Nov 15

Digital Transformation

Digital Transformation is often misunderstood and misused in different context. Last month the Istituto Internazionale di Ricerca has organized the course “Digital Transformation” to underline and clarify some crucial aspects thanks to the contribution of Dario Cardile, Associate Partner VVA.

In a broader sense, Digital Transformation refers to all the changes associated with the application of digital technology in every aspects of human society. Companies must approach it as a formal effort to renovate business vision, models and investments to remain competitive and relevant in the new digital economy.                             
What is the perception in Italy? From a recent study by IlSole24Ore 45% of senior management does not believe that the digital revolution will worry their business; 43% has not yet defined an appropriate strategy; 32% is opting for a “wait and see” option, overshadowing competitors behavior. Therefore still today only 25% is taking concrete actions.
And abroad? 27% of Senior Executives rates digital transformation as now being “a matter of survival” (MIT Sloan Management). Over 90% of companies lack suitable digital skills (Capgemini) and 88% of companies are going through digital transformation, but only 25% know why (Prophet).

In the meantime, consumers are becoming more and more digitally empowered. As the number of smart, connected devices moves toward a tipping point where most work, play and commerce will have a digital dimension, only companies that quickly deliver digitally instrumented products or services, harvest data from market interactions and use insights to rapidly iterate and optimize their value chain, will gain a decisive competitive advantage. Businesses that digitally transform will be able to connect more closely with customers, accelerate the pace of innovation and, as a result, claim a greater share of profit in their sectors.
Successful digital transformation comes not from implementing new technologies but from transforming your organization to take advantage of the possibilities that new technologies provide: focus remains on re-envisioning customer experience, operational processes, business and operating models based on six fundamental building pillars.

Pillar 1: Customer Journey
It is imperative to move from a product-centric to a customer-centric approach to create a seamless digital experience that meets consumer expectations at every touch point. This value pillar is about mapping your costumers’ journey, understanding their needs and preferences, solving their real problems and ultimately devising appropriate strategies to attract and retain them.

Pillar 2: Strategy and Innovation
Digital strategy is nowadays intrinsic to business strategy, that is integrated into strategic-planning process. Strategies do not rely only on past analyses, but also start fresh, carving out a vision based on where they believe value is likely to shift over the next three to five years. The key idea here is to identify where value is likely to be disrupted within your business and market, in order to identify where and how you will be able to compete, prioritize a handful of interventions where your  business can exploit significant opportunities.
A digital strategy also increasingly blurs the boundaries between strategy and execution. Many organizations finally start to appreciate that successful digital transformation leadership is the ability to equip the company with the culture, governance, and tools to quickly launch small initiatives, accurately measure their effectiveness, and then efficiently scale the right projects. A continuous “test & learn” virtuous cycle.

Pillar 3: Process Optimization
Business-process optimization can result in massive competitive advantage because initial investments, when well implemented, can scale quickly without substantial additional costs. According some recent case studies, cost performance can improve by as much as 90 percent as the automation effort scales across formerly siloed functions, reducing redundant processes. Digitizing processes have less to do with technology and more with how companies approach development.
Becoming digital often requires reinventing the entire business process to cut out steps altogether or reduce the number of steps required. Automating processes at speed require small teams employing agile development techniques to continuously build out elements of the product as prototypes, then testing and adapting them based on feedback, often within days or weeks.
It is however important to recognize that digitizing your processes is always as much about customer satisfaction as efficiency. It goes without saying: but efficiency without customer satisfaction is a short lived battle.

Pillar 4: Organization
The challenge is to move toward an organizational structure that is agile, flexible, and increasingly collaborative while keeping the rest of the business running smoothly. The key of success is to simplify cross departmental interactions, through thought leadership because the change does not happen bottom up: like in any massive transformation, the digital transformation must be driven from the top always. Although many companies have set up centers of excellence during the early stages of a digital transformation, to cultivate capabilities and integrate them back gradually into the main business.

Pillar 5: Technology
Digital Innovation must underpin a two-speed IT model that enables: rapid development of customer-facing programs (customer and community enabled) while evolving core systems designed for stability and high-quality data management more slowly. This typically means that high-speed IT teams are charged with rapidly iterating software, releasing updates in beta, fixing kinks and bugs in near-real time, then re-releasing. The goal is to continually fuel an accelerated development infrastructure that can support near-instant cross-channel deployment and real-time decision making (agile software development).
New developments in DevOps (the integration of technical development and operations) and continuous delivery (the automation of testing, deployment, and infrastructure processes) have introduced capabilities that radically increase speed to market and lower costs.

Pillar 6: Big Data & Analytics
“What gets measured gets managed”. With so much data available, companies can become much more precise in outreaching their customers. By combining deep data analysis and focused research, digital leaders can identify high-value micro-segments. Understanding how customers make decisions - how they shop, for example, or what influences them - allows digital leaders to tailor their marketing and communication approaches.
The most successful digital companies are zealous about metrics that focus on the customers’ journey, such as customer lifetime value, omnichannel behavior, and share of influence across all stages of the chain. Google recently released a very interesting study about customer relevance through all the various marketing channels and the various stages to online purchase. It shows clearly how different marketing channel impacts differently consumer behaviors.
The strength of digital technologies - social, mobile, analytics, and cloud - doesn’t lie in the technologies individually. Instead, it stems from how companies integrate them to transform their businesses and how they work. It stems from how companies leverage on large data sets and analytics to drive actionable insight in the shortest timeframe to respond promptly to both customer needs and competitor actions.

Conclusions
While each of these key pillars is important, the real value remains in being able to integrate them and manage the cross-business contingencies and dependencies of a large-scale digital initiative. The digital revolution has given birth to an interconnected world that binds customers, employees, managers, and systems together in a network of unprecedented complexity and opportunity. Making sense of those connections and building value requires a new interdisciplinary model of work that is redefining how companies can succeed today into a complex and global marketplace.

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