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October 06, 2023 - by Devico Team

Digital Transformation vs. Business Transformation

Imagine: you have founded a company that has been operating on the market for some time. The company is profitable and gains ground, but after having your own time, you feel stagnation. You want to scale and develop your business. Somewhere you heard about business transformation and are full of beans to try to turn your company into a niche monster. Sounds cool, right? But in reality, it turns out that you fall under 70% of businesses that fall flat to implement changes for a variety of reasons: from inconsistency to resistance from staff. By the way, this is McKinsey statistics.

However, you come across an article, "Digital Transformation vs. Business Transformation," in the Devico blog. Of course, one article will not help you immediately improve your affairs. But you are definitely on the right track: here, we will consider effective digital transformation strategies and define the difference between technology changes and business changes.

A Word About The Digital Transformation

Do you also associate this term with innovation? In a sense, this is true. But beyond the buzz lies a profound shift that reshapes organizations from their core.

The Salt To Embrace. At its core, digital transformation is the strategic integration of digital technologies across all facets of a business, fundamentally altering how it operates, engages with customers, and creates value. Unlike traditional IT overhauls, digital transformation transcends mere technological upgrades, permeating every facet of the organization to foster agility, innovation, and customer-centricity.

Key Drivers and Catalysts. Technology transformation isn't a mere choice; it's a response to evolving market dynamics. Companies embrace it to remain competitive, enhance customer experiences, and adapt to changing consumer behaviors. Global shifts, such as the surge in remote work and the explosion of e-commerce, have accelerated the urgency for digital transformation.

The Role and Possibilities. Technology acts as both the vehicle and the fuel for digital transformation. Cloud computing empowers scalable operations, while data analytics yields insights that drive informed decision-making. AI and machine learning infuse automation and personalization, and IoT sensors offer real-time data for enhanced efficiency.

Examples, Evidence, Proofs. The business history bears testimony to remarkable stories of changes. Starbucks, for instance, revolutionized its customer loyalty program with its mobile app, experiencing a 39% increase in revenue from loyalty members.

General Electric transformed into a "digital industrial" company, harnessing data analytics to optimize its operations and services. By the way, their improvements led to significant results: from USD 2.47M in outage savings for RasGas to 100% ROI for Joy Global.

The automotive giant Ford embarked on a digital journey to connect vehicles, customers, and dealerships, creating a seamless ecosystem.

These instances illustrate how digital transformation not only revolutionizes industries but also redefines the entire customer experience landscape.

In the dynamic interplay between technology, business strategy, and customer-centricity, such changes emerge as the compass guiding organizations toward a reimagined future. But as we unravel the layers of this paradigm shift, a question emerges: How does digital transformation diverge from its close counterpart, business transformation?

A Word About The Business Transformation

Amidst the ever-evolving landscapes of commerce and industry, "business transformation" stands as a beacon of strategic reinvention. This sweeping change doesn't merely tinker with the mechanics; it orchestrates a harmonious symphony of structural shifts, operational enhancements, and cultural revolutions.

The Salt To Embrace. Digital business transformation encompasses the fundamental overhaul of an organization's processes, strategies, and structures to align with emerging trends, enhance competitiveness, and drive sustainable growth. It's the deliberate pivot from status quo to strategic metamorphosis, guided by a vision of future success.

Key Drivers and Catalysts. Organizations embark on business transformation journeys for various reasons. External forces like market disruptions and shifts in customer preferences can trigger the need for adaptation. Internal factors such as operational inefficiencies and growth aspirations also impel organizations to embrace transformation.

Examples, Evidence, Proofs. The scope and examples of business transformation extend beyond singular aspects. They stretch their fingers across organizational structures, optimizing hierarchies and workflows. They delve into processes, streamlining operations and eliminating bottlenecks. But perhaps most subtly, they permeate the culture, fostering an ethos of innovation and collaboration.

As Haier Group, for example. They transformed from a traditional appliance manufacturer into a platform-based ecosystem. Its open innovation model allowed employees to become "micro-enterprise" owners, leading to rapid innovation and market expansion.

Or well-known LEGO. In the early 2000s, the company faced financial struggles. A transformational journey ensued, focusing on innovation, streamlined operations, and diversification beyond toys. By 2020, LEGO's revenues grew fourfold, making it one of the world's most successful toy companies.

And, of course, we can't ignore the Ukrainian state in the smartphone. Diia application architecture will now be exported to Estonia at least and may continue expansion to other EU countries. And this is despite the war. A great example of business transformation of the public sector.

