Digital transformation is a foundational change in how an organisation delivers value to its customers. Here is what digital transformation entails — and how to tell whether your organisation is on the right path.
What is digital transformation?
Ask 10 CIOs what digital transformation means, and you’re likely to get 10 different answers, owing to different business models. At a high level, digital transformation represents a radical rethinking of how an enterprise uses technology to radically change performance, says George Westerman, principal research scientist with the MIT Sloan Initiative on the Digital Economy.
Digital transformation, which Westerman says must start with the CEO, requires cross-departmental collaboration in pairing business-focused philosophies with rapid application development models.
Such sweeping changes typically include the pursuit of new business models and, by extension, new revenue streams, often 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 organisations."
Catalysts for digital transformations may also include disruption from incumbents and startups. Witness Amazon’s steady encroachment on the turfs of virtually retailer and, more recently, its shipping partners such as UPS and FedEx.
Another way to look at digital business transformation? Using data and analytics to re-engineer commercial business processes and capture new value creation, says Bill Schmarzo, CTO of digital technology firm Hitachi Vantara. “If it can’t drive economic value, why do it?” Successful companies construct customer journey maps to identify sources of and inhibitors to value creation, Schmarzo says.
Digital transformation vs. optimisation
Here's the dirty little secret: What many CIOs describe as a digital transformation actually isn't. Mobile apps, AI-based chatbots, analytics and other digital services are often used to augment existing services.
"In a nutshell, we reserve digital business transformation for companies pursuing net new revenue streams, products and services and business models," says Gartner analyst Hung LeHong, whose job includes assessing whether companies are conducting a "digital business transformation" or a "digital business optimisation."
Digital business transformations can include the creation of new digital business units or digital acquisitions. Sometimes the new business models lead to ventures in adjacent markets or new industries.
General Electric, with its "digital twin" initiative to sell locomotive engines and jet turbines as a software service, is orchestrating a digital business transformation, LeHong says. Bold as GE's digital strategy is, it’s what a company does because it fears disruption or because it intends to disrupt its industry.
GE is among the 10 percent of companies Gartner has surveyed that is actually doing this form of transformation. The other 90 percent are conducting various forms of "digital business optimisation." This entails using digital tools to "supercharge" productivity, bolster generation of existing revenue streams and boost customer experience.
For example, Shake Shack this year launched a mobile app that enables mobile ordering, ostensibly to reduce customer wait times. ServiceMaster has tapped a mobile platform to improve the way it connects contractors with customers. UPS partnered with startup Latch on an IoT-enabled smart delivery service that allows drivers to drop off packages in multi-family apartments in New York City. By themselves, these tools are not transformative.
LeHong says part of his job is to meet with CIOs and the business executives ultimately responsible for driving the strategy, such as a CEO, COO or CFO. Getting IT and business leaders together helps the companies "double click" on whether they are transforming or optimising their businesses. Once they answer that question, they can appropriately tailor and set their expectations.
Digital transformation strategy
Successful digital transformations do not begin with technology. Instead, they focus on overhauling the organisation with a customer-focused goal in mind. As such, there is no singular playbook. But a common theme among digital journeys is that talent is what drives them, says CarMax CIO Shamim Mohammad, who in transforming the used-car retailer organised product teams that included a product manager, a lead developer/engineer and a user experience specialist. These teams took a customer-centric view in building new products.
Other organisations have adopted a holistic collaboration model. Pitney Bowes, for example, formed a tech strategy team and global innovation roundtables to foster greater collaboration. “All teams were sharing practices to test continuous integration and continuous delivery so all apps moving to the cloud were benefiting,’’ says James Fairweather, the company’s CTO of commerce services.
These companies also adopted a startup mentality, were unapologetic about change, and secured buy-in from senior management.
Digital transformation examples
While several enterprises are in the midst of digital transformations, some stand out, either for scope and scale or the industries they target. Nissan, for example, is in the midst of sweeping change under new CIO Tony Thomas.
Quick wins for Nissan include a move to Office 365 and mobile-enabling the workforce, though Thomas acknowledges that he must do more to help the company compete in a sector where autonomous driving is the chief disruption bar none.
Connex Credit Union CIO Dennis Klemenz has split IT into three key units: core processing, which facilitates financial transactions; infrastructure, which includes a migration to a private cloud leveraging hyper-converged infrastructure, in which storage is included in the compute nodes; and analytics and innovation. Klemenz has also rolled out interactive teller machines, which drive-up customers use to conduct their financial transactions from a touchscreen.
Ask yourself whether what you're doing is disruptive to your business and to your industry. If you can say yes with a straight face, you may well be conducting legitimate digital transformation.