Digital Transformation (DX) describes a foundational change in how an organization delivers value to its customers. It equips organizations to re-design their business model to create its customer value and profitable returns for shareholders.
In light of recent advances in digital technologies such as cloud computing, big data, the Internet of Things, 5G, virtual reality, 3D printing, artificial intelligence, drones, robots and blockchain (etc.), practically every business in the world has the opportunity to lever digital technologies to yield more customer value -or at the very least, reduce operating costs.
Digital Transformation sees ‘IT’ transitioning from a subject that happened in back-offices – to automate processes by equipping workers with computer processing tools – to something that customers, partners and suppliers can harness themselves. This shift from back-office to front-office means that no longer is IT about enforcing best practise into processes by installing Systems of Record that every other competitor also happens to use. Instead, IT becomes a game-changer; but only when it is tailored to deliver the unique characteristics of the business model that exists in the enterprise.
Digital Transformation has moved enterprise IT into the limelight having re-sited enterprise software from a state of competitive neutrality to a competitive weapon; from heavily standardized to heavily tailored; from a state where a slow-pace of development was ‘liveable’ to a state where extremely fast still isn’t fast enough.
The impact of digital transformation on business success
The outcome of a digital transformation is normally a step change in operational effectiveness and growth. Recent research conducted by Harvard Business School suggests that companies that are digital laggards don’t perform as well as those that embrace digital transformation. They write, “organizations that scored in the top quartile of our digital transformation index obtained much better gross margins, earnings, and net income than organizations in the bottom digital quartile. Other financial and operating indicators showed similar disparities.”
A Transformation in Business Models Enabled by Digital Innovation
Harnessing new digital technologies to create more customer value and reduce operating costs is a challenging prospect to many organizations accustomed to primarily investing in slow-coach IT to keep the lights on. To leverage the potential of technologies like big data, artificial intelligence, blockchain, the Internet of Things, virtual reality and cloud computing (etc.), your enterprise needs to embrace a digital ecosystem that’s able to embrace new technologies and adapt to change affordably and expediently. That’s why NDMC invented ENCANVAS to support digital transformations by equipping organizations to adapt their IT to fit their business model. We describe it as a business model orchestration and it normally means the evolution of enterprise IT architecture to embrace code-less ‘Live Wireframing’ of applications.
A 2019 report by Zenzar found that employees too understand the value of having the right digital tools to get the job done. More than three-fourths (76%) of the 1,000-plus survey group said having the digital tools they need at work makes them more productive. More than half (53%) said it makes them more successful. The same share said they would be more empowered to better manage workflow if provided with the IT tools they needed, and 42% said it speeds up boring tasks. Some 68% of the 18 to 34 age group said having the digital tools they need at work makes them more productive. That’s a significant share. But it’s even higher – at 80% – for the 35 to 54 age group. And a whopping 83% of workers age 55 and older agreed.
Source: Zenzar 2019 report
The jumping-off point
Most large organizations today struggle to leverage new innovation in their business model. They work in hybrid environments, connecting digital and analogue technologies together as best they can. The last decade has seen efforts to move business processes online and create digital ecosystems where customers, suppliers and providers can come together to share a common data processing platform (i.e. a digital platform) that serves all stakeholders. That said, many businesses still operate online shops only to hand-crank orders through traditional back-office systems and processes.
Barriers to digital transformation success
A series of factors are holding businesses back from embracing digital. They include:
Weak or mis-aligned leadership
Several CIOs have reported difficulties in getting their CEO to appreciate the impact that digital transformation can have on their business model. Yet, some of this criticism my be unjust given that the average tenure of a CEO these days is less than 5-years. ‘Professional CEOs’ are tasked with achieving results during their tenure if they want to receive their bonuses, and that inevitable maps a short-term view to strategies. This has caused some CIOs to suggest ‘nothing can happen until the CEO resigns.’
An absence of ‘fast-IT’
Gartner predicted a few years ago that companies looking to implement a digital transformation would look to move towards a ‘two-speed IT’ to overcome the sluggish pace of innovation in incumbent IT teams charged primarily with the task of ‘keeping the lights on;’ This, during a period when IT was often described as the business avoidance department.
Conflicting IT strategies and project distractions
Incumbent IT teams charged with ‘keeping the lights on’ – and used to spending as much as 70% of IT budgets on core business systems – have found themselves under pressure to respond to digital transformation. They are being asked to re-define their role or move over and let new Development Operations teams (‘DevOps’ for short) take on the chalice of driving a digital transformation. This, when many IT teams are already swamped by work to unify systems, upgrade core business systems, port self-hosted platforms to the cloud, and find answers on how to govern and secure data better, faced with the risk of high non-compliance fines.
Departmental leader wars
Department leaders find themselves competing to lead the charge to digital transformation, or a least not be left behind when new budgets for tech innovation surface in the boardroom.
A lack of technical understanding that inhibits ambition
Generally, the level of technology appreciation and understanding in boardrooms is poor. New concepts like big data, cloud computing, the Internet of Things and blockchain have left many boardrooms behind. The paradigm shift potential of digitally transformative technology is easily lost on individuals that aren’t able to grasp the richness of the detail.
Head in the sand ‘ostrich syndrome’
Like any agent of change, there is always the likelihood that leaders will choose to dismiss the importance of digital transformation as being ‘a bit of a fad’ and instead choose to stick their heads in the sand. They may well elect to avoid having to make a decision ‘on their watch’, particularly when the evidenced Return on Investment (RoI) of projects is unclear.
Where to start with your digital transformation
Adopting a top-down approach to enterprise IT and creating a single, unifying digital platform with modern cloud platforms will transform your business and its ability to compete in the digital age.
McKinsey & Co. suggest companies with digital platforms enjoyed an annual boost in earnings before interest and taxes (EBIT) of 1.4 percent, compared with the 0.3 percent gains of non-players. They go on to state that performance effects are cumulative, with EBIT improvements adding to early-year gains, so over a five- year period, platform players may capture an additional 10 percent in EBIT growth—a company’s 2 percent EBIT growth, for example, would increase to 2.2 percent in year five.
Source: ‘The right digital-platform strategy’, McKinsey & Co, May 2019
The road is long
Both market analysts and practitioners agree, the road to become a digital leader is paved with challenges, but those that survive the next decade are likely to be the businesses that get there – eventually.
Digital transformation is expected to grow at CAGR of 20.1 per cent from 2017 to 2025 by streamlining business processes
NDMC has been delivering digital transformation projects for bluechip clients since 2003. Many of our clients sought more clarity over their customer profitability and buying behaviours. Furthermore, they found the use of many different software tools as being unhelpful in decision making. In the light of cloud computing advances, it’s now possible to create overarching digital platforms to harvest, process and analyze customer-related data. As a matter of fact, most data used in the enterprise is customer-related – it just takes a re-invention of data architectures to realize it!
‘How can companies overcome their digital transformation challenges’ article by AON Hewitt
CIO report on the pace of adoption of digital transformation.
HBR article – ‘Competing in 2020: the winners and losers in the digital economy’
‘Keeping pace with transformation’ article by PwC.
Grand View Research report on digital transformation market growth.
McKinsey report – ‘The how of transformation.’
‘The impact of the digital workforce’ article by Radius.
CNBC article – ‘Why technology spending isn’t all its cracked up to be: Study’