Digital transformation refers to the process of adapting to and embracing digital technologies and innovations that can replace manual and non-digital processes. In practically every industry, digital transformation is essential for keeping pace with the competition. Kodak, for instance, used to be one of the most widely recognized brands in the photography business, earning billions of dollars in revenue every quarter. In 1975, Kodak’s management team was introduced to digital photography technology that was being developed by Kodak engineer Steve Sasson. They decided not to pursue this new technology, believing that it would cannibalize their film business.
They were right that the digital photography business would have cannibalized their film division. But where they were wrong was in the assessment of the future potential of digital photography. It was a revolutionary technology that had the potential to upturn the whole photography industry. Kodak missed the boat, and today it is no longer a giant in the industry it once dominated. Other businesses thrive with the technology that was developed by Kodak engineers.
Definition of Digital Transformation
Digital transformation is about staying on top of future digital disruption. Change is inevitable in every industry and for every technology. Massive shifts in technology and how it is used can disrupt incumbent businesses. The size of the incumbent does not matter when a revolutionary technology emerges. If it cannot adapt to change, it will be moved to the sidelines.
Gartner defines digital disruption as “an effect that changes the fundamental expectations and behaviors in a culture, market, industry or process that is caused by, or expressed through, digital capabilities, channels or assets.” In a way, digital disruption is a digital extension of the popular business concept of marketing myopia, which essentially describes businesses that are so concentrated on selling products that they’re unable to see the big picture, and as a result, they cannot sustain in the long term. In a similar vein, digital disruption can drive companies out of business when they try to stay with archaic technology and are unable to see the positive changes newer, disruptive technology could bring about.
Digital transformation is the continuous effort to improve business functions and processes by adopting digital technology to replace the status-quo. But not every business fully embraces digital transformation. In the short-term pursuit of quarterly earnings, businesses sacrifice long-term value for shareholders. In such scenarios, businesses try to use existing technology and avoid the adoption of newer technology for various reasons. These reasons could be:
- Protecting current revenue streams
- Avoiding expenditure
- Management inertia
- Thinking the company is too big to disrupt
- Lack of market understanding
The nature of digital disruption is such that it will seem like it came from nowhere. But the technology often has been brooding for decades before rapid adoption takes place. Kodak, for instance, had roughly 25 years to adopt digital photography. When they finally embraced it in 2007, it was too late. Digital transformation can help companies avoid such blind spots.
Types of Digital Transformation
Digital transformation does not signal a single kind of change in the business. Today every facet of a business is influenced by technology. According to the area of transformation and the effect of those changes, digital transformation can be classified into four types.
Business Process Transformation
Business processes are the backbone of the normal everyday operations of a company. Digital tools like machine learning, data analytics, and implementation of APIs can be adopted to improve business processes. Improvement in business processes can be observed in terms of increased efficiency, cost savings, or savings in time.
Business Model Transformation
The business model is the structure that generates revenue for the company. Radical changes can be brought to the business model according to the changes in the competitive landscape. For example, Windows used to be sold separately for each upgrade. But with Windows 10, old Windows users are able to update to the latest version without purchasing a new operating system. Microsoft adopted this strategy to keep more people in the ecosystem. Generating revenue by selling OS updates is an old model, and the dominant business model was moving towards providing OS upgrades at no additional cost.
One of the classic cases of marketing myopia was the railroad industry, which saw itself as being in the railroad business and not the transportation business. Airlines and automobiles were able to squash the passenger market for railroads. Similarly, new changes in the technology and needs of customers can open opportunities in adjacent domains for a business.
Workflows, learning, decision making, and talent management come together to create an organization’s culture. Digital technologies can create an impact across the entire employee experience. Digital innovations can assist in decision making, moving closer to the customer to gain more insights, using machine learning to understand the workflows—all part of digital transformation.
Digital transformation must be on every business’s agenda. It should involve continuous improvement to avoid becoming obsolete and instead surfing the wave of technological transformation. Digital disruption is not limited to digital products and services. It can also happen to businesses operating purely in the physical world. Every type of organization should be investing time and effort in digital transformation.