What Is Digital Transformation: A Comprehensive Guide With Examples And Best Practices

What is Digital Transformation?

The term "digital transformation" refers to a broad range of procedures and projects aimed at incorporating new digital technology into business operations and updating outdated IT/OT systems, workflows, methods, and business strategies.

The objective is to reimagine an organization in ways that prioritize the customer's needs while harnessing the power of digital technology to establish seamless connections with them. Digital transformations in business are, by their very nature, extensive initiatives that will alter how you think about people, processes, and even the organization’s culture.

Implementing new technological solutions is only one aspect of digital transformation; an organization’s culture, philosophy, and processes must also change to accommodate the digital era. A transformation in leadership and management style, an emphasis on data-driven decision-making, and a dedication to innovation and continual improvement are all necessary for this holistic and strategic approach.

Why is Digital Transformation Important?

Digital transformation is important for several reasons. Below are the aspects that provide a comprehensive overview of its significance. Let's review each of these.

• Customer expectations

Businesses and organizations in the modern world cannot ignore the need for digital transformation. In fact, it's a matter of staying in business and keeping up with the competition. Therefore, speed matters in digital transformation.

Customers have high expectations and want services and purchase experiences to run smoothly, be mobile-friendly, and secure as innovative technologies continue to be used across industries and market segments. Customers will disregard the product or service and go elsewhere if the business mechanisms in place are ineffective.



• Mobility

A new revolution has been brought in by touch-enabled devices (such as smartphones, tablets, phablets, and laptops) and by the widespread use of Wi-Fi and 3G/4G.

Today, we use mobile devices for all conversations, transactions, learning, sharing, and being. Whether an organization engages in B2C, B2B, B2B2C, or other permutations, the mobility revolution pushes huge changes across all industries. It is important to consider how those interactions and transactions are supported and affect the demand chain and, ultimately, the supply, the form factor, and the front-end user experience.

The new paradigm is - the mobile-first approach.



• Cloud

Businesses are quickly moving to the cloud, starting with storage and a few applications like customer relationship management (CRM), sales force automation (SFA), help desk, and human capital management (HCM)-type tasks.

Additionally, the transition to the cloud is affecting both mission-critical apps and core services. Instead of asking, "Why cloud?" the question is now, "Why not the cloud."



• Data Analytics and Big Data

Another major force behind digital business transformation is introducing big data and advanced analytics, such as decision and predictive analytics. Organizations cannot continue to operate in the past and rely on their gut feelings to guide their future actions.

Data and analytics are being used by many businesses to make decisions in real time. The foundation of how digital natives have an advantage over the big, established competitors in numerous industries is the data-driven judgments.



• Cognitive technologies and Al

DX is now required by RPA (Robotic Process Automation), networked devices, Machine Learning, Artificial Intelligence, and associated cognitive technologies. Techniques related to AI and cognition serve as a catalyst, enabler, and potential competitive differentiator.



• Digital disruptions

Some well-known brands from the Web 1.0 and 2.0 eras are among the digital disruptors and are now titans in the digital era. The digital disruptors turned giants extending their tentacles into many industry sectors: Apple, Amazon, Netflix, Facebook, and Google. The emerging disruptors, such as Uber, Lyft, Spotify, Airbnb, and others, should be added to the relatively old stalwarts.



• COVID-19

The COVID-19 epidemic and the ensuing economic upheaval fueled the digital transformation, which was already advancing rapidly. The pandemic significantly impacted customer behavior, threw off supply chains, raised the need for operational flexibility, and changed the focus of the organization's innovation efforts toward quickly adopting technology that supports remote work.

The COVID-19 pandemic has drastically altered the "what" and "how" of business objectives for DX. Consider the employee experience. Employees' use of digital technology has evolved from being a "nice to have" to the "only way work gets done" today when a sizable section of the workforce works remotely. It is now receiving the attention for fixing problems it probably deserved for a long time.

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Digitization vs Digitalization vs Digital Transformation

You are not alone if you believe the terms digital transformation, digitization, and digitalization are interchangeable and imply the same thing. Even though these three names refer to distinct processes, they are sometimes used interchangeably.

Here is a brief description of each.

What is Digitization?

Simply put, digitization refers to the initial phase of the DX process, which starts with transferring all corporate records and documents from analog physical formats and paper-based data carriers. Digitization is the process of moving all organization data and exchange methods from paper to digital formats.

Organizations transition to computers and digital files as part of digitization, giving up antiquated technology like fax machines, printers, and Xerox copying machines built with paper-based information exchange in mind.

