The Complete Guide to Digital Transformation

Imagine your favorite toy from childhood, one that's been with you for years, suddenly gaining the ability to adapt and evolve, becoming more enjoyable and helpful with each passing day. That's a bit like what happens when a business undergoes digital transformation. Sounds weird, but still — after leveraging digital transformation strategies, any company is able to be more helpful to its clients and more enjoyable to its owner.

Okay, let’s be more serious — digital business transformation is not just about fun and games. Digital transformation can make or break companies in today's world. Just look at how Amazon changed the way we shop or how Netflix transformed our entertainment. Businesses that embrace technology changes are more likely to succeed and stay ahead of the curve.

In fact, a study by McKinsey found that companies that fully embrace digital transformation steps are 23 times more likely to outperform their peers in terms of profitability. So, whether you're a small startup or a big corporation, understanding and embracing technology transformation is essential for survival and success.

In this guide, we'll dive deep into the digital transformation journey. We'll explore the different stages and strategies that lead to success. We'll also uncover common challenges and pitfalls, ensuring you're well-prepared to navigate this exciting but sometimes treacherous terrain.

Digital Transformation: Definition and Breakdown

At its core, digital transformation is like giving your business a technological makeover. It's the process of leveraging the power of technology to reimagine and revolutionize the way you operate. But let's break it down a bit further with some unconventional metaphors.

Imagine a caterpillar transforming into a butterfly. This is a process of metamorphosis, where the caterpillar undergoes a fundamental change to become a completely different creature. Digital transformation is similar in that it involves a fundamental change to the way a business operates.

Key Components of Digital Transformation

To truly grasp what is digital transformation, we need to explore its key components. Think of these components as the building blocks that construct the path to a technologically empowered future.

Technology Integration: This component involves incorporating cutting-edge technologies into your business operations. For instance, consider how ride-sharing platforms like Uber seamlessly integrated GPS and mobile apps to disrupt the taxi industry. In your business, it might mean adopting cloud computing for enhanced accessibility, scalability, and collaboration.

Process Optimization: Just as an orchestra tunes its instruments for a harmonious symphony, digital transformation fine-tunes your business processes for optimal performance. A shining example is how FedEx optimized its package tracking system using digital technologies, ensuring packages reach their destinations faster and more accurately. Or sonnen, a renewable energy B2C service provider. The company embodies the network of households that, with sonnen’s assistance, can generate, store, and exchange electricity.

Sonnen underwent a digital makeover centered on two complementing pillars between 2017 and early 2021. The first was the switch to Agile. It permitted structural changes in the organization, allowing it to better meet the needs of its customers, staff, and the ever-changing market. The second pillar was concerned with the software used by Sonnen to run its operations. Changes included enhancements to the application's sales elements and the sales process as a whole, as well as customer service and collaboration with partners (on both the software and process levels).

Customer-Centricity: Picture your business as a stage and your customers as the stars of the show. Digital transformation revolves around putting your customers at the center of every decision and interaction. We could provide a common example like Amazon, but let’s go by “gamma destination” and look at AI writing assistants. They tailor outputs and other content products to customer preferences. In other words, without the customer, there is no AI writer.

Data-Driven Decision Making: Think of data as the compass guiding your business through uncharted waters. Data-driven decision-making involves collecting, analyzing, and using data to make informed choices. Companies like Netflix have mastered this art, using viewer data to create hit shows and recommend content that keeps subscribers engaged. Another more unconventional example is the Nike Training Club app. The company started its changing journey in 2017 and still is at the forefront of innovations. The NTC app analyzes user’s preferences regarding sports and session duration and suggests tailored programs. Unfortunately, we can’t back up the fact that Nike skyrocketed their training plan sales, but we are sure that plans were sold like hotcakes.

The Evolution of Digital Transformation

Digital transformation has evolved from being a mere buzzword to a critical strategy for survival and growth in today's business landscape. In the United States, the journey began with companies like Amazon (sorry for the corny example), which disrupted traditional retail by pioneering e-commerce and using data analytics for personalized recommendations. Meanwhile, across the Atlantic, the UK saw early adopters like Tesco, which implemented digital transformation strategies to optimize supply chain operations and enhance customer experiences.

Here are some key milestones in the evolution of technology transformation:

• 1970s: The introduction of the personal computer and the internet laid the foundation for digital transformation.
• 1980s: The rise of enterprise software and CRM systems helps businesses to automate their operations.
• 1990s: The dot-com boom leads to a surge in investment in digital technologies.
• 2000s: The rise of cloud computing and mobile computing makes it easier for businesses to adopt digital technologies.
• 2010s: The emergence of artificial intelligence, big data, and the Internet of Things (IoT) accelerates digital transformation.

