Digital Transformation – It’s No Big Deal!
Well, maybe compared to an even broader “Business Transformation” or especially a full-scale “Business Innovation.”
But let’s step back for a second and kill the buzz of this super-buzzy buzzword. “Transformation” means “change.” It’s that simple. Granted, a transformation typically implies a more radical change than the color of a logo or the location of a manufacturing facility, but it’s a change, nonetheless.
And in the context of businesses, the goal is to change or transform to a state that is in some way better than the current. For example: more revenue, lower costs, increased speed/productivity/quality, more satisfied customers or happier employees. In even more ambitious scenarios, businesses may be trying to create new categories or disrupt an industry (or avoid being disrupted by their competition).
Like it or not, transformation is big business. IDC recently estimated that 40 percent of all technology spending will go toward digital transformations, with enterprises shelling out in excess of $2 trillion by 2019. IDC also calculates that worldwide, digital transformation could be worth $18.8 trillion in additional business value. That a 9X ROI in case you didn’t notice.
All this spending is for good reason. Couchbase just completed a CIO survey and determined “a business that can’t keep up with digital innovations in its industry will survive for less than five years before going out of business or being absorbed by a competitor.” And even without the fear of being disrupted, achieving digital transformation makes dollars & sense. According to Harvard Business School, leading digital adopters posted a three-year average gross margin of 55% vs. just 37% for digital laggards.
The challenge is that most digital transformations fail to take root and produce ongoing fruit. A recent report by the Everest Group found that 78% of enterprises fail to scale and sustain their digital transformation initiatives. They surveyed 328 enterprises and determined that a misalignment of business operating models and digital strategy is to blame. And it’s no surprise, because most people don’t even know what digital transformation is… Illustrating this, Salesforce interviewed 562 enterprise employees and found that even in companies that had prioritized digital transformation, more than 2/3 of employees “wouldn’t be confident explaining the concept to somebody else!”
Disruption happens. Think Uber vs. Yellow Cab, Airbnb vs. Marriott, Netflix vs. Blockbuster, HBO vs. the Networks, TV vs. Radio, Cars vs. Horses, Electric Light vs. Candles. You get the picture. Between 1955, the year the Fortune 500 was first identified, and 2017, 88% of the original companies had changed. That means that 440 of the companies are either out of business, acquired or supplanted by their competition. Don’t let this happen to you! Capture your operational models, collaborate on them, simulate potential improvements and monitor (and mitigate) risks. Or be the innovative disruptor.
Transformation happens, too. Think IBM shifting from mainframes to PCs and now to software and professional services. Or Amazon, from a pretty stellar ecommerce provider to a pretty stellar ecommerce provider with an amazing, hyperscale cloud hosting side hustle (Amazon Web Services). Or Apple, who transformed from a computer company, to a computer plus MP3 music player company and then phone + tablet + watch + TV business, and is now generating more of its revenue from services (iTunes Music and the App Store) than hardware!
So what about the “digital” flavor of transformation? Despite being arguably the most “buzzy” of the words, digital transformation also describes the most narrow range of change. At the simplistic end of the continuum, it could simply be converting analog to digital; paper files to electronic files, brick & mortar to ecommerce, call center to chat. But it can go much further, potentially replacing employees with bots, analysts with artificial intelligence, and miscellaneous customer interactions with carefully charted customer journeys. In fact, some will say that digital transformation is solely about finding new/improved ways to engage with customers. That it’s only about carefully mapping customer journeys and tweaking them methodically, often using digital systems, platforms and networks. But others won’t.
I know many of these words have subjective interpretations, so let me know if you think I’ve miscategorized anything. I’d love to discuss. I’d also love to help. iGrafx is a digital transformation engine. The most scalable, enterprise-grade engine available. It’s all we do.