By: Steven Winter, Columnist, International Director
The rate of digitisation in the organizational world is fast. Advances in computing efficiency at around Moore’s law speed or similar rates have enabled technology to become embedded in production systems everywhere. And while digitisation increases productivity, it does not necessarily lead to displacement of workers. A survey discovered that digital transformations lead companies to have more tasks to fulfil, and thus they are likely to increase hiring. In fact, companies may find it hard to find the skills needed to meet the requirements of a more digitised workplace, particularly in the cloud arena. IDC (International Data Corporation), a technology-services company, has estimated that 40 percent of all technology spending will go to digital transformations, and this will amount to more than $2 trillion of expenditure by 2019. Companies that have not gone digital yet are left with the choice of either doing so or perishing.
The digital transformation imperative
The business case for digital transformation is easy to make. Workforces are becoming increasingly global; analog processes no longer enable companies to respond quickly to swift change; competitors have already completed their digital transformations; employees need to collaborate at a higher and more concert level; and the list goes on. Given all of this, it would be erroneous to think that such transformation is a luxurious choice; it’s an imperative.
The financial benefits of this transformation are also hard to argue against. According to Harvard Business School, companies that are leading in the digital space generate better gross margins, better earnings and better net incomes than companies that lag behind in this aspect. In numerical terms, the benefits can reach a 17-percentage-point differential in gross margins.
Phases of digital transformation
The first step for an organisation on the road to digital transformation is to analyse its current information technology (IT) environment, which would include systems, devices, applications and processes. The analysis should yield conclusions about whether the business is ready to go digital or not. The work flow among employees can give indications about bottlenecks that can be resolved as well as overall readiness. Also, legacy applications should be assessed for compatibility with upcoming systems. A test phase of approximately four weeks should follow to provide a proof of concept. Then comes the integration with existing IT infrastructure and systems, if compatible.
And while the task on the outset may seem simple, it’s anything but. Companies undergoing digital transformation often find that they need to reinvent their entire business models for the digital era.
The scope of the transformation can vary, and the process does not need to be carried out all at once. Organizations can choose the level of transformation they need based on the forces they are under, such as competition and supply chains. During the process, certain frameworks can help, such as the one devised by Boston Consulting Group. According to the company, there are building blocks of digital transformation that organizations need to consider in order to be successful in the process. Executives can choose whether they want to develop data-driven offerings and business models, or digitize their core businesses, or build digital capabilities—or the three altogether.
The blocks of digitizing offerings include providing data-services and software products, among others. Digitization of the core business requires blocks such as digitizing channels and marketing in general, research and development, and many other support functions. Building digital capabilities requires building digital systems and platforms, using analytics and data integrations, and building agile organizations, among other blocks. Accelerators such as funding from venture capitalists and digital program and change management can be used to power the transition.
Digital transformation success stories
The examples of successful digital transformations are plenty. Nissan, for one, has managed to generate more synergies between its teams by adopting cloud-enabled software, such as Microsoft Office 365, among others. The new chief information officer (CIO), Anthony Thomas, who had moved from GE Global to Nissan, has also refined the company’s ERP (enterprise resource planning) to make sure that information flows smoothly between different systems and generates actionable insights. The CIO has gone further to develop software in-house instead of outsourcing it and acquired the talent to develop that software via a digital hub in India, which he himself created. The engineers in the hub have worked on developing chatbots, robotic process automation, machine learning and other technologies.
Another example is Coats Group, which manufactures threads for different purposes. The chief technology officer (CTO) has undertaken a transformation with the purpose of increasing operational efficiency for an organization with thousands of employees. He has moved to Microsoft Office 365, Microsoft Azure Cloud as an ERP and Microsoft Dynamics 365. This has entailed moving from local hosts to the cloud to enable a high level of collaboration. Additionally, the company is equipping its machines with sensors, an Internet of Things (IoT) technology, and supplementing that with several Microsoft applications to derive insights from the IoT data. This has enabled predictive analytics that can reduce inventory costs, among other benefits.
Digital transformation has become a competitive necessity, and an imperative to increase operational efficiency and enhance collaboration among team members. The financial gains of such transformation are also hard to dispute, given the level of engagement derived from users as well as cost reduction. But despite the importance and urgency of this transformation, it has to be done right. It has to be done at a deep level. And as the term implies, it has to be transformative in nature. Using more advanced software without equally advanced integration capabilities can jeopardize the endeavour.
Not only businesses can benefit from such transformation, but also governments. Digital transformation is reshaping business process as well as governance in many ways in order to reduce bureaucracy and improve the effectiveness and efficiency of decision-making. Taking all of this into consideration, avoiding such transition would be like swimming against the current.