Digital Transformation Demystified !!

Digitally transforming your business has now become imperative. In a recent survey, 87% of participating business leaders said they feel at risk if they fail to digitally innovate. The same message is coming across from every conference, keynote, panel discussion, articles, analyst report, or study related to how businesses can remain competitive and relevant as the world becomes increasingly digital.

While so much is being said and discussed about Digital Transformation, yet it is not always clearly defined or understood. In this article I try to put together an easy to understand summary through excerpts of two exceptional articles from Mike Bainbridge: Evolve or Die and Jim Miller: What is Digital Transformation and why should you care, respectively.

What is digital transformation?

Digital transformation can be defined as the transformation of business activities, processes, competencies, and business models to fully leverage the changes and opportunities of digital technologies and their impact in a strategic and prioritized way.

Why is Digital Transformation so important?

Quite simply, if your organization is not modernizing then you’ll be left behind, and the threat of disruption becomes very real. If you aren’t a company that started in the last ten years, then chances are you are using legacy software and out of date IT infrastructure. While this itself is not a problem, your competitors now are lean, efficient, make much better use of their capital and delight their customers by engaging with them across multiple channels.

Take the humble taxi driver for example. In the past, learning the streets was vital to navigation, but for today’s Uber and minicab drivers there are a plethora of GPS-enabled smartphone apps that find the best route. Not only that, the community and social features even provide up to the minute alerts of jams and incidents. Using technology to deliver a small advantage is fine, but when you do it across every business process, the efficiency gains really start to add up.

It seems the disruptive start-ups are everywhere these days, across every sector; and it is true. Just look at the winners for confirmation, the unicorns. The business unicorn is a privately-owned company that reaches a $1 billion valuation. So-called originally for their rarity. Before the emergence of cloud computing, on average four were born each year. In the last five years, over 200 have reached the milestone. Even more significantly, in the past, it would take 20 years for a company to reach this valuation. Today from start-up to unicorn takes a median of just six years. To combat this threat incumbent or established organizations should follow their lead and learn from these new stars.

The big problem is that change brings with it uncertainty and for a large organization that can be terrifying. Not only does redefining business models mean high-risk, but the time and effort to implement them are also significant. For senior executives, the time has come to start taking chances because doing nothing is no longer an option. From a position of dominance to complete irrelevance can come in the blink of an eye. The lessons of Blockbuster and Kodak are all too apparent for anyone who thinks a majority customer share will keep them safe.

How did we get to this stage?

Let’s get a basic understanding of digitization:

Digitization is the translation, representation, and presentation of every sound, image, video, document, transaction, and measurement into a machine-readable (digital) and actionable format.

What were the catalysts for Digitization? What brought about this digital revelation? Steve Case talked about three phases of the Internet:

Internet 1.0 was the physical infrastructure — the wiring and plumbing of the Internet so to speak. This phase was great for companies like Cisco, Dell and HP (basically anyone that was selling physical infrastructure and networking).

Next came Internet 2.0 — distinct businesses that were built on the foundations of the Internet: Perfect examples are Facebook, Google, Amazon, Expedia — the Internet-enabled new business models.

The current phase that we live in is Internet 3.0 — the ubiquitous phase of the Internet — where the Internet is now enabling (and I would go so far as to say requiring) ALL companies to create new businesses and shareholder value by augmenting their current business models with digitization.

What is enabling this digital transformation?

Massive amounts of (cheap) compute cycles: Annually, the combined spend of Google, Amazon, and Microsoft on cloud infrastructure approaches $30B. When you include other companies like Facebook, Oracle, and Salesforce (just to name a few), the immense amount of new compute power provided to the world just annually is mind-boggling. And for the most part free, except for a few advertisements thrown your way. This does not even include the massive amount of computing power that resides in your hand or your pocket (e.g. your cell phone or tablet).

Massive amounts of (cheap) storage: Along with massive amounts of cheap compute power, staggering amounts of “almost-free” hard disk drive space is being deployed as well in these global server farms and data centers. And it’s likely storing every Youtube video, email, Instagram post, Facebook post (you get the picture) that you’ve made — all ready to be analyzed with this massive amount of computing power.

The mass proliferation of Internet-connected devices (The Internet of Things — IoT): In the past few years, we’ve seen a virtual exposition in IoT (the Internet of Things). Here are my two cents on IoT: (1) If it can have a microprocessor embedded in it, it will. (2) If it has a microprocessor, it will be connected to the Internet and (3) if it’s connected to the Internet, it’s going to collect and stream (lots of) data. Net-net, just assume everything will be connected to the Internet!