One standout success story in the US is Netflix. Yes, it's a hackneyed story, but it perfectly illustrates the serious and, more importantly, successful metamorphosis of business. This once DVD-by-mail service embraced a digital transformation strategy, shifting its focus to streaming content and using data-driven insights to produce original hit shows.

On the flip side, the cautionary tale of Blockbuster demonstrates the consequences of failing to adapt. Blockbuster's reluctance to embrace digital business transformation eventually led to its downfall, while Netflix soared.

Preparing for Digital Transformation: Steps

Any process has its stages and can be broken down into concrete steps. Including and even more than others, it's about digital transformation.

Assessing Current State and Objectives: Just as a navigator charts a course using known landmarks, your business must assess its current position and define clear objectives. This often involves conducting a comprehensive analysis of existing processes, technologies, and customer experiences. Studies show that companies that set clear long-term objectives and break them down into small steps are 1.5 times more likely to actually achieve them.

Identifying Pain Points and Opportunities: Well, this article is based on comparative metaphors, so there is another one. Remember Holmes or another seasoned detective. Like them, you must uncover pain points that hinder progress and opportunities that can propel you forward. There can be a sea of examples, but take General Electric's journey as one of them. By identifying the need to evolve beyond manufacturing to a digital industrial company, GE unleashed new opportunities in the realm of IoT and data analytics. By the way, their journey wasn’t “easy-peasy lemon squeeze”. They should accept many failures along the way, but the final result gives the company the chance to be named one of the most innovative businesses in the US.

Establishing a Vision for the Transformation: As Walt Disney famously said, "If you can dream it, you can do it." Craft a compelling vision that defines what digital transformation success looks like for your business. The most obvious example is the interaction process with the government in almost any country. Deloitte’s Digital Citizen Survey found that people started to be sure in official institutions only after their obtaining technology transformation. The most interesting thing is that only a quarter of respondents would prefer to contact with government through digital channels. By the way, it’s Singapore that has the most insignificant gap between the number of services provided and satisfaction rate — only 8%. This leads us to the idea that any company (or institution) can implement any tool and any process, but they must get to know exactly what they want to get at the end of the day.

Creating a Dedicated Team: Just as assembling a diverse team enhances creativity and innovation, creating a dedicated digital transformation team is crucial. This team should include experts in technology, data analytics, change management, and customer experience.

For example, let's consider a company that wants to implement a new customer relationship management (CRM) system as a part of its DT journey. The company assembles a dedicated team to manage the project from start to finish. This team would include experts in areas such as software development, data analysis, and user experience design.

So the chain would be something like this: strategists are identifying pain points and objectives, doing “budget chores”; analytics specialists and researchers are investigating the market for possible solutions; devs are helping to implement new CRM and testing it; and then the team makes the final decision whether it’s worth to get stick to a particular CRM. Working together, this team can ensure that the new CRM system is not only implemented smoothly but also optimized to meet the needs of the company and its customers. They can also provide ongoing support and maintenance for the system, ensuring that it continues to function properly and deliver value over time. Sometimes, this process is outsourced.

Securing Executive Support and Budget: Without the backing of top executives and adequate financial resources, your digital transformation dreams may remain on hold. Studies have shown that organizations with strong executive support are 1.4 times more likely to succeed in their digital transformation efforts.

In this preparation phase, remember that attention to detail pays off. By thoroughly assessing your current state, setting a clear vision, and building a capable team, you're laying the groundwork for a successful digital business transformation.

Building the Digital Transformation Strategy

With a solid foundation in place, it's time to craft a strategic roadmap that will guide your digital transformation efforts.

Define Clear Goals and KPIs

Just as a map requires destinations, your strategy needs clear goals and key performance indicators (KPIs). These benchmarks help you track progress and measure success. A study by Harvard Business Review found that organizations that define KPIs are 1.4 times more likely to achieve their digital transformation goals. The 2022 and the first half of 2023 have shown that not always KPIs can be useful, but in general, the company should have some indicators and measures of its success.

Align the Strategy with Business Objectives

Your digital transformation strategy should not exist in isolation. It must align seamlessly with your overall business objectives and corporate mission. This alignment ensures that your digital efforts contribute directly to the success of the organization as a whole.

Develop a Roadmap and Timeline

We know we've used that metaphor before, but a roadmap acts as your guiding compass. It breaks down your metamorphosis journey into manageable phases with clear timelines. Project Management Institute’s research indicates that companies that create detailed roadmaps are 1.6 times more likely to complete their digital transformation initiatives on time.

Evaluating Technology and Vendor Options

Turn to your dev team, to your every department, actually. And ask them for a detailed vision of improvements. Just as an artist selects the right brush for each stroke, you must carefully evaluate technology solutions and potential vendors. Your teams will help you if you hired skilled experts. This way, you’ll able to choose technologies that align with your goals and offer scalability for future growth.

