Digital transformation is a strategic initiative that incorporates digital technology across all areas of an organization. Digital transformation evaluates an organization’s processes, products, operations, and technology stack to identify ways to improve operational efficiency and bring products to market faster.
It has become more important as organizations increasingly take a digital-first approach to all aspects of a business, from its business models to customer experiences to processes and operations. Organizations now use artificial intelligence (AI), automation, cloud environments and other digital technologies to leverage data and streamline intelligent workflows, faster and smarter decision-making, and real-time response to market disruptions. And ultimately, it can lead to the ability to pursue new opportunities and create new products that meet customer expectations.
Digital transformation is as much about business transformation and cultural change as it is about replacing analog processes with new technologies. It requires the CEO and CIO to work hand-in-hand to identify what changes need to happen within the organization to modernize and achieve their pressing business goals.
Many organizations felt an increasing need to reimagine their businesses and prioritize digital innovation during the Covid-19 pandemic, which supercharged the collective march into the digital age. That is when customer expectations and habits changed, leading to an over-reliance on digital experiences and decreased brand loyalty. As a result, organizations got more serious about change management, of which digital transformation is a major component.
Meeting the expectations of all stakeholders is a core component of digital transformation. For example, meeting customer expectations has always been an important component of the digital transformation journey. Today, customers expect to conduct all business digitally, wherever, and whenever, using any device, with all the supporting information and content they need close at hand. Ultimately, digital transformation is about meeting these ever-escalating expectations.
Companies are increasingly pursuing digital transformation because it can foster a competitive advantage, leading to an increase in business value and attractiveness to potential employees. McKinsey research found that digital leaders achieved about 65% greater annual total shareholder returns than digital “laggards” from 2018 to 2022.1
Its goal is to build a technical and operational foundation, to evolve and respond in the best possible way to unpredictable and ever-changing customer expectations, market conditions and local or global events.
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As McKinsey points out in a recent report, several drivers are necessary to build a robust digital transformation framework effectively.2
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1 The value of digital transformation, HBR, 31 July, 2023
2 What is digital transformation?, McKinsey, 14 June, 2023
3 Digital transformation success starts with leadership at the top, Deloitte, 17 April, 2023