What is Digital Transformation? (Definition & Overview)
Apr 23, 2021|Read time: 11 min.
- Digital transformation means shifting your mindset to be a digital-first company, transforming your operations and delivering more customer value.
- Thinking digitally enables your brand to be more competitive, more profitable, and more aligned with customer behavior.
- The pandemic accelerated the shift in consumer behavior to digital, disrupting market share and customer experiences.
If you want your brand to survive, you need to embrace digital transformation.
Technology continues to change the business landscape at warp speed. It impacts consumer behavior, supply chains, analytics, as well as acquisitions. What it means to be competitive today in a given market will be outdated tomorrow in many cases.
In order to thrive, it’s imperative to explore how digital transformation would benefit your brand. For example, think of how a consumer in the digital age orders furniture through their mobile devices. They research options, preview products in real-time through augmented reality, and make a purchase all in the palm of their hands.
Digital transformation spending is forecast to reach $2.8 trillion in 2025IDC
70% of digital transformations fall short of their objectivesBCG
Digital transformation spending will have a CAGR of 16.4% from 2021-2025IDC
Furthermore, think of how connected intelligence, AI, and automation, robotics, and data remove friction points from industrial production.
Digital innovation enables a company to operate more efficiently and to deliver greater customer value, so it’s gaining popularity. In fact, IDC predicts that enterprises will invest approximately $2.8 trillion annually in digital transformation by 2025.
Yet, even with all this investment, the majority of these efforts fail. In fact, IDC has found that 70% fail to reach their objectives. The reality, though, is that such a high failure rate is avoidable if you take the right steps.
To that end, read on to understand the benefits of digital transformation and keys to achieving success.
What is digital transformation?
Digital transformation is the process of applying technology to digitize business operations, improve efficiencies, and increase customer value.
Furthermore, it should be applied to every aspect of a business. However, its application may vary from company to company.
Because the topic is so broad, it’s tricky to write a simple digital transformation definition. Ultimately, it means redefining your business to stay ahead of the competition and to meet changing customer expectations.
Types of digital transformation
In some cases, a digital transformation strategy might mean rethinking your business. For instance, you may launch a new business model powered by a digital platform that delivers new types of customer value. On the other hand, you might introduce completely new products and revenue streams.
In other cases, you may maintain your products but put them through an overhaul. Think of the transition from desktop software to SaaS, or from physical tax return preparation offices to online processing services.
And yet in other cases, you may keep your business model and products intact, but implement new digital tools and tech to achieve more efficient, frictionless back-end processes.
Achieving greater efficiency
Regardless of the specific implementation, digital transformation is a move towards making your internal structures more efficient. Whether you work in accounting or human resources to logistics and fulfillment, a digital culture improves business processes, simplifies tasks, reduces friction, accelerates output, and increases profitability.
Other significant implications come from a brand’s forward-facing activities: sales, marketing, and customer retention. For example, digital transformation in marketing fundamentally changes the value you provide to consumers, helping you to:
- Find new customers
- Deliver a better customer experience
- Reduce customer acquisition costs
- Extend the customer lifecycle
More than just technology
Digital transformation is more than just adopting specific technologies to improve efficiency. That’s digitalization. It also encompasses core tenets of how a company operates, often requiring change management.
Joe Atkinson, Chief Digital Officer at PwC, puts it this way:
Digital transformation is all about culture. It’s at the heart of what we’re talking about.
Atkinson continues, “We know technology is changing. The greatest technology anyone of us can apply to a problem today is going to be different in 5 years. If you bet everything on what the tech is without helping people adapt to that pace of change, then we think we’re really missing something and that’s why we start with all our people.”
Whether operations or marketing, effective digital transformation requires a long-term commitment, a detailed roadmap, and allowance for trial and error. Its evolution is never complete.
Digital transformation example: King Arthur Baking Company
Let’s look at one of the more well known examples of digital transformation.
Founded in 1790, the long-standing baking ingredients company King Arthur Baking obviously didn’t start out as a digital business. Yet with the pandemic in 2020, many consumers started looking online for ingredients instead of local shops. As a result, King Arthur realized it needed to strengthen the direct-to-consumer channel as a priority business line.
