What digital transformation is and is not?
The term digital transformation should, in fact, be digital business transformation to describe what digital transformation is all about. Digital transformation means the implementation of changes in the business through technology: How can we better serve our customers with digital tools? Technology is not the actual driver of the change, but rather how technology is used and how customers, partners, competitors and other stakeholders adopt it.
Digital transformation is accelerated by the so-called SMACIT technologies. The term refers to the social use of the Internet, the explosive growth of mobile use, the increased use of data analytics, the proliferation of cloud services and the utilisation of the Internet of things (IoT).
To identify the opportunities of digital transformation, the activities can be divided into three strategic groups, where the aim is to save money, make more money or create new money. Siemens Power Services reports that their digital transformation is mostly (60% of the transformation budget) focused on savings – fine-tuning the activities to optimise current processes, procedures and systems. The second largest part of transformation acts (30% of the transformation budget) is focused to boost the current activities (automation, generation of added value) with the aim of making more money. New business models, i.e. creating new money, takes up only 10% of the transformation budget. This is probably the prevalent situation in established organisations, whereas in start-up companies every activity is about a radical change, i.e. creating new money.
A mere technological change does not mean digital transformation. Instead, digital transformation is essentially related to value generation and the needs and strategies of customers, employees, competitors and other stakeholders. Digitalisation of things does not alter the business, it is the people that do it. Digital marketing is not a synonym for digital transformation, nor is the transformation from information on paper to a digital form. It must also be understood that digitalisation is not a patent solution: a process which does not work shouldn't be digitalised.
To whom does digitalisation concern?
Digitalisation, or the exploitation and adoption of new technologies, concerns all industries. Industries such as media and finance have already become digital. The second wave of digitalisation is now landing in manufacturing industry and B2B operating environments.
Digitalisation also concerns all business operations (marketing, production, HR, administration, customer service, etc.), and business ecosystems (partners, customers, competitors, authorities, etc.). Digital service platforms, services and data do not obey national borders, but rather are organised on the basis of the customers’ needs and benefits offered to them. Digital transformation is exponentially increasing the number of environments connected to one another.
Why should things change?
With digital transformation, companies aim to improve efficiency and obtain cost savings as the old operating models are renewed and replaced with digital alternatives. Additionally, digitalisation alters competition: digital technology paves the way for new business models and a new kind of value generation with which those leaning on traditional methods will find it difficult to compete with.
Along with digital transformation, the world has become more and more transparent – and people have become more impatient. As we have become used to using services like Google, all other services are also expected to function at a similar speed and ease. With this kind of operating environment and philosophy, customers only use the best services.
How to implement digital transformation?
No separate digital strategy is needed for digital transformation. What you need instead is a better strategy in which digitalisation acts as an enabler. For example:
- Internet is not the core of your e-business, but rather more efficient sales (enabled by the Internet and mobile solutions)
- The value of analytics is not in the data and machine learning algorithms, but rather in the supreme customer understanding, the optimisation of maintenance processes, or in doctors’ ability to make more accurate cancer diagnoses, for example
- Instead of RFID tags, IoT means the radical synchronisation of activities or alteration of business models.
To conclude in brief, follow this formula for digital transformation:
1. Get rid of silos!
2. Don’t go too far too fast – an incremental approach to progress is enough.
3. Don’t focus just on technological transformation but a change in your business as well.
4. Focus on leadership and the capability of the organisation – not mere technology.
Digital transformation is a journey, not the goal.