What is digital transformation? A necessary disruption

Digital transformation is a foundational change in how an organization delivers value to its customers. Here is what transformation entails, along with tips to ensure your company is on the correct course.

Digital transformation defined
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Already a key strategic initiative, digital transformation has taken on heightened importance in the wake of the coronavirus pandemic.

Fifty-nine percent of 373 IT decision makers say that pressures stemming from the pandemic are accelerating their digital transformation efforts, according to an IDG Research business impact survey conducted in July.

Moreover, despite budget concerns triggered by the COVID-19 outbreak, global spending on digital transformation technologies and services will grow 10.4 percent in 2020 to $1.3 trillion, according to data researcher IDC published in May. Spending on digital tools hasn’t been impacted as much as other IT because most large-scale projects already under way are instrumental to the broader business strategy, reasons IDC analyst Craig Simpson.

Digital transformation is generally viewed as an aggregation of modern tools and processes leveraged to solve business problems and satisfy customers. But many CIOs employ different means to execute on those drivers. Here experts drill down on digital transformation and offer advice for IT leaders embarking on digital journeys.

Digital transformation defined

Digital transformation marks a radical rethinking of how an organization uses technology, people and processes to fundamentally change business performance, says George Westerman, MIT principal research scientist and author of Leading Digital: Turning Technology Into Business Transformation.

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.

Such sweeping changes are typically undertaken in pursuit of new business models and new revenue streams, driven by changes in customer expectations around products and services.

"Customer expectations are far exceeding what you can really do," says Westerman. “That means a fundamental rethinking about what we do with technology in organizations."

Digital transformation drivers

For the past several years, companies have embarked on digital transformation journeys to counter the potential for disruption from incumbents and startups.

Retailers, for example, are answering Amazon.com’s march across every vertical by crafting algorithms to refine their logistics and ensure that anything from food items to beauty aids quickly make their way from local warehouses — before their store locations run out. To ensure merchandise makes it quickly across the so-called last mile, retailers will store more goods in their store locations.

The pandemic has forced IT leaders to reprioritize their strategic IT roadmaps, with many adopting cloud software for video collaboration and building apps that enable workers to enter offices governed by social distance practices and trace contacts.

Such low-hanging fruit is complemented by trickier implementations of machine learning (ML) software that helps enterprises to manage how products wend through supply chains disrupted by shifts to ecommerce.

Separately, 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

Prudential Financial’s acquisition of Assurance IQ in 2019 signaled an interest in accommodating consumer preferences for interacting with brands via digital channels. Assurance matches buyers with life, health, Medicare and auto insurance, giving them options to purchase products online or with the help of a live agent. 

To support Prudential’s digital strategy, the company’s engineers leverage agile and DevOps processes, collaborating cross-functional teams that include product managers, analysts and other key business staff, says CIO Stacey Goodman. Staff are standing up self-service capabilities to help “test and learn and fail fast and ideate” as they build new apps. Engineers are leaning heavily into Microsoft Teams and other tools to collaborate on code and other aspects of their jobs.

While Prudential’s hybrid model of cloud and data center operations remains robust in the face of the pandemic — employees operate trading environments from home — Goodman’s goals include boosting time to market for new software products, which ideally will improve the experiences for customers and employees.

“We want to be in lockstep with that to be able to respond to the market,” Goodman says, adding that she wants to improve mobile capabilities as Prudential continues to support its hybrid model of allowing people to work from the office and remotely during the pandemic.

Moving with the market has been a critical imperative for Julie Averill since she joined Lululemon as CTO in 2017. Averill, who has launched several international websites and mobile applications since joining the apparel retailer, says she is migrating most compute functions to Microsoft Azure to “provide more flexibility to our guests.” Mobility is a key focus, as Lululemon strives to allow customers to search its product inventory from their smartphones, Averill says.

“We’re fueling our growth through product innovation and improved guest experiences in key markets across the world,” Averill says.

Digital transformation tips

Here are six 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? Prudential’s Goodman says it’s incumbent upon IT leaders to know the problem the business is trying to solve and 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.

Be bold when setting the scope. Successful digital transformations are 1.5 times more likely than others to be enterprise-wide in scale, says Laura LaBerge, a McKinsey senior knowledge expert. This will also help CIOs recognize the biggest bang from their tech investments. "If they're stuck on incremental changes they may miss the big move they might have seen," LaBerge says.

IT and business must co-create. Traditionally, IT departments were called on to fix broken services, says Lululemon’s Averill. Today, IT must work as co-creator with the business to solve problems and deliver value for customers.

“We had to work together to change the culture of the whole company,” Averill says. “It has to go both ways. The business can’t just sit there and demand tech; they have to know what they’re asking for.”

Embrace adaptive design. The days of upfront investment requirements and rigid KPIs are over. Adaptive design enables CIOs to pursue monthly or even weekly tweaks to the transformation strategy, including reallocating talent.

“We see this adaptability ingrained in the design of successful transformations,” LaBerge says, adding that business leaders reporting success were more than three times more likely to facilitate monthly adjustments to strategy.

Adopt agile execution. Encourage risk taking, enabling even lower-level employees to make decisions, fail fast and learn. This has been a key tenet of IT’s success at Prudential, Goodman says.

It’s okay to disrupt yourself. Even though many organizations rush to address rivals, the best digital transformations require preemptive changes rather than reacting to competitive pressures, says Martin Reeves, of BCG’s Henderson Institute. He says companies should begin searching well before they exhaust their current sources of profit and employ a mix of big steps to explore uncharted terrain and smaller steps to tap adjacent markets. Regardless, having a strong bias toward change is critical.

Essential digital transformation roles

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 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.

Plus, IT departments supporting business-wide transformations also require UX designers, digital trainers, writers, conversational brand strategists, forensic analysts, ethics compliance managers and digital and workplace technology managers.

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.

Moreover, approaching digital transformation as a technology journey independent of the business is a recipe for failure. You must ensure that the business owns the process. “When they own the process, you drive end-to-end transformation that includes processes, people, policies and tech,” Tyagarajan says. “The siloed approach always fails.”

Copyright © 2020 IDG Communications, Inc.

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