Prioritizing and Sequencing Initiatives

Eat the elephant one bite at a time. Not all initiatives can be tackled simultaneously. Prioritize and sequence your projects based on impact and feasibility. This approach, backed by research, can increase the likelihood of on-time and on-budget project delivery.

Implementing Digital Transformation Initiatives

Executing digital transformation steps is a multifaceted endeavor that requires careful planning and performance. An agile project management approach, like that employed by global retail giant Walmart, can enhance the speed and adaptability of digital transformation projects. By breaking down large initiatives into smaller, manageable parts, teams can iterate and adapt swiftly.

Breaking down silos within an organization and encouraging cross-functional collaboration is essential. An example here is Adidas, which transformed its supply chain operations by fostering collaboration between design, marketing, and supply chain teams. This led to a more agile and responsive approach to consumer demand. Another example is another retailer — Nike. They have different teams for “clothes projects” and sports initiatives. But the cooperation between departments played a crucial role in outstanding company results last 5 years. The football program Nike Chance combined global scouting, training from top coaches, last-word fashion (for the equipment), and a global marketing campaign.

Addressing change management and employee training is often an overlooked but vital aspect. According to research by McKinsey, companies that prioritize employee training are 1.5 times more likely to succeed in their digital transformation efforts. And what’s more important in this case is that top US and European companies prefer overcoming the skills gap through upskilling rather than hiring.

Despite hiring is still an important part of achieving significant improvements, upskilling gains ground as an effective tool for that goal

Leveraging cloud services and infrastructure upgrades is pivotal for scalability and flexibility. Amazon Web Services (AWS), for instance, has enabled numerous organizations to scale their operations efficiently and cost-effectively. General Electric's transformation involved embracing the Industrial Internet of Things (IIoT) and machine learning to optimize operations.

Just take a look at average spending on digital goods. Probably, this could be helpful for your digitalization planning.

But make sure your data are secure, as data breach can derail digital transformation efforts. Equifax's data breach in 2017 serves as a cautionary tale, emphasizing the importance of robust cybersecurity measures.

Measuring Success and ROI of Digital Transformation

Measuring the success and return on investment (ROI) of digital transformation is essential for assessing its impact and refining strategies. Defining metrics for success is the first step. But for every business and even every situation, these measures will differ (thanks, Cap!) For example, a retailer may measure success through increased online sales, reduced customer churn, or improved customer satisfaction scores.

Tracking and monitoring progress are ongoing activities. Using Key Performance Indicators (KPIs) dashboards, organizations can keep a finger on the pulse of their transformation initiatives. IBM Watson, for instance, offers AI-powered analytics solutions that help companies track their digital transformation progress.

Whatever you implement, always keep in mind your ROI. For every dollar invested in digital transformation, companies expect a return. A study by Accenture found that insurance companies with mature digital transformation initiatives enjoy 2.6 times the revenue growth and 2.1 times the profit margin compared to those at the beginning stages. And since such an industry has already embraced this return, will other industries be the exception?

Making iterative improvements based on data and insights is the final step. Look at Netflix, which continuously refines its recommendation algorithms based on user behavior data. Or Meta’s Instagram. You probably noticed that your feed never comprises the same content. Once you liked a reel with a new NF track, your entire feed is already riddled with rappers. This iterative approach has significantly contributed to the growth of these companies.

To Sum It Up

Technology transformation is not merely a buzzword but a fundamental shift in the business landscape. It involves leveraging technology, fostering a data-driven culture, and prioritizing customer-centricity to enhance operations, engage customers, and drive innovation.

The evolution of digital transformation has seen significant milestones, from the inception of the internet to the current era of AI and blockchain. Companies like Amazon, Netflix, and GE have shown how successful transformation can reshape industries.

Preparing for digital transformation involves assessing objectives, creating a vision, securing executive support, and building a skilled team. It's a comprehensive process that requires strategic planning and a clear roadmap.

The digital transformation strategy must align with business goals, prioritize initiatives, and evaluate technology choices. Examples from companies like Adidas, Walmart, and AWS showcase successful strategies.

Executing digital transformation steps requires agility, collaboration, change management, and technological upgrades. Fostering a culture of adaptability is vital, as demonstrated by Netflix (btw, highly recommend the No Rules Rules book by Reed Hastings and Erin Meyer).

Measuring success and ROI demands setting clear metrics, ongoing tracking, and assessing the returns on investment. Companies with mature digital transformation initiatives experience significant revenue growth and profit margins.

Digital transformation is like a healthy diet or fitness journey — an ongoing activity. You can’t achieve something great by being inconsistent. Continuous improvement, based on data and insights, is essential for sustained success. To thrive, businesses must evolve, innovate, and adapt.

Devico stands as a trusted partner on this transformative journey. Our expertise, dedication, and innovative solutions are ready to empower your business's digital transformation. Embrace the future, and together, we'll unlock your full potential.