Like digital strategy, digital transformation can be a woolly concept. It is riding the wave of reports about how Australian businesses need to lift their digital game and catch up. Maybe we do – but the current noise around the topic confuses things, and makes it seem like something a digital black art.
It’s not. Australian companies are great at adapting their business to take advantage of new things. The “digital” bit seems to make it suddenly (and maybe intentionally) complicated, and there are any number of definitions out there.
This article is an attempt to give senior executives a practical, working definition that is low on tech-speak.
At its core, digital transformation is a strategic, enterprise-wide program aimed at improving the performance of a business by re-engineering processes and approach. While continual business improvement is hardly a new concept, digital transformation is a different flavour.
While digital transformation focuses on improving performance of all key aspects of a business’ operations, it is a specialised stream. It flushes out problems affecting current performance and sets out to improve performance by solving them. It is specialised in that a digital transformation program looks for ways in which digital technology could solve those problems.
Importantly, it is organised, strategic, executive-endorsed and spans the entire enterprise.
In a world of shrinking budgets, it can be tempting to take the principles of digital transformation and just apply them to one area of a business. If you can – fight the urge to do this. It can have long term ramifications.
The aim of your digital transformation program is to systematically review each area of the business’ operation, and identify areas where current or emerging digital technologies can improve the efficiency or effectiveness of current processes. The intent is to flush out manual, expensive or cumbersome processes that can be done more cheaply, quickly or perhaps replaced completely using digital technologies. The reason that it needs to be enterprise-wide is that the process often identifies opportunities for solution sharing and system integration across functions and divisions. These opportunities can be easily lost if the process is siloed.
What sort of digital technology are we talking about?
Inevitably, a digital transformation includes the use of software and/or hardware to improve performance; but it is dangerous to think about digital transformation primarily in terms of new kit. This thinking can distort the process into a solely technology-driven exercise (more on this later) when it should be a commercial problem-solving exercise. Sometimes it will involve new internal systems – but it can also remove an internal system or create a new process that removes the need for a function entirely.
Where a faster, cheaper or more efficient digitally-driven solution already exists or is on the horizon, an ongoing program is then created to implement those new alternatives and to track their performance against the initial expectations. These projects are often broken into smaller, agile-based projects so that the business can keep pace with the changing nature of the underlying technologies that they depend on.
The benefits of digital transformation
In 2017, Deloitte Access Economics compared Australian businesses with advanced levels of digital engagement (ie those that were well progressed in their digital transformation) against those with little or no digital engagement. They found the advanced group were –
- 50% more likely to be growing profit
- Earn 60% more revenue per employee
- More than 8 times more likely to be creating jobs (creating an average of 12 additional jobs in the previous year)
- 7 times more likely to be exporting; and
- More than 14 times more likely to be innovating by offering new products or services.
In addition, digital transformation can play a major part in –
- Creating competitive advantage by freeing up margin for reinvestment or sales incentive
- Driving sector change – disrupting the sector from within and changing the model
- Improving sales volumes and production efficiencies
- Increasing staff morale and sense of ownership – especially amongst Millennials.
Digital transformation is not exclusively a technology discussion
While people often use the terms “digital” and “technology” interchangeably, it is important to remember that digital transformation is about much more than the technology it sits on. DT is about the experience or process benefit that the technology enables – not the technology itself.
This distinction might seem like semantics but it’s important. Why?
Viewing digital transformation as a technology program short-changes the enterprise by constraining the review process to a review of systems. At the same time, this narrow approach disenfranchises a whole raft of stakeholders who might have great ideas that run contrary to the IT department’s world view. It can also result in skewed budget allocations. If senior management think of DT as a technology project then that is typically where the lion’s share of the budget will go.
Keep a broader view – a successful digital transformation program is an enterprise-wide process that involves all departments and has a performance impact on the experience of staff, the experience of customers and the bottom line. New technology systems should be appraised fairly within the context of the broader aims of the transformation.
