Today’s businesses increasingly fall into two camps: those that recognise the need to digitally transform in order to remain competitive, and those that don’t. The latter are most at risk of being digitally disrupted.
It is vital that organisations are educated on the value of their data and are encouraged to explore and discover how businesses are changing.
In today’s landscape, organisations either evolve to stay relevant or are forced to change to remain competitive. Open collaboration fuels innovation, and a critical part of this process is the sharing of expertise and data – whether to fix real problems or to realise new opportunities.
Interestingly, though, many of the organisations that are digitally transforming aren’t just doing so for themselves, but to prove and demonstrate innovation to their clients.
For example, GE claims it will be a top ten global software company by 2020 because they want to attain and learn from all of the data generated from their connected devices.
‘They want to push out the value they get from that data to the next product life cycle, resulting in a reduction of cost of service and an increase in their customer’s experience,’ says Andrew Carr, COO at Digital Catapult. ‘This isn’t just because they want to connect the unconnected or be a software company, but because of the value they get from learning about their data.
But it’s not just companies as large as GE that need to transform. Organisations across numerous industries are under intense pressure to digitise their current business models to align with technological advancements. By 2020, four in ten incumbent companies will be displaced by digital disruption, according to the Global Center for Digital Business Transformation.
Digital transformation is not only necessary to the survival of many businesses, but it also allows companies to increase workforce productivity and escape the constraints of traditional business models.
‘By adopting a more collaborative approach and digitally transforming the workplace, organisations can empower employees to use the tools and technology at their disposal, providing the creative and innovative environment that will drive business growth,’ says Alison Vincent, CTO at Cisco UKI.
It’s not just about becoming a digital business – it’s also about transforming in the right way and getting closer and more personal with customers.
For organisations, this should mean improved customer services and products, with data playing a vital role in allowing decision-makers to understand the behaviour of their customers.
‘In turn, this requires building trust,’ says Carr. ‘We believe the answer lies in transparency and education around the benefits that data sharing can bring.
It’s what will define businesses in the future and will be essential, not only to the success of a business’s digital transformation, but to the UK’s ability to unlock huge economic benefits.’
The most common digital transformation projects relate to a shift of channel strategy toward mobile and social, with related investments to improve customer insight through big data. Techniques like ‘design thinking’ help to shape product innovation as part of these moves.
Some important foundation investments – such as moving infrastructure to public cloud to improve flexibility and cyber security investments to protect customer data – go hand in hand with the customer-facing investments.
To amplify all of this, changing the way businesses work through more agile and collaborative ways of working is also becoming an important part of a digital strategy.
Capital One, for example, has been introducing agility into its business
by changing the way that teams are brought together to design and develop products.
‘This has been coupled with investment in engineering, product, data science and design job families, as well as our technology stack,’ says Capital One CIO Rob Harding. ‘This combination of investment is resulting in an evolution of Capital One’s information-based strategy and new ways to engage customers.’
Meanwhile, in the healthcare sector, more than £4 billion has been set aside to achieve the goal of a ‘paperless’ NHS in the UK. The money will be used for initiatives in areas such as electronic records and online appointments, prescriptions and consultations.
Alongside this are commitments by healthcare organisations to remove outdated technology such as fax machines, implement stronger cyber security measures and transform out-of-hospital care.
In the retail banking sector, the emergence of digital is opening up new opportunities in the way consumers make payments and banks tailor their marketing to customers.
Customers can now use mobile apps to carry out banking tasks, and touch their card or smartphone against sensors to complete transactions.
RBS has even gone a step further, offering an artificial intelligence chat system called Luvo to handle staff questions.
‘Technology is offering banks a new gateway to meet the ever-increasing customer experience standards and achieve higher levels of engagement and closer relationships with customers,’ says Jason Andrew, GP and VP EMEA at BMC Software.
In the UK, organisations are generally making slow but good progress in digitally transforming their business and workforce.
According to a survey by CA Technologies, 56% of UK organisations are executing some digital transformation initiatives as a coordinated strategic programme.
The study found the most popular ongoing projects are in workforce efficiency (cited by 48% of respondents), product and service development (43%) and operations and delivery (43%).
However, UK companies must up their game if they want to compete more effectively in the application economy. As many as 18% still undertake digital initiatives via separate, not always coordinated routes, and 16% use digital more to enhance than to transform their business.
‘When it comes to embracing innovations that deliver digital transformation, only 33% of UK organisations believe that web-based applications and services are essential for driving customer engagement, and 27% thought the same of mobile technology,’ says Ritu Mahandru, VP of application delivery at CA Technologies. The good news is that UK organisations are planning to increase their spending on digital from 20% to 32% in the next three years.
For those companies that don’t embrace digital, there are consequences. Half a century ago, the shelf life of a firm in the Fortune 500 was around 75 years. Today it’s less than 15 years, and declining.
Also, more than three-quarters of the S&P 500 companies in the US by 2020 will be firms that didn’t exist in 2000.
The collapse of giants such as Kodak and Blockbuster Video showed that when organisations fail to embrace digital change the writing is often on the wall. Market disruption in the form of digital photography and video streaming dealt hammer blows to these dominant market leaders.
‘These aren’t just isolated examples,’ says Krishnan Chatterjee, senior VP at HCL Technologies’ digital unit. ‘There’s a lengthy list of once-great companies that ran into trouble when they failed to adapt to the new, digital world being created around them.’
Digital transformation is about exploiting modern technology and communications to transform one or more key aspects of a company. It helps to enhance customer engagement, but is also closely connected to transforming a company’s core processes, their workforce or the way they engage with suppliers and partners – with a positive impact on the business.
CA Technologies’ study showed that out of companies that embrace digital transformation initiatives in the UK, 86% have seen or anticipate seeing growth in revenue, 85% have seen or are expecting to see increased customer retention, and 68% are now able to act more quickly on business opportunities.
But for the most part, although UK organisations have appetite for digital transformation initiatives, they are not embracing the innovations needed to deliver that transformation fast enough.
‘They are missing out on revenue and profit opportunities, as well as falling behind in an already very competitive market,’ says Mahandru. ‘Companies that focus on digital initiatives have twice the revenue growth of mainstream organisations, and enjoy two and a half times higher profits.’
From a people and process perspective, digital transformation also requires change in the way the IT department and wider organisation is structured. CIOs and their team need to work more closely across the whole business, and lead a shift to a digital mindset that protects the existing franchise while creating new frontiers of value.
Implicit in that goal is that IT and business leaders must effectively and successfully work together.
‘Those responsible for innovation and those managing and governing IT infrastructure need to work in partnership, taking on the mindset of the other,’ says Andrew. ‘For the CIO that means more elasticity, agility and the delivery of digital services. On the flip side, the business leader needs to constantly be thinking in terms of value, security and the governed delivery of IT services.’
>See also: How to move beyond digital transformation
One point of contention in organisations, however, is who leads the digital transformation: the IT team or a dedicated digital team?
With a dedicated digital unit, the strategy can often be positioned as more product, design and customer centric, and the team is unconstrained by the day-to-day activities that IT departments have to grapple with, particularly service performance.
However, in this scenario there is higher likelihood to innovate at the surface rather than tackling the more complex-but-vital reinvention of foundational components like talent, process and technology.
‘A digital strategy will require deep product, design, talent, process and technology change,’ says Harding. At Capital One, the CEO leads the digital transformation programme, which is working ‘extremely well’.
‘Although people reporting to the CEO can be the catalyst for aspects of this change, it requires buy-in from the entire executive team and long-term commitment from the CEO to reinvent a business. These programmes are broad and challenging and take time to pay back.’