Digital transformation

When reading articles, watching videos and also working in the field, the most commonly used term in the world of digital is the phrase digital transformation. The public tender of the Slovenian Enterprise Fund P4D 2019-2023 is also called »Incentives for the digital transformation of MSP«.

This term corresponds to the thinking and focus of organizations, which represents a predominantly technological aspect of digitalization, so there are no problems here. I also don’t see any problems with using the word “transformation” instead of the Slovenian word for it called “preobrazba”. Problems arise when the management of companies, based on most of the statements and explanations of this term, understand that it is primarily a technological overhaul of the organization, which of course is absolutely not true. True digital transformation is certainly much more than just the introduction of digital technologies and digital solutions in the business of organizations.

That’s why I prefer to use the term »Digital Business Transformation«. Therefore, let us analyse and explain it in detail below and describe briefly the most important related concepts.

Digital transformation = Digital (business) transformation

Individual parts of a phrase mean:

  • »Digital« means:
    • the characteristics of the digital economy that affect the business conditions of the organization,
    • convergent use of (advanced) digital technologies, which includes the simultaneous use of several digital technologies;
  • »Transformation« means:
    • comprehensive and deeper change at all levels of the organization and employees in the perception, thinking, meaning, operation, organization and culture of the organization,
    • fundamental change in the focus of the organization from “inside to outside” with a new starting point for the implementation of all activities “from outside to inside”,
    • introduction of new digital business models;
  • »Business« means:
    • that digital transformation is even more directly derived from the characteristics of customers, to whom in the digital economy we add other stakeholders in the business ecosystem of the organization, which is in line with the direction from the outside to the inside,
    • that we focus first on business functions and only then on technological ones, or better said, that the boundary between business functions and technological functions (eg IT) is completely blurred,
    • that there is an integrated business digital strategy,
    • that new (business) value is created, usually based on new business models, for customers, the organization and other stakeholders of the entire business ecosystem.

If we connect: digital transformation is a deeper change in the image, culture and operational operations of the organization in order to adapt / co-create the business environment of the digital economy through the convergence of digital technologies, especially in order to create breakthrough digital innovations in business models to create new (digital) value for customers and other stakeholders of the organization’s close-knit business ecosystem.

The role of digital technologies

The development of digital technologies is exponential, while the ability of organizations to harness their capabilities and potentials is still linear. Namely, organizations are introducing digital technologies slowly and mostly sequentially, too often with a focus on the technologies themselves. They also leave the management of the introduction of digital technologies to the technological staff. This is quite logical on the first ball, but in reality it means that such introductions almost always do not have enough business effects and benefits, which makes management then recognize them as unsuccessful and are willing to invest in them even less. On the other hand, end customers (consumers) are mastering digital technologies faster than most organizations; they want and demand their good experience with individual organizations from other organizations as well. If these cannot be provided, they will soon no longer be of interest to the customer, as digital customers are much less loyal to brands today. Even though organizations do business mostly with business customers (i.e. B2B), they ultimately work for their end customers, and expect their suppliers to help them with products, semi-finished products, services or solutions.

All of this means that digital technologies are not important in themselves. Their strength is not primarily in technological capabilities, but in the ability to change customer habits and behavior and to influence the creation of working conditions of employees (eg digital jobs, changing attitudes towards customers) with which the organization more quickly meets customer needs and goals.

In addition, I need to understand digital technologies more broadly, not just as some of its visible forms, such as e.g. smart mobile devices, virtual reality devices and / or robots. An important role in t.i. softer digital technologies and solutions play data analytics technologies and solutions. These are crucial in two areas: to better understand (customer) behavior and to make the right decisions in a timely manner, which includes that these decisions can also be made with artificial intelligence, so people are no longer directly involved.