Different types of improvements
It can be helpful to think of performance improvement opportunities as occurring at three levels.
Level One – Ubiquitous opportunities – these are changes that typically apply to all business types regardless of sector. These often include back office improvements, technology changes such as moving local systems to the cloud, and adoption of new marketing methods and channels.
Level Two – Sector specific opportunities – these are improvements to production processes or service delivery methods that are specific to a particular sector. Typically, businesses within a particular sector share common areas of inefficiency and these often have the power to change the dynamic of a sector and give competitive advantage to those who have the ability to adopt them first.
Important disruptor note: It is important to remember though that these same improvements or changes in method can be an enabler for an external entity to disrupt the entire sector. This is especially dangerous if the change makes it easier for new players to enter either by changing the model, replacing entire processes, and/or by lowering the cost of entry.
Level Three – Business specific opportunities– These are improvements that are specific to the unique combination of methods and technologies employed by each individual enterprise.
What areas are normally included?
Whilst not exhaustive, the list below covers some of the common areas that a digital transformation program should investigate.
Promotion and marketing – DT programs almost always consider opportunities for increased use of new digital methods for attracting, converting and retaining customers. This includes use of digital, search and social channels, as well as the adoption of inbound marketing practices and the subsequent implementation of lower-cost CRM and marketing automation systems,
Core service delivery & product development – digital transformation programs look at the way in which your core product or services are delivered to, and consumed by the customer. Typical considerations include – can the current service be delivered and consumed in a better, more cost-efficient way? Can the product actually be improved by conversion to a digital product? Does the product or service lend itself to the creation of new digital products – either as extensions, or as a product converted to a service with a different cost model?
Manufacture – This is a significant area for digital transformation but it has the ability to overshadow opportunities from other areas of the business. Ranging from digital pattern creation to AI-guided product selection, full robotic production and on-demand personalised product manufacture, digital transformation programs can deliver efficiency impacts on the cost, quality and speed of production,
Distribution and sales – The most obvious consideration is the opportunity for e-commerce as a part or full replacement for a physical retail operation. However, digital extends beyond this to enabling changes to the way staff help customers, and the way customers help themselves in retail environments. Roving POS systems, kiosking, personalised offers based on the customers proximity to stock and automated delivery systems are all part of this. This also includes automated warehouse management (digital pick and pack) and real-time inventory and supply chain management.
Back of house enterprise systems – Disparate Finance, HR, and asset/property management functions are typically among the first considerations for a digital transformation project. The increased ability for API integration between systems, and emergence of administration systems with different cost models makes internal systems a common review point for Digital transformation. The ability to easily extract, combine and form insightful insights from the data that these systems hold is a significant opportunity for many businesses previously unable to access business analysis resources.
Internal communication and collaboration – A digital transformation program should consider the current or planned use of platforms that enable the increased levels of collaboration and contribution expected by staff. The ability for senior management to share and engage at all levels of the enterprise is increasingly important to millennial and gen Z employees.
Things to consider
Senior ownership and oversight is critical – EMT or even CEO level support and centralised oversight will be pivotal to your digital transformation programs. This makes it clear that the program is a business rather than a technology-driven initiative. It also ensures that your program will have support from multiple stakeholders and by centralising at this level will prevent expensive duplication.
Beware of siloing – One of the key barriers to an enterprise-wide digital transformation program is the siloing (and subsequent protectionism) that occurs between product, finance and sales.
Scope creep – Programs of this kind can quickly become a wishlist. Creating a clear assessment framework and criteria for assessing opportunities is vital to prevent the program stalling under its own weight or being bloated by personal or divisional agendas.
Ongoing commitment – Digital transformation must be acknowledged as an ongoing process. The nature and speed of digital development means that new opportunities can emerge rapidly or move from hype to commercial viability very quickly. Once the rails are laid for a digital transformation process, the process should be ongoing.