Digital transformation can infinitely benefit your company culture and productivity by changing how the business works and interacts with its consumers.
The term has increased attention ever since the COVID-19 pandemic pushed businesses to adopt agile, digital technologies. In fact, spending on digital transformation is forecasted to reach 3.9 trillion USD by 2027.
In this article
What is digital transformation?
Digital transformation is the process of becoming digital-first by using technology to create new or upgrade existing business processes, culture, and customer experiences to meet the changing business and market requirements.
Every step you take towards digital implementation redefines the way you do business. At this point, it is difficult for businesses to avoid transforming their operations because of technological efficiency, cost reduction, and precision.
Learn more in our detailed guide to the digital transformation roadmap and process.
Digital Transformation and Digitalization
The word 'digital' is used so often that its meaning can shift from digitization to the field of AI.
Although the implementation of digital technologies is at the heart of digital transformation, it is not the same as digitalization.
Digitalization is the process of converting information or a process into a digital format. For example, back in the 1950s, airlines used a manual ticket system with manually filled-in paper cards and in-person booking. In 1964, IBM developed SABRE, the first computerized booking system. The goal of digitalization is to improve efficiency and reduce errors.
Digital transformation, on the other hand, is a more strategic concept. It’s about using digital technologies to change how your business operates to make it more agile, innovative, and customer-focused.
Aside from digitalizing, it also involves creating new business models and prompting a digital culture within the team. Because, as much as you’d want to start using the latest tech, you need to be sure that your employees are on board and ready to digitalize their process.
Here is a quick summary to help you remember—-Digital transformation is a holistic approach that affects different aspects of a business, and digitalization is just one part of it.
Why is Digital Transformation important?
Digital transformation streamlines operations and helps improve customer experience by automating routine tasks and reducing unnecessary manual input.
One of the benefits of digital transformation at an early stage is that it boosts productivity. Tasks are completed quickly and customers can complete actions with ease.
It also allows businesses to engage with customers through personalized interactions, quick responses, and convenient digital channels.
For example, using a chatbot on the webpage instead of forms can instantly create a point of contact with visitors, engage them, resolve confusion, and build a positive user experience (UX).
Digital transformation also allows businesses to use valuable data insights in making strategic decisions that will help the company achieve a competitive advantage in a fast-changing market.
Digital Technology Trends to Look For in 2024
Artificial Intelligence (AI) and Automation
A major digital tech trend in 2024 is the rising integration of AI and automation in business processes. Companies are using AI to reduce their operational expenditure (OPEX) by managing their resources and spending, while machine learning (ML) algorithms help analyze large quantities of data to find the right solutions.
AI tech is also used to benefit customer experiences through AI-powered chatbots, preference-based recommendations, and predictive analytics that provide a personalized experience.
This trend in digital transformation is here to automate repetitive tasks that can slow business processes. AI technology is a great tool that can focus employee time on high-value tasks.
Digitalizing User Experiences
When upgrading to new tech and digital modes of work, employees and customers may need some time to adjust to the new system.
Designing a supportive and transparent user experience (UX) is incredibly important during digital transformation as it enables a smooth transition that onboards and guides users.
With a well-designed UX, users can adapt to a change in a short amount of time. If companies ignore the role of UX in a digital transformation, their plans can easily backfire.
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Data Privacy and Trust
The third digital transformation trend is a heightened focus on data privacy. Data breaches are increasingly common and businesses need to continuously reassure users of their commitment to data privacy.
To stay true to their customers and retain their loyalty, it is important to remain transparent and inform users of what data is collected and how it is being used.
This trend is also driven by strict regulatory changes. With the introduction of data protection regulations like the General Data Protection Regulation (GDPR) in the European Union and the California Consumer Privacy Act (CCPA) in the United States, businesses are now required to implement robust data security measures and be transparent about their data usage practices.
In 2024, companies are shifting towards privacy-enhancing technologies such as differential privacy and homomorphic encryption. There’s also a ‘privacy by design’ trend, where products are designed with privacy considerations in mind.
Now, it’s time to think about how we can use these new trends in different types of digital transformation.