In addition, I need to understand digital technologies more broadly, not just as some of its visible forms, such as e.g. smart mobile devices, virtual reality devices and / or robots. An important role in t.i. softer digital technologies and solutions play data analytics technologies and solutions. These are crucial in two areas: to better understand (customer) behavior and to make the right decisions in a timely manner, which includes that these decisions can also be made with artificial intelligence, so the most successful organizations are able to introduce and use more digital technologies at the same time. This is not only about being able to communicate and monitor customers on different (digital) channels, but also to connect, combine and upgrade individual technologies to support business goals, such as identifying or even predicting customer behavior they use artificial intelligence algorithms, recognize patterns of customer habits and at the same time even observe and analyze video of their customers, then automatically offer them customized solutions on the spot where customers are currently located (quantum edge computing), encourage them to purchase targeted messages moment, and then follow the customer in the time after the purchase has already been made to encourage new purchases or to make them more loyal. man no longer participates directly.

So digital technologies are all about how we can better compete with our competitors to win or retain a customer. In doing so, you will probably agree that the role of leader in this competition cannot be left to e.g. head of informatics. Why, then, do organizations still recruit most of their digital transformation leaders from the ranks of technology personnel? Because they see the digital transformation mainly through the internal aspect of technological automation of production and / or other processes with the goal of cost efficiency. This is a completely legitimate goal, but it is very important that it is not a primary goal, but a support goal to other business goals, which of course are primarily related to customers and creating value for them. So it is not that the technological staff is not suitable, it is that in the role of the first assistant to the most responsible persons for the business results of the organization. Namely, the business result is primarily and most dependent on customers, in the digital economy on digital customers. This further means that this technological revolution of the transition from a classic industrial society to a digital one is different and is based for companies much more on business rather than technological starting points.

So, if we want our digital transformation to be successful, it must be much more “business” and much more “transformative” than just “digital”. Above all, it must respect business laws and the laws of deeper change.

Axioms of digital transformation

Let’s summarize what has been written so far in 5 axioms of digital transformation:

  • Axiom no. 1: The digital economy drives successful organizations to continuous business development through: increasingly demanding (digital) customers, new (digital) business models and the ability to converge on advanced digital technologies.
  • Axiom no. 2: Digital technology in itself is not the ultimate goal, but its means, just as a means of influencing business conditions in the digital economy, e.g. by the fact that the customer is usually better equipped and skilled in the use of digital technologies.
  • Axiom no. 3: Understanding the (hidden) needs and behavior of customers, the consistency of their journey and our business processes, providing an above-average experience where it is most needed, brings an enthusiastic and loyal customer, which gives organizations a competitive advantage.
  • Axiom no. 4: A developed digital culture that supports an integrated business digital strategy and the systematic development of digital competencies based on digital competency models for key business roles contribute to success and accelerate the implementation of transformation.
  • Axiom no. 5: Successfully implemented real and connected digital projects bring the organization more than the classic return (ROI) of an individual project. Organizational leaders must also allow for “deferred” value for the organization through accumulated value for stakeholders.

Digital strategy

Organizations need a strategy to:

  • unify your responses to changes in the environment;
  • establish orientation or navigation to unify the meaning of the entire organization in the direction of the highest goals (“North Star”) on its path to business future;
  • provide uniform metrics and an overview of progress towards the mission, vision, strategic goals;
  • provide the owners with a formalized (presentation) plan for the realization of their interests; meeting the requirements of business owners;
  • prepare a single agenda for business projects and initiatives to implement the strategy, including their prioritization and provision of resources.

Organizations need a digital strategy to:

  • unify their responses to changing business conditions in line with the characteristics of the new digital economy, in particular in line with changed digital customers;
  • respond to the dangers and new business opportunities in these characteristics;
  • supplement and upgrade the business strategy or strategic goals with new strategic goals in the field of digital;
  • determine which digital technologies and solutions they must use / develop in order to achieve (common) strategic goals;
  • develop an organizational culture with the characteristics of a digital organizational culture;
  • through digital transformation, systematically develop their digital capabilities and digital competencies of their employees.

