Digital Transformation Strategy: Why You Need One
In a rapidly digitising world, it is more important than ever for businesses to have a clear and concise digital transformation strategy. An effective digital transformation strategy will help an organisation to streamline processes, reduce costs, and improve customer satisfaction.
But let’s first define, what is Digital Transformation?
Defining digital transformation
Digital transformation is the integration of digital technology into all areas of a business, resulting in fundamental changes to how businesses operate and deliver value to customers. It’s a cultural shift that requires organisations to continually challenge the status quo, experiment, and get comfortable with failure.
In its most basic sense, digital transformation is the use of technology to dramatically improve performance or reach of enterprises. The goal of digital transformation is to make an organisation’s processes and customer experience more efficient and effective while also reducing costs.
Organisations that have undergone successful digital transformations have been able to achieve significant increases in productivity, efficiency, and agility. They have also been able to create entirely new business models and revenue streams.
What is a digital transformation strategy?
A digital transformation strategy is an organisational strategy that enables an organisation to take advantage of new opportunities presented by digital technology. It includes the roadmap that guides an organisation on its journey to becoming a digital business. The strategy outlines the goals, objectives, and initiatives that will be undertaken to achieve digital transformation.
A digital transformation strategy has key components:
- A vision for how organisations can use digital technology to create value for customers or improve business processes.
- Digital Maturity Assessment that evaluates the current state of the organisation against a set of key digital maturity criteria. In addition, it collects evidence on how well the organisation is performing in relation to its digital transformation initiatives.
- A roadmap for how the organisation will achieve its vision, including which technologies to adopt and when. This should be including a business case on ROI for roadmap initiatives.
- An implementation plan that details who will be responsible for each initiative and the resource requirements.
- Target operating model which highlights how this organisation will look like from an operating model perspective and what are the key TOM requirements to successfully run the transformed business (i.e. there might be a need for a certain change in the organisation structure, adding more resources, entering new contracts with suppliers, adding extra audit and compliance requirements,..etc).
Organisations must tailor the digital transformation strategy to their specific needs and take into account its current state, capabilities, and resources; and align it with the organisation’s business goals and objectives.
Things to consider when developing the digital transformation strategy
When developing a digital transformation strategy, there are a few key considerations to keep in mind:
- First, you need to assess the current state of your organisation’s digital maturity. This will give you a good starting point for understanding where you need to improve and what areas you should focus on first.
- You need to establish what your goals are for the transformation. What are you hoping to achieve? Once you have a clear understanding of your goals, you can start developing specific plans and initiatives to help you reach them.
- Involve all the stakeholders in your organisation in the development of the strategy. Everyone needs to be on board with the changes that will be taking place and they need to understand how it will impact their work. By involving everyone from the start, you can make sure that everyone is working towards the same goal.
- Businesses must have buy-in from senior leadership. Without this support, it will be difficult to implement changes throughout the organisation. Moreover, the senior leadership needs to be on board with the digital strategy.
- Don’t try to do everything at once – focus on a few key areas that will have the biggest impact.
- Make sure you have the right people in place – those with the right skills and mindset.
- Be prepared to invest time and resources.
The benefits of having a digital transformation strategy
There are many benefits to having a digital transformation strategy.
- Disrupt or be disrupted- In today’s digital world, companies are being disrupted at an unprecedented rate. If you don’t have a digital transformation strategy, your company will likely be disrupted by a company that does.
- The customer is always right- In the past, companies could get away with poor customer service because there were few alternatives. Today, customers have more choices and they expect better service. A digital transformation can help you deliver the excellent customer service that today’s customers demand.
- Perhaps the most obvious benefit is that it can help organisations keep up with the competition. In today’s business world, those who don’t have a digital transformation strategy are at risk of being left behind. Out competitors are probably already working on their digital transformation strategies.
- Another reason is that digital technologies can help organisations be more efficient and effective, which can lead to cost savings.
- Digital transformation can help organisations tap into new markets and reach new customers.
Developing your digital transformation strategy
The digital transformation is inevitable. It is happening all around us and is reshaping how we live, work, and play. Many companies are embracing digital transformation, but some are still struggling to define what it means for their business and how to develop a strategy.
Here are five steps to help you get started on developing your digital transformation strategy:
1) Understanding the context and assessing where you are now.
A company’s digital transformation cannot happen without first understanding the current context and assessing where the company is now. This means taking a close look at the systems, processes, and people in place, understanding the key strategic challenges for the organisation, assessing the competition, understanding your existing customer base and their expectations, and Identifying the key business and technology trends.
Only by understanding the current state of affairs can a company hope to expand successfully into new digital territory. With this knowledge in hand, decision-makers can make informed choices about where to allocate resources and which technologies to adopt.
Without a clear understanding of where things stand today, it would be all too easy to make decisions that take the company in the wrong direction or fail to capitalise on existing strengths. So step one in any digital transformation journey must be gaining an accurate picture of the situation as it stands.
2) Envisioning the future and identifying where do you want to be
As technology rapidly advances, it can be difficult for organisations to keep up and ensure that they are using the most current tools available. This is especially true for those in the process of digital transformation. In order to properly transform, it is important to expand your vision for the future and identify exactly where you want your organisation to be.
