What is digital transformation? A necessary disruption

Digital transformation is a foundational change in how an organization delivers value to its customers. Here is what transformation truly entails, along with tips to ensure your company is on the correct course.

 

CIOs have come to disdain digital transformation as a concept because it’s meaning has been rendered nebulous from overuse.

You can blame CIOs who use it as a euphemism for modernization, including migrating from legacy on-premises systems to cloud software, Or you can blame vendors who have abused the term when marketing solutions designed to satisfy every IT leader’s requirements. You can even blame both.

Digital transformation defined

Digital transformation marks a radical rethinking of how an organization uses technology, people and processes to fundamentally change business performance, says George Westerman, MIT principal research scientist and author of Leading Digital: Turning Technology Into Business Transformation.

Digital transformation, which Westerman says should be led by the CEO, requires cross-departmental collaboration in pairing business-focused philosophies with rapid application development models.

Such sweeping changes are typically undertaken in pursuit of new business models and new revenue streams, driven by changes in customer expectations around products and services.

"Customer expectations are far exceeding what you can really do," says Westerman. “That means a fundamental rethinking about what we do with technology in organizations."

Digital transformation drivers

Companies often embark on digital transformations to counter the potential for disruption from incumbents and startups.

Consider Uber’s hijacking of the transportation sector, forcing everyone from taxi companies to car rental concerns to automakers to figure out how incorporate similar ride-sharing or other on-demand services, including bikes and scooters, into their business models.

Amazon.com’s steady march across nearly every retail vertical has heightened consumer expectations for not only how quickly they receive goods, but the consistent availability of goods. The so-called Amazon effect has retailers using algorithms to complement logistics and ensure that anything from food items to beauty aids quickly make their way from local warehouses — before their store locations run out

Digital transformation examples

Fearful of being outflanked by more nimble competitors, companies are seeking to accelerate innovation, experimenting with new digital services and capabilities to augment existing offerings or to slide into adjacent markets.

Restaurant chains such as TGI Fridays and IHOP, fearful of being rendered irrelevant by hipper, more tech-savvy boutique brands, are experimenting with virtual assistants to facilitate mobile ordering.

Grocery chain Albertsons is working on anything from personalized product deals and one-touch payments for gas to AI software and robots that move product around its warehouses, says Ramiya Iyer, general vice president of IT for omnichannel sales and services.

Startups play a critical role in many organizations’ transformation strategies. BMO Harris Bank accelerated the loan origination process with software from startup Blend to become a preferred digital destination for consumers, says Thomas Parrish, the bank's director of consumer lending product management. Previously, bankers spent up to an hour drafting the loan applications while customers waited.

"We didn't have a good user experience," Parrish says. With Blend, consumers complete applications in minutes. Moreover, applicants can fill them out on weekends rather than be beholden to the banker's hours. 

As a result, online mortgage and home equity application volume at the bank has risen 275 percent over the same period last year, and more than 80 percent of mortgage and home equity applications are now submitted using Blend. The technology enables BMO Harris’ bankers to spend more time serving customers rather than filling out and filing paperwork, Parrish says. “It keeps up cutting edge and current," says Parrish.

Transforming products into services is another key motivation. Digital twins, for example, are a new reality in the manufacturing sector. Organizations from General Electric to Boeing and McDermott International are creating software versions of their physical assets, ideally to generate application revenue.