What is digital transformation?

Today customers expect to be able to conduct their business, do their work and live their lives by using the latest technology advances. They expect this ability from wherever they are, anytime they want, by using the device of their choice and with all the supporting information and personalized content they need close at hand. The ultimate goal of digital transformation is to meet these expectations.

Every organization’s digital transformation implementation is different. It can begin with a single focused technology project, or as a comprehensive enterprise-wide initiative. It can range from integrating digital technology and digital solutions into existing processes and products, to reinventing processes and products or creating entirely new revenue streams by using still-emerging technologies.

But experts agree that digital transformation is as much about business transformation and change management as it is about replacing analog processes or modernizing existing IT. While often led by a company’s chief information office (CIO), it requires the entire C-suite to align on new technologies and data-driven methodologies that can improve customer experience, empower employees and achieve business goals.

But, most importantly, companies should create a digital transformation framework and monitor improvements through tracking key performance indicators (KPIs) to see if the work produces results.

The earliest, headline-making examples of digital transformation—Uber, AirBnB, Netflix—used mobile and cloud computing technologies to reimagine transactions and, sometimes, disrupt entire industries. The COVID-19 pandemic drove transformative innovations to better support remote and hybrid work. Today, organizations are applying artificial intelligence (AI), automation and other technologies to streamline workflows, personalize customer experiences, improve decision-making, and respond more quickly and effectively to market disruptions and new opportunities.

Digital transformation can help companies increase customer loyalty, attract talented employees, foster competitive advantage and build business value. McKinsey research found that between 2018-2022, digital leaders achieved about 65% greater annual total shareholder returns than digital “laggards.”¹

In digital transformation, domains are essentially targets or levers for transformation. Most digital transformation strategies target one or more of these domains:

• Business and operating models
   

• Processes
   

• Products
   

• Employee experience
   

• Customer experience

Business model transformation is a fundamental change in the way that an organization delivers products, services and value to its customers, investors or stakeholders. Examples include:

• Delivering video through digital streaming, instead of physical disks (Netflix, Hulu)
   

• Enabling anyone with a car to make money driving, without purchasing a medallion (Uber, Lyft)
   

• Allowing customers to deposit checks without visiting the bank (mobile deposit)

Organizations pursue business model transformation for any number of reasons—for example, to meet changing customer expectations, boost flagging sales, or differentiate themselves in a highly competitive market. They might also see a chance to disrupt a market or industry in their favor with a new business model—or have a need to respond to a disruptive competitor.

While business model transformation grabs the headlines, business process optimization is an increasingly common digital transformation driver. Process optimization can include:

• Consolidating isolated or redundant workflows
   

• Creating intelligent workflows by using AI
   

• Replacing manual tasks with AI and automation

Process optimization can help organizations lower costs, reduce waste (time, effort and materials), make better use of human capital, and help all stakeholders make smarter decisions faster.

Organizations are incorporating digital innovation into their products, and into the way their products are developed, produced and delivered.

The most obvious examples involve the embedding of digital technology into everyday products that meet customer needs. Automobiles, for instance, are continually transformed in this way. Innovations range from the ability to view and operate a smartphone from a car dashboard, to sensors that prevent crashes and unintended lane changes, to vehicles that incorporate computer vision, geolocation, machine learning and robotic process automation (RPA) to operate with minimal or no human intervention.

By implementing Internet of Things (IoT), operational technology and automation on the factory floor, manufacturers can speed production, reduce errors and defects and eliminate manual labor. By adopting agile or DevOps practices organizations can speed software development. Companies can also add value and competitive differentiation by offering technology alongside their existing services—witness the tracker apps offered by shipping companies and pizza vendors.

Employee experience is a holistic approach to talent management that helps ensure that employees have the tools the need to succeed and thrive at work. Employee experience certainly impacts employee recruitment, morale, productivity and retention, but it can also have a direct impact—positive or negative—on customer experience, business performance and brand reputation.

Digital transformation efforts to improve employee experience can include:

• Innovating user experiences for internal systems such as onboarding applications, employee benefits portals and internal communications
   

• Providing access to popular messaging and collaboration tools
   

• Supporting work from home (WFH) or remote work without sacrificing capabilities or productivity
   

• Enabling employees to connect securely to corporate resources with the devices they prefer, including their own mobile devices or computers, by using 'bring your own device' (BYOD) policies and initiatives

Customer experience, or CX, is the sum of customers’ perceptions resulting from all their interactions with a business or brand—online, in-store and in day-to-day life.

In the end, all digital transformation journeys lead to the customer experience domain. Continually improving the customer experience is a competitive imperative for most organizations.

In the digital age, continually improving the customer experience requires continual digital innovation. It’s not just that customers expect to be able to do business anytime, anywhere and on any device—today customers depend on it.

They plan their mornings knowing their phones tell them exactly how long it takes to drive to work, and their evenings knowing they can meet the food delivery driver at their door. They ignore customer service call center hours, knowing they can get answers 24/7 from a chatbot. They stop saving receipts knowing that they can download their bank and credit card history at tax time (or anytime).

Customers count on these and scores of other digital innovations, and they are ready to count on new ones. Successful digital transformation positions organizations to anticipate and deliver the next innovations and experiences customers will want.

Virtually any digital technology can play a role in an organization's digital transformation strategy, but these technologies are most closely associated with transformation initiatives.

Experts and organizations credit digital transformation with everything from improved supply chain and resource management to significant gains in overall productivity, profitability and competitive advantage. Some of the most frequently cited benefits include:

Most people have read or heard how companies like Netflix and Uber have disrupted their business models and industries through digital transformation. But other organizations also have compelling stories about digital transformation initiatives that revolutionized their businesses. Here are just a few examples:

Consumers have always known Audi for making beautiful, high-performance cars, but the company risked falling behind electric car upstarts as more people wanted to move away from gas-powered cars. The German automaker not only wanted to enter the electric market in a significant way but also wanted to embrace the digitization of its offerings through connected cars and autonomous driving. Audi has a clear understanding of what it needs to do to compete in a highly competitive marketplace driven by sustainability and convenience.

Seeing the US’ only tennis major in person is an amazing experience, but not every tennis fan can make it to New York. The US Open wanted to ensure that the 15 million-plus fans could experience the tournament’s hundreds of matches through the US Open app and website. The US Open used generative AI models to turn more than 7 million tournament data points into digital content that gave fans more context about the matching being played.

The UK’s system of public healthcare providers needed to balance providing more digital services to clients while maintaining a strong security posture. Its digital, data and technology delivery partner, NHS Digital, created a Cyber Security Operations Centre (CSOS) that is as a single point of coordination between NHS and external partners. It now monitors more than 1.2 million NHS devices for threats and blocks more than two billion malicious emails a year through targeted filtering.

The independent German gas and oil company knew that AI would help it better harness data generated from across the organization. While several internal business and corporate units had begun using AI, it needed a centralized initiative to deploy it at scale. It started AI@Scale where projects incorporated scalability at the start. One such deployment automated data extraction from 2,000 PDF documents, freeing up employees to focus on more impactful work.

The Korean manufacturing business conglomerate understood that even one successful cybersecurity attack might have devastating consequences. Its Doosan Digital Innovation (DDI) group consolidated multiple regional security operation centers (SOCs) to a unified, global SOC to streamline its security posture and deployed AI-based pattern matching. As a result, response times have decreased by about 85%.