What is Digitalization?

Digitalization is the next phase of the DX process right now. This phrase refers to using digital data to streamline information sharing, enhance workflows, and enhance business processes. It's vital to keep in mind that digitalization doesn't necessarily include changing business strategies or developing new kinds of business models.

It is restricted to using data in digital form and incorporating it into current business processes to make them as simple as feasible for all parties involved, from organization staff to end customers.

What is Digital Transformation?

The third and last stage of this process is DX. Organizational change, including the adoption of new business models, techniques, and workflows, is a part of DX. Additionally, it promotes the development of entirely new business sectors and market segments. Organizations must rethink every aspect of their business processes to adapt to the digital age, from management strategies, staff development, and customer relations to IT infrastructure and hardware options.

In other words, digital transformation involves utilizing new technologies to their fullest potential to fundamentally alter how work is done and improve overall efficiency, productivity, and corporate performance.

Benefits of Digital Transformation

The following are numerous advantages of DX for businesses that include:

• Improved customer experience

By enabling organizations to offer individualized and practical services, digital transformation can also enhance the customer experience. For instance, businesses can utilize data analytics to learn more about customer preferences and behavior, allowing them to customize their products and services to suit specific customer requirements.



• Enhanced productivity and efficiency

Businesses may automate time-consuming, repetitive processes thanks to DX, which frees employee bandwidth on more critical, strategic aspects. DX facilitates cost reduction, improved production, and efficiency.



• Opportunities for growth and competitive advantage

Businesses can gain a competitive edge through digital transformation by being able to innovate and react swiftly to shifting market conditions. The digitalization of corporate operations, policies, and responsibilities must be in place to yield more capital for the input made. An organization retains customers as a result of their everyday interactions with it. This may lead to expansion possibilities, fresh sources of income, and increased profitability.



• Enhanced employee satisfaction and engagement

DX can also increase employee engagement and satisfaction by giving employees the tools and technology they need to operate more productively and collaboratively.



• Making better decisions

Businesses can access a wealth of data thanks to digital transformation, which helps them make better decisions. Real-time data and analytics are part of this, which can assist organizations in reacting quickly to shifting market conditions and customer needs.

Examples of Digital Transformation

Here are a few of the most famous instances of successful and unsuccessful DX projects by top organizations in their respective industries.

• Bosch

A significant DX project has been executed at Bosch Automotive Diesel System (RBCD), an organization owned by the German engineering and technology multinational Bosch in Wuxi, China.

By implementing tool identification based on RFID (radio-frequency identification), embedding sensors into machinery, and establishing an IIoT network that connects all production components and gathers sensor data for real-time analysis, Bosch was able to significantly increase the efficiency of all operational processes at this factory, which produces high efficiency and low emission diesel engine parts.

"Having this data connectivity with our machines allows us to react much faster, be more Agile with regards to changeovers, our maintenance time, and our breakdown reactions, and with these technologies, we can get much greater insights into these pain points and that has allowed us to maintain the output that's required," said Stuart Brown, Director of Technical Function at RBCD.

He also mentioned that acquiring new people and bringing in new expertise, such as advanced IT skills and mathematical understanding, which are typically lacking in these factories, is the primary difficulty for manufacturers on the path to digital transformation.



• Procter & Gamble

One of the biggest consumer goods manufacturers in the world, Procter & Gamble, began an organization-wide digital transformation effort in 2012 to become "the most digital organization on the planet." The effort was arduous from the start because it lacked clear objectives and innovative approaches focused on results. Although Procter & Gamble withheld information about the project's losses, it is apparent that it was a multi-million dollar failure that forced the CEO of the business to step down.

Tony Saldanha, a former vice-president of Procter & Gamble, wrote a book titled "Why Digital Transformations Fail" based on his experience implementing this unsuccessful digital transformation project.

"What I discovered from that experience was that change management and how organizations rewire themselves are more often the cause of failure than the technology itself. Only 10% of the effectiveness of a digital transformation is determined by the technology used, while 90% is determined by change management or organizational culture.” - according to Tony Saldanha.

Types of Digital Transformation

Digital transformation cannot be accomplished with only one change. These four sorts of change must be addressed, and they are as follows:

Process Transformation

Here, we observe the emphasis on integrating technologies to modernize business operations. The objective is to boost output, enhance the experience for current and potential customers, and cut expenses. Process transformation is important because it can help the organization experience growth.

