What is digital transformation? A necessary disruption

Already a key strategic initiative, digital transformation — a catchall term for describing the implementation of new technologies, talent, and processes to improve business operations and satisfy customers — has taken on heightened importance during the COVID-19 pandemic.

Companies’ adoption of digital technologies has sped up by three to seven years in just months, with companies accelerating efforts for fear of being outflanked by competitors, according to Laura Laberge, McKinsey director of capabilities for digital strategy. Indeed, what was once viewed as best-in-class speed for most business cases just a few years ago is now slower than average.

Add to that the ominous stat that only 11% of 1,140 business executives surveyed by McKinsey believe their current business models will be economically viable through 2023, and it’s easy to understand why 64% of those execs say their companies must build new digital businesses.

Here experts drill down on digital transformation and offer advice for IT leaders embarking on digital journeys.

Digital transformation defined

Digital transformation marks a rethinking of how an organization uses technology, people, and processes in pursuit of new business models and new revenue streams, driven by changes in customer expectations around products and services.

For many enterprises that build traditional goods, this means building digital products, such as a mobile applications or an ecommerce platform. To do so, they must operate at the cadence of software companies, most of which operate on product-based models, says Forrester analyst Nigel Fenwick. “There is more value, or perceived value, created through software,” he says.

Ideally led by the CEO in partnership with CIOs, CHROs, and other senior leaders, digital transformation requires cross-departmental collaboration in pairing business-focused philosophies with rapid application development models.

Digital transformation strategy

For the past several years, companies have embarked on digital transformation journeys to counter the potential for disruption from incumbents and startups, but the sledding has been slow — until the pandemic. Retailers such as Walmart and Bed Bath & Beyond shook up store operations by switching to curbside delivery and other contactless options to help consumers safely get their goods.

IT leaders meanwhile reprioritized strategic IT roadmaps, with many adopting cloud software for video collaboration and implementing machine learning (ML) software that helps enterprises to manage how products wend through supply chains.

On a point-by-point basis, such implementations don’t facilitate transformation. Rather, how these tools and other solutions are woven throughout an enterprise presents a clearer picture of a company’s digital fitness — and reflects its business priorities.

Digital transformation examples

Carrier, a manufacturer of HVAC and security systems, regularly looks to build new software products to help building managers automate much of their facilities systems. Its latest product is Abound, a SaaS platform that aggregates data about indoor air quality and occupancy from building systems and sensors and transforms it into insights, says Carrier Chief Digital Officer Bobby George, who led the construction of the system, which is in pilot mode and runs in Amazon Web Services.

George says that true value is “abstracting all of that data” out of existing building management systems and helping make sense of it. He hopes that customers will pony up cash to use it, generating a new revenue stream for Carrier.

Sometimes the digital change comes down to capturing the right business insights and making them actionable. When Jersey Mike’s wanted to know how customers were interacting with its mobile app, it used analytics to slice and dice metrics around members of its loyalty program as well as those who hadn’t yet signed up for its program, says Kelly McGee, the sub sandwich franchiser’s director of digital marketing.

The marketing team targeted each cohort with personalized push notifications, resulting in a 43% lift in loyalty members claiming rewards prizes and a 38% bump in conversions to its loyalty reward program, doubling online sales, says McGee, who credits software from Amplitude with providing the analytics insights.

“We can follow the promotional campaigns to see which customers are bringing in the most lifetime value,” McGee says. “The main focus going forward is delivering personalized content to the right person via the right device at the right time.”

For more examples of digital transformations in action, see “4 digital transformation success stories.”

Digital transformation journey

Here are five steps companies can follow to affect the kind of change they desire.

Align objectives with business goals. Answer the question: What business outcomes do you want to achieve for customers? Stacey Goodman, CIO of insurer Prudential Financial, says it’s incumbent on IT leaders to know the problem the business is trying to solve, and to align their goals with the outcome the business strives to achieve. “The companies that I come from that have done well were all aligned to the business outcome,” Goodman says. Use your customer journey map as a guide.

IT and business must co-create. Traditionally, IT departments were called on to fix broken services, says Julie Averill, CIO of retailer Lululemon. Today, IT must work as co-creator with the business to solve problems and deliver value for customers. “It has to go both ways,” Averill says. “The business can’t just sit there and demand tech; they have to know what they’re asking for.”

Pick strategic partners. Whether it’s a Big 5 consultancy, system integrator, or a boutique design shop, IT leaders need help fulfilling digital imperatives to reduce time to business value, says Fenwick. Bet on the ones with proven track records whose values most closely align with yours.

Redesign business and products around customer outcomes. This could include using cloud software to accelerate change and embracing artificial intelligence to boost operational efficiency and respond to evolving customer expectations, Fenwick says. Banking services firms, for instance, are changing how they deliver wealth and retirement to consumers by using digital channels, Fenwick adds.  

Retrain employees around digital. Companies seeking to align their digital imperatives with customer preferences must ensure that their employees are on the same page. Financial services firms such as TransUnion and TIAA are reskilling staff in cloud, DevOps, CI/CD, and other modern technologies and practices to fortify themselves for the future. “In the pivot to become a digital business, software has become a strategic asset, so you need the same strategic abilities as a software company,” Fenwick says.

Digital transformation roles and skills

While emerging tech and revamped processes are crucial, having the right skills on staff is essential to any digital transformation.

Software engineers, cloud computing specialists, and digital product managers remain key roles for companies seeking to roll out new products and services. DevOps leaders galvanize software development by merging development with operations, enabling companies to continuously iterate software to speed delivery.

Data scientists and data architects are also in high demand, as companies seek to glean insights out of vast troves of data, and transformations lean increasingly on machine learning and artificial intelligence.

UX designers, digital trainers, writers, conversational brand strategists, forensic analysts, ethics compliance managers, and workplace technology managers round out the talent priorities.

Of course, leadership matters. Many CIOs have appended the chief digital officer (CDO) title to describe their remit, while some are simply rebranded as a CDO. Sometimes the roles CIO and CDO roles are distinctly bifurcated. Typically, these calls are up to the CEO. But it doesn’t matter who owns the digital imperative, as long as someone is competent using technology to drive revenue growth, Fenwick says.

Digital transformation pitfalls

Digital transformations are lagging or even failing for several reasons, including poor leadership, disconnects between IT and the business, lagging employee engagement, and substandard operations, according to a report from Capgemini Digital Transformation Institute and MIT Sloan School of Management.

But the key culprits of a derailed digital transformation are obsession with big bang change, focus on cost cutting as a business driver, and failure to loop in the business.

“Boardrooms and C-suites talk about digital and there is pressure to show something and show results, which creates wrong expectations about how quickly what can be done and when,” says Genpact CEO Tyger Tyagarajan.

What is digital transformation? A necessary disruption