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The 4 Key Areas of Digital Transformation

February 22, 2024
The 4 Key Areas of Digital Transformation

Digital technology has made an impact on nearly every aspect of life, most especially in business. Since new advancements happen all the time, organizations need strategies to ensure they keep up with these developments to meet changing market requirements and stay competitive.

McKinsey Global Institute was the first to describe digital transformation, and the term has evolved since. Digital transformation encompasses four main points, and organizations may focus on one or a combination of both, depending on their strategic goals. Learn more about these four areas to achieve a successful digital transformation.

What Is Enterprise Digital Transformation?

In short, digital transformation refers to the process a business takes to become more competitive through technology.

Research indicates that digital transformation will continue to be a major concern for businesses in the coming years. According to GlobeNewswire, the global digital transformation market was valued at $469.8 billion in 2020 and is expected to reach $1,0009.8 billion by 2025, with a 16.5% CAGR (Compound Annual Growth Rate).

In practice, digital transformation involves leveraging digital tools to modernize business processes. Organizations may use new technologies to weed out inefficiencies, automate processes, and develop more innovative products and services. Ultimately, the purpose of digital transformation is to foster a better digital user experience.

While digital transformation can improve traditional roles, such as marketing and sales, its impact should be felt throughout the company. It allows organizations to evaluate business processes and culture, as well as the customer experience.

Why Are Businesses Expecting a Digital Transformation?

Between economic and industry changes to global events like the COVID-19 pandemic, many circumstances push organizations toward digital transformation. Regardless of why your business seeks digital transformation, you can expect the following benefits:

  • Increases customer engagement and loyalty by delivering a greater user experience
  • Boosts employee productivity and morale with digital tools
  • Enables businesses to upgrade IT infrastructure for enhanced security
  • Can increase revenue with new products and services improved through digital innovation
  • Strengthens business agility to adapt to changing market conditions and customer expectations

What Are the 4 Main Areas of Digital Transformation?

A digital transformation journey looks different at each organization depending on its objectives. While there are many specific strategies and processes to consider for your digital transformation efforts, all fall into the following four categories:

Transforming Your Processes

Think of process transformation as a more in-depth form of business process management. Process transformation focuses on making more significant changes to improve operational efficiency. It involves modifying business processes to achieve transformation goals, reduce costs and errors, and simplify existing strategies.

This type of digital transformation is common when undergoing a radical upgrade, such as introducing a new system. Businesses want to make the most of these systems, ensuring they empower better productivity and help the organization save money. Therefore, the proper approach to process transformation includes an extensive review of current systems and processes to identify areas for improvement.

The following outlines the key steps to consider with process transformation:

Identifying Goals

As with any business strategy, process transformation begins with identifying your objectives. Process transformation occurs for multiple reasons, from a system upgrade to the adoption of new technologies. Understanding the reason for process transformation ensures you implement the correct changes.

Establishing Benchmarks

Metrics will allow businesses to track the success of a process transformation. Cost, time, and instances of errors are just some of the benchmarks to measure.

Involving Stakeholders

Process transformation requires input from all stakeholders. Involve key leaders like the CEO and CIO (Chief Information Officer), as well as ground-level employees, customers, and partners. Glean insights from stakeholders about what systems and processes are working well, what they hope to see improve, and their expectations from process transformation.

Monitoring Change

Businesses want to implement process transformation gradually, training a small internal team before introducing new processes to other stakeholders. Any digital transformation project is ongoing, meaning organizations need to monitor progress and modify changes for lasting success.

Transforming Your Business Model

Business model transformation takes process transformation a step further. Instead of only modifying processes and systems, companies adopt new business models to seize new growth opportunities.

Business model transformation is common when leaders identify shifts in the consumption of the products and services they sell. Or they notice market competitors jumping on opportunities and want to follow suit. A famous example of leveraging business model transformation for success is Netflix, which switched from primarily offering DVD rentals to becoming the leading video streaming service.

