How to Build a Digital Transformation Strategy

Introduction to Digital Transformation Strategies

Every day, more and more businesses are leaving their traditional management practices behind for more advanced techniques. This is partially due to the evolving customer demand that reflects technological advancements. More importantly, however, these new technologies offer a way to improve business operations and increase efficiency, flexibility, and profitability.

With a digital transformation strategy, organizations undergo an internal renovation to eliminate lagging systems and replace them with advanced solutions. With modern software, companies can automate repetitive tasks, reducing unnecessary costs, labor, and resource waste. In turn, businesses can focus on their employee and customer management to drive productivity and sales.

What is a Digital Transformation Strategy?

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Firstly, digital transformation involves integrating various business technologies to optimize internal business processes and customer interactions. This often challenges the status quo within work environments, as employees must adapt to experiments and evolving demands. However, through trial and error, organizations can find what methods work best for their model. As a result, companies can improve customer reach, experience, and satisfaction.

Undergoing a digital transformation is challenging for some businesses as sometimes they must abandon their long-standing practices to improve efficiency. Other times, transformation forces many companies to make alterations to their core model to stay relevant. Therefore, businesses need to develop a digital transformation strategy that is unique to their needs.

A digital transformation strategy is a business plan that outlines the digital technology that can resolve the challenges a company faces. The strategy itself acts as a detailed road map that guides stakeholders on how to improve their business. Studies show that over 33% of organizations do not have a set digital transformation strategy. This makes it challenging to define weaknesses and meet objectives.

4 Types of Digital Transformation Strategies

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It is essential for business owners to recognize the new opportunities digital transformation provides companies throughout different industries. Otherwise, organizations could be missing out on key advantages that can improve their competitive edge. Therefore, stakeholders should review the four primary types of digital transformation strategies.

Process Transformation

Process transformation includes operations that use data, analytics, machine learning, artificial intelligence, and other modern technologies to optimize processes. The goal of process transformation is to use the most advanced technology to

  • Reduce operational costs
  • Minimize cycle times
  • Maintain yield quantity and quality
  • Improve quality
  • Optimize operational efficiency

For example, retailers implement new ways for customers to place their orders, such as online ordering, in-store, and curbside pickup. This type of innovation improves ordering convenience and opens up new income routes for the business. Many supply chain organizations also use technology to improve their cycle counts, order fulfillment, and shipping methods.

Business Model Transformation

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On the other hand, some organizations use digital transformation as a way to improve traditional business models. This type of transformation focuses on the primary elements of a plan rather than ongoing processes. For example, Uber changed the taxi industry and the way people request transportation, inspiring others to change their model.

A business model transformation is often challenging as it requires collaboration from both executives and partners to drive initiatives. In order to successfully change fundamental building blocks, everyone has to be on board and willing to adapt. Otherwise, changes won't travel throughout all departments, restricting business growth.

Domain Transformation

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Domain transformation involves claiming a new market niche by blurring the lines between different segments and innovating products and customer service. By discovering a new digital domain, businesses can eliminate non-traditional competitors and create a unique target audience. However, many owners are skeptical of domain transformations as the technology could unlock the same opportunities for other companies as well.

For example, Amazon dominated the online retail scene and eventually launched Amazon Web Services (AWS), expanding its domain. AWS is now the largest cloud infrastructure service, competing against other industry giants, such as Microsoft and IBM. In this domain transformation, Amazon didn't expand to merely another segment but an entirely new market.

Cultural and Organizational Transformation

Extensive, long-term digital transformations typically involve adjusting the workspace mindset and expectations to optimize results. By centralizing the improved business model, companies can improve employee productivity, operational efficiency, and workflow. This often includes shifting the focus from organizational decision-making to data-based networks and technology.

For example, Experian underwent an organizational transformation by incorporating technology collaboration into the workflow to prioritize data over equipment. This strategy embraces the value of modern technologies over traditional processes, welcoming change. Owners must remember that this is not an overnight change but a gradual process that takes months to see results.

How to Build a Digital Transformation Strategy

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A digital transformation strategy is not an all-inclusive template that owners can look up online. It requires extensive planning and collaboration from all stakeholders to outline essential elements critical to the company. Therefore, executives need to familiarize themselves with how to build a customized digital transformation strategy.

1. Analyze the Culture

First, stakeholders have to extensively outline the business's model, culture, and infrastructure. This includes not only processes but also products, services, location, partners, and target markets. These factors are all relevant because they directly impact how effective the digital transformation can be. Therefore, if the analysis is incomplete or inaccurate, the business will not yield the best final results.

When analyzing the overall work culture, management can determine how and what type of technology can improve processes. Stakeholders can also determine the potential impact of the transformation and how employees will receive the changes. When done correctly, this stage can streamline the implementation process.

2. Set Goals

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Next, managers need to set objectives that correlate with the outlined weaknesses and areas of improvement from step one. By setting clear goals, businesses can ensure everyone is on the same page and working harmoniously. Otherwise, stakeholders may duplicate initiatives and counteract other employees' efforts.

Executives should establish a different set of goals for each department based on their field of work. For example, retailers may want to increase their sales on various channels and improve the accuracy of administrative work. This also enables managers to separate general business goals from transformation objectives.