Technologies like data analytics, IoT, AI, machine learning, and many more provide a wealth of beneficial opportunities to reimagine operations and change how the business operates. Many businesses, like Airbus and Domino's Pizza, have adopted process transformation. By introducing Domino's Anyware, which enables users to place orders from any device, Domino's Pizza has completely redesigned its food ordering procedure. Users' convenience has grown significantly, which eventually helped the business surpass its rival (Pizza Hut).

Business Model Transformation

A more significant method of market disruption is a thorough overhaul of conventional organization paradigms. Technologies constantly update how a product or service is offered, and it is up to businesses to take the initiative to be the first in their field to adopt these updates. Since it has been demonstrated how a lack of innovation contributed to the downfall of once-dominant brands, an organization's focus on business model transformation can help it remain strong and relevant.

Business model changes are concentrated on the fundamental components of the industry's value delivery system. The best examples of this innovation include Apple's (iTunes) reinvention of music delivery, Uber's reinvention of the cab industry, and Netflix's reinvention of video distribution.

Domain Transformation

New technologies have the potential to reinvent products and services, blur the lines between industries, and give rise to totally new non-traditional competitors.

In other words, new technology can open up possibilities for your organization beyond those already available.

Amazon is a prime example of domain transition. Amazon, the largest online retailer, entered a new market segment by launching Amazon Web Services (AWS). Amazon's entry into this market results from its strong digital capabilities—developed in storage and computing databases to support its core retail business—and its connections with numerous up-and-coming businesses, which increasingly depend on computer services to thrive.

AWS is not just a competitor but an entirely different business operating in a distinct market.

Recognizing new domain opportunities brought on by developing technology is the primary goal. When an organization completes its DX, growth—typically unexpected but always on the horizon—is highlighted by domain transformation.

Cultural Transformation

To succeed in a very Agile workflow, organizational mindsets, competencies, and processes must be redefined over time for staff members, from the top down to the lowest level.

Businesses that switch their employees' attention from equipment to data analytics are the best examples of cultural transformation. The success of the consumer credit organization Experian serves as an example. Agile development and teamwork were successfully ingrained inside the business. The growth resulted from this organizational change from equipment to a higher dependence on data testing.

Essential Components of Digital Transformation

DX is here and will stick around. The epidemic has accelerated its development, and businesses that had just recently intended to deploy it have begun or are looking for appropriate ways. Let's focus on the key elements organizations must understand for a successful DX.

• Customer centricity

An organization will become "customer-experience centric" if it is aware of the customer journey, behavior, and expectations before making technology investments. Every successful business prioritizes the customer experience and forges strong customer bonds.

Employer experiences are important for businesses to consider. Their relationships with the customers will be influenced by how their personnel engage with the chosen technological stack.



• Infrastructure and integration of technology

Organizational digital transformation will not succeed if the right talent is not present or if employee interaction is not prioritized. This is an extension of the customer and employee experience because an organization cannot achieve its objectives without making the necessary investments to nurture its workforce.

It will be crucial for industry leaders to develop meaningful human-to-human encounters when technology like AR, VR, ML, and AI start taking center stage in the working environment.



• Leadership and culture change

The only constant is change! And efforts to digitally alter organizations won't be sufficient without it or the drive to change. To move the DX initiatives forward, the workforce and the organization must be on the same page.

An effective DX plan is built on strong leadership and cultural transformation. Business leaders must be dedicated to implementing change and promoting an environment that values creativity, adaptability, and constant progress. They should be able to successfully convey the vision and objectives of the DX, instill a sense of urgency, and enable their staff to accept change.



• Process agility and innovation

For organizations to remain competitive and adaptive in the digital age, Agile processes and innovation are crucial. Businesses must adopt Agile methodologies and principles to innovate, experiment, and iterate quickly. A responsive organizational structure, efficient procedures, and a continual learning and improvement culture are necessary.

Use Cases of Digital Transformation

Digital transformation is making big waves across various industries. Let's break it down in simple terms:

• Technology:Think about cloud computing as a superhero for businesses. It's like a magic toolbox in the tech world that makes everything easier and cheaper. You can store and use your computer stuff (like apps and data) without needing lots of fancy hardware. Plus, it's the reason we have cool things like AI and big data.
• Retail: In the shopping world, DX means stores teaming up with the internet. They use cool gadgets like VR and smart displays to give you a better shopping experience. Ever tried on clothes virtually or got shopping tips based on your style? That's thanks to this digital shift—and they've made shopping more convenient with stuff like curbside pickup.
• Automotives: Cars are getting smart too! They use modern tech to make driving safer and fancier. They talk to each other and even to things on the road. So, things like cruise control and real-time traffic updates are possible. And electric cars are booming, thanks to better batteries and charging stations. They're also changing how we use and share cars.
• Oil and gas: Even the oil and gas folks are going digital. They're using super-smart technology to dig up oil and gas more efficiently and safely. They gather loads of data from machines and stuff to make better choices. And they've set up control centers to watch over everything from one spot.
• Consulting: Consultants are now data detectives. They use computers to study loads of information and find patterns to help their clients do better. They're also big on teamwork, thanks to digital platforms. And you can have a meeting with them on your screen.
• Healthcare: Imagine going to the doctor without leaving home! That's telemedicine – it's like seeing your doc through video chat and gadgets. They use computer tools to track your health and help make smart decisions. It's handy, saves money, and keeps you out of the hospital.
• Banking: Banks are going digital too. You can do all your banking stuff online or with your phone. They also use computers to understand what you like and need, so they can offer better services. And they've got a cool thing called blockchain to keep everything safe and sound.

Signs That Your Business Needs Digital Transformation

Do you still have questions about starting a DX initiative? Look at these signs that highlight some typical organizational issues.

• Digital-savvy customers

If your customers are increasingly anticipating digital interactions and services that you do not yet provide and are finding it difficult to adapt to customers' shifting wants and preferences, it is time to optimize your organization for digitally knowledgeable customers.



• Competition

You need DX if your competitors outperform you in digital solutions, customer satisfaction, effectiveness, or profitability.



• Digital native businesses

If any of your recent competitors have excelled you by utilizing contemporary organization strategies, it's time for you to make the switch.



• Digital disruptors

It's time for you to make the necessary adjustments to speed up your business if your product or service is rendered obsolete by a more advanced version that uses the newest technology.



• Obstacles

If you are still using outdated technology, it might interrupt your organization's operations and put your security in danger because it isn't protected against modern cyber threats. These technologies may slow down overall operations if your organization depends on them and make it more difficult for you to adjust to shifting market conditions.



• Outdated application or process

If your business still uses slow, expensive, and error-prone manual procedures, you should modernize and automate them.

How to Approach a Digital Transformation Project?

Modern business leaders and managers are primarily aware that DX is inevitable and that the sooner they begin working on its implementation, the better it will be for their organizations in the long term.

However, it is normal for them to be unsure about how to approach a digital transformation project, where and how to begin, and what DX strategy to employ.

Here are a few essential actions to improve your chances of DX success.

• A general digital transformation plan covering all corporate operations is a good place to start. Such a plan aims to provide the organization with a broader view of things when thinking about implementing any new digital technology; it need not be highly comprehensive.
• Remember that DX involves implementing new management and work methods at all levels of the organizational structure. Because of this, it's crucial to check that your digital transformation strategy calls for integrating software and hardware solutions and plans to introduce novel approaches to business processes.
• When developing your overall DX plan, keep in mind that it should concentrate on the key difficulties and challenges your organization is facing and that the use of new technologies may resolve that. This covers difficulties with internal workflow and business operations as well as problems with customer experience.
• A systematic strategy is used in people change management to support the human side of digital transformation. Project management and people change management are equally crucial in implementing DX plans. Review how your organization's roles and responsibilities will be affected by the changes, how new technologies will enhance management and employee learning, how digital innovations will improve communication between the organization's leadership and employees, and so on.
• Nowadays, hardly any organization can function as a stand-alone operation without a network of partners, suppliers, and other entities assisting in efficiently operating the business cycle. Because of this, it makes perfect sense to consider your partners while developing and refining your DX strategy. With modern technology, you can strengthen and grow your partner network.
• Technologies remain crucial even though people's management and approaches to work processes remain crucial. Ensure your technological platform is adaptable enough to accommodate modifications and updates over a long period without becoming a legacy solution, including the hardware and software layers.
• The last item on this list is to attempt to create a sound strategy for financing your digital transformation projects. Organizations frequently make the error of anticipating a return on investment far too quickly on this journey. Any DX project should be viewed as a long-term investment that won't immediately produce quantifiable returns.

Digital Transformation Strategies

The strategies that follow should be taken into account by organizations to conduct DX successfully:

• Determine the goals and objectives of the business

Specific business goals and objectives should be the driving force behind digital transformation. Businesses may link their DX efforts more effectively with their overall strategy and ensure they invest in the correct technology and activities by defining the desired results.



