Gartner Survey Shows 42 Percent of CEOs Have Begun Digital Business Transformation (Gartner, 2017). But what is Digital (Business) Transformation? And why Digital Transformation?
“In this age of continuous updates and always-on technology, hitting refresh may sound quaint, but still when it’s done right, when people and cultures re-create and refresh, a renaissance can be the result.” (Nadella, 2017)
What is Digital Transformation?
“Digital transformation is the change associated with the application of digital technology in all aspects of human society” (Bounfour, 2016). Vogelsang extends this: “Digital transformation may be thought of as the third stage of embracing digital technologies: digital competence → digital usage → digital transformation. With usage and transformative ability informing digital literacy. The transformation stage means that digital usages inherently enable new types of innovation and creativity in a particular domain, rather than simply enhance and support traditional methods.” (Vogelsang, 2010). Schmarzo gives a shorter definition of Digital Transformation: “Digital Transformation is application of digital capabilities to processes, products, and assets to improve efficiency, enhance customer value, manage risk, and uncover new monetization opportunities.” (www.cio.com, May 2017). But to make this Digital Transformation definition clear and actionable, we also need to define “digital capabilities”: “Digital capabilities are: electronic, scientific, data-driven, quantified, instrumented, measured, mathematic, calculated and/or automated.”
Woodard, Ramasubbu, Tschang and Sambamurthy (2013) define a digital business strategy as “a pattern of deliberate competitive actions undertaken by a firm as it competes by offering digitally enabled products or services”. Another study, by Bharadwaj, El Sawy, Pavlou and Venkatraman (2013), define a digital business strategy as “an organizational strategy formulated and executed by leveraging digital resources to create differential value”. The definition of Information Strategy stated by Kapovsky et al. (2013) and followed by Henfridsson and Lind (2013) does not differ that much: ”a process of goal-directed activity intended to realize a strategy for using information systems in an organization”.
Why Digital Transformation?
Digital technologies – are changing the face of business. And this change is accelerating and faster than the pace of transformation in organizations. Organizations need to evolve to address the changing business landscapes. Ideally IT spending is driven by the need to meet business requirements. Business leaders want IT to be focused on business results, innovation, and continuous improvement. In fact, digital transformation is business transformation. Some prefer to use the term digital business transformation, which is more in line with the business aspect of the transformation. These digital business transformations are influenced/driven by the following factors: Technology innovation, customer behaviour and demand, and external environmental factors (Edmead, 2016). The key drivers of digital transformation are: profitability, customer satisfaction, and increased speed-to-market (Forrester Consulting, 2015).
As a stepped program of business improvements to people, processes and tools, digital transformation is geared towards maximizing the potential business contribution of online technologies and media. While many organizations have already embarked on transformation, others are struggling to get off the ground. Even though 87% of companies believe digital will disrupt their industry, only 44% are adequately prepared for projected disruption due to digital trends (Hunt, 2016). As a consequence, expert marketers have noted a lack of leadership and alignment amongst management and legacy IT systems, while the shortage of talent and conservative company cultures present considerable hurdles to compete in the ever-changing digital landscape. (O’Brian, 2017)
To get a greater understanding of the impact of digital transformation on business, here are some statistics:
- 27% of senior executives rate digital transformation as now being ‘a matter of survival’;
- A third of senior marketing leaders in emerging markets believe that their company will become known as a digital business in five years;
- 71% of digitally maturing companies say they are able to attract new talent based on their use of digital, while only 10% of their early-stage peers can do so;
- 51% of senior executives believe it critical to implement digital transformation in the next 12 months;
- More than ⅓ of CMOs say that digital marketing will account for 75% or more of their spending within the next five years;
- Only 16% of marketers feel that their organizations are delivering customer experiences that truly fulfil their brand promises, while ⅔ say their efforts in this area are hit or miss with 14% completely missing the mark.
So, Digital Transformation is – in the current era – vital for organizations to survive and create competitive advantage.
