What is Digital Transformation?

What is Digital Transformation?

Digital transformation is the integration of digital technologies into all areas of your business to fundamentally change the way you operate and deliver value to your customers. It is also a cultural shift that requires organizations to constantly challenge the status quo, experiment and adapt to failure.


cio_digital_transformation_resourceDigital transformation is a must for all businesses, from small businesses to enterprises. As the world becomes increasingly digital, it seems that every keynote, panel discussion, article or study on how businesses can stay competitive and relevant clearly conveys this message. Many business leaders are unclear about what digital transformation means. Is moving to the cloud just an attractive option? What concrete steps should we take? Do we need to create new jobs to help us build a system for digital transformation or hire consulting services? Which parts of our business strategy need to change? Is it really worth it?

Note: Some executives believe that the term “digital transformation” has become so widespread that it is becoming inappropriate. You may not like this name. But like it or not, the business imperatives behind the term — rethinking old operating models, experimenting more, being more flexible in responding to customers and competitors — aren’t going anywhere.

This article aims to answer some frequently asked questions and provide clarity on digital transformation, especially for CIOs and IT leaders, including the experiences of peers and digital transformation experts. As technology plays a key role in an organization’s ability to evolve with the market and continuously add value to customers, CIOs play a key role in digital transformation.

It’s also worth noting that today’s organizations are at different places on their digital transformation journey. If you feel like you’re struggling with your digital transformation efforts, you’re not alone. One of the most difficult challenges in digital transformation is how to navigate the initial stages from vision to execution. This is alarming: Many CIOs and organizations think they are far behind their peers in transformation, when they are not.

In recent years, the COVID-19 pandemic has created a new need to achieve digital transformation goals and has forced many organizations to accelerate their transformation efforts.

However, IT leaders still struggle with challenges, including budgeting, competition for talent and cultural change. Let’s explore the advice of your peers and digital transformation experts.

What is digital transformation?

Because digital transformation looks different for every company, it’s hard to come up with a one-size-fits-all definition. However, we generally define digital transformation as the integration of digital technology across all areas of business, resulting in fundamental changes in the way a business operates and delivers value to customers. Moreover, it is a cultural shift that forces organizations to constantly challenge the status quo, experiment frequently, and adapt to failure. This sometimes means abandoning long-standing business processes on which the company is based in favor of relatively new practices that are still being defined.

Janice Ong - Anchor TrainingJanice Ong, founder or Anchor Business & IT Consulting explained that digital transformation should start with a problem statement, a clear opportunity or an ambitious goal. “For example, the ‘reasons’ for an organization’s digital transformation may be to improve the customer experience, reduce friction, increase productivity or increase profitability,”. “Or, if it’s a company statement, it can be about it is best for company doing business using digital technology that was not available in the past”

Leaders, think about what digital transformation will mean – in practice – to your company and how you will articulate it. “Digital is a loaded word that means many things to many people,” says Jim Swanson, CIO of Johnson & Johnson. When you discuss digital transformation, unpack what it means, advises Swanson, who led digital transformation at Bayer Crop Science (and previously served as CIO at Monsanto) before joining Johnson & Johnson in early 2020.

james swansonAt Monsanto, Swanson discussed digital transformation in terms of customer centricity. “We talk about automating operations, about people, and about new business models,” he says. “Wrapped inside those topics are data analytics, technologies, and software – all of which are enablers, not drivers.”

“In the center of it all is leadership and culture,” Swanson says. “You could have all those things – the customer view, the products and services, data, and really cool technologies – but if leadership and culture aren’t at the heart, it fails. Understanding what digital means to your company – whether you’re a financial, agricultural, pharmaceutical, or retail institution – is essential.”

Melissa Swift, U.S. Transformation Leader at Mercer, agrees with Swanson’s take that that the word “digital” has a problem because it means a lot of things to a lot of people.

“Say ‘digital’ to one person and they think of going paperless; another might think of data analytics and artificial intelligence; another might picture Agile teams; and yet another might think of open-plan offices,” she notes.

“Digital” is a hot mess of a word. And this causes a lot of grief in organizations.”

“Imagine ordering a hamburger over and over, and getting everything from a hot dog to a chicken sandwich to a Caesar salad…” she says.

