What Digital Transformation Is (and What It Isn't)

Digital transformation has been one of the defining business concepts of the past few decades, yet it’s also one of the most commonly misunderstood.

For some executives, the term evokes salespeople promising that their shiny new product is the key to digital transformation and then leaving them with technology that causes more problems than it solves. Meanwhile, others think they can afford to stop thinking about digital transformation because their business has already accomplished it.

Both reactions are understandable, but both are wrong.

In reality, digital transformation is too important a concept to be written off as a meaningless buzzword. IDC estimates that worldwide spending on these technologies and services will reach $2.3 trillion in 2023. Yet, according to McKinsey research, fewer than a third of digital transformations actually succeed in improving company performance. Executives can reduce this waste by having a high-level understanding of digital transformation so they can rally their teams behind a shared vision and clearly defined goals.

Digital transformation doesn’t refer to any specific digital initiative or product, but to a philosophical approach to implementing and assessing technology.

So let’s untangle the true meaning of digital transformation from all of the misunderstandings.

What Is Digital Transformation?

In a nutshell, digital transformation means organizations refining their processes through continuous technological improvement, rooted in business goals and interwoven throughout an organization. Ashutosh Bisht, senior research manager at IDC, describes it as “managing the existing business and building for the future at the same time, something like changing the engine of the plane while in flight.”

Designed to Adapt

Digital transformation isn’t just about adopting digital initiatives for today’s needs. It’s about instituting processes designed to adapt and evolve future technological advancement.

"Technology that meets the definition of digital transformation is modular, is designed to be rearranged, and doesn’t fall apart with the slightest tinkering."

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In the ’90s, digital transformation was all about setting up your company’s first website, transitioning to email for communication, and replacing rows of file cabinets with digital records. In the early 2000s, it meant switching to the cloud, harnessing useful analytics, and expanding the suite of services offered through your website and app. The next phase of digital transformation involves automating operations, using robotics, and constructing frictionless digital ecosystems for customers and employees.

All of these waves of innovation build on one another, and the companies best equipped to ride each successive wave are the companies that employ adaptable, extensible tools. Building complex applications in-house can leave your business stuck with legacy code bearing the distinctive fingerprints of its original designer, who may have left the company and taken their expertise with them. By contrast, the technology that meets the definition of digital transformation is modular, is designed to be rearranged, and doesn’t fall apart with the slightest tinkering.

Consider a 2020 report by UK-based technology company NTT called Mind the Hesitancy Gap. The report surveyed IT professionals in the UK and found that IT teams wasted 26% of their time “laying the groundwork for digital transformation processes,” with the result that those processes were often delayed, over- budget, or scrapped altogether. Thirty-five percent listed “the complexity of connecting the range of cloud services and other technologies together as a major barrier,” while 42% named “concerns over whether a new digital capability could introduce a security risk or leave the company non-compliant with regulation.”

Designed for Business Goals

Fans of The Office (the American version) will recall Dunder Mifflin’s ill-fated attempt at digital transformation: an application for ordering bulk paper products that doubled as an exciting social network. This is a prime example of why digital initiatives often fail: companies chase “cutting-edge” tech, but fail to connect it to their business’ value proposition.

You need to know exactly what problem a digital innovation is trying to solve so you can measure its success. For instance, don’t adopt a messaging platform to “speed communication” because faster communication isn’t an end unto itself.

Instead, ask who needs to be able to communicate faster. What information do they need to exchange, and are there other ways the information could be accessible? How do you measure success? If you’re adopting the platform in the factory, it might be a reduction in maintenance time for equipment. If it’s on the sales floor, it might be the sales team making more sales because they’re empowered to cut customers a better deal without having to walk away and talk to a supervisor.

Digital Transformation Myths and Misconceptions

The meaning of digital transformation has eroded over the years. That has led to wasteful spending and an uphill battle for innovators trying to get organization-wide support for their ideas.

Digital Transformation Isn’t Digitization

Digitization means moving from pen-and-paper processes to digital ones. When a company transfers years of paper records onto a database, that’s digitization. While that’s certainly important, simply moving from analog to digital isn’t truly transformative.

Digital Transformation Isn’t a Pretext for Laying off Your Workforce

Employees often get nervous about new technologies because they imagine the technology will put them out of a job. That may be true in some cases, such as robotic assembly lines and driverless trucks. But by and large, digital transformation should be an invitation for your workforce to evolve along with your technology. If you want a holistic adoption of digital initiatives, you need buy-in from all levels. Use this as an opportunity to train your workforce in new skills, not render them obsolete.

Digital Transformation Isn’t Top-Down

Or at least, it can’t be only top-down. Far too many digital initiatives are undertaken by a well-meaning C-suite but fail to get the crucial input of the IT team or the workers on the ground.

True digital transformation is holistic and dedicated to removing silos. In that way, it mirrors the increasing integration of technology into every facet of our lives.

Designing a Digital Transformation Strategy That Works

So we’ve talked about what digital transformation is and isn’t. Now let’s look at how that definition should inform your business’s strategy as you decide what initiatives to adopt.

Ask Your Insiders

Looking for inefficient processes that could be improved by technology? Don’t go to strangers; ask your teams! Harvard Business Review points out that companies “frequently bring in an army of outside consultants who tend to apply one-size-fits-all solutions in the name of ‘best practices.’” Instead, they suggest talking to staff during the brainstorming phase of transformation as a way to capitalize on your institutional knowledge as well as get buy-in from the people you need to use your technology.

Implement, Test, Refine, Repeat

Digital transformation requires something of a startup mentality that rewards experimentation and creativity and sees failure as a learning opportunity. Determine your definition of an initiative’s success, and if it fails to deliver, try something else. Without that willingness to test and tweak, digital initiatives can quickly morph into “pet projects.”

Embracing that startup mentality can be more of a challenge in large, bureaucratic organizations. That’s why Gartner predicts that through 2021, these initiatives will take large enterprises twice as long and cost twice as much as planned. The good news is that an agile SaaS approach helps organizations speed time-to-market for digital initiatives. Partnering with third-party SaaS solutions can speed up time-to-market for large enterprises by cutting through bureaucracy with easy-to-implement solutions. The majority of companies already use a SaaS tool to manage authentication, payments and messaging.

Serve Your Customers by Serving Your Workforce

Many definitions of digital transformation are focused on becoming “customer-centric,” and there’s a lot to that idea. Amazon, for instance, has remained at the forefront of transformation through its single-minded focus on the customer, and retailers are learning to follow suit in order to survive.

However, if you focus all of your efforts on B2C transactions and neglect to empower your workforce with the latest tools, you’re not equipped for true transformation. Instead, many successful transformations start by giving staff easier access to information and streamlining day-to-day operations.

This graph from McKinsey shows the success rate of digital transformation based on various metrics. As you can see, collaboration and workforce protocols are distinguishing factors among companies where transformation has fulfilled its promise. The dark blue bars show the power of digital transformation.

There Is No Finish Line for Digital Transformation

Of all the myths about digital transformation that need to be debunked, perhaps the biggest one is that it’s a process with an endpoint. After all, it’s not as though your fairy godmother can wave her wand, and then poof! Your business is transformed once and for all.

Rather, you commit to adopting new technologies as they develop, provided they meet your business’s needs. Your best allies will be your own team and trusted third parties who can ensure that you dedicate your resources where they will be most useful and best positioned for the future.