Date: March 2020
Author: Narain Chutijirawong
Digital transformation is a widely spoken concept in the present age. However, the perceived benefits of adopting such a strategy should not be limited to merely marketing or enhancement of corporate image. Experience from customer relationship management (CRM), which became popular over 10 years earlier, showed that some companies considered purchasing analytical software as sufficient, however a more comprehensive CRM could have achieved in many other dimensional impacts to business. Thus to provide greater clarity this article, will discuss definitions, objectives, example cases and address key challenges of pushing forward digital transformation for businesses. To begin with, in the following are the three main goals driving company efforts to undertake digital transformation.
1. Enhance operational efficiency
2. Improve customer experience to retain existing customers and expand customer base
3. Create new business models to drive and sustain growth amidst digital disruption
The meaning of digital transformation is the use of technology to create change, whereby the level of change can be categorized depending on sophistication and impact created. Improved efficiency, which is the first goal, is often achieved with ease, has clear return on investment (ROI) and has least risk in implementation. Therefore, it is often the most basic form of digital transformation that businesses use as a kick-start and have been experimenting with for some time. Enterprise resource planning (ERP) is a good case in point. Nevertheless, more sophisticated transformation are often found among organizations that use modern technologies like robots systems and internet of things (IoT).
Transformations to achieve the second objective of enhanced customer experience is more difficult because it affects internal management system and the entire line of operations related to customer care. Due to its widespread impact that could give rise to multiple staff and internal management challenges, top managers or business owners are thus advised to take charge of transformations directly. Finding new ways to impress customers also requires creativity and unconventional use of technology. Take for instance when an offline customer walks into a physical store and finds out that the product in the color that they want is unavailable, an improvement of customer experience would be to allow them or a staff to make an online order at the store kiosk. Connecting offline and online business operations together as such is called omni-channel. Additionally, businesses should stay alert of both direct and indirect competitors, in particular in order to understand competitors with different business models and approach to resolving similar customer problems. Grab and taxi businesses, for instance, is a good example that illustrates businesses offering the same transportation service but have different approach in service delivery.
Transformation addressing the third objective of creating new business models is the most difficult to achieve because it involves changing the way business operates, new revenue stream in which no once has done before. Also it might require collaboration with external organizations to create new forms of business alliances or ecosystem. This could be in the form of frenemy, which is a partnership between competitors aiming to create new market niche or increase market share in the existing market. However, in the case where industries are being disrupted by outside factors, forming alliances with competitors can also be for survival. In this scenario, digital transformation priority subsides as managers become more focused on finding new value preposition or defining new business strategies in terms of pricing, personalized marketing and business unbundling, for instance. Regardless, Netflix provides a good case study of using technology to create new business models. Beforehand, Netflix was a video rental business by mail, which unlike its competitors, Blockbuster, operated exclusively online and did not maintain any physical outlets. The business, however, continued, to evolve with increasing internet use into becoming a subscription based video streaming service provider. This new business model was cost effective, which allowed Netflix to set lower service price that in turn led to expansion of customer base. Technology was also used to analyze customer behavior and provide insights to support new product and marketing strategy development decisions, as well as to improve customer experience by providing accurate movie suggestions. Following a successful business model development as such, the next stage of development is to create value network among other businesses. These networks once reaching a sufficient size may lead to formation of new platforms, ecosystem or even structural changes to the industry, the last of which is most advanced and hardest to achieve. Some examples of businesses creating new platform or ecosystem in various industries are Apple iTunes in the music industry, Airbnb in the hotel and accommodation industry, Paypal in the financial business and Coursera, Udemy in the education business.
Here in the following are the list of factors that should be taken into account when undergoing digital transformation;
1. Staff – Although hiring digital transformation experts or installing of effective software can be helpful, a successful organization digital transition however requires the organization’s internal staff to have good understanding and commitment to change. Possible steps relating to internal staff management that will be supportive of digital transformation are as follows.
- Awareness – attentiveness to changing technology – People within the organization including management should have keen and positive attitude towards learning and understanding potential impact of new technology on work processes and the organization as a whole.
- Innovation team – Delegate new innovation team that will research new ideas or identify inefficiencies within the organization. This team could be a temporary or permanent arrangement, and should consist of people of cross functional and may include external consultants.
- Leadership – Managers will need to demonstrate strong leadership in driving organization’s digital transformation. This could be showed via support of innovation teams or taking up a temporary project champion role.
- Cultural support – Promote organization culture whereby staff that can Think Big, Act Fast, Start Small are rewarded. Google, for example, employs a policy where staff are allowed 10-20% of their time to work on creative ideas.
2. Work process - Untangling inefficiencies within the work processes that could lead to greater transparency or reduced redundancy is a good starting point in improving internal processes and achieving primary operational efficiency goal. Once internal process are more streamlined further adoption of technology or other initiatives can be more effectively integrated.
3. Technology – IT infrastructure is also another key factor. Organizations should use systems to support data management and basic operations, for example; customer information system to keep track of customer purchases and demand, reporting systems and KPI performance management systems. Aside from systems, organizations also need to consider factors relating system stability, security and effective connectivity between various systems, especially with outside organizations. Once an adequate IT infrastructure is in place (fast, efficient and secure) organizations can then procure more sophisticated technology to improve services. This could include adoption of automation or robotics, deploying Internet of Things (IOTs) along with AI power to monitor and manage business process more efficient.
Digital Transformation is crucial to every organization, however the level of urgency will vary depending on how the business or industry is being impact by changing economic conditions, disruptive technology or new competitors. It is thus essential that organizations set clear objectives and ensure alignment of business and IT strategy as the level of digital transformation is contingent on the ultimate goals of the organization as explained above. Nevertheless, although appropriate technology selection is significant; staff, leaders, culture and organization management remain key to the organization’s successful digital transformation.