), using the technology to create immersive and interactive match day programs. In 2019, the football club has integrated AR into its stadium visitor experience, introducing an immersive tour in celebration of its 125th birthday.
Visitors of the tour will be able to use AR to ‘sit next to’ and ‘interact’ with the Manchester City manager, at the top table of a press conference. Alongside this, the tour includes 3D holographic content, and a 360-degree cinema screen – all designed to offer fans a truly immersive experience.
In another example, a home interiors-related app, Dulux Visualiser uses AR in a simple but highly effective way – to see what your walls will look like when painted a different colour.
Several major global and local companies have demonstrated successfully that those changes will not occur overnight but investing in digital transformation can make a large financial impact over time.
Digital transformation in your company could take a number of years to fully execute and realise full potential. The first step is to start small. Develop the ultimate vision, but then break the vision into a number of small tangible projects with measurable KPIs. Remember, even the longest journey starts with just one step. Take that first step, and as long as you know your end goal, the strategy to achieve it and what it will look like and feel like to your customers when you will get there. You won’t have to wait for the entire journey to be over to realise the business impact and financial benefits either. Every step you take improves an element of performance.
The road to implementing digital transformation is ensuring that your organisation is geared for embracing an agile workforce that is ready to adapt, upskill and embrace a collaborative culture, where people pool ideas and share expertise. Companies that are most likely to succeed in digital transformation are those with open minds that are happy to take risks.
Once you have put all the pieces in place, that’s when your organisation will be in a position to have a revenue generation machine that produces repeatable, sustainable, scalable and predictable revenue growth month over month as referenced in some of the examples above in this article. It’s going to take time, but when it’s all done, you’ll see the growth you always expected. But remember, there is always scope for improvement and you have to keep improvising your digital journey as you learn from your employees, suppliers, dealers, distributors, business partners and your customer’s experiences.
Organisations that evolve their business models with changing times and competition are the ones that survive the challenge and establish themselves as market leaders.
The fact that growing revenues and profits are the driving force of digital transformation makes perfect sense. Making money is why companies got into business in the first place. However, your competitors are watching you closely and learning from your success and failures.
Therefore, you need to stay ahead of your competition by adopting a continuous improvement culture. Change is the only constant!
Good article Akshay. It gives a detailed knowledge on IT transformation and Digital transformation and talks through how they are different with examples.
It was good reading Akshay!