During the past decade, digital transformation has been a popular topic in business circles. Last year, in fact, global spending on digital transformation grew by 10.4 percent, reaching $1.3 trillion. Digital transformation is a massive global enterprise that will influence the future growth and prosperity of businesses worldwide, regardless of size, industry, or country.
This enormous level of investment begs the question: What is digital transformation? If you don’t already know, now is the perfect time to familiarize yourself with the term because digital transformation is likely to increase exponentially in both scope and relevance in the coming years.
Already, 70 percent of businesses have a digital transformation strategy or are actively developing one, while companies are expected to invest a further $6.8 trillion in digital transformation initiatives between 2020 and 2023.
To ensure your team can keep up, we’ll take you step-by-step through digital transformation. We’ll start by defining the term before analyzing the key benefits of it.
What Is Digital Transformation?
Digital transformation means using digital technologies to create new business models and processes to keep up with evolving customer expectations. In fact, 60 percent of companies with digital transformation initiatives have already created new business models. As such, integrating new technologies is inherent to digital transformation.Digital transformation also requires a company-wide culture shift to move from old, outdated practices to new processes that make the best use of modern technologies. In many ways, it’s a simple case of modernization. Digital transformation requires a “digital-first” mindset, integrating technology into all levels of business to deliver more value to customers.
According to CIO, digital transformation “marks a rethinking of how an organization uses technology, people, and processes in pursuit of new business models and new revenue streams driven by changes in customer expectations around products and services.”
To provide a concrete example of digital transformation in action, McDonald’s realized that digital transformation could improve their customer experience. To achieve this, the organization implemented strategies such as mobile ordering apps to reduce wait times, in-store digital ordering kiosks, and even smart-car drive-through integrations.
This is just one of many examples illustrating successful digital transformation. Other prominent examples include Netflix transforming from a mail-order DVD service to a streaming giant and Walmart adopting a cloud platform in 2019 that connects the company’s checkout system to nearly 23,000 point-of-sale devices, which allows for advanced insights into store operations and the customer experience.
The Benefits of Digital Transformation
Digital transformation is already a $1.3 trillion industry, which means the benefits of digital transformation are far-reaching and multifaceted.One of the key benefits of digital transformation is gaining a competitive advantage. According to McKinsey, 70 percent of executives implement digital transformation to secure a competitive advantage or keep up with competitors. As a result, 38 percent of executives plan to invest even more in digital technology to gain a competitive advantage.
It’s easy to see why companies with robust digital transformation strategies gain a competitive advantage, with one study finding that digital-first companies are 64 percent more likely to achieve their business goals than their peers. What’s more, a survey of the benefits of digital transformation found that more than one-third of businesses say meeting changing customer expectations is the main benefit of digital transformation. Other popular responses included improving operational efficiency (40 percent), improving new product quality (26 percent), and introducing new revenue streams (21 percent).
If you’re not already convinced that digital transformation is vital, it also plays a significant role in boosting revenue. According to Forbes, 56 percent of CEOs say digital improvements have increased their revenue, while digitally mature companies are also 23 percent more profitable. A similar study by Deloitte found that companies with high digital maturity report 45 percent revenue growth on average, compared to just 15 percent for lower-maturity companies.
Accordingly, digital transformation is no longer an optional extra—it is essential. By adopting digital-first strategies, organizations gain an array of benefits, including increased customer satisfaction, improved operational efficiency, and even a competitive advantage over less digitally mature organizations. In other words, the question is no longer “What is digital transformation?” but rather, “How quickly can my team adjust to digital transformation?”
