Because digital transformation will look different for every company, it can be hard to pinpoint a definition that applies to all. However, in general terms, we define digital transformation as the integration of digital technology into all areas of a business resulting in fundamental changes to how businesses operate and how they deliver value to customers. Beyond that, it’s a cultural change that requires organizations to continually challenge the status quo, experiment often, and get comfortable with failure. This sometimes means walking away from long-standing business processes that companies were built upon in favor of relatively new practices that are still being defined.
A definition from The Agile Elephant emphasizes all the ways businesses may need to adjust their existing practices: “[Digital transformation] involves a change in leadership, different thinking, the encouragement of innovation and new business models, incorporating digitization of assets and an increased use of technology to improve the experience of your organisation’s employees, customers, suppliers, partners and stakeholders.”
And the Wikipedia definition, while vague, touches on how the effects of digital transformation extends beyond businesses to society as a whole. “Digital transformation is the changes associated with the application of digital technology in all aspects of human society,” it states.
Why does digital transformation matter?
There are a number of reasons that a business may undergo digital transformation, but by far, the most likely reason is that they have to. It’s a survival issue for many.
Howard King, in a contributed article for The Guardian, puts it this way: “Businesses don’t transform by choice because it is expensive and risky. Businesses go through transformation when they have failed to evolve.”
John Marcante, CIO of Vanguard, points this out, as well: “Just look at the S&P 500. In 1958, U.S. corporations remained on that index for an average of 61 years, according to the American Enterprise Foundation. By 2011, it was 18 years. Today, companies are being replaced on the S&P approximately every two weeks. Technology has driven this shift, and companies that want to succeed must understand how to merge technology with strategy.”
Recent studies back this up time and time again. The IDC report “FutureScape: Worldwide CIO Agenda 2016 Predictions” emphasized that, “One-third of the top 20 firms in industry segments will be disrupted by new competitors within five years,” and that it’s a matter of “transform or perish.”
Yet, the same IDC report goes on to predict that, by 2018, “70 percent of siloed digital transformation initiatives will ultimately fail because of insufficient collaboration, integration, sourcing or project management.”
CIOs should not only care about digital transformation for the sake of their company’s survival, they should focus on securing company-wide support and collaboration to get digital transformation right – before they get disrupted by a competitor or a startup.
But even if business leaders don’t believe they have to transform, there are many reasons why they should consider it anyway.
1. Their competitors are doing it. According to a Forrester Research report, executives predict that nearly half of their revenue will be driven by digital by the year 2020.
2. It will make them more profitable. According to the MIT Center for Digital Business, “Companies that have embraced digital transformation are 26 percent more profitable than their average industry competitors and enjoy a 12 percent higher market valuation.”
3.It will make them more efficient. Research shows, “Nine out of 10 IT decision-makers claim legacy systems are preventing them from harnessing the digital technologies they need to grow and become more efficient.”
4.Their customers will thank them. Whether external customers, or internal employees, people have already largely adopted digital practices in all facets of their lives, from shopping online via their mobile devices to adjusting their home thermostat remotely. They are waiting for businesses to catch up.
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