What is the essence of digital transformation? What are the most significant changes and challenges it brings to us? How should businesses begin their digital journey? What are the critical factors for a successful transformation? These are some of the many questions that bothers many businesses during their digital journeys.
Digitalization or digital transformation is a keyword that started to be a big hit in 2020. While many companies are talking about digital transformation, only a few understand the fundamentals of digitalization.
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What is Digital Transformation?
“The critical difference between the industrial and digital era is where the former is product-centric while the latter is customer-centric. It is the fundamental changes that lead to a shift in our perception of many management models.— Chen Chunhua, Prof. of National School of Development at Peking University.
To better understand the essence of digitalization, let us briefly go through the historical evolution of the industrial revolution as follows.
What was the first industrial revolution? Traditional Industry + Steam Engine = New Industry
What was the second industrial revolution? Traditional Industry + Electricity = New Industry. The first and second industrial revolutions mainly happened to solve labor-related problems.
What was the Internet revolution? Traditional Industry + Internet = New Industry. The third revolution was mainly to solve the problems of information access and synchronization.
While for our present era, it is about the intelligent revolution. Traditional Industry + Intelligence = New Industry. This current intelligent revolution is mainly to solve the problems of human intelligence and cognition.
Traces of history has never changed, and it once again proved that technological revolution is capable of reshaping the fate of all human beings. The “new industry” in the previous era will become the traditional industry in the next era. It is thus clear that history is always posing questions, and for each generation, people are solving the problems that history has given to its generation. And each time we solve a tremendous historical problem, we take a big step forward in our civilization.
In short, the essence of digitalization is to be people-oriented and augmenting human intelligence. In the digital age, we need to be alert to empiricism and establish a scientific thinking framework to assist judgment through objective data, empowering humans to cope with the new future and uncertainty.
The core of digital transformation is all about solving three fundamental problems, which are all mainly about the people.
How to understand our customers better and holistically?
The business objective of understanding customers is to achieve performance and revenue growth. Only through data visualization and analysis can we objectively understand our customers’ behaviors with much precise prediction to cater to their needs.
How to improve the digital capabilities of the team?
The primary purpose of upskilling the team with digital capabilities is to strengthen the long-term core competitiveness of the organization. In the digital era, businesses need to combine the appropriate data and digital tools, and organizational models to create an organizational capability that aligns with the new technologies.
How to improve operational efficiency internally and externally with suppliers and key partners?
Improving operational efficiency is all about reducing operational costs and expenses. First, businesses must have a comprehensive understanding of their own business and then choose the right digital solution to reduce costs, improve efficiency, and economize business budgeting.
By fulfilling these three points, organizations will then stand a chance to reshape their organizational boundaries and drive innovations in their business models.
3 Most Common Pitfalls in Digitalization
The digital transformation itself is not an easy task and comes with a high failure rate. Nevertheless, the ever-changing business environment has forced all leaders to start embracing it. Digital transformation is not only imperative for every business, but it is also a matter of survival. Along the digital journey, there are three most common pitfalls that might trap most leaders.
Lack of Clear Direction
The top management teams need to clearly understand the core of digitalization and their own business before they can think strategically to figure out why they should go digital, rather than just following the trend. Too often, companies hire an IT or AI expert externally, and after a year or two, they dismiss these experts when they don’t see any significant results.
Lack of Strong Willpower
Even if the transformation is in the right direction, the pain of having only inputs but no outputs are unprecedented during the transition period. So how do we get through this hard time? In brief, once the direction is in place, make sure you stick to it, keep trying, and follow up quickly whenever there is some good progress.
Lack of Organizational Skills
The bottleneck of transformation is always in people, and it is all about people. One of the greatest challenges many CEOs face during transformation is that organizational changes cannot keep up with the business changes due to the internal resistance to change.
It is a test for leaders as good management is always about leading humanity. Everyone hopes for a better tomorrow, but only a few can see the opportunity, so how do you convince and lead those who cannot see it? It will be the crucial challenge a leader needs to deal with when it comes to organizational transformation.
The 5 Steps to a Successful Digital Transformation
So after understanding the core and challenges of digitalization, how should businesses embark on their digital journey? Here we have summarized five key steps.
Step 1: Achieving Strategic Consensus
Digitalization itself is not magic, the level of your understanding of your own business is still the core of digitalization. The first step is always figuring out why you want to go digital. You will have to achieve a strategic consensus among the top management team, and the defined direction has to address your business pain points to build your long-term competitive advantages.
Step 2: Identifying the Entry Points
Once there is a strategic consensus among the core team, the next step is to find the right entry points for transformation. If you choose the wrong entry point, your efforts will most likely go wasted and you won’t see any ROI. Therefore, the entry points you choose have to address your business pain points for a start.
For example, the most crucial concern for the retail industry is the sales channel. By integrating both online & offline channels, it enables agile production through real-time sales data. While for the manufacturing industry is the improvement of production efficiency through supply chain digitalization.
Step 3: Digital Upskilling
In the digital era, the right digital skills are the key to an organization’s innovation, productivity, and growth. But managing skills in the digital age requires organizations to harness technology that enables them to leverage a data-driven approach to lifelong learning and smart upskilling.
After figuring out the entry points, you have to identify and source the right technology or digital tools to achieve these goals. Some organizations might build their internal tech team, while some may need to outsource to external agencies or leverage 3rd party platforms to achieve their goals.
Step 4: Organizational Fit
Having the right talents who know business and technology will be crucial for a successful digital transformation. They can bring a lot of new ideas and synergy to drive the overall digitalization strategy. However, this kind of talent is the most scarce these days.
To nurture the top digital talents, organizations should start focusing more on internal training to identify those business people interested in tech or vice versa, so that they can get together and learn through actions and experience firsthand.
Aside from replenishing these scarce talents, another major obstacle for a successful transformation is the resistance of existing teams. The management will also have to define specific measures in dealing with resistance.
People don’t resist change. They resist being changed.— Peter Senge, Founder of the Society of Organizational Learning
Step 5: Change Leadership
Many companies are overly focused on technology but overlook the art of people and organization.
The major bottleneck of digitalization remains the people and organization problems. Change leadership is a test to the CEO and its core team on their determination to push the transformation efforts forward as well as their ability to withstand the risks and stress.
Digital transformation has to start at the top with sound investments, determination and commitment. Without all these, failure is inevitable.
Digital Transformation Roadmap
In general, there are three strategic phases for digital transformation. The priority of the strategic themes might vary based on the needs and pace of the organization at all levels.
In phase one, the focus would be on operational efficiency and strengthening the overall digital capabilities of an organization. While the second phase mainly focuses on building a solid data foundation that empowers teams to gain a holistic view of the customers to achieve revenue growth.
Lastly, the third phase aims to digitally integrate the overall supply chain to gain the capabilities to reshape the organizational boundaries and drive business model innovation. In a nutshell, an organization’s capabilities will define its boundaries.
3 Key Questions to Ask Before Starting Your Digital Transformation
In this era, digital technology will be the key driving force for social and economic development. Still, if we are to achieve success during this evolution, we as leaders must first figure out three main questions below:
- Why? Why do you want to go digital and how it relates to your future roadmap?
- What? Following your strategic roadmap, what are the right entry points by phases?
- How? How do you ensure a successful digital transformation and prepare your team to align with the organizational goals?
Need help to kick start your digital journey? Check out our Technology Consulting Services and see how we can help with your digital transformation needs.