Digital transformation today means that firms are tasked not only with becoming more efficient, but also enhancing the overall consumer experience. Doing so is a question of survival.
By 2022 global spending on technologies and services that enable digital transformation of business practices, products and companies is expected to reach US$1.97trn, according to market research firm, International Data Corporation (IDC). That’s a five-year compound annual growth rate of 16.7% from 2017 to 2022.
The drumbeat of digital transformation continues to grow louder across industries. As greater numbers of consumers become more digitally proficient, the scope of digital transformation for firms both big and small is widening, and becoming ever more vital.
“This isn’t simply about modernisation, it’s about envisioning new business approaches and markets,” says Eileen Smith, programme director for IDC’s Customer Insights & Analysis group. “The companies that choose not to digitally transform will be left behind and may not even be in business.”
Disruptive technologies are forcing a redesign of business, with ownership moving to the C-suite and managed across functions. Social, mobile, analytics and cloud technologies have become the building blocks for next-gen applications, while the new wave of technology enablers, such as artificial intelligence (AI), blockchain and Internet of Things (IoT), are opening up yet another frontier for business innovation.
“Think about digital transformation as a palette of technologies that can be combined to create unique new value propositions,” says Nicholas D. Evans, research vice-president at research and advisory firm, Gartner, and author of Mastering Digital Business. “You have to look at the individual technologies, what those capabilities are, and how they can benefit your business and consumers. Then, equally importantly, you have to take a broader view and think about how the combinations of technology can be leveraged in the context of new business models and ecosystems.”
However, few organisations are up to the task just yet. Two-thirds of leaders want to transform, but only 11% are actually delivering digital business, according to Gartner’s global 2018 Digital Business Survey. More than half of organisations (about 57%) have not even found a starting point for digital business transformation.
Executives seem to understand the long-term value, but have a tough time translating the digital future into today’s business model, says Youngjin Yoo, professor of information systems at Case Western Reserve University in the US and visiting professor at the Warwick Business School and London School of Economics, UK. “There is a threat; there is a rosy picture of a billion-dollar market,” Mr Yoo says. “Everyone understands that, but many don’t know where to start.”
That may be because there is no single, distinct path for companies to take. Much depends on an organisation’s culture, leadership and willingness to experiment and evolve. At one end of the spectrum is what Mr Yoo calls “paving the cow’s path”, where enterprises continue along the same business model but use digital technology to make processes more efficient. In the middle is digital innovation, which involves creating a new way of generating and capturing value from digital technology and monetising it. At the other end is complete transformation of infrastructure, supply chain, financial models and even workforce.
“The companies that choose not to digitally transform will be left behind and may not even be in business.”
— Eileen Smith, programme director for IDC’s Customer Insights & Analysis group.
Technology itself is not the whole answer. Adding sensors to a product and generating data is a first step; analysing the data and figuring out ways to make more money is crucial. Digital success, says Ms Smith of IDC, is about the process of using technology to envision new approaches and markets.
IoT and connected devices (or anything that can have a sensor tagged onto it) are the biggest component of digital transformation and are becoming the new hardware backbone to an organisation, much like service and storage were in the 1990s, Ms Smith says. Even players in a “traditionally laggard industry, such as construction” have embraced IoT and are using it to remotely track and monitor machinery.
The most important catalysts driving the evolution of business are technology, market pressure and the digital customer experience, says Brian Solis, principal analyst and futurist at research and consulting firm, Altimeter, and author of eight books, including Lifescale, What’s the Future of Business and The End of Business as Usual. Mr Solis warns that organisations may be prioritising technology while not fully grasping the disruptive trends that are influencing markets. That means that companies aren’t fully using technology as an enabler or solution to deliver value to customers.
“The technologies that are disrupting businesses—or that companies are using to modernise businesses—are the same technologies that are reshaping customer behaviours, expectations, preferences and what they value,” Mr Solis says. “For example, if you spend time and resources on technology to understand the mobile customer journey, and make investments in data and learning platforms to understand how customers are making decisions and make improvements, you’re going to net returns because you’re essentially enabling customers to give you money in the way they want to shop and make decisions.”
One of the biggest impediments to digital innovation is the legacy mindset. Mobile, for example, is becoming the predominant tool of customers in just about every industry, including B to B. Many corporations, though, are still stuck in what Mr Solis calls the desktop mentality or siloed initiatives.
For the past five years, Mr Solis has produced an annual State of Digital Transformation report. Something that continues to surprise him is the lack of urgency. He cites US department store Sears, which filed for bankruptcy in 2018, and toy retailer Toys “R” Us, which filed for bankruptcy in the US in 2017 and entered administration in the UK the following year, as examples of businesses that did not react fast enough.
“Customers are empowered to make decisions and don’t need to rely on touchpoints and mechanisms that have existed for decades,” explains Mr Solis. “So there needs to be a sense of urgency to understand where that gap is and close it and deliver value in ways that are going to keep you competitive for the long term.”
The good news for businesses is that the cost of entry into digital transformation is getting cheaper, as better technology is becoming less expensive. What’s more, there appears to be a direct link to investment. Of the companies that IDC works with, revenue of those that are digitally enabled is up by about 4.5%, thanks to new revenue models and cost savings, compared with losses at companies lagging in digital investment, says Ms Smith.
Adds Mr Evans of Gartner: “Digital transformation opens up the art of the possible, allowing corporations to constantly raise the bar on the customer experience and create new value, new business models and new ways of engaging.”