Digital Transformation Types and Factors
There are 4 types of digital transformation:
- Business Process Transformation is the introduction of new tech to existing processes for higher efficiency (e.g. Cloud Computing, AI).
- Business Model Transformation is the use of tech to change the company’s strategy (e.g. E-commerce Platforms, Data Privacy).
- Domain Transformation is the use of digital tech to enter new industries or markets (e.g. Virtual Reality (VR)).
- Cultural/Organizational Transformation is the adoption of digital channels for a digital-forward culture (e.g. Social Networking Platforms).
Bear in mind that even if 100 businesses were to introduce the same technology to their processes or culture, it would be used in 100 different ways and lead to varied results. Each company has its unique objectives and problems to solve, which is why there are 4 digital transformation types to suit different needs.
Digital transformation needs to cater to a business’s requirements, capabilities, and goals.
Now, let’s take a look at what digital transformation is made up of.
The 4 Pillars of Digital Transformation
To achieve a company goal, businesses pick the digital transformation strategy that suits them, but to execute that strategy, one needs to activate the right pillars.
There are four pillars in digital transformation, each responsible for an aspect of business operations.
- IT modernization reduces maintenance costs and improves business performance.
- Digitizing Operations simplifies processes with the use of digital tools.
- Digital Marketing engages the target audience and increases ROI through the use of data analytics and AI.
- New Ventures develop digital opportunities to test new sources of growth and assess product value.
These pillars form a successful digital transformation plan. A digital transformation plan tends to have the following structure: Diagnosis, strategy development, execution, and evaluation.
Examples of Digital Transformation by Job Type
The term “transformation” can be a little vague, so here are some specific examples of how it can change different operations and department work.
- In sales, data can be stored, processed, and analyzed using cloud CRM software instead of manually inputting into spreadsheets.
- HR can involve teams in onboarding and training internationally through online meetings and e-learning.
- Customer support can be improved by providing instant interaction using knowledge-based chatbots, and self-support portals instead of making customers wait for an available call operator to respond.
How to measure the ROI of digital transformation?
Introducing new technology and changing the business culture can be time-consuming and costly, so businesses should focus on using appropriate tech and strategies instead of blindly going after trends. Even then, results need monitoring to ensure a positive return.
The ROI (return on investment) can be initially low during the early stages of transformation and is best understood in the long term. Here are other metrics you can use:
Productivity Metrics
Digital transformation can lead to improved productivity, but what does that mean? Well, it would be different things for each business. You might want to measure the effect the transformation had on task duration or the number of tasks completed within a set period of time.
Customer Experience Metrics
Tracking consumer activity with your digital product can give you a good idea of their satisfaction level. A successful digital transformation tends to improve customer engagement which can be measured with metrics like the customer effort score (CES), the net promoter score (NPS) or customer loyalty, and customer satisfaction (CSAT).
Digital Adoption Metrics
General user statistics can also communicate whether your digital transformation improved the desired areas of people’s interactions. You can take a look at daily/monthly active users on the digital platform you introduced to the team or your product, adoption rate, user retention, and the average time spent using a feature.
Time-to-Market
Time-to-market is a metric that shows how fast a business can establish itself in the market and start generating revenue. The sooner a company reaches the market, the quicker it can gain a lead ahead of its competitors.
Organizational Culture Alignment
There is no point in trying to start a digital transformation if your employees are not ready for it or willing to embrace it. Before investing in digital tools, assess your current culture and how the new technology fits with the company's values and goals. If they are misaligned, there might be a slower adoption and lower productivity.
Tips on Creating Digital Use Experiences That Matter
- Design tools for your employees instead of running your employees through rigorous training to be able to complete an overcomplicated role. Digital transformation is made to make things easier, and more accessible. Think about creating CRM (Customer Relationship Management) platforms to make the work more efficient.
- Some organizations apply a tiered adoption structure where a new digital UX is introduced gradually, over time replacing old processes.
- The core principles of a successful UX design are accessibility and usability, which you can achieve by prioritizing user feedback, creating prototypes, and testing.
- To measure your UX design efficiency you can use heatmaps to understand user behavior, eye-tracking, the Task success Rate (TSR), and Customer Satisfaction (CSAT).