So, the company built a brand-driven, personalized digital experience to increase ecommerce sales with a powerful new cloud infrastructure. On the marketing side, the brand invested heavily in video. One new show launched in March 2020 quickly averaged more than 100,000 views per episode.
By scaling their digital experience ecosystem, King Arthur increased year-over-year ecommerce sales in the initial months of 2020 by 200%. That’s a true digital transformation success story.
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Why does digital transformation matter?
Digital transformation matters because technology is reshaping the world at a staggering pace. If you want to compete effectively, then you need to transform your brand to meet the growing digital demand and onslaught of new digital entrants to your market space.
Companies that innovate and capitalize on new possibilities brought about by digital technologies and digital channels position themselves for sustained competitive advantage. On the other hand, those that don’t invite competitive loss and possible extinction.
A business that digitizes operational processes to the tune of 100% efficiency gains is going to outperform many competitors. Furthermore, a business that delivers mattresses at the click of a button, or embraces streamlined hybrid shopping experiences, will steal a large percentage of market share.
If you need proof, look no further than Blockbuster. Rather than embracing the digital world, they rested upon past accomplishments and were ultimately eaten alive by companies like Netflix. Companies like Kodak and Nokia also fell victim to digital disruption.
In the marketing space specifically, companies that focus on digital growth can outperform legacy companies with far greater resources. For example, Nerdwallet grew from zero to $100 million in annual revenue within 10 years by exclusively investing in the digital space, and organic search specifically.
Nerdwallet now owns the second highest Google market share across nine sectors of the personal finance market, representing billions of dollars worth of financial services leads.
Digital transformation business outcomes
Digital transformation success is often measured in ROI. However, we can break down the business goals and outcomes into a range of benefits.
So, what does digital transformation include? Essentially, it’s a two-pronged endeavor. Internally, it can have a considerable impact on a company’s operating models, such as:
- Improved workflows
- Better resource allocation
- Increased production
- Improved departmental collaboration and integration
- Optimized internal processes
- Reduced waste and redundancy
For the customer-facing side of the equation, goals and outcomes include:
- Expanded audience reach
- Reduced friction throughout the buying process
- Lower customer acquisition cost
- Better customer engagement
- Enhanced consumer experience
- Improved customer service
- Amplified brand awareness and trust
SEO strategy in digital transformation
When examining digital transformation through the lens of the customer, there’s one marketing vehicle that really stands out: search engine optimization. SEO perfectly bridges the chasm between digital and analog worlds, improving customer experience and driving organic growth.
A digital transformation strategy in marketing allows you to connect more efficiently with your target audience and better serve them throughout the funnel. The question becomes, how best to drive traffic and simultaneously deliver a positive digital experience?
That’s where SEO comes in.
Traffic sources such as PPC, display advertising, or TV advertising, are expensive and produce short-term results. Conversely, SEO investments cost-effectively and sustainably get traffic to your website. SEO also reduces friction by aligning with the way your audience thinks and matching user intent.
Unlike disruptive paid advertising, organic search connects your audience members to your brand when they’re actively seeking solutions. As a result, they’re more receptive to your messaging. Optimized content delivers positive user experiences that amplify brand engagement, purchases, and brand loyalty.
What’s special about SEO is that it’s the only digital strategy that accrues value over time. With advertising, your results vanish as soon as you cut the budget. Organic search is like a digital marketing flywheel that generates greater and greater results with less effort over time.
Even the most basic digital transformation would be incomplete without an underlying SEO strategy.
Digital transformation drivers
Successful digital transformation requires a spirit of innovation and an open willingness to adopt new technology. You must welcome experimentation and agile thinking as well as an attitude of learning from mistakes.
Let’s look at the key drivers throughout the transformation process.
Use of digital technologies
The core of any digital transformation is going to involve the implementation of new technologies. For example, part of your transformation might involve moving from legacy hardware to cloud-based servers. Alternatively, you may be focusing on ERP software for better enterprise-wide integration.
The technologies you choose to adopt will depend on a variety of factors, including:
- Existing business structures
- Legacy infrastructure
- Digital transformation goals
- Customer base
- Competitive threats
- Industry-specific considerations (e.g., compliance requirements in the healthcare market)
- And more…
In terms of digital transformation technologies, AI has the most potential. Artificial intelligence incorporates a multitude of cutting-edge tech, including advanced algorithms, computer processing, and machine learning as well as natural language processing.