As this type of transformation involves an overhaul of the traditional approach to the business, a common challenge is being too quick with changes. Business leaders may not be equipped to handle a completely new business model so quickly, forcing the company to hire new personnel or train all existing employees — processes that require significant resources. Instead, organizations want to examine short and long-term goals to determine the right pace for business model transformation.

Transforming Your Domain

Domain transformation may be the least well-known of the four areas, but is just as important. Transforming a domain is shattering conventional confines constraining a brand’s horizons and prospects and moving into new avenues of opportunity. For example, Amazon is confined to being just a retailer, they offer Amazon Web Services, making them the world’s largest cloud computing provider making over a billion of dollars in revenue each year.

Digital innovation is critical as businesses seek to offer products and services that meet evolving customer demands. This means leveraging new technologies to create value for consumers.

Staying informed about advancements in technology is paramount with domain transformation. Businesses should examine these technologies to figure out which can help them achieve better efficiency, scalability, security, or any other goal. The following are some technologies inspiring digital transformation:

  • Artificial intelligence
  • Blockchain technology
  • Cloud computing
  • Internet of Things (IoT)
  • Machine learning

Transforming Your Organization’s Culture

Adopting new technologies and streamlining processes is just one part of digital transformation — becoming a digital business requires buy-in from your entire workforce. Organizational/cultural transformation happens when a business aligns its digital transformation initiatives with its internal culture and values.

This type of digital transformation typically occurs because of an organizational change, such as a merger with another company, new leadership, or in the aftermath of reputational damage. It’s also necessary with any other digital transformation as it ensures employees understand and embrace changes. Without organizational/cultural transformation, businesses risk losing their competitive advantage.

Meaningful organizational/cultural transformation starts with developing a clear vision of a digital transformation strategy and communicating it to all personnel. Creating a document that’s easily shared with all departments is an effective way to disseminate this information. Be sure to include the benefits and risks of the strategy, explaining why the benefits outweigh the potential risks.

Business leaders should regularly ask employees for their input before implementing changes and then their feedback when changes go into effect. Training sessions and related resources go a long way in helping employees transition to new processes and systems and away from legacy systems.

Of all the areas, organizational/cultural transformation can be the most abstract and difficult to measure. For this reason, it helps to have a baseline of what a digital culture looks like. The following are the key characteristics:

  • Emphasizes delegation over control
  • Encourages action-oriented decision-making
  • Maintains an external orientation (considers factors outside the business that have implications for the business)
  • Promotes smart risks over caution
  • Prioritizes collaboration by breaking down silos

Challenges of Digital Transformation

As with any business strategy, digital transformation isn’t without challenges. Understanding the common obstacles your organization may encounter will help you take the right steps toward transformation.

Budget Restrictions

Digital transformation promises significant changes, but not without sufficient resources. Organizational restructuring costs money, so businesses need to determine what resources are necessary for meeting transformation goals. This will involve collaborating with the financial department to examine and potentially reshape the budget. You may also seek support from investors.

Inadequate Human Resources

Money isn’t the only aspect that may limit digital transformation. For example, if introducing new systems requires training, are there personnel on staff currently who can assist? Or will the business need to hire experts to guide training? Business leaders should work with the HR team to identify knowledge gaps and figure out if anyone on the staff is skilled with new systems and processes before considering new hires.

Lack of Buy-In from Internal Teams

Change is difficult, especially for those employees who have been working at the organization for many years. Business leaders can expect some resistance to new approaches, processes, and systems with digital transformation. In response, reassure employees by providing them with the support they need during this challenging transition.