Leaders need to be fully aware of this reality as they frame conversations around digital transformation. For advice from Swift on how to speak to this topic without getting burned, read our related article, Why people love to hate digital transformation.

Why does digital transformation matter?

A business may take on digital transformation for several reasons. But by far, the most likely reason is that they have to: It’s a survival issue. In the wake of the pandemic, an organization’s ability to adapt quickly to supply chain disruptions, time to market pressures, and rapidly changing customer expectations has become critical.

At an MIT Sloan CIO Symposium series event, IT leaders agreed that consumer behavior has quickly shifted in many ways since the start of the pandemic. Sandy Pentland, a professor at the MIT Media Lab, described how optimized automated systems in areas like supply chain management broke down when faced with rapid shifts in both demand and supply — a reality that just about everyone has faced on a personal level during the pandemic.

It’s early to guess which long-term consumer behavior changes will stick. However, Rodney Zemmel, global leader, McKinsey Digital of McKinsey & Company, says that on the consumer side “digital has been accelerating in just about all categories.” An important factor to watch will be the degree to which forced change — three out of four Americans tried a new shopping behavior, for example — will revert when possible, post today’s emphasis on stay-in-place.

McKinsey data shows that the accelerated shift towards streaming and online fitness is likely to stay permanently, Zemmel says. But the biggest shifts were around food. Both home cooking and online grocery shopping — a category that has been generally resistant to getting moved online — will probably stay more popular with consumers than in the past. Cashless transactions are also gaining steam. On the B2B side, McKinsey data shows remote selling is working.

For CIOs, this means rapid experimentation is no longer optional.

Mark Anderson, senior director of solution architecture, Equinix, described year one of the pandemic as “a forced test of many things we had thought about but not tried.” For example, he observed, “Many supply chains are not well understood and underpinned with paper. We’ve started looking at technologies like blockchain and IoT.”

cio digital transformation resource5 170x149 1As Dion Hinchcliffe, VP and principal analyst at Constellation Research, writes: “The top IT executives in today’s rapidly evolving organizations must match the pace of change, fall behind, or lead the pack. That’s the existential issue at stake in today’s digitally-infused times, where bold action must be actively supported by out-of-the-box experimentation and pathfinding. This must be done while managing the inexorable daily drumbeat of operational issues, service delivery, and the distracting vagaries of the unpredictable, such as a major cyberattack or information breach.”

Improving customer experience has become a crucial goal – and thus a crucial part of digital transformation. Hinchcliffe calls seamless customer experience “the most important discriminating factor for how a business will perform.”

How has the COVID-19 pandemic changed digital transformation?

“We’ve seen the COVID crisis rapidly re-shape both the “what” and the “how” of companies’ digital transformation agendas, notes Mercer’s Swift.

Take employee experience for example, she suggests. “Even as employee experience has become a key theme in the HR community, in IT circles this notion had been getting a mixed reception – sometimes stereotyped as “spoiled employees expecting best-in-class consumer-grade tech on shoestring budgets,” says Swift.

“Today, with a vast portion of the workforce now remote, employee experience of digital technology has gone from “nice to have” to “the only way work gets done. Consequently, it’s getting the problem-solving focus it likely long deserved.”

Swift calls out some other areas of digital transformation efforts that COVID-19 pushed higher on CIO agendas:

  • Furthering the reach of customer support via tools including chatbots
  • Automation tools for resilience reasons
  • Radical housecleaning of redundant or conflicting systems

In response to the pandemic, CIOs have also embraced the notion that “the perfect is the enemy of the good,” Swift adds. “Nothing silences an individual’s – or an organization’s – inner perfectionist like a full-blown crisis. In response to dramatic disruption, many organizations have undergone a healthy re-negotiation of their relationship to digital technology – prioritizing “hey, it works!” over “after years of slaving over this initiative, we’ve assembled the very best bells and whistles.” The “working software” lionized in the Agile Manifesto is getting a true moment in the sun.”

What does a digital transformation framework look like?

While digital transformation will vary greatly depending on an organization’s specific challenges and needs, there are some consistent and common themes from existing case studies and published frameworks that all business and technology leaders should consider as they embark on their digital transformation.

For example, these elements of digital transformation are often cited:cio_digital_transformation_resource2-260x260

  • Customer experience
  • Operational agility
  • Culture and leadership
  • Workforce enablement
  • Digital technology integration

What role does culture play in digital transformation?