In other words, AI gives machines the ability to learn, comprehend, and act.
Typical applications for AI include manufacturing and production. The advantage of AI in robotic assembly and quality controls is unmistakable in increasing productivity and efficiency.
Beyond that, AI also improves your sales, marketing strategy, and customer service efforts through the use of data analytics and insights. Leveraging AI tools can give you insight into what a customer wants. Armed with this data, you can then create an exceptional experience at every step of the customer journey.
AI moves your brand beyond providing a personalized customer experience with one that is highly intelligent. And including AI in your digital transformation initiative points to a positive trend, according to McKinsey:
Organizations with successful transformations are more likely to use sophisticated technologies, such as artificial intelligence, the Internet of Things (IoT), and advanced neural machine-learning techniques.
Automation works to improve your organizational processes. If it’s a repeatable task, you can automate it and eliminate human error in the process.
Internally, automation is key to saving time, reducing costs, and better allocating personnel. It allows you to optimize a number of internal processes from the financial to the logistical to even certain aspects of your hiring process. Look for any areas where processes require speed, accuracy, and consistency.
With automation, you can scale your digital marketing plan to new heights. Initiate automated engagement with your audience based on their traffic and behavioral patterns. Enter them into a customized email series based on what would satisfy their needs most effectively.
In terms of service, automation streamlines the communication process. It’s also a critical part of your digital customer experience strategy. This can include service portals, data collection, and analysis.
Digital transformation is itself a means to make your company more agile. Nowhere is that flexibility more apparent than with cloud computing.
The all-encompassing cloud is the primary driver in allowing a brand to scale up its service offerings. More than an on-demand SaaS clearinghouse for big data, cloud computing is a base for secure application development.
In addition to the protected infrastructure, cloud computing promotes collaboration. Access is available from anywhere, with any device. The cloud is an ideal structure for enhancing customer engagement or mining mass amounts of data.
Cloud-based infrastructure is relatively inexpensive, offering any company the chance to transform digitally and catch up or surpass competitors.
Digital transformation best practices
There’s a lot to consider throughout the digital transformation process, so let’s look at several best practices.
Start with business strategy
Figure out your underlying business strategy before you start down the digital path. Digital transformation involves a great deal of technology, but a specific technology such as ERP, supply chain management, or business intelligence software should not drive decision making. It should instead follow, support, and strengthen the strategy.
Don’t just look to your CIO for answers. Start by analyzing your business and where you need to be in the future.
- Where do you want to see efficiencies?
- What impact would digitization bring to different areas of your business?
- Where are you going to dominate? Where can you gain an insurmountable advantage over your competitors?
- How can you connect with more prospective customers more efficiently?
- In what ways can you get closer to the end customer?
- How can you improve the customer experience?
Buy-in is critical
Transparency and buy-in are essential to a successful digital and business transformation. A brand in transition is undeniably more successful when everyone is on board. Everyone has a stake in a brand’s evolution, and it’s critical that it is enforced at every step.
As emerging technologies take center stage, it’s important not to leave behind the human element. Procedures and policies will change but many of your people and customers will remain the same. Avoid creating abstract points of reference that don’t connect to how your company actually does business. Remember, the implementation may be challenging, but the outward-facing end result should not be.
Any transformation must be a collaborative effort. Clearly identify roles across departments involved in the change. Put in place tech-savvy business leaders along with subject-matter experts. Involve and seek input from those who have to manage the day-to-day aspect of the changes.
Take digital transformation one step at a time
It may be wise to start slow and ensure full adoption every step of the way. Digital transformation projects, by their nature, are arduous processes. They take time and have the potential to frustrate both employees and customers alike. Layout realistic expectations to all involved.
Similarly, communicate. A lot.
If you’re over-communicating, you’re doing it right. Even if your transformation involves enhanced digital communication, old-fashioned methods remain effective. Beyond all the digital communications you’ll engage in (Slack, email, etc.), conduct meetings and video calls often. And finally, set up online reporting so that everyone can be fully aligned and working in the same direction.
Digital transformation is the process of applying technology to digitize business operations, improve efficiencies, and increase customer value.
The benefits of digital transformation include improved operational efficiency, better customer shopping experiences, and improved marketing ROI.