GPS, Localization, and Hyper-localization — Apart from sounding a little Orwellian, your phone, tablet, and laptop geo-tags everything (including you) down to within a few meters of accuracy. With the explosion of IoT devices, we’re essentially wiring up the entire planet (and everything on it). My favorite examples are Amazon’s visibility into its supply chain (including your deliveries) and what Waze has enabled with traffic and route optimization by co-opting your mobile phone (your mobile phone is the IoT device for your car).

The ubiquity of compute and connectivity: With the rise of omnipresent high bandwidth mobile networks, intelligent edge devices, massive cloud networks, and emerging satellite data networks, data can be ingested from almost every corner of the planet — transforming the entire planet into a living organism of data.

Machine Intelligence and Deep Learning: With all of this data being created in both structured (tagged) and unstructured format, Machine Intelligence and Deep Learning have come to the rescue. Machine intelligence enables meaningful data and in some cases knowledge, to be extracted from all of this data. Just Google “Pink Ferraris” and look at the images retrieved. A machine intelligence algorithm sorted all of those pink Ferraris — likely with zero human interaction. Consider all of the possibilities!

Machine Autonomy: Machine-to-Machine interactions (Taking People out of the Loop): Let’s face it, for most of our businesses today, people are the weakest link in our business processes. Humans are lousy at repetitive tasks — even more so after a poor night’s sleep or the day after the Super Bowl. We’re just starting to see the rise of bots and other machine-to-machine processes, but as more people are taken out the loop, our businesses have the capability to run nearly at the speed of light (a perfect example being high-speed, automated stock and currency trading).

So, where do you start? What does digital transformation consist of?

It is widely recognized that there are four pillars of change to focus on, two of them visible and two less obvious. The first is the customer experience. Delivering that “wow moment” or a seamless interaction which Amazon and Apple both put above everything else. It is easy to say you put the customer first, but much harder to deliver. Take Virgin Media, for example, they are in an intensely competitive market, one in which it is hard to delight. They have put NPS (net promoter score) at the top of all their scoreboards to ensure that every employee knows the customer comes first. Customer-first has become something of a cliché, but it is now more important than ever. With even more choice and an easy way to compare (Google or smartphone), never before has the consumer had such power.

Product digitization is the second visible pillar of change, using technology to enhance your offer or service. Nike does this well with its connected shoes. Allowing runners to measure (via smartphone or watch), share (using social media), and track improvements (on the cloud platform) when competing or working out. Their product has now become a sports or exercise experience, and their popularity proves it is working.

The less-visible pillars of transformation are much harder to spot but are equally important.

Employee engagement is not just about improved collaboration or messaging tools, but it involves a more fulfilling experience for arguably your most important customers, the staff. Cultural change dictates remote working and time off to do community projects are all high on the want list. Work is no longer a 9 to 5 pursuit, in the connected world we are always available to reply to urgent emails, and as such, your employees expect more for their loyalty and time.

Process optimization and digitization completes the pillars of transformation, and it is the one that requires the most invasive changes. Over time problems are solved in an ad-hoc manner, and these solutions need to be updated, documented, and improved. How many people need to sign off on an order? How much duplication is there to agree on new branding templates? Start by getting teams to map out a typical day and you’ll quickly start to uncover inefficiency and duplication. Once you have isolated and defined your processes, these need to be digitized to bring in efficiency while cutting associated time and cost.

Underpinning the whole thing is, of course, IT. Using the latest tools and making the best use of data means that this must evolve significantly too. The modern IT department is the facilitator for change. Advising other business units on how to be more efficient and solving critical problems. They are the grease which makes the wheels turn in a mature business. Providing governance, a model for rapid cloud adoption and data visualization are key to becoming a digital powerhouse.

Takeaway

Digital Transformation is imperative. It’s a continuous process of integrating the latest digital technology into all areas of a business, fundamentally changing how you operate and deliver value to customers. No one solution can magically digitally transform your entire business. As discussed in the article, various areas can be explored based on the needs, be it for enhancing the customer experience or automating the business processes to drive transparency and efficiency while cutting down time and cost. For many leaders, the first steps are the hardest but once you’ve got your head around the factory-like conveyor belt of continuous improvement things start to make more sense.