3. Define the Risks

After outlining each goal, managers must define every potential internal and external risk that may affect the company's progression. Digital transformation risks are similar to threats a company faces when implementing any new internal application. However, many businesses forget to physically document these risks for future tracking, making the treats challenging to monitor -

  • Integration failure
  • System malfunction
  • Decreased efficiency
  • Difficulties with employee training

4. Run Tests

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Next, companies should run multiple tests to determine each risk's probability and impact on the final digital transformation. This also gives developers a chance to fix any glitches or malfunctions before training employees on the new systems. Otherwise, workers could work on a faulty system only to revert to old practices as developers resolve the digital disruption.

For example, many e-commerce stores use chatbots to help online consumers throughout their shopping journey. Before implementing digital services on the live site, developers usually test it within a single department, such as product support. If employees report that the chatbot ran without any faults, it is ready to launch fully.

5. Generate Feedback

It is wise to generate feedback during the test pilots to analyze each function of the new system or software. Rather than a focus group, developers should craft surveys that focus on each element in question to collect critical points. Only after extensive analysis should businesses consider final implementation.

6. Utilize New Technology

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After the final analysis, developers can implement the finished service to launch the digital transformation. At this stage, businesses should not partially implement the system in only select departments. Instead, companies should strive for a full launch to begin employee training and trigger the transformation.

7. Analyze the Effectiveness

Unfortunately, many businesses overlook the seventh and final step of the implementation process. Managers must continuously monitor the new system to detect emerging risks, technical issues, and inefficiencies for a quick resolution. Otherwise, minor issues could snowball into significant discrepancies that require extensive time, labor, and resources to fix.

Further analysis can also shine a light on more things that developers should develop and implement, such as additional features. For example, the accounts receivable team may want to integrate the point-of-sale (POS) system to share customers' information and streamline invoicing. However, this may also require machine learning and other functions to automate specific data fields and administrative tasks.

What Drives Digital Transformation?

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As with any business strategy, a digital transformation begins with a detailed plan that outlines objectives, initiatives, and criteria. When strategized correctly, a digital transformation can open up various benefits that improve the organization's competitive edge. First, businesses must understand what factors actually drive a digital transformation in order to optimize initiatives.

Customer Experience

Most, if not all, business functions cater to the customer experience and satisfaction, as it directly relates to sales. If shoppers are not satisfied, they may abandon the business and patron competitors, decreasing profits and the competitive edge. Therefore, companies must prioritize the customer experience to increase loyalty, advocacy, and retention.

Employee Performance

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In order to enhance the customer experience, employees must also be working efficiently and meeting performance goals. Otherwise, limited productivity can negatively impact financial objectives and operational efficiency. Studies show that happy employees are the most productive workers. Therefore, businesses should focus on increasing employee satisfaction, advancement, and collaboration to drive performance.

Some organizations may find it necessary to implement additional internal tools to make interdepartmental communication easy and accessible. Simple automotive tools such as chat features and integrated software simplify data sharing, saving employees' time and energy. Some solutions even automate repetitive tasks, such as clerical work, enabling workers to focus on more demanding operations.

Data Analytics

Data analytics provide valuable insights into various operations so management can improve their overall performance. However, this is only possible for companies that utilize automation solutions, such as management software. Unlike traditional bookkeeping methods, modern solutions offer reporting features that generate detailed analytics.

Businesses can generate insights from inventory, employee, and customer management to determine which systems are lagging and need improvement. With these metrics, managers can develop actionable insights to design initiatives and strategies. This approach promotes data-driven decision-making rather than relying on guesswork.

Enhancing the Competitive Edge

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Companies that rely on traditional reporting methods expose themselves to human error and risk losing their competitive edge. As customer demand continues to grow and change, businesses must be able to follow and adapt to their evolving needs. Without modern business intelligence solutions, organizations can fall behind competitors and miss market opportunities.

Technologies that Power Digital Transformation

Digital transformation is not necessarily a new term or idea. The way it looks, however, has changed tremendously. Over the last few decades, technology advancements have altered the way businesses perceive software, hardware, and networking. Ultimately, this means that digital transformation has and will evolve alongside technological evolution.

Cloud Computing

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Cloud-based management solutions offer a level of agility, flexibility, and scalability that traditional legacy systems simply don't have. Cloud-based software enables employees to access the database from anywhere and at any time, with a secure internet connection.

On the other hand, legacy solutions require employees to be present in the office during regular hours to access accounts. This is not possible for many modern workers must work remotely from home.

Mobile Applications

More consumers are using mobile applications every day to shop, communicate, and interact with businesses. Therefore, companies should capitalize on this consumer trend by establishing a mobile application that showcases products and services. This can significantly widen the business's reach to customers that aren't in their geographic location.

Artificial Intelligence

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Artificial intelligence (AI) is becoming a necessity among large corporations, as it uses machine learning to mimic human intelligence. This enables AI to continuously learn from a business's internal operations and repeat employees' actions to automate tasks. Companies that utilize AI can personalize different systems, generate accurate forecasts, and perform predictive maintenance.

Internet of Things

The internet of things (IoT) connects various hardware to streamline data exchange and process automation. When used through management tools, businesses can enhance workflow, productivity, and development. This eventually translates to improved products, services, and customer support.

Virtual Reality

Virtual reality (VR) provides an immersive experience for both consumers and businesses. With VR, companies can give consumers virtual tours and tutorials through simulations rather than on-site. This improves customer engagement without actually requiring employee labor.

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