← Back to the blog

Article
Corporate Strategies

What Is Digital Transformation?

General Assembly
February 23, 2021
What Is Digital Transformation?

We are in the midst of a grand economic experiment catalyzed by COVID-19 to accelerate digital transformation efforts in almost every business. The days of arguing whether digital transformation is the right path are over. Simply put, companies that don’t modernize will fail. That said, not every company is on the same journey. By the end of 2019, nearly 20% of enterprise organizations had not started digital transformation efforts. Another 40% said they were currently undergoing it, and budgets are rising to match. IDC forecasts global spending for digital transformation rose by about 17.9% in 2019 to $1.18 trillion. Partially due to COVID-19, that number is expected to increase by another 10.4% in 2020.

If you asked businesses before the pandemic about the importance of digital transformation, most would agree that it was important, but not all would prioritize it in the same ways. However, digitization becomes crucial very quickly when tens of millions of people must work from home, and non-essential businesses are closed to foot traffic.

Look at the shift in global consumer sentiment in the first week of May:

Source: McKinsey

While some of these shifts were temporary, many are not. We see fundamental changes in the way the economy works. A recent IDG survey found that 59% of IT decision-makers have accelerated their efforts with spending likely to grow by more than 10% in 2020. Demand for skills in technology, data analysis, product, marketing, and UX are higher than ever as companies shift to a new model that emphasizes  remote operations.

Time is no longer a luxury for organizations that had not yet started or been in the early stages of planning digital transformation efforts. The new normal requires businesses to be agile and digital.

What is a Digital Transformation?

Digital transformation is the process of remodeling existing business processes to meet the current market — specifically, the needs of the customer. Until recently, that included banks implementing mobile apps and investing heavily in FinTech, or healthcare organizations digitizing records and connecting devices and people seamlessly across a large network, etc.  Digital transformation was previously about supplementing existing offerings with new technologies that met consumers where they were most likely to engage.

Post-COVID-19, digital transformation is still about these things. One of the many challenges large organizations have with digital transformation is that they attempt to implement small efforts within silos in a much larger company infrastructure — digital transformation is bigger than that. It’s about recognizing the core ways to interact with customers and making smart investments to address specific challenges.

Why is digital transformation different from simple digitization? The latter is about shifting away from paper-based and analog processes. It’s about making data accessible to everyone in an organization and connecting employees at all levels. Digital transformation is about leveraging those changes to improve the relationship between your company and your customers with things like personalized messaging, configurable products and services, and more accessible, catered customer service offerings.

Of course, these efforts can be difficult to execute. To date, less than 30% of them have succeeded, and only 16% have improved performance and resulted in long-term changes. While smaller businesses (those with fewer than 100 employees) are significantly more likely to succeed, enterprise organizations are challenged to realize demonstrable returns. However, it’s not the concept that’s flawed; it’s the process. Too many organizations start from the top, thinking of the technologies and tools and not the people who will implement them.

Digital transformation relies on people at multiple levels. Not only are highly skilled individuals in marketing, IT, and product required to implement new initiatives, the entire workforce must buy into these changes. Without high levels of adoption, large investments in new software and processes can quickly look like mistakes.

Why Are Digital Transformations Important?

More than 80% of decision-makers in technology and engineering see a mismatch between the skills workers have, and the skills companies need. The biggest gaps are in strategic thinking and analysis: data analytics, data science, innovation strategy, and web development, among others. That talent gap with organizations is growing as more companies are eager to bring on top-tier talent to steer their efforts into the next decade. Digitization addresses this by leveraging artificial intelligence and machine learning to support internal workers and enable the development of the right skills for the necessary work.

Furthermore, companies should be looking at the staff they already have to see how they can help support digital transformation goals. The Build vs. Buy Approach to Talent allows companies to build internal competencies that support digital transformation. We know that 75% of digital transformations fail because companies focus on systems instead of including talent as a critical enabler. Of the large chunk that fails, 70% are due to a lack of user adoption and behavioral change. Digital transformation isn’t only about buying the flashiest new tools. It’s about crafting a strategy that your employees are willing and able to implement. You need buy-in from every level of an organization. When employees embrace the concept of digital transformation, technology becomes secondary. As employees work in ways they never have before, this is more important than ever.

This might all sound like a lot of work. Coming into 2021, many companies had long put off this process because of that perception. But, the growth potential is staggering. MGI estimated that an additional $13 trillion could be added to global GDP in just 10 years by implementing AI, automation, and digitization. Despite that, only 25% of the economic potential of digitization has yet been captured. And that’s the average. In some industries, the digital frontier gap is significantly larger — especially in revenue generation, automation, and digitization of the workforce.

Despite the delays before this year, many chief executives now see the value of digital transformation. Two-thirds of CEOs expect to change their business models due to digital technologies, and 77% of digitally mature companies are more likely to grow digital roles in the next three years. These trends have only continued in light of COVID-19.  A July survey showed that the number of days spent at home by employees had grown four-fold. Ultimately, all remote employees require technological support. Think about all the technology that we rely upon that needs adequate support, too: Cloud-based applications. WAN modernization efforts to support a dispersed workforce and maintain network security. Improvements to active directory and identity management.

The impact of digital transformation efforts leads to fundamental changes in departmental models as well. Marketing, for example, is leveraging AI to improve the customer experience across the board. With 80% of companies now using AI chatbots and 84% of customer-focused companies spending heavily to improve mobile experiences, the way organizations engage with prospects and customers has fundamentally changed in the last half-decade.

The Impact of Digital Transformation (Done Right)

Over the past six months, workforce digitization has accelerated faster than at any point in the last twenty years. For organizations ahead of the game, it was a chance to put their innovative efforts to the test. For those who had delayed digital transformation initiatives, it was a major challenge. With limited resources, a highly competitive talent pool, and an uncertain future reshaped by the events of 2020, it’s more important than ever to develop a strategy that guides your business forward. This is a massive opportunity for leaders who understand the moment we are in, to arm their organizations with the tools, resources, and processes needed to succeed.

Where are you observing digital skill gaps within your organization? Learn more about how we can help.

GA Universal Form

This is where your description should go.

What’s your reason for connecting? *

By providing your email, you confirm you have read and acknowledge General Assembly’s Privacy Policy and Terms of Service.