Key Differences between Digital Transformation and Business Transformation

FeatureDigital TransformationBusiness Transformation
Focus and ScopeUse of digital technologies to improve business processes and operations.Fundamental changes to the way a company operates, including its strategy, culture, and processes.
Technology vs. Holistic ChangeTechnology-driven.People-driven.
ImpactShort-term gains in efficiency and productivity.Long-term sustainable growth and success.
ApproachFocuses on improving processes and systems.Focuses on changing the way people think and work.

Let’s explore the difference in abstract examples.

  1. Business transformation. A retailer that decides to sell its products online is undergoing a business transformation. This is because the company is changing its business model to reach a wider audience and compete with other retailers that are already selling online.

  2. Technology transformation. A bank that automates its loan application process is undergoing a technology transformation. This is because the bank is using technology to improve the efficiency of its business processes.

And now, let’s polish your understanding with real-life examples.

IBM. This giant has gone through a changing pathway from a hardware company to a software and services company. The company realized that the hardware market was shrinking and that it needed to transform its business to stay relevant. IBM shifted its focus to software and services, which now account for more than 80% of its revenue.

Netflix. Another example of turning from a DVD rental company into a streaming service. Netflix also realized that the DVD rental market was shrinking and that it needed to transform its business to stay up to date. Netflix shifted its focus to streaming and still stays out and about.

Domino's Pizza. Owners realized that they needed to improve their digital capabilities to stay competitive. Domino's launched a digital transformation initiative that included the development of a new mobile app, online ordering system, and delivery tracking system.

Synergies and Interplay between Digital and Business Transformation

Any change is pain. When you start exercising, it hurts. When you change from one job to another, it hurts. When you move to another country and change your social circle, you hurt too. It's the same in business — any change forces you to build new neural connections between different parts of your business. It can be hard, but it definitely pays off a hundredfold.

Complementing Objectives

Digital and business transformation may seem distinct, but their ultimate objectives are often intertwined. Both aim to drive growth, enhance efficiency, and bolster an organization's competitive edge. Digital transformation provides the technological backbone for these aspirations, while business transformation molds the overarching strategy to navigate these newfound digital pathways. Take any business that has experienced technological change. With a 90% probability, a foundation of strategic changes, cultural shifts, and working arrangements was laid first. And only then (as part of that change) did technological innovation come into play.

Leveraging Technology

Digital tools aren't just agents of technological change; they are the architects of holistic transformation. The integration of digital tools can optimize organizational structures, streamline processes, and foster a culture of innovation. For example, as part of its business transformation journey, General Electric harnessed data analytics to optimize operations and services, unlocking new revenue streams. Also, Domino’s Pizza, mentioned above earlier, decided they could do with a new app and remote ordering system which led to sales and loyalty increase. And speaking in general, you can't pass by new technologies if you want to be competitive in the current times. Here's a little test to see if you are ready to embrace the new (and therefore the new success). Take a look at the image below, which segment can you categorize your company in? If this question doesn't have an answer for you, things are bad.

Cultural Shift and Digital Adoption

The success of digital initiatives often hinges on cultural transformation. When employees embrace digital technologies and innovative mindsets, it accelerates the pace of change. Haier Group's "Rendanheyi" model exemplifies this synergy, where employees become micro-enterprise owners, driving innovation and adaptability. This cultural shift amplifies the impact of digital transformation within the organization.

Data-Driven Decision Making

In the realm of business modification, data is the currency that fuels informed decisions. Digital business transformation strategy generates a wealth of data from customer interactions, operations, and market trends. By leveraging this data, organizations can make strategic decisions that optimize processes and enhance customer experiences. Unilever's commitment to sustainability, as part of its business transformation, relied on data-driven insights to reduce environmental impact while maintaining market competitiveness.

In the evolving landscape of modern business, the lines between digital and business transformation blur, forging a symbiotic relationship where technology fuels holistic change, and cultural transformation propels digital innovation. This synergy isn't merely a strategic choice; it's an imperative for organizations seeking not just to survive but thrive in an ever-transforming world.

To Sum It Up

Digital transformation sharpens the digital facets of operations and customer interactions. Business transformation, in its broader scope, redefines organizations holistically, from structures to culture. They differ not in purpose but in the avenues they traverse.

The interplay named digital transformation vs. business transformation leads to more than a strategic choice; it's a linchpin for sustainable growth and adaptability. While the first concept forms the digital backbone, the second one shapes the overarching strategy that navigates the digital labyrinth. Uniting both endeavors is like crafting a symphony, where each instrument contributes to the harmonious whole.

As the digital and business transformations continue to dance in the spotlight of progress, remember that the melody they create is one of resilience, agility, and growth. The symphony of their interplay resonates with organizations that dare to not just adapt to change but orchestrate it.

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