Digital transformation is a term that has been in use over the past decade, but providing a clear definition of this phenomenon is far from easy. Broadly speaking, it refers to the conversion of traditional paper-based processes that operate and deliver value in an organisation to a digital format. In the majority of cases, this is just the first step in what will be a longer journey that will bring about deep changes in the way business is done.
Often an organisation is driven towards a change of path in order to respond to a combination of external and internal forces and relative challenges. Typical external forces and challenges are competition, or changes in the market landscape, as well as consumer trends. Internal forces typically are pains originating from outdated internal procedures that have become inefficient and thus not cost-effective. Such internal procedures are also incapable of providing top management with modern information access, which in turn leads to the lack of capability to control and act on aspects that impact the organisation’s productivity and growth.
Risks, both internal and external, are another change-driving force. An example of internal risk could be that posed by the loss of vital information of paper-based records, while an external would be loss of market share, which in turn can pose a threat to the very survival of the business.
As a typical example, one could consider a furniture retail business that, while successful for many years, was faced with significant challenges induced by the pandemic. Its response was to embark on a digital transformation strategy, with the final goal being to establish a solid online shopping presence. This, in turn, put it in a position to provide customers with quality products and a new shopping experience. At the same time, it established a seamless process chain from supplier to customer across all trading channels.
From this example, one can also understand the complexity involved in developing such a strategy, from vision to implementation, as such an exercise implies change at all levels of an organisation, and especially a change in culture, which will pose many challenges.
The business operation will change from being run on a silo-based system, with sales, production, warehouse and purchasing departments operating more or less independently of each other, to a more data-driven model whereby a customer order generates data that is not only shared among the whole operation but also percolates back further upstream into the supply chain. This, in turn, provides benefits to both the customer in terms of experience and also to the business and its trading partners. The benefits could possibly be a short delivery period for the customer, automated and optimised production schedules and low inventory business operations, as well as visibility of demand days ahead for the supplier.
Before proceeding further, one must be cautioned to keep all the factors in context, in that the digital transformation journey may be long and involve costs and risks that may be substantial. It is beyond the scope of this article to delve into detail of how a digital transformation strategy is developed. Suffice to say that there are a number of alternative approaches, some of which take the shape of fully formalised frameworks. The exact detail varies from one framework to another; however, they will have the major elements in common, and thus can assist in bringing them into focus to be addressed.
To briefly illustrate the major milestones that a digital transformation journey entails and how these can be guided by the framework, we can refer to the following simplified overview as well as the accompanying illustration:
A firm first has to take a snapshot of what documents and procedures are currently in operation. These are then converted into digital versions, while also carrying out an exercise to eliminate redundancy.
Following this step, the data and documents are tagged with metadata. Data is converted and all stored in a central repository and thus no longer silo-based.
At this point, one can already expect to start reaping benefits, such as the quick and efficient retrieval of information and reduction of duplicate inputs and associated work.
Once these basic stages are complete, they lay the ground for further stages that will introduce automation and standardisation, processes automation, system inputs with standardised rules. From this point onwards, the firm can enter advanced stages whereby it can introduce cross-team process collaboration. It also starts seeing benefits from deeper business insight, which will eventually lead to the final stage of data- and analytics-driven innovation and more agile adaptation to market demands.
Firms are often set in motion on a path to innovation, as they identify unseen opportunities to develop new business models, new product spin-offs, and possibly venture into untapped market niches
Organisations that embark on such digital transformation paths can often reap rewards that go beyond the mere digital recording of paper records. Firms are often set in motion on a path to innovation, as they identify unseen opportunities to develop new business models, new product spin-offs, and possibly venture into untapped market niches.
This article was prepared by collating various publicly available online sources.