In recent years, IT’s role has fundamentally shifted. CEOs increasingly want their CIOs to help generate revenue for the organization. 

Rather than focusing on cost savings, IT has become the primary driver of business innovation. Embracing this shift requires everyone in the company to rethink the role and impact of IT in their day-to-day experience.

Bryson Koehler 2Bryson Koehler, CTO, Equifax, says, “There is a very different mindset at work when you take IT out of an operating mode of, ‘Let’s run a bunch of packaged solutions that we’ve bought and stood up’ to ‘Let’s build and create new capabilities that didn’t exist before.’ If you look at the vast majority of startups, they’re not starting with giant, shrink-wrapped software packages as the base of their company. If you’re trying to create innovation inside of a large enterprise then you shouldn’t start with that either. You’re not here to run the mainframe anymore. You’re not here to run the servers. You’re not here to run the data center, or the network, or operations. That is table stakes. That’s what you can outsource.”

Although IT will play an important role in driving digital transformation strategy, the work of implementing and adapting to the massive changes that go along with digital transformation falls to everyone. For this reason, digital transformation is a people issue.

IT leaders find themselves working in cross-functional teams more than ever. Digital transformation initiatives often reshape workgroups, job titles, and longtime business processes. When people fear their value and perhaps their jobs are at risk, IT leaders will feel the pushback. Thus leadership “soft skills” – which turn out to be rather hard – are in great demand.

Mattel EVP and CTO Sven Gerjets says leading transformation starts with empathy. “When your empathy is genuine, you begin to build trust,” he says. “If you don’t have an organization that is supportive and fully onboard with the transformation efforts, it’s impossible to succeed. You need to have leaders that know what “good” looks like and who are motivated to help the organization understand why you’re doing what you’re doing.”

“This will become apparent when you hear things like, ‘Hey, we’re working with your team and it feels different,’ or, ‘We can’t believe that IT delivered this project early and it met my business needs.'”

Janice Ong - Anchor TrainingJanice Ong, from Anchor Business & IT Consulting who leads the firm’s efforts in the areas of workforce transformation, finds in her consulting work that three groups of employees tend to slow transformation momentum: Old-timers, by-the-book players, and lone rangers.

Companies must not ignore these three groups but engage them or face stagnation. How do you do that? Her first tip: think about your population in segments and try to consider the different segments they are in.

“Many organizations, have started their digital journeys in a very uniform way, deploying the same information and technology around the world. “Train everyone! New team! Welcome to the new world!” This is too fast a move to deploy immediately worldwide and is not the same for different groups segments from a change management point of view and a misuse of investment funds that could be more strategically focused on smaller groups first and test it out. Companies should consider the digital experiences and behavioral preferences of different subgroups within their organization, and carefully design messages, programs, and even environments to find the right starting point and realistic end point for different groups. “


What drives digital transformation?

An important element of digital transformation is, of course, technology. But often, it’s more about shedding outdated processes and legacy technology than it is about adopting new tech. It’s also about enabling innovation.

In the area of government IT, for example, more government agencies are on the verge of realizing the cloud model’s full potential – beyond cost-cutting to using cloud for strategic advantage, notes Dave Egts, chief technologist, North America Public Sector, Red Hat. “Deloitte recently released a list of nine technology trends transforming government, and one, in particular, will be key to enabling the future of technology in government: The cloud as an innovation driver,” Egts says.

The prevalence of legacy technology in enterprise IT still hinders CIOs’ ability to successfully embark on a digital transformation strategy. As Beth Devin, Managing Director and Head of Innovation Network & Emerging Technology, Citi Ventures has explained, legacy tech can become a costly barrier to transformation. “If you’re spending 70 to 80 percent of the IT budget operating and maintaining legacy systems, there’s not much left to seize new opportunities and drive the business forward. And this expenditure will grow as technology ages and becomes more susceptible,” Devin notes.

What’s more, new technologies are built using cloud architectures and approaches, she points out: “What is the long-term value of leveraging the best new technology for your business and customers?”

