Digital technology has surely changed the way we do things and it goes without saying that it has had tremendous impact on global business practices. 2020 became a turning point for many and in a way changed business scenery forever. New reality of restricted movements imposed tremendous disruption on people and businesses alike. Going digital was not a choice anymore, rather it became the only viable way to survive and succeed.
Though, in the face of eminent disruption very few could confess to be ready to accept the new challenge. Moreover for some, especially from more conservative and less digitized businesses collocation of “digital transformation” still remains an unknown mystery.
However, the matter seems to be quite easy. In a way we can say that digital transformation is nothing but embracing digital technology and applying it to various business processes of an organization where and when required to improve overall performance and bring better value to the customers which in the end serves one major goal - acquiring better business results, aka money.
There are currently multiple methodologies available in regards to the principles of digital transformation but we are not going to cite all of them here. In this article we are going to explore and try to understand better the five key domains of digital transformation, or in other words key business aspects that are being transformed in the digital era. To do this we will follow the methodology of Professor David Rogers, one of the pioneers and global thought leaders in the field of digital transformation who through analyzing different business areas and the impact digital practices have had on them has developed his system of the principles of digital transformation.
To start off, the first principle that we need to ascertain is that despite certain differences in the approach between various industries, however, universally there can be pointed out five key business domains that are being transformed in the digital era. These five domains lie in the areas of customers, competition, data, innovation and value. Understanding these domains in the digital context and even more transforming your thinking around them is the key to successful transition towards the digital economy.
Now, let us explore each domain and try to capture some of the changes that have been enabled through digital technology and its tools.
The first domain of digital transformation is about customers. In digital era perception of customers is moving from mass market concept with one-fit-many approach to dynamic networks and better customization of offers.
Though digital marketing and advertising targeting remain one of the key concentrations of today’s business digital activities, however, there is a far more important aspect in the customer domain that has been considerably boosted by digital tools. This is the role of the customer. It has fundamentally changed. Customers are no longer just passive observers, they can get actively involved in the process and become integral part of the brand identity, where strong connected customer networks help businesses flourish and grow. Think about impact that accessibility to real customer reviews has had on business bottom line. Businesses that are loved by customers for their quality, product and service are able to maximize the power positive reviews can have on potential buyers.
At the same time we as customers also get more transparency and better access to key product information. Connected customer networks prevent us from being misinformed and cheated. Overall benefit for businesses and their consumers is quite obvious – companies concentrate on improving their quality and likability by the customers which leads to better products, better service, more innovation and as a result further progress and development.
One thing for sure though, digitally enabled changes to the customer domain do not support the “ostrich” approach. As a business you can no longer ignore your customers’ feedback as the problem will not disappear but rather can escalate further, and if left unattended can potentially erase the business completely.
The second key domain experiencing major changes is competition. The competition scenery of late has witnessed traditional approach of competing for a “piece of a pie” against other market peers transforming to “frenemies”, coopetition, disintermediation and asymmetric competition.
Identifying your competitors is not a straightforward process any more. It’s no longer just a rival business with the business model similar to yours. Your new competitor may be coming from outside your industry, however his business model innovation allows him to offer to your customers a competing and better product or service thus taking considerable piece of your market pie.
One more crucial change that has been enabled by digital tools is increased geography of your competition. You may no longer be competing just against a business next door, your today’s competitor may be located in a different country or even continent altogether, but through digital enablement he can have full access to your customers, thus competing with you and your business.
However, despite obvious immediate threats smart businesses can look at such broad geographic coverage as an opportunity for reverse innovation where by having access to business models of your competitors from the countries that support lower cost structure, your business can ignite internal innovation to reinvent itself and regain its competitive advantage.
The third key domain of digital transformation lies in the realm of data. Too many things are being said about its importance in the digital era. Though some call it new “gold”, however only few have a clear understanding of how to ripe its benefits.
The most important assumption here is that data stopped being just process related, it has become a strategic asset that can benefit the business bottom line. Those companies that understand the importance and value of data and deploy strategies for its capturing, storage and analyses along multiple key business touchpoints are performing considerably better than their slower rivals.
However, we need to warn you about an important aspect here and that is relying solely on machine algorithms in data analysis. Though machine algorithms can certainly be good at aggregating big chunks of information, at picking up certain trends and providing statistical analysis reports, we all need to understand that statistics is not the answer to all the questions. As a matter of fact any statistics can have little value without real human intelligence and ability to pick up sometimes less obvious things.
Moreover, unless business has strong buy-in from its human capital, that is its employees, on the importance of data collection and usage, even the most sophisticated data algorithms will be of little use and value and can end up being totally misguiding.
The forth key domain of digital transformation is innovation. Deploying digital solutions and tools allows for the rapid experimentation and testing to identify workable solutions which in turn become the driving forces and key enablers for business innovation.
Companies that are managing to change their thinking from the “perfect-product” launch strategy to alpha and beta testing approach in general tend to come up with better and more in-demand products. For example, concept of MVP (minimal viable product) launch was difficult to imagine in the predigital era. However, nowadays more and more businesses resort to this option as an opportunity to test their raw innovation and improve it on-the-go following customers’ feedback, thus ultimately co-creating with their customers and achieving better customer buy-in from the start.
Digital tools can also considerably decrease the time and costs associated with conventional market research. When it comes to testing multiple solutions and products they allow to quickly capture customers' feedback and understand from customers which solutions and products work best, thus enabling rapid changes when required and ensuring better outcomes.
One more important factor that relates to innovation in the digital era is not always innovation of a product or a feature itself but an ability to completely reinvent the business model. By using the best that digital tools can offer companies are able to improve their cost structure, modernize their products and get access to totally new markets.
The fifth and probably the most important key domain of digital transformation is value. The key assumption here is to look at technology from the perspective of opportunities for business to create value for the customers and improve business performance and business outcomes in ways that weren’t possible before.
Value domain can be perceived as a key factor in determining success or failure of digital transformation efforts. It can help in deciding which digital tools and solutions are the most appropriate to be used by your business. Looking at various available tools through the prism of value will allow to see whether they can help your business to achieve better customer satisfaction and loyalty, decrease operational costs, increase your sales channels and revenue streams or achieve any other key performance targets that are essential for your business. But ultimately as we all understand in for-profit business models it all comes down to one thing, whether chosen digital tools can help you improve your bottom line and your profit margin.
In summary of this article it is important to mention though, that success of digital transformation always lies in the human factor. It would be a fundamental mistake to disregard human factor as an essential component that will either make it or break it for your business. Human element is the most crucial enabler of any methodology. In the framework of five key domains of digital transformation it is the sixth key element that puts everything together. Without taking it into account from the start even the best laid plans can remain best laid on paper only, failing miserably when it comes to real life implementation.
Successful digital transformation requires clear understanding from the business shareholders of its key principles. It demands their ability to differentiate between various digital tools available, choosing the ones that can bring the most appropriate and most needed business results.
It will also call for businesses ability to create the correct environment within their teams where shift to digital is not perceived as an eminent threat but rather an opportunity to get better results for all.
Believing that moving towards technology can be achieved through only deploying various digital tools and systems without taking human aspect into account is the biggest delusion you can have and there are already multiple example of hefty budgets drained in water in faulty attempts of digital transformation.
Unwise and unthought through digital transformation activity will prevent businesses from excelling and rather will achieve the opposite results, frustrating employees and customers alike and ultimately deteriorating business outcomes.
Putting humans first and technology second is the right allocation of priorities on the route to successful digital transformation that can allow businesses to really ripe tremendous benefits technology can offer.