A Quick Start Guide to Digital Transformation
Updated: May 21, 2020
Digital Transformation seems to be the buzzword of the day, and digital technology seems to be ubiquitous. If you’re not already digital, you might be worried about missing the ship. Indeed, on average, according to McKinsey, a consultancy, “industries on average are 40% digitized” (). They also claim that “bold, tightly integrated digital strategies will be the biggest differentiator between companies that win and companies that don’t”: a revenue impact of 11.2% (relative to current trajectory) at full digitization and 7.3% on EBIT – not bad!
The main benefit of digitization is the reduction of economic friction. In short, it makes things faster, simpler and cheaper to do, thereby unlocking new value.
When a board hears about digital transformation, the discussion invariably leans toward eCommerce, Big Data, AI, IoT and other information technologies. Boards fret about the fate of previous leaders destroyed by digital competitors, such as Kodak or Blockbusters. But the discussions remain at high level because of the incredible number of use cases, vendors and other factors increasing complexity. So, where do you start?
Well, for one, start with your overall business strategy and objectives, and ensure you align your digital strategy: how can you cut costs, improve Customer Experience and satisfaction, reduce your inventory, or analyse your sales forecasts.
Indeed, digital transformation can apply to all parts of the company: marketing, finance, supply chain, even sales and services to some extent.
Where can the company save time, be more consistent, save money, provide a better, smoother experience?
Let’s start by defining Digital Transformation:
The Digital part is the (relatively) easy one: it’s about digitizing as much of the information and processes as possible, so you can automate and speed up.
The confusing word is “transformation” because it seems everything must change at once. That is a recipe for chaos.
Of course, you can go after blue oceans creating new digital businesses or reinventing the core of your current approach.
Or you can proceed step by step, learn from your mistakes, starting with the quick wins.
Digital transformation can be expensive: you need software, devices, skills and enough quality data. To make the case for it, you need to try and improve one area at the time.
McKinsey defines five separate areas of digitization (1):
-products and services
-marketing and distribution channels
-new entrants acting in ecosystems.
Let’s take B2B sales and marketing as an example, digitizing the various customer touchpoints, gathering data for better understanding of the customer purchase decision journey: the holy grail is getting a “single view of the customer”. A marketing technology stack (the various software and tools required for marketing digitization) is about getting more, better leads, and eventually more business.
The desired results: better customer experience and interactions, through a more precise (and often personalized) targeting.
Not all of us will become the next Amazon, Uber, or Airbnb though. But most of us can be fast followers in our respective industries and benefit from digitization.
Make sure you watch established leaders for best practices, start-ups for potential disruption (maybe even getting a Director seat on their Board!) to identify new trends and winning moves early. If this benchmarking is too hard for your business, hire a couple of advisors who can help you on your digital journey.
A typical digital transformation is a 3 to 5 years programme ().
You’ll need to have a pilot that serves as proof of concept and validates you are going in the right direction, not disrupting your own business. Because here lies the main challenge: transforming whilst performing.
You will need two sets of KPIs: the new KPIs, showing whether you are going in the right direction, along with your existing KPIs, measuring your short-term performance. You might also need a separate budget and budgeting process, milestone-based rather than annual.
And you will need dedicated talent (the “scrum”), whether in-house or consultants.
As Digital McKinsey details, “once you’ve completed a successful pilot and you’ve put the tool set and the governance in place, it’s about scaling” up – quickly: test and learn, again and again!
By now, you might be both scared and excited: scared of the complexity and investment level involved, excited by the opportunity to transform your business and take it to the next level. In any case, the future is now, and digitization is a reality you will have to face sooner or later, so better get ready.
The case for digital reinvention, McKinsey Quarterly, Feb 2017
How to make sure your digital transformation succeeds, Digital McKinsey, Aug 2017