Tips for a Successful Digital Transformation

When the time comes to engage in digital transformation at your business, you want to ensure you have a well-defined strategy to guide everyone through this ongoing process. The following details tips for success on your digital transformation journey:

  • Evaluate current practices: Assess the business models, processes, and technologies already in place. Find areas for improvement and set your transformation goals around them.
  •  Establish the digital transformation team: Develop a cross-functional team that will spearhead all digital transformation efforts. This team should create a roadmap for all departments to follow.
  • Modernize infrastructure: Implement cloud solutions and emerging technologies like AI for agility and automation. Utilize data analytics for greater insights. Updating technology infrastructure puts a business in a better position to adapt as the industry changes.
  • Employ change management: Ensure a seamless transition with ample training and support for employees. Monitor engagement with digital transformation projects to assess progress.
  • Enhance the employee experience: Boost productivity and morale by prioritizing creativity and innovation and nurturing a collaborative workplace culture.
  • Create a better customer experience: Leverage customer data to understand expectations and behaviors. Focus on developing better relationships with customers to increase loyalty and drive long-term growth.
  • Manage digital products and services: Evaluate the new products and services that come from digital transformation, monitoring them from development to optimization to ensure they meet business goals and customer expectations.
  • Promote ongoing innovation: Regularly review strategies for areas of improvement. Keep up with market trends and technological advancements. Ask employees, customers, and other stakeholders for their feedback.
  • Factor in data privacy: Maintain compliance by accounting for data privacy with all digital transformation initiatives. Devise measures to ensure data protection during migration to new systems.

Metrics for Digital Transformation

Every business strategy requires metrics. KPIs enable organizations to determine if changes are meeting transformation goals and, if not, provide data-driven insights for modifying the strategy. There are various types of KPIs for digital transformation, including:

Technology KPIs

These metrics are perhaps the most important for digital transformation. They look at how well the company has adopted and integrated new technologies. Technology KPIs also consider how the organization has succeeded in aligning these changes with strategic goals. They include:

  • Cloud adoption
  • Data quality
  • ERP (enterprise resource planning) implementation
  • Software adoption
  • System integration
  • Cybersecurity metrics

Financial KPIs

Financial KPIs are often the main source for understanding the return on investment of a digital transformation strategy. Consider the following financial metrics:

  • Cost of hiring
  • Operating expenses
  • Return on digital investment
  • Revenue from new products and services
  • Revenue from digital channels
  • Revenue per employee

Customer and Employee KPIs

Looking at how customers and employees respond to your digital transformation strategy is one of the most effective ways to gauge success. Are you meeting customer expectations? Has digital transformation improved motivation and productivity? These metrics will provide answers:

  • Customer acquisition score
  • Customer churn rate
  • Customer lifetime value
  • Customer satisfaction score
  • Employee absenteeism and turnover rate
  • Employee engagement
  • Net promoter score
  • Number of new hires
  • Workforce productivity

Marketing KPIs

Marketing is a key aspect of any digital transformation initiative. These metrics will help determine progress with marketing efforts:

  • Lead generation
  • Social media metrics (clicks, comments, followers, impressions, likes, mentions, shares)
  • Web traffic

Project Management KPIs

These metrics show the success of different aspects of the overall digital transformation initiative. They include:

  • Project management ROI
  • Project success rate
  • Project task completion rate
  • Utilization of resources

Learning and Development KPIs

Digital transformation virtually always requires training employees in new skills and systems. To measure the effectiveness of training programs, use these metrics:

  • Learner engagement
  • Training completion rate
  • Training satisfaction score

These are just some of the metrics that businesses may consider for monitoring progress with digital transformation. Your business may explore additional KPIs more specific to your objectives.

Ensure Brand Management During Digital Transformation

Digital transformation is an extensive and ongoing process. As businesses implement changes gradually, they begin to see the benefits such a transformation provides, from streamlined business operations to enhanced employee productivity to increased competitiveness.

However, digital transformation requires thinking about multiple aspects to ensure a smooth transition, such as data privacy and financial resources. As your business develops a digital transformation strategy, be sure to factor in brand management. The right approach enables you to provide consistent and engaging brand experiences even with dispersed teams.

MarcomCentral offers a solution for brand management for businesses across multiple industries. With our platform, you receive a centralized hub for organizing brand assets. It also allows teams to automate workflows, maintain compliance with industry standards, and leverage data analytics to make informed brand decisions.

MarcomCentral is the leading resource for helping organizations facilitate digital transformation.  Schedule a demo with us to learn more about how we can help you streamline your processes, and empower your team to thrive in today’s rapidly evolving digital landscape.