You need to ask yourself where you see your business in the next 5-10 years. Once you have a clear understanding of where you want to be, you can start planning on how to get there.
What are your goals? What do you need to do to achieve them? These are all important questions that you need answer in order to create a successful plan for digitising your business.
This may seem like a daunting task, but by taking the time to sit down and envision the future, you will be able to better understand what steps need to be taken in order to get there. Once you have a clear idea of where you want to be, you can begin identifying which tools and processes will need to be put into place in order to make that happen.
3) Identify the steps and actions to go there
This is the most important step throughout the process. Once you understand your pain points and define what are your goals, now it is the step to combine all the insights (internal and external), industry benchmarking, ideas, customer needs, and technology trends and come up with an action plan. This can be done by taking the time to understand what steps need to be taken in order to get from where you are now, to where you want to be, you will be able to identify which tools and processes will need to be put into place.
The digital transformation roadmap is a plan that maps out the steps needed to get from your current state to your end-state, and it should be flexible enough to allow you to adapt to changes that occur along the way.
It’s important to note that digital transformation is not a destination, it’s a journey. It requires all parts of an organisation to work together
4) Define the target operating model requirements
When it comes to developing a digital transformation strategy, one of the first and most important steps is defining the target operating model requirements. While doing this, organisations should take into consideration the following:
- First, it’s important to understand what the organisation’s current state is and what its desired future state is. This will help inform what needs to change in order to achieve the desired state.
- Secondly, it’s necessary to understand what is the impact of the new initiatives (or change) on the current operating model that will trigger a change in organisations, processes, culture, KPIs, contracts, …etc to support the new way of working.
- And lastly, it’s important to consider the people factor – how will employees need to be trained and supported in order to successfully make the transition?
Organisations today are under pressure to digitally transform in order to remain competitive. Many companies are turning to digital technologies to improve efficiency, increase productivity, and gain a competitive edge. In fact, according to a recent study by Boston Consulting Group, 70 percent of CEOs are planning to invest in digital technologies over the next five years.
5) Construct a business case and benefits/investment models for the digital transformation roadmap
Many factors go into formulating the benefits of an investment model. But, ultimately, the benefits derived should help answer how the investment will create value for shareholders and what are the risks associated with it.
A business case is an essential part of any digital transformation roadmap as it provides a justification for the investment in this process. Benefits investment models can be used to identify and quantify the potential benefits of digital transformation, which can then be used to inform the business case.
There are many factors to consider when constructing a business case and benefits investment model for digital transformation. This includes understanding the needs of the business, assessing the opportunity cost of not undertaking this process, and considering the risks associated with making this change.
There are a number of different investment models that can be used:
Cost-volume profit analysis (CVP)
The cost-volume profit analysis (CVP) model is a widely used business case tool that can be used to assess the potential profitability of a project. The CVP model is an analysis tool that enables businesses to determine the most profitable volume of activity and level of costs. The underlying assumption is that a business can increase profitability by increasing sales or by reducing costs. The CVP model calculates the break-even points, sales volume and profit at different price levels.
(CBA) The cost-benefit analysis (CBA) is another widely used business case tool that can be used to determine the net present value of a project. CBA is an economic evaluation method that compares the costs and benefits of an investment.
Net Present Value (NPV) Analysis
A net present value (NPV) analysis is a technique that can be used to determine whether an investment will benefit the business. It calculates the net present value of costs and benefits received in future periods and compares it with the initial investment outlay.
which estimates how long it will take for an investment to generate returns. The higher the return, the shorter the payback period. The payback period is calculated by dividing the initial investment in a project by the annual cash inflows generated. It is an easy-to-understand method that focuses on providing a quick answer to the question of whether an investment will be profitable.
Organisations should select the model that best suits their needs. The most important factor is that the model chosen is able to accurately identify and quantify the potential benefits of digital transformation.
Once the benefits have been identified and quantified, they can be used to inform the decision-making process. This information can help organisations assess whether or not a digital transformation is right for them. If the benefits outweigh the costs, then it may be worth pursuing a digital transformation.
Implementing your digital transformation strategy
In order to ensure your digital transformation strategy is implemented effectively, there are a few key things you need to do.
- First, you need to establish clear objectives and Key Performance Indicators (KPIs). Without these, it will be difficult to measure the success of your transformation.
- Second, you need to engage all employees in the process. This means ensuring they understand the objectives and their roles in achieving them. It also means giving them the tools and training they need to succeed.
- Finally, you need to have a plan for how you will sustain the momentum of your transformation over time. This includes setting up mechanisms for monitoring progress and making course corrections as needed.
By following these steps, you can set your digital transformation up for success.
Conclusion: The importance of a digital transformation strategy
It is clear that a digital transformation strategy is critical for any business in the modern world. With the ever-changing landscape of technology, it is essential to have a plan in place to ensure that your business can adapt and thrive. By taking the time to create a digital transformation strategy, you are setting your business up for success now and in the future.