Digital transformation is more than digitization or digitalization, it is a strategic effort to transformation the organisations business model and gain competitive advantage and respond to digital disruption, this requires changes to an organisations people, process and technologies. In 2018, $1.3 trillion was spent on Digital Transformation initiatives (Statista 2021), despite this 70% of Digital Transformations don’t achieve their goals (Carrol 2021).
Gartner (n.d) describe digital transformation as ‘the process of exploiting digital technologies and supporting capabilities to create a robust new digital business model’. Vial (2019) describes DT as ‘a process where digital technologies play a central role in the creation as well as the reinforcement of disruptions taking place at the society and industry levels’.
According to Liu (2020) Digital transformation, is the integration of digital technologies in all areas of a business, improving current and creating new operation processes, as well as deliver more value to customers’
Vial (2019) articulated Digital Transformation as a process. Disruptions occur in the external environment which prompt organisations to develop strategy responses using digital technologies which changes the organisations value creation process. In addition to technology, internal structural changes and organisational barriers must be adapted.
Building Blocks of the DT Process, Vial 2019
For example: One of the Europe’s leading TV stations, the German based ProSiebenSat.1 Media SE (P7S1) was founded in 2000. In 2014, it had a turnover of €2.6 billion and +3,500 employees. The launched a company digitally transformation to evolve the organisation from linear TV broadcasting to video-on-demand and online-gaming and generate 20% of revenues through digital business (2016)
Risks Of Digital Transformations
Many business leaders see digital transformation as a priority however it is not without risks discussed below. An increased burden has been placed on the IT/Digital departments and internal risk departments presenting the need to upskill, deploy robust systems and respond quickly to emerging threats.
Knowledge
Many organisations don’t understand digital transformation and 80% overestimate their digital readiness. 51% of organisations have a digital transformation strategy but a quarter don’t know how to implement it and nearly one third don’t know which technologies to deploy. 41% of organisations say that they face a lack of digital skills and slow decision making by senior staff (Amarach, nd).
Strategic and operations
Deloitte (2018) identify a range of digital risks including technology, data leakage, privacy, regulation and regulatory, I will focus on two.
- Strategic risk occurs when an organisation’s goals and objectives are misaligned, this may occur from unexpected changes in the external environment. This can destabilize the organisation and jeopardise it customer experience, brand value, reputation or competitive advantage.
- Operational risk occurs when an internal or external event threatens the organisation’s ability to achieve its objectives this can arise from inadequate people management, processes, procedures, lack of quality assurance checks etc.
Protection
Brian de Lemos (2019) have identified a number of risks which can be clustered as security & privacy, these focus on the potential risks inherent in a connected network of devices with valuable data on a network.
- Cyberattack: The growing number of IoT devices (industrial and consumer) and cloud infrastructures, use of APIs and other third party devices/networks may come under cyber attack as threat actors try to capture and exploit valuable data.
- Workforce: Workforcers are becoming more distributed due to the rising gig economy and covid-19 fallout, this presents challenges for security and operational efficiency which require new governance and threat-monitoring oversight.
- Compliance: Following on from GDPR, data breaches and cyber attacks it is possible that new government regulations will be enacted placing more governance, risk, and compliance requirements on organisations. Process automation: The displacement or replacement of humans with robotics and/or automation may yield unexpected consequences for business or society.
- Resiliency: As the threat of cyberattack rises, organisations must have a contingency plan to recover their data and prevent loss of mission critical systems.
For example: With +$5.5b revenues and +9000 stores, Blockbuster video was Americas biggest video rental chain (Satell 2014). Despite this Blockbuster filed for bankruptcy with almost $1 billion in debt. Blockbuster lacked a deep understanding of the impact of digital disruption and failed to digitally transform their strategy, operations or business model. Blockbuster became out of touch with customers adoption of cloud streaming services despite their CEOs failed attempts to convince his board of the need to change. While Blockbuster had the people and capital to transform, it lacked the vision, willingness and ability to.
Formulating A Digital Transformation Strategy.
Formulating a digital transformation strategy requires a deep understanding of the organisations process, structures, human resource considerations, digital technologies and its environment. According to Ionoloy (n.d) a digital transformation strategy describes how an organisations will position itself in the digital economy, this requires changes to the business model the use of emerging technology.
Hess et al (2016) created a digital transformation framework to help executives when formulating strategy, it includes for 4 areas and questions for leaders to consider.
Use of technologies
- How significant is your firm’s IT to achieving strategic goals?
- How ambitious is your firm’s approach to new digital technologies?
Changes in value creation
- How “digital” is you interface to the customer?
- How will you create revenue from future business operations?
- What will your future business scope be?
Structural changes
- Who is in charge of the digital transformation ?
- Do you plan to integrate new operations into existing structures or create separate entities?
- What types of operational changes do you expect?
- Do you need to acquire new competencies? If so, how do you plan to acquire them?
Financial aspects.
- How strong is the financial pressure on your current core business?
- How will you finance the digital transformation?
Vial (2019) illustrates Digital Transformation as a process requiring leaders to understand the impact of environmental changes, formulate and implement a strategy and reposition the organisation accordingly. This process recognises the need to deploy digital technologies, adapt organisations structures/process and manage people. In digital transformation strategy formulation, leaders must align their digital business strategy (DBS) and digital transformation strategy. The digital business strategy (DBS) focuses on the organisations commercial objectives, future state and plan to achieve this. Whereas the digital transformation strategy (DTS) focuses on the deployment of technology, people and process that are needed to achieve the DBS.
Building Blocks of the DT Process, Vial 2019
Conclusion
Digital transformation is more than technology deployment, it is the management of people, process, organisational structures designed to adjust the organisations business model and gain competitive advantage in a changing landscape.
Digital transformation requires the successful management of various risks including the need to build digital skills/capabilities/understanding, strategic & operational risks, and security & protection risks among many others.
Formulating a digital transformation strategy requires a deep awareness of the external environment and careful management of internal people, process, structures etc. There are a variety of considerations such as balancing commercial objectives (digital business strategy) and technology considerations (digital transformation strategy).
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