The strategy provides an answer to how the organization will move from the current state of affairs to the desired state, which is characterized by the achieved strategic goals. These must be placed in accordance with the customers to whom the organization addresses and the expectations of the owners. Along the way, the organization also meets competitors who are also trying to convince the same customers.

What exactly is the path that organizations take in achieving their goals depends on the strategic orientations, which define in particular:

  • In which niche will we compete? Will we perhaps create our own?
  • What value proposition in the eyes of the buyer will differentiate us in these niches?
  • What key processes create differentiation in strategy?
  • What is the human capital required by the strategy?
  • What kind of culture do we need to develop?
  • What technology enables strategy?

The digital strategy must provide these answers for the specific context of the digital economy.

The key challenges in designing and implementing each strategy are:

  • How long to prepare a strategy (5.3.2 years)?
  • Who should be involved in the preparation of the strategy inside and outside the organization (eg strategic customers and suppliers)?
  • How to estimate the budget needed to implement the strategy?
  • Should we still use classic annual planning for digital transformation?
  • Cover resources 100% or leave room for opportunities?
  • When and why to change the strategy?
  • Which performance models to use (eg balanced scorecard system)?
  • How to prevent or at least mitigate the silo mentality (each department should take care of its own goals and projects)?
  • What is the gap between what is needed and our current capabilities to successfully implement the strategy?
  • How to successfully communicate the strategy down – have we really achieved unification?

So what is the right way to create a digital strategy:

  1. Start from a business strategy.
  2. In a digital strategy, upgrade these business elements in line with the characteristics of the digital economy.
  3. Develop an action plan to implement the digital strategy.
  4. Integrate the digital strategy back into the business strategy and the action plan for the implementation of the digital strategy into the roadmap for the implementation of the business strategy; so all together in a single document.
  5. Manage the integrated business digital strategy in a unified way, which means by the top management and through a uniformly prioritized set of projects and other strategic initiatives, such as development of culture, capabilities and competencies and strategy-coordinated process optimization.

When an organization does this in the described way and in complete harmony through all its components, we say that it is implementing a digital transformation, or more precisely, that it is implementing a digital business transformation.

Digital Transformation Action Plan

The Digital Transformation Action Plan is a list of digital operations and digital projects that:

  • are “real” digital projects (eg introduction of digital solutions, introduction of digital jobs), but we must not forget that they still have their starting point in business or. common strategic objectives;
  • are a direct response to the technological features of the digital economy (eg the introduction of digital communication channels);
  • make crucial changes to (previously defined) business projects;
  • develop digital capabilities and digital competencies of employees;
  • are the type of development characteristics of digital organizational culture.

As we have already written, the action plan for digital transformation must be in line with the plan for the implementation of the joint strategy, or rather, it must be an integrated part of it.

Digital transformation expert

According to what is written, a digital transformation expert is someone who first understands the characteristics of the digital economy, knows how to connect them with the organization by helping to identify opportunities and threats, understands the business fundamentals of digital transformation and understands them through context and opportunities various digital technologies and digital solutions. The Digital Transformation Specialist is a coach, mentor, and advisor to the organization’s top management, digital transformation manager, and key business roles involved in digital transformation (e.g., digital talent development department).

For a roadmap to a successful business transformation

In order to transfer everything written into your business practice, I would like to give you the following three messages:

  • Start outside with the customer and continue with the value for them!
    Remember: »Don’t Follow the Money; Follow the Customer!«
  • Digital transformation is not a project, it is an ongoing process!
  • “If you want to change the GAME, change the FRAME!”
  • Think deep and aim high!
    Upoštevajte: “Your story might become the future for others!”

I wish you a successful journey!
If you need an experienced guide and / or companion, let us know.

Aleš Štempihar, digital strategist, innovator of digital business models and external expert for digital transformation