Digital transformation is the implementation of digital technologies that allow organisations to reconfigure business processes and deliver a better customer experience. Some refer to digital transformation as including any form of technology-led innovation. However, we believe that digital transformation harnesses the power of technology to transform how organisations work by creating new ways of working to attract new customers and retain their loyalty.
The drivers for digital transformation
We’ve identified three key factors that we’ve ranked in order of importance as the main drivers for digital transformation:
- Meeting changing customer needs: Since the pandemic and the growth of online purchasing, customers are demanding ever-faster, more efficient service. CEOs and senior executives consider continuously improving the customer experience a prerequisite to survival. Digitally transforming processes to speed up the delivery of goods and services and enhance the customer experience is now a big driver for organisations. It’s a key differentiator for B2C and B2B customers, and those companies that fall short are exposed on social media and drop behind their competitors.
- Staying ahead of the competition: Organisations are digitally transforming operations to ensure they have the agility to keep ahead of competitors and grow their businesses. The pandemic acted as a kick-start for this process, and for many companies, it was a question of survival. They realised they needed to digitally transform their businesses to change outdated methods and replace legacy systems, which proved inadequate to adapt to a rapidly changing economic and customer trading environment. Now, many forward-thinking CEOs and senior executives realise that continuously improving working processes must be part of an organisation’s culture to thrive in the future.
- Delivering cost efficiencies: CEOs recognise that driving down the cost of operations through automation and streamlined processes as a result of digital transformation can improve the profitability of a business.
- Attracting and retaining talent: Many people will not want to work for organisations that use outdated processes and deliver a sub-standard customer experience. Digital transformation can lead to an improved employee experience at work. For example, using technology such as AI to replace routine tasks can free up employees’ time to focus on more valuable and personally rewarding activities. This, in turn, increases their motivation and loyalty.
As a result of these drivers, companies have continued to invest considerable amounts in digital transformation. Gartner predicts, “By 2025, 70% of organisations will implement structured infrastructure automation to deliver flexibility and efficiency, up from 20% in 2021.”
The 2022 EY Parthenon report found that investments in digital transformation are now at record levels – up 65% from 2020. The report highlights the speed and success senior executives strive for from these programmes, with 72% of executives saying they “must radically transform their operations during the next two years to compete effectively in their industry.”
Digital Transformation Strategy
The digital transformation strategy outlines how digital technologies will change and improve an organisation’s operations. Without a clearly articulated strategy understood by everyone involved, the impact and success of transformation programs are often massively reduced.
A successful digital transformation strategy starts with clearly understanding the organisation’s goals and challenges. It requires a comprehensive approach that addresses all aspects of the business, from technology to culture, processes, and customer engagement. Ensuring employees are aligned, ready and willing to embrace new ways of working is vital.
There is often a gap between digital transformation strategy and the successful execution of such a programme. Many organisations fail to achieve anything near the impact expected from their investment due to a lack of clear strategy and leadership. McKinsey’s global digital survey found that organisations achieve less than one-third of the impact expected from their investment in digital transformation.
Many organisations focus on the technology required for digital transformation, but its ultimate success will depend on the attitude and engagement of the people involved in moving an organisation from the past to a new way of operating. Poor communication and engagement throughout the organisation can lead to a lack of involvement from employees in the programme. This, in turn, leads to increased resistance to change among employees and a lack of alignment with business goals.