The Driving Forces Behind Digital Transformation

Ketty Colom July 3, 2019 Digital Transformation

digital transformation

As we progress more and more into the future, the average lifespan of companies is also shrinking. “The average lifetime of companies is shrinking. If you were listed in the S&P 500 in 1935, the lifespan of a company was 90 years. Today, it is 18 years. Every two weeks a company is going off that system,” Barton said at the 2nd Economic Times Global Business Summit. But why do these large companies cease to exist? Global businesses need to transform how they operate through the digitalization of every business unit to remain competitive. Economist Schumacher tackled this issue in his book published in 1975, Small is Beautiful. In his book, he exposed the inefficiencies of large corporations and started a movement of appropriate technology. Schunacher maintained, “What characterizes modern industry is its enormous consumption to produce so little … it is inefficient to a degree that goes beyond imagination!”
It is important to note that every business has its own goals and challenges when it comes to digital transformation. In this blog post, we’ll explore the driving force behind the trend and what companies can do to adapt their businesses to the technology of the future. “Technology has led to fundamental business change for everyone. This is driven by data. Every two days we collect more data than we did in the last 2000 years. About 95% of that may be useless, but we are getting better and better at using it. We are also seeing massive improvements in computing powers. With 3.5 billion people wired up, we will see significant disruption,” says Barton

What’s the driving force behind digital transformation?

  1. Strategy

When the topic of digital transformation comes up, most people are focused on the technology side of it because of how fast technology is changing. Naturally, that leads people to assume that tech is the biggest driver of digital transformation, but a survey by Deloitte revealed that strategy, not technology helps create digitally transformed companies. 

  1. Customer Expectations

Today’s customer is increasingly savvy and expects a highly personalized experience that is consistent across channels. We have companies like Amazon and Netflix to blame for an increase in consumer expectations. 

  1. Speed

Many attribute the Internet’s success to two principles: Moore’s Law and Metcalfe’s Law. These two principles dictate that technology change is occurring non-linearly, while businesses continue to think linearly. In other words, businesses who are reactive to change will never meet the needs of consumers when it comes to speed to market. 

  1. Artificial Intelligence (AI)

AI is probably the fastest emerging priority when it comes to digital transformation. This can be attributed to the ever-increasing popularity of conversational interfaces such as Apple’s Siri and Amazon’s Alexa. Forrester analysts state there are five components to AI systems:

  1. Sensing
    1. Components that receive input data.
  2. Comprehension
    1. Components that discern what the data means.
  3. Analysis
    1. Components that leverage algorithms to arrive at a logical response.
  4. Guidance
    1. When needed, the system checks with humans for certainty of response.
  5. Actional
    1. Communicating the answer to the user or taking action.

Digital transformation isn’t just about digital technology; in many cases, it requires re-evaluations of operating processes, business processes, and core technology systems. So let’s take a look at the building blocks of digital transformation.

What are the building blocks of digital transformation?

The path to digital transformation isn’t something that can happen overnight. 
According to research published on MIT, there are 5 building blocks of digital transformation.

  1. Operational backbone — a set of integrated and shared systems, processes, and data that ensures efficiency, reliability, and transparency of operations and transactions.
  2. Digital platform — a repository of business, technology, and data components facilitating rapid innovation of new offerings and enhancements. 
  3. Shared customer insights — organizational knowledge about what kinds of digital offerings customers want and are willing to pay for.
  4. Accountability framework — clear ownership of, and coordination among, a growing set of digital offerings and components.
  5. External developer platform — a digital platform that allows an ecosystem of partners to contribute to and use digital components.

To understand more about these building blocks, check out this video:

The roadmap to digital transformation

We’re many years into the era of transformation, but things continue to grow faster than ever as the speed of change continues to escalate. It is challenging for business leaders to put together a plan for digital transformation. The first step is to recognize that technology shifts are constantly happening around the world. Next, create a roadmap for your organization and do an audit of where your business is. Mckinsey gives us ten guiding principles and three stages to follow:
Stage 1 – Defining value

  1. Secure senior management commitment
  2. Set clear ambitious targets
  3. Secure investment

Stage 2 – Launch and acceleration

  1. Start with lighthouse projects
  2. Appoint high-caliber launch team
  3. Organize to promote new agile ways of working
  4. Nurture a digital culture

Stage 3 – Scaling Up

  1. Sequence initiative for quick returns
  2. Build capabilities
  3. Adopt a new operating model

Conclusion

As mentioned throughout this article, there isn’t just one way to look at digital transformation. Not only is digital transformation technology-focused but it is also operational and cultural. If leadership and colleagues aren’t on board for digital transformation, then the enterprise will fail at its attempt to transform digitally. The only way forward is to learn and apply lessons as they come. In the end, customer satisfaction will increase, cycle times will shorten, and operational costs will be reduced.

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