The 4 Strategies of Digital Transformation

The 4 Strategies of Digital Transformation
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As organizations rush to devise frameworks and enable digital transformation, experience has shown that the process is not a monolithic task. Indeed, it consists of various strategies, each with its unique effects on an organization.

As top business leaders benefit from the disruption caused by the pandemic, the potential of these initiatives to yield a return on investment is still closely tied to sequencing them according to the organization's most pressing needs and proceeding swiftly.

When thinking about digital transformation, simplify your approach into four strategies:

  1. Process Transformation—leveraging technology to redesign processes to streamline operations and increase the value delivered to customers.
  2. Business Model Transformation—embedding comprehensive resource plans, focusing on enhanced profitability and new revenue generation opportunities.
  3. Domain Transformation—introducing new synergies related to adjacent or entirely new markets. It involves blurring boundaries and bridging gaps between legacy market positioning and encroaching niche markets created by new digital capabilities.
  4. Cultural Transformation—adopting new systems and digital functionality empowering personnel to collaborate, eliminate unnecessary effort, and increase transparency and accountability through technology. This type requires encouraging and supporting a shift in employee mindset around the role digital plays in their day-to-day responsibilities.

Breaking Digital Transformation Down Into its Constituent Strategies

While businesses across industries identify the urgent need to implement their digital transformation, most face expensive investments that historically yield a low return.

High failure potential is typically evident from lack of employee engagement and insufficient support from top management. Still, there's one that is coming to the fore as an equal deterrent to success—lack of clarity.

Treating digital transformation as a singular process can cause organizations to misallocate resources across their digital transformation journey. As a result, transformation becomes bloated with immaterial details and a confused workforce that is slow to adopt change. This lack of clarity is reasonably easy to address by understanding the latest digital transformation strategies—the four outlined above and extensively detailed below—and utilizing each one effectively with well-defined intent and outcomes.

Far-reaching disruptions, rapid technological advances, and quickly changing consumer tastes deprive organizations of the luxury of rigid multi-year plans.

The new business landscape, dynamic and fast-paced, calls for speed and precision in implementing digital transformation to stay ahead of threats from rivals. Organizations must cut through complexity and empower faster, nimbler, and more effective decision-making. The following is an in-depth analysis of the four strategies of digital transformation.

Process Transformation

Process transformation involves the practices, procedures, and work instructions that guide the operations of a company. Capabilities tend to revolve around data, analytics, machine learning, AI, and other novel technologies that can help a company re-engineer the value delivery chain.

As businesses adopt new processes, enabled by various digital capabilities and user interfaces, maintaining communication and consistent data flow is critical, requiring substantial changes (and investment) to the IT architecture underpinning the organization's digital capabilities. Many companies are turning to cloud-native solutions due to higher availability, scalability, and cost-effectiveness. Be mindful, however, that cloud adoption is not suitable for all use cases, but it can create better cost to benefit opportunities.

Li and Fung, a logistics organization, is a case study for process transformation effectiveness. By overhauling their model-generating system and shifting it to the cloud, the company reduced the time to design by 50% and month-end closing times by 30%. The transformation increased capital efficiency by $200 million, demonstrating the bottom-line impact of a well-executed and successful process transformation strategy.

Process transformation impacts an organization's entire digital framework and requires significant updates and new capabilities. Implementation is best led collectively by an organization's Chief Information Officer (CIO), Chief Digital/Data Officer (CDO), Chief Technology Officer (CTO), and Chief Innovation Officer (CINO). A practical and adequately planned process transformation aims at creating a robust digital architecture for the business that enhances the speed-to-market of new offerings through increased scalability and agility.

Greater Access to Data

Information is a strategic asset and requires access to a cornucopia of data sources. A successful process transformation strategy broadens and deepens access to data—empirically gauging company performance and identifying high-impact opportunities. 45% of business leaders see Big Data as the key to predicting business outcomes with greater certainty and precision.

Data is often wide-ranging, covering various aspects of a business. Leaders can leverage this newly accessible data to inform other aspects of their digital transformation and accurately identify the exact areas where an organization's processes are struggling to meet demand. Data also has far-reaching effects on the consumer. It can allow an organization to establish a 360-degree customer view where each interaction serves as a data point that, when viewed in context, informs the organization on the best way to engage the customer.

Business Model Transformation

Business model transformation encompasses the fundamentals of the organization's value delivery, often extending to the factors that drive profitability. It adopts the technology that enables a business's new capabilities and expands its reach to serve customers previously unavailable.

A successful strategy starts with reimagining the customer journey that accounts for the transformation and its impact on customer value delivery. Businesses must mitigate against new friction that may arise from change. As we've found in our work with clients, best practice includes comparing the remapped customer journey with longstanding consumer expectations. It's equally essential to modify value proposition communications—highlighting increased customer benefits.

Success hinges on new resourcing plans and optimization efforts to provide adequate support, especially during the initial transformation stages.

In recent years, we have seen the business model transformation is applied, in earnest, to company billing functions. Interconnectedness created by cloud technologies (e.g., Internet of Things) empowers organizations to implement new billing capabilities (and many others) while minimizing customer impact—maintaining relationships and securing ongoing business. Such shifts have become prevalent, with organizations that were previously dependent on pay-as-you-go models shifting to subscription models and cloud-hosted payment gateways. Similarly, some businesses have capitalized on business model transformation to tiered pricing—enabling them to capture a broader range of customer segments and cater to various budgets.