“Every company is becoming a digital company, and that process begins with infusing their products with intelligence. Experts estimate between 20 – 50 billion “connected things” will be in used by 2020, presenting a significant opportunity for companies to drive their own Digital Transformation.” (Nadella, 2017)
The era of Digital Transformation
There are a number of technology development era to be distinguished (Schumpeter):
According to Schumpeter, we are between the fifth and sixth era currently. There have been several critical events in the field of cloud & consumerization in recent years (Porter & Heppelmann, 2014). In 2004, the IPO was from SalesForce.com. This made it clear that a commercial organization could earn money with Cloud (Software-as-a-Service), with a focus on the business instead of IT. In 2006 Amazon Web Services (AWS) was general available. Amazon was one of the first to cash in with AWS. They figured out early on that the same cloud infrastructure they used to sell books, movies, and other retail items could be rented, like a time-share, to other businesses and start-ups at a much lower price than it would take for each company to build its own cloud (Nadella, 2017). Apple introduced the iPhone in 2007. This introduced widely the era of touch enabled devices. Cloud & consumerization was a fact. The next stage would be Digital Transformation: driven by developments such as Data Driven Insights / Big Data and Internet of Things.
Digital Transformation creates the third “wave” of IT-driven competition (Porter & Heppelmann, 2014). IT has radically changed the competition and strategy of an organization. This has taken place twice the last 50 years.
The Third Wave of IT Driven Competition is Digital Transformation. For Digital Transformation it is about organizations that transform using digital technology. Satya Nadella, CEO of Microsoft, said: “Every company is a digital business” (Nadella, 2016). This would mean that in most organizations the strategy of the organization will change. So, a transformation which is involving the entire organization. But where to start? Many CEOs of organization refer to the CIO. The business is changing and the pace with which competitors change is high and new competitors are also born. Not rarely in the form of a start-up that quickly gains market share. Many CIO or ICT Director will recognize this: business is increasingly demanding ICT at a higher pace. “It is not the strongest or the most intelligent who will survive but those who can best manage change.” (Darwin).
“In today’s era of Digital Transformation, every organization and every industry are potential partners. Consider the taxi and entertainment industry. Ninety percent of Uber riders wait less than ten minutes for a driver, compared with 37 percent of taxi riders. Netflix costs its viewers $ 0.21 per hour of entertainment compared with $ 1.61 per hour with the old Blockbuster video-rental model. There are some of the higher visibility examples of Digital Transformation, but it’s happening in every industry. We estimate the value of these transformations over the coming decade to be about $2 trillion.” (Nadella, 2017).
There are some examples of organization changes through Digital Transformation in the current era*:
- The biggest taxi company in the world doesn’t own taxi’s (Uber)
- The biggest TelCo companies don’t have a TelCo infrastructure (Skype, WhatsApp)
- The most popular media concern doesn’t create own content (Facebook)
- The biggest movie house on earth don’t own cinema’s or theatres (Netflix)
- The biggest provider of accomodations don’t own real estate (AirBnB)
- The biggest software producers don’t write Apps (Google & Apple)
*) Note: not all examples mentioned above are examples of Digital Transformation. Some examples are startups that have been able to scale up quickly. These organizations have started in the new era. These organizations are born digital organizations and thus there is no transformation.
Microsoft & Digital Transformation
Microsoft has four themes’ in her vision for Digital Transformation: Engage Customers, Empower Operations and Transform Products. Companies are focused on ensuring that they stay relevant and competitive by embracing this transformation. And we want Microsoft to be their partner. To do so, there are four initiatives every company mast make a priority. The first is engaging their customer base by leveraging data to improve the customer experience. Second, they must empower their own employees by enabling greater and more mobile productivity and collaboration in the new digital world of work. Third, they must optimize operations, automating and simplifying business processes across sales, operations, and finance. Fourth, they must transform their products, services, and business models (Nadella, 2017).
Microsoft give the following ‘dream’ for each theme (Microsoft Services, 2016): Imagine if…
- Engage Customers: …you could enable customers to connect with your business in ways that they choose, and deliver personalized experiences anywhere, anytime.
