Digital transformation is the integration of digital technology into all areas of a business, fundamentally changing how you operate and deliver value to customers. It’s also a cultural change that requires organizations to continually challenge the status quo, experiment, and get comfortable with failure.
Digital transformation is imperative for all businesses, from the small to the enterprise. That message comes through loud and clear from seemingly every keynote, panel discussion, article, or study related to how businesses can remain competitive and relevant as the world becomes increasingly digital. What’s not clear to many business leaders is what digital transformation means. Is it just a catchy way to say moving to the cloud? What are the specific steps we need to take? Do we need to design new jobs to help us create a framework for digital transformation , or hire a consulting service? What parts of our business strategy need to change? Is it really worth it?
A note: Some leaders feel the very term “digital transformation” has become so widely used, so broad, that it has become unhelpful. You may not love the term. But love it or not, the business mandates behind the term – to rethink old operating models, to experiment more, to become more agile in your ability to respond to customers and rivals – aren’t going anywhere.
This article aims to answer some of the common questions around digital transformation and provide clarity, specifically to CIOs and IT leaders, including lessons learned from your peers and digital transformation experts. Because technology plays a critical role in an organization’s’ ability to evolve with the market and continually increase value to customers, CIOs play a key role in digital transformation
It’s also worth noting that today’s organizations are in different places on the road to digital transformation. If you are feeling stuck in your digital transformation work, you are not alone. One of the hardest questions in digital transformation is how to get over the initial humps from vision to execution. It creates angst: Many CIOs and organizations think they lag far behind their peers on transformation, when that isn’t the case.
This year, the COVID-19 pandemic has brought new urgency to meeting digital transformation goals – and forced many organizations to speed up transformation work. Yet IT leaders continue to grapple with challenges including budgeting, talent struggles, and culture change. Let’s dig in for advice from your peers and digital transformation experts.
What is digital transformation?
Because digital transformation will look different for every company, it can be hard to pinpoint a definition that applies to all. However, in general terms, we define digital transformation as the integration of digital technology into all areas of a business resulting in fundamental changes to how businesses operate and how they deliver value to customers. Beyond that, it’s a cultural change that requires organizations to continually challenge the status quo, experiment often, and get comfortable with failure. This sometimes means walking away from long-standing business processes that companies were built upon in favor of relatively new practices that are still being defined.
Digital transformation should begin with a problem statement, a clear opportunity, or an aspirational goal, Jay Ferro, CIO of Quikrete, recently explained. “The “why” of your organization’s digital transformation might be around improving customer experience, reducing friction, increasing productivity, or elevating profitability, for example,” Ferro notes. “Or, if it’s an aspirational statement, it might revolve around becoming the absolute best to do business with, utilizing enabling digital technologies that were unavailable years ago.”
Leaders, think about what digital transformation will mean – in practice - to your company and how you will articulate it. “Digital is a loaded word that means many things to many people,” says Jim Swanson, CIO of Johnson & Johnson. When you discuss digital transformation, unpack what it means, advises Swanson, who led digital transformation at Bayer Crop Science (and previously served as CIO at Monsanto) before joining Johnson & Johnson in early 2020.
At Monsanto, Swanson discussed digital transformation in terms of customer centricity. “We talk about automatingoperations, about people, and about new business models,” he says. “Wrapped inside those topics are data analytics,technologies, and software – all of which are enablers, not drivers.”
“In the center of it all is leadership and culture,” Swanson says. “You could have all those things – the customer view, the products and services, data, and really cool technologies – but if leadership and culture aren’t at the heart, it fails. Understanding what digital means to your company – whether you’re a financial, agricultural, pharmaceutical, or retail institution – is essential.”
Melissa Swift, who leads Korn Ferry’s Digital Advisory for North America and Global Accounts, agrees with Swanson’s take that that the word “digital” has a problem because it means a lot of things to a lot of people.
“Say ‘digital’ to one person and they think of going paperless; another might think of data analytics and artificial intelligence; another might picture Agile teams; and yet another might think of open-plan offices,” she notes.
“Digital” is a hot mess of a word. And this causes a lot of grief in organizations.”
“Imagine ordering a hamburger over and over, and getting everything from a hot dog to a chicken sandwich to a Caesar salad...” she says.
Why does digital transformation matter?
A business may take on digital transformation for several reasons. But by far, the most likely reason is that they have to: It’s a survival issue. In the wake of the pandemic, an organization’s ability to adapt quickly to supply chain disruptions, time to market pressures, and rapidly changing customer expectations has become critical.
And spending priorities reflect this reality. According to the May, 2020 International Data Corporation (IDC) Worldwide Digital Transformation Spending Guide, spending on the digital transformation (DX) of business practices, products, and organizations continues “at a solid pace despite the challenges presented by the COVID-19 pandemic.” IDC forecasts that global spending on DX technologies and services will grow 10.4 percent in 2020 to $1.3 trillion. That compares to 17.9 percent growth in 2019, “but remains one of the few bright spots in a year characterized by dramatic reductions in overall technology spending,” IDC notes.
At a recent MIT Sloan CIO Symposium series event, IT leaders agreed that consumer behavior has quickly shifted in many ways since the start of the pandemic. Sandy Pentland, a professor at the MIT Media Lab, described how optimized automated systems in areas like supply chain management broke down when faced with rapid shifts in both demand and supply — a reality that just about everyone has faced on a personal level during the pandemic.
It’s early to guess which long-term consumer behavior changes will stick. However, Rodney Zemmel, global leader, McKinsey Digital of McKinsey & Company, says that on the consumer side “digital has been accelerating in just about all categories.” An important factor to watch will be the degree to which forced change — three out of four Americans tried a new shopping behavior, for example — will revert when possible, post today’s emphasis on stay-in-place.
McKinsey data shows that the accelerated shift towards streaming and online fitness is likely to stay permanently, Zemmel says. But the biggest shifts were around food. Both home cooking and online grocery shopping — a category that has been generally resistant to getting moved online — will probably stay more popular with consumers than in the past. Cashless transactions are also gaining steam. On the B2B side, McKinsey data shows remote selling is working.