• Competition

You need DX if your competitors outperform you in digital solutions, customer satisfaction, effectiveness, or profitability.



• Evaluate current capabilities and gaps

Businesses should evaluate their skills and pinpoint gaps before starting a DX initiative. This entails assessing the systems and procedures already in place as well as the knowledge and abilities of their staff.



• Create a roadmap and prioritize initiatives

Businesses should create a DX plan specifying the key projects and priorities based on their business goals and capabilities. The most important and significant projects should come first in a phased strategy.



• Create the ideal culture and team

DX requires a team with the necessary knowledge and experience to implement the plan properly. For their staff to flourish, businesses should put their efforts into developing a culture that welcomes change and innovation as well as training and development.



• Utilize data and technology

Digital transformation is centered on technology and data. Businesses should choose the technology that best serves their objectives and ensure they have the data infrastructure and analytics skills to gather information and make wise judgements.



• Track and evaluate development

As a last step, organizations should develop measurements and KPIs to assess the effectiveness of their DX efforts. This entails monitoring advancement in relation to their roadmap and assessing the effect on their corporate goals and targets. Businesses can find areas for improvement and modify their strategies by conducting routine monitoring and evaluation.

In general, organizations can effectively manage the challenging DX process and accomplish their desired goals by adhering to these strategies.

Digital Transformation Roadmaps and Frameworks

DX is a significant shift for any business, requiring substantial time and resources.

Errors along this journey can be exceedingly costly and jeopardize the business. To safeguard against these risks, a comprehensive discipline known as "business architecture" is indispensable. This discipline serves as a protective framework for digital transformation efforts. Despite the multifaceted nature of DX, many approaches often overlook the critical role of business architecture.

Phase 1: Analyze the internal and external environment

In this initial phase, a thorough analysis is conducted to understand the internal and external factors affecting the business.

• Examination of external forces and trends, encompassing political, economic, social, technological, legal, and environmental factors.
• Industry analysis to assess specific external factors directly impacting the organization's strategy and operations.
• Identifying all stakeholders and a comprehensive understanding of their priorities and areas of interest, focusing on customers.
• Deep exploration of digital technologies, selecting those aligned with customer needs and organizational improvements.
• Evaluation of business or operating models from a customer-centric perspective.
• Distinction between the operating and business models, understanding how value is created, supplied, and captured.
• Examination of organizational culture, capabilities, and motivations, along with their adaptability to digital technology.
• Mapping and relationship analysis of core domains (capabilities, organization, value streams, information) and extended domains (strategies, products, policies, initiatives, stakeholders).

Phase 2: Develop strategy and identify business impacts

This phase focuses on shaping the strategy and assessing its potential impacts.

• Scenario planning to introduce uncertainty into the planning process, allowing for a variety of perspectives, possibilities, and risks.
• Definition of customer segments, followed by analysis of their requirements and preferences, integrated into relevant value streams.
• Development of a business model based on knowledge of the current state, business scenarios, and customer segments, ensuring alignment of all components.
• Establishment of a hierarchical structure illustrating strategic goals and cascading objectives.
• Examining the impact of defined objectives on various architectural domains, assessing the extent and nature of the impact.
• Consideration of how IT architecture and business architecture interact, understanding their mutual influence.

Phase 3: Design a business solution

This phase focuses on designing a solution aligned with the established strategy.

• Creation of a baseline for mapping core and extended domains onto the future business model and goal/objective hierarchy.
• Definition of organizational culture, incentives, competencies, and reward structure needed to realize the desired business model.
• Organizational design involving task decomposition and coordination mechanisms tailored to the organization's unique circumstances.
• Designing future value chains and their associated processes to generate and transfer value effectively.
• Consideration of technologies, data structures, and applications for aligning business and IT architecture.
• Analysis of the gap between current and desired states, determining necessary actions for closing the gap.

Phase 4: Devise initiatives and implement solutions

In this final phase, initiatives are developed and executed to realize the DX objectives.

• Project portfolio management to determine how to achieve each goal in the hierarchy, avoiding overlaps.
• Prioritization of initiatives based on factors like priority, cost/benefit analysis, and schedule.
• Establishment of measurement criteria and KPIs for tracking initiative progress.
• Transformation of initiatives into detailed project plans, specifying goals, participants, schedules, and risks.
• Ongoing monitoring of project execution, allowing for prompt detection of deviations from the plan.
• Evaluation of the digital transformation's performance and communication of results to stakeholders, emphasizing that it marks the beginning, not the end, of the journey.