Digital Transformation
We’ve been talking about the Information Age or the Digital Revolution for decades, so what does Digital Transformation actually mean?
Let’s start with what it’s not. It is not digitization, which is merely moving information from analog to digital format (think paper to bits and bytes). It’s also not simply digitalizing good processes to make them more efficient. That’s really the general promise of software.
Digital Transformation is a strategic shift in the way that businesses approach their markets and interact with their customers. Their leaders focus on who their customers are and how they want to engage. They offer services and features that their customers love and sometimes never even knew they wanted.
Digital Transformation
Enterprise-level change effort and deployment
Digitalization
Using digital technology to improve business process and customer experience
Digitization
Converts analog or physical information to digital formats
Leaders do this by observing and analyzing customer profiles and behaviors. Did you buy your Apple Watch knowing that you wanted to have fitness competitions with your friends and family? I doubt it, but if you’re like me, that’s one of the features I’ve found myself enjoying the most and will keep me coming back for future generations.
Digital Transformation vs Disruption
Digital Transformation, as discussed above, is an enterprise-wide effort to change the way an organization interacts with its customers. There are also cases of “Digital Disruption”, where an industry newcomer can disrupt an entire industry, toppling older and established industry incumbents. This is a risk in almost every market, and you can probably spot a few newcomers in your own industry which pose a threat. Digital transformation become a necessity to compete as new digital challengers emerge.
Many of incumbents in the graphic at right did not recognize the threats posed by their industry’s disruptor. Disruptors often enter downmarket, gaining footholds in undesirable corners of the market. They then took their offerings upmarket and rapidly took large segments of market share.
Why should you care about Digital Transformation?
Clearly, most businesses today recognize the base needs to have a website, a social media presence, and probably an app; however, that barely scratches the surface of Digital Transformation.
Organizations that have shifted their strategies to prioritize investments in digital market interactions have seen disproportionate top line gains versus competitors that have perpetuated traditional strategies. A 2017 study by Isobar shows that a firm’s degree of embracing Digital Transformation has a direct relationship to its year-over-year revenue growth (see Harvard Busines Review quote).
Notable Industry Disruptions
Industry |
Incumbent |
Digital Disruptor |
Movie Rental |
 |
 |
Vacation Rentals |
 |
 |
Car Rides |
 |
 |
Retail |
 |
 |
Television |
 |
 |
CRM |
 |
 |
HR |
 |
 |
“The revenues of companies in the top decile of digital strength… grew 9.6% the following year. By comparison, the revenues of those in the bottom decile fell by 8.2%.”
– Harvard Business Review*
Lessons Learned
People
- The company leaders must be fully committed to a Digital Transformation and be the evangelist
- A firm’s culture needs to be the fertile soil in which Digital Transformation takes root. Focus on change management to build a culture of innovation. Encourage risk-taking and foster the ability to fail.
- If your firm is new to Digital Transformation, augment your staff with design thinkers, customer-centrists, and innovators, but also build up the skills of your high potentials.
Process
- Remember, automating your effective internal processes is inherently good, but do not mistake that for Digital Transformation
- Processes to develop, assess, prioritize and nurture digital innovations are supportive of Digital Transformation
Technology
- Implementation of technology is not Digital Transformation. Think of how many apps you have tried and deleted. If they weren’t “sticky” and didn’t change how you interact with a business, then they were not transformative.
Strategy
- Organizations must shift to a digital transformation, customer-centric strategic mindset
- Develop a plan to invest in Digital Transformation before you find yourself reacting to an industry disruptor. If you’re reacting, it might very well be too late.
About Fisher
Fisher Management Partners is a specialized consulting firm designed to address the unique needs of large and middle market businesses. With a focus on critical, cross-functional initiatives in strategy execution, finance, customer experience, value chain, and technology, Fisher partners with clients to achieve strategic and operational business objectives driven by two types of need:
- Execution of new corporate transformation strategies
- Rapid corporate expansion through acquisition, equity infusion, or market growth
* Maling, Jeff, Rod Fertig and Arun Muthupalaniappan. “Are You Accurately Measuring Your Company’s Digital Strength?” Harvard Business Review, September 07, 2017, https://hbr.org/2017/09/are-you-accurately-measuring-your-companys-digital-strength. Accessed September 25, 2020.