A critical factor driving legacy upgrades, according to a recent Deloitte survey, is technological relevance, she says. “Legacy solutions lack flexibility and carry a significant technology debt due to dated languages, databases (and) architectures,” Deloitte reported. “This liability prevents many organizations from advancing and supporting analytics, real-time transactions, and a digital experience.” (Read Devin’s full article: Digital transformation: 9 ROI factors when upgrading legacy systems. )

If businesses want to evolve with the rapid pace of digital change today, they must work to increase efficiency with technology wherever possible. For many, that means adopting agile principles across the business. Automation technologies also help many IT organizations gain speed and reduce technical debt.

What are the key trends in digital transformation in 2022?

As Enterprisers’ Stephanie Overby has reported, digital transformation took on new urgency during the pandemic. Some CIOs and IT organizations achieved previously unimaginable speed of change. Today, CEOs see digital transformation work as key to future success. “As organizations have weathered the upheavals instigated by the pandemic, digitization has become integral to their responses and also their future plans,” Overby notes.

E.G. Nadhan, chief architect, Red Hat, notes: “Even companies who have embarked on multi-year transformational journeys have had to make adjustments midstream, as they should. The operative word that defines the purpose for digital transformation in 2022 is resilience. The pandemic taught enterprises to be prepared for seismic shifts in the market dynamics and consumer needs. Forward-thinking enterprises will focus on the ability to effectively pivot and deal with change with minimal to no impact to internal and external consumers.”

“There will be increased focus on experimentation with configurable parameters to predict enterprise behavior using simulated environments. And such experimentation will yield more insight into the optimal configurations that are most resilient,” Nadhan says.

Consider these eight key digital transformation trends that business and IT leaders should be aware of in 2022:

  • Focus on resiliency and sustainability
  • An emphasis on using cloud to enable innovation 
  • AI-fueled automation of business processes
  • Continued acceptance of remote work
  • Increased attention to managing data for its entire lifecycle
  • Security as a business imperative, not an afterthought
  • Prioritizing AI ethics and governance
  • Increased use of maturing machine learning technologies

How can I measure ROI on digital transformation?

To prove the success of digital transformation efforts, leaders need to quantify the return on investment. That’s easier said than done with projects that cross functional and business boundaries, change how a company goes to market, and often fundamentally reshape interactions with customers and employees.

A project such as revamping a mobile application may have a short-term payoff but other projects are chasing longer-term business value.

Moreover, as we have reported, “Digital transformation efforts are ongoing and evolving, which can render traditional business value calculations and financial governance approaches less effective.”

Still, quantifying success is crucial to continued investment. “Just implementing the technology isn’t enough – the technology needs to be specifically tied to monitoring key performance indicators on customer insights and business process effectiveness,” says Brian Caplan, director with management consultancy Pace Harmon.

First, ask if you’re taking enough risks.

“When determining how well digital transformation investments are performing, it’s best to take a portfolio view and not a project level view,” says Cecilia Edwards, partner with digital transformation consultancy and research firm Everest Group. Just as a mutual fund manager or venture capital firm would look at overall performance to determine how well things are going, digital transformation leaders must take a holistic view of digital change efforts.

This is particularly important so that the underperformance of one particular project doesn’t reflect negatively on the overarching efforts of IT. It also builds tolerance for the necessary risks that must be undertaken to achieve real digital transformation.

Next, consider best practices regarding digital transformation metrics:

  • Set initial metrics in advance
  • Develop micro-metrics for agile experiments: The goal is to learn and adjust.
  • Incorporate business outcomes: Look at strategic impact (e.g., revenue growth, lifetime customer value, time to market), operational impact (e.g., productivity improvements, scale, operational efficiencies), and cost impact.

How can I get started on digital transformation or improve my strategy?

If all of this makes you feel woefully behind, fear not. One of the biggest misconceptions CIOs have about digital transformation is that all of their competitors are much further ahead of the game than they are. That’s because “there’s much admiration of (and popular press around) the fastest transformers, but little critique of how hard transformation is or how long it may take for a typical Global 2,000 company,” says Tim Yeaton, former CMO of Red Hat.

As businesses formulate their own digital transformation strategies, there is much to be learned from your IT leadership peers. Use this collection of digital transformation articles and case studies to explore further.

You can also get some Digital Transformation books to read or listen. Click on this link to access.

If your company like to start digital transformation and get a consultant, you can engage Anchorbizit to be your consultant. Contact us today.

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