Adapting to Achieve Agility

Business model transformation usually includes proactive and reactive elements, especially as businesses continue to face disruption and competitor threats. Besides its proven ability to create new opportunities to maximize profit and capture a larger share of the market, business model transformation enables organizations to achieve the agility necessary to respond swiftly to competitors and to absorb impact while mobilizing effective shielding when disruptions occur.

Highly agile businesses have quickly devised ways to continue serving customers even during a significant disruption event. This skill typically increases when companies harness business model transformation strategies driven by adaptability, scalability, and flexibility. High flexibility is usually evident by deeply ingrained agility powered by digital tools, including supply chain management, customer communication, and workflow management systems used every day.

Domain Transformation

Domain transformation focuses on equipping the organization with the latest digital capabilities to serve new markets. In unison with the organization's needs, it extends services to markets previously adjacent to its traditional operations or entirely new ones. Though leaders typically leverage domain transformation to disrupt a new industry, opportunities also exist for incumbents. When properly organized and informed, market incumbents have the advantage of deploying resources to pre-empt threats from probable competitors.

Amazon presents a case study on this with the creation of Amazon Web Services. The organization repurposed technology that it had been using internally and scaled it to provide cloud computing infrastructure to small business and enterprise customers. That led to entirely new revenue opportunities, with Amazon Web Services now accounting for over 60% of the organization's revenue.

Other large businesses that have successfully carried out domain transformation projects include Netflix and Adobe.Netflix, for its part, went from providing streaming services that were based entirely on content offered by third parties to creating and producing content. This shift led to a 56% increase in profits and a compound annual growth rate of 59%. Adobe, similarly, shifted from selling tools for designers to becoming a creator and distributor of digital experiences, resulting in a 27% increase in growth.

Repositioning the Core

Domain transformation tends to be easier to achieve once the business has successfully implemented a more robust and agile core­—mitigating risks associated with entering new markets where success requires sustainability, repeatability, and scalability. Completing the transformation of an organization's core (i.e., foundational business' processes) also provides insight into whether the company can reap meaningful benefits from crossing over into new markets and uncover synergies that leaders can leverage to thrive in new markets—sequence matters.

If the organization lacks sufficient resources to serve new markets and meet customer expectations (set by incumbents), partnerships with other businesses may be necessary to cover any shortfall. This stopgap relies on extensive core transformation beforehand to identify mutually beneficial partnership opportunities. Vitally, any partnership faces the challenge of protecting intellectual property (IP)—doable with modern digital infrastructure and security standards.

The challenges of repositioning the core are often the same. It mainly depends on redefining historical business boundaries, expanding them to identify and absorb new niches. Reskilling internal talent and sourcing target market experts to quickly scale and take market share from the competition.

Domain transformation is complex and requires a comprehensive strategy that ensures invested resources yield the market share needed to offset risk and be profitable.

Cultural Transformation

Cultural transformation primarily focuses on fundamentally changing how employees carry out tasks and collaborate across the organization. Shifting employee mindsets tends to be the first step when implementing this kind of change, ensuring that workforce resistance doesn't get in the way of the transformation's benefits.

Top management often works closely with middle management to devise strategies and in-depth monitoring tools to give insight into the adoption rates of new digital tools introduced to the workforce. An effective transformation strategy and toolset empowers staff with agile workflows, granting them the ability and means to be innovative in their current role.

Collaboration

Organizations are becoming increasingly focused on influencing culture by introducing digital tools that increase collaboration between employees. This trend includes applications that reduce friction in employee communication, such as knowledge-sharing platforms and video conferencing apps.

Collaboration-focused cultural transformation enables more generous sharing of information between various organization departments. Departments such as marketing, sales, and customer support can share information seamlessly, with each department benefiting from a broader context. The result is greater organizational alignment, ensuring that customers receive a consistent brand experience, which has proven to boost revenue by at least 34%.

Greater Efficiency and Training

Increasing employee productivity is also a probable use case in cultural transformation. Productivity tracking options are growing exponentially, with 75% of organizations now using HR analytics to identify efficiency gaps in how their employees work and structure training projects to address improvement opportunities.

Beyond individual employee performance, HR analytics offer a holistic, data-driven view of workforce performance that is more objective than the traditional review process. Companies can gather performance data across the enterprise and still drill down, when needed, to uncover individual contributions to a specific project. Best practice includes giving employees the ability to self-evaluate their performance based on similar datasets—encouraging more effective self-assessments and subsequent professional improvement.

Cultural transformation can also promote efficiency by giving employees the means to share resources within the organization. One study found that staff loses one hour of productive time during meetings because of poor planning and minor logistical issues such as booking conference rooms. New digital capabilities eliminate this problem by empowering employees to book resources based on availability and utilize AI tools to automate the process. This planning and liaison, which often comes at the cost of lower productivity and less time spent on mission-critical tasks, is another example of how digital transformation can create a more efficient workforce.

Closing Thoughts

As organizations prepare to plan and implement a digital transformation initiative, they must determine the strategies they require, based on their needs and aspirations, to be successful. Doing so ensures that they be intentional and remain focused on current and future needs—enabled through the digital capabilities necessary to remain competitive and relevant.

Focused intent offers the fastest and most assured route to a digital transformation that positions an organization for future success—creating differentiation and a unique value proposition that ensures a company's solvency for years to come.

Acknowledgement: Sources are provided for informational and reference purposes only. DeWitt has no vendor affiliations, offers no products, and has no conflicts of interest.

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