3 Aspects of Enterprise Digital Transformation Most CEOs Get Wrong
The demand for enterprise digital transformation won’t be slowing down any time soon. In fact, corporations are expected to spend up to USD 1.8 trillion in 2022 alone. This number will grow globally to reach USD 2.8 trillion by 2025.
Unfortunately, CEOs and corporate leaders are yet to truly understand how digital capabilities can truly empower their organizations. Majority lean on their IT departments to guide them through the upcoming disruption.
However, and this is from personal experience, IT departments are not ready to embrace digital transformation initiatives. To start off with the basics, here are three very common mistakes that CEOs fall for while attempting enterprise digital transformation.
1) The Difference Between Digitization, Digitalization, and Digital Transformation
Digitization, digitalization, and digital transformation tend to be used interchangeably. Sales and marketing professionals have further driven this trend as they use these buzzwords to generate sales. However, these three terms actually have different meanings.
Digitization: Digitization isn’t a new concept; it’s been around for almost four decades by now. This is the process of creating a digital representation of physical objects. Simply put, it’s the shift from analog to digital. For instance, instead of saving files in physical documents/folders, organizations can scan and upload on cloud.
Digitalization: One thing that digitization lacks is a change in process. However, that is actually an integral part of digitalization. Digitalization optimizes and improves processes through the use of specialized software to standardize and optimize business process.
A good example of digitalization is the use of enterprise resource planning (ERP) platforms such as Oracle and SAP. These software systems manage day-to-day activities such as accounting, supply chain, and IT operations. It further instills best practices that organizations need to embrace to standardize processes.
Notice the word in bold? This is basically the opposite of what enterprise digital transformation is.
Digital transformation: Digital transformation is an innovative initiative that rethinks an organization’s processes and business models. It taps into the power of Fourth Industrial Revolution (4IR) technologies such as Internet of Things (IoT), blockchain, and artificial intelligence (AI).
With 4IR technologies, organizations can discover new opportunities. In addition to the numerous benefits they offer, their appeal stems from their easy access. Services such as Amazon AWS, for example, can help even small organizations start their enterprise digital transformation journey.
Despite the differences in their definitions, the three concepts complement one another. If an organization is already digitized, digitalizing it with software solutions won’t be much of a challenge. Similarly, digital transformation can be easier with structured data produced through digitalization.
2) Implementing Enterprise Digital Transformation
There is a significant difference between implementing digitalization solutions and digital transformation.
First off, digitalization has a more inward focus. For instance, it can be to optimize the operations of a function/department in the organization. Yet while software modules across the company may be linked, they’re quite isolated as well.
Take the example of implementing an ERP. As you can see, each department has separate modules to digitalize existing processes.
On the other hand, enterprise digital transformation has an outward focus. Rather than being limited to a single department, implementation aims at resolving customers’ problems in an innovative way. This helps derive value (e.g. generating more revenue and cutting costs) with less effort.
To ensure the success of digital transformation initiatives, McKinsey and other influential thought leaders recommend digital factories. Similar to their namesake, digital factories deliver digital products and services. They integrate the required digital and business capabilities needed for digital self-sufficiency.
In addition to acting as a talent magnet, this approach delivers and sustains value for the organization and, ultimately, its clients. It further incubates a start-up culture within the corporate company. Most importantly, it achieves the outward focus needed for success.
Revisiting the previous example with digital transformation in mind, the transformation of the customer journey is visible.
After approach comes the capabilities needed for implementation. When digitalizing an organization, procurement relies on vendors of pre-built software. System integrators will then provide their input and consult organizations on bridging any gaps between them and vendors.
The third set of capabilities needed here is that of the IT department or IT manager. After procuring the recommended solution, they’ll handle operating and supporting the solution.
Digital transformation has a different set of capabilities. First off, instead of a largescale ERP platform vendor, it resorts to cloud technologies that are democratized. In this model, everything from AI and data analytics to IoT is easily accessible through APIs, allowing you to focus on innovation and new business models rather than proprietary technologies and processes.
In order to be successful in Digital Transformation high-end software development capabilities in 4IR tech (such as AI, Blockchain, IoT etc) and Agile software development are needed. Such capabilities are mostly not available in-house in most companies. Hence in order to implement these solutions, organizations need an Agile software development partner that not only understands 4IR technology but is also Agile and innovative in nature.
Finally, the last set of capabilities in this scenario is organizational digital leadership. It’s imperative that CEOs lead the digital agenda from the front for direction, motivation and inspiration. Moreover, all the organization’s departments should collaborate with the digital partner to co-create and ensure value.
3) Steps Towards Digital Transformation
When designing a digital transformation strategy, formulate a plan that avoids a solution-first approach. You need to effectively consider the problems your organization faces and craft the solutions accordingly. Anything else won’t be considered as an enterprise digital transformation initiative.
With this in mind, begin trying to understand your options. You may need to consider adding a digital strategy to best meet the upcoming disruption. After that, you need to upgrade technologies, skillsets, etc.
Digital Transformation Won’t Be Easy
The journey towards digital transformation may be too exhausting if your organization is yet to be digitalized. Opting for any shortcuts from digitization to digital transformation may also backfire and result in lost time and effort.
Therefore, it’s best to find the right partner to help you formulate a relevant strategy.