- Empower Employees: …if your employees could efficiently collaborate to meet rapidly changing customer needs and desires.
- Optimized Operations: …you could broadly share information throughout the business, manage resources with agility, and better coordinate processes.
- Transform Products: …you could use many channels to expand the reach of your business, better understand how customers use your products, and innovate quickly.
Top 10 Trends For Digital Transformation In 2017 (Forbes):
https://www.forbes.com/sites/danielnewman/2016/08/30/top-10-trends-for-digital-transformation-in-2017/#12f8a4db47a5
Resources
- Bharadwaj, A., El Sawy, O., Pavlou, P., & Venkatraman, N. (2013), Digital business strategy: toward a next generation of insights, MIS Quarterly, 37(2)
- Boston Consulting Group (2017), Digital Transformation will digitalize your business, https://www.bcg.com/capabilities/technology-digital/digital.aspx
- Darwin (1859), Evolution Theory
- Edmead, M. (2016), Digital transformation: Why it’s important to your organization,
https://www.cio.com/article/3063620/it-strategy/digital-transformation-why-its-important-to-your-organization.html - Forrester Consulting (2015), Digital Transformation in the age of the customer
- Forbes (2016), Top 10 Trends For Digital Transformation In 2017, https://www.forbes.com/sites/danielnewman/2016/08/30/top-10-trends-for-digital-transformation-in-2017/#12f8a4db47a5
- Gartner (2017), Gartner Survey Shows 42 Percent of CEOs Have Begun Digital Business Transformation http://www.gartner.com/newsroom/id/3689017
- Henderson J., & Venkatraman, N. (1993), Strategic alignment: leveraging information technology for transforming organizations, IBM System Journal 32(1)
- Henfridsson, O. & Lind, M. (2014), Information systems strategizing, organizational sub- communities, and the emergence of a sustainability strategy, Journal of Strategic Information Systems. 23
- Hunt, G. (2016), Is your business ready for inevitable digital disruption? (infographic), https://www.siliconrepublic.com/business/deloitte-leadership-digital-disruption-infographic
- IBM Study (2014), Organizations Unprepared to Tackle Next Wave of Technology Trends http://www-03.ibm.com/press/us/en/pressrelease/43946.wss
- Kapovsky, A., Hallonoro, M. & Galliers, R. (2013), The process of information systems strategizing: review and synthesis, In: Cohen, R., Topi, H. & Tucker, A. (eds).Information Systems and Informatin Technology. Chapman &Hall. London
- Klaus, S. & Wielaard, N. (2017), Vertrouwen in de slimme samenleving
- Microsoft Services (2016), How to lead in the Digital Age
- Nadella, S. (2017), Hit Refresh, Harper Business
- Nadella, S. (2014), Our industry respects innovation, not tradition, https://www.cnet.com/news/nadella-our-industry-respects-innovation-not-tradition/
- O’Brian, C. (2017), The What, Why & How of Digital Transformation, https://digitalmarketinginstitute.com/the-insider/17-08-16-the-what-why-and-how-of-digital-transformation
- Porter, M., Heppelmann, J. (2014), How Smart, connected products are transforming competition, Harvard Business Review
- Porter, M., Millar (1985), How Information Technology gives you competitive advantage, Harvard Business Review
- Porter, M. (2001), Strategy and the Internet, Harvard Business Review
- Schmarzo, B. (2017), What is Digital Transformation, www.cio.com
- Schumpeter, J., Technology Development Era: 100 years of economic development
- Snover, J. (2017), Breakout session BRK2108: Digital Transformation with Microsoft Azure and Azure Stack, Microsoft Ignite 2017 Orlando
- Vogelsang (2010), Digitalization in Open Economies
- Woodard, CJ., Ramasubbu, N., Tschang Lee Kong,TF. & Sambamurthy, V. (2013), Design Capital And Design Moves: The Logic of Digital Business Strategy, MIS Quarterly, Vol. 37 No. 2/June