7 Steps for Digital Transformation

These seven steps are universal for businesses of all sizes; you can begin your digital transformation at this very moment. But first, let’s define what digital transformation means and answer the most common questions.

What is digital transformation?

Digital transformation is a repositioning of a business according to evolving digital needs.

It involves replacing older technologies with newer ones but goes beyond that. Transformation might mean a completely new approach or a change of all processes, rather than simply enhancing traditional methods.

Why are businesses experiencing a digital transformation?      

The accelerating speed of tech evolution and the pressure from startup culture are forcing businesses to keep up. The pandemic is the latest persuading reason: digitization of customer interactions is accelerated by 3-4 years, and partially or fully digitized products and services are increased by 6-10+ years depending on the region.

Why digital transformation is important?

Not to be dramatic, but – it’s a survival issue. Constant transformation is crucial to at least stay afloat. If you do everything right, it brings profit. High-tech businesses generally cut costs by 10-20% and report revenue growth of 10-15% from transforming customer experience solely. If you embrace digital transformation, you are likely to become 26% more profitable than competitors!

However, many companies simply don’t know where to start. That’s when you need a digital transformation strategy.

What is digital transformation strategy?

A Digital Transformation Strategy is a plan for repositioning a business. A strategy must answer three questions: where we are now, where do we want to be, how do we get there.

You can build your digital transformation strategy based on popular frameworks, ready roadmaps, and step-by-step guides. Let’s compare them and review the most popular examples.

Digital transformation frameworks usually include the list of business elements that will be influenced by digital transformation or will take an active part in it. (For example, operations, customer experience, tech tools, workforce, etc.) They can answer questions like “what are the 4 main areas of digital transformation” or “what are the 3 approaches of digital transformation”.

Let’s take a look at the most popular examples of frameworks.

MIT Sloan: The Nine Elements of Digital Transformation

Cognizant: A Framework for Digital Business Transformation

So, what is digital transformation roadmap? It is an action plan for implementing digital transformation. It can include steps or a set of advice. Check these popular examples:

Earley: Digital Transformation Roadmap

Altimeter: Six Stages of Digital Transformation

McKinsey: Roadmap for digital transformation

Frameworks and ready roadmaps can give you an overall impression of what a digital transformation process is, but of course, your organization’s specific challenges must be considered. So how do you make a digital transformation roadmap for your company?

We suggest following these seven steps.

Step 1. Set goals

What do you imagine when someone says “digital transformation”? Artificial intelligence? Going paperless? Maybe, data analytics, social media, machine learning, or open-plan offices?

The problem is, everyone has some specific tools on their mind. “We need AI because it’s trending and we don’t want to lag behind.” But tech tools should not be the driver. It’s crucial to figure out your strategy and goals before investing.

As we mentioned, think about where you are now, where do you want to be, how do you get there. You may want to solve some issue, use a clear opportunity, or set an aspirational goal. These questions may give you a hint:

• What customer experience can improve loyalty and retention?
• How can technology support your employees and improve productivity?  
• What daily challenges do you face in business processes and how can you cut costs, differentiate offerings, integrate supply-chain partners?
• How can you enhance service management to gain better control, reduce complexity, avoid common issues?
• Can infrastructure and operations be optimized to cut costs and improve flexibility?
• How can you use data analytics to make better decisions and gain a competitive advantage?

For example, a store can develop a one-year strategy around enhancing the mobile experience. The specific goals (metrics) might include speed, innovation, personalization. The tools and other details will derive from that.

The Prophet’s 2014 State of Digital Transformation report revealed that only 25% of companies had a clear understanding of digital touchpoints their customers were using. But 42% made technology investments anyway. No wonder that the rate of successful digital transformations is so low (26% in tech-savvy industries like IT and 4-11% for others, according to McKinsey).

Step 2. Research customers

Customer-led digital transformation is the only one that can succeed. Why? Because highly engaged customers buy 90% more frequently and have three times bigger annual value. They are immensely loyal, two times more likely to buy from you even if there are better options, four times more likely to spread the word about you, and spend 60% more per purchase.

It is a dream of every business, so they put customers in the center of digital transformations. In an HBR survey, 72% of respondents were excited to use tech for improving relationships with customers, and 40% said it is their top priority in a digital transformation process. 

So how do you do that?

Gather information. Set up individual interviews, focus groups, surveys – any means to identify their needs and establish their priorities.

Understand the growing expectations. More than half of all consumers expect immediate responses (within one hour) 24 hours a day 7 days per week, as well as a seamless multi-channel experience across all platforms. High-level personalization is a must: 75% of customers are more likely to buy from companies who recognize them by name, track their purchase history, and recommend products based on it. Their expectations of flawless, interactive, original, and high-speed interfaces grow every day, too. Companies have no choice but to learn what are web design trends and utilize the best web development practices.

Step 3. Choose tools

Tools must derive from your goals and strategy, but if you need a reference, here’s a hint. This table includes technologies, tools, and methods used for digital transformation in different companies.

McKinsey’s report shares several insights into digital transformation tools. For example, their scope tends to be wide. On average, companies use four of the 11 technologies mentioned above. In 8 out of 10 cases, they affect multiple functions/units or the whole company. Interestingly enough, successful transformations are likelier to happen in companies that deploy more and more sophisticated tools than others.

Most important tip: don’t fall for a widespread assumption that tools are the answer to all problems. Technology is an enabler, but processes and people drive results. So, the two next steps are probably the most important.

Step 4. Create agile processes

Digital transformation requires reconsidering traditional ideas of teams and processes. There are several reasons why. The transformation is inherently uncertain, so you will need quick decisions, short adapting and adjustment cycles, and efficient cooperation of all departments. Without it, you won’t be able to experiment, correct mistakes, or shut down inefficient projects timely.

Therefore, Agile practices like Scrum gain large popularity among a variety of industries. Companies try to adopt a silicon-valley-style startup culture to keep up. Here’s what you can do:

• Consider changing traditional hierarchies for a flat structure, rapid prototyping, and agile loop-like processes.
• Knocking down walls between departments can bring unexpectedly beneficial results. For example, SMM should encompass marketing and vice versa.
• If your transformation is large-scale, creating several flat-structured cross-functional teams may be a solution. It will enhance communication and experimentation.

Step 5. Assign people

Two most important tips here:

Leverage insiders. Companies tend to invite some digital transformation managers despite the risk of receiving one-size-fits-all solutions. Bringing expertise is good, but remember, that your staff has the most intimate knowledge about daily operations.

Battle fear of change. Employees can perceive digital transformation as a threat to their jobs. Never underestimate this conscious or unconscious resistance. There is a great practice called “inside-out”, developed by a leading expert in organizational and leadership transformation, Behnam Tabrizi. You should start with asking people about their strengths and unique contributions to the company, and then connect those to components of the digital transformation. Ideally, they should be in charge of that part of the process. This way, they regain control and reframe transformation as a possibility to enhance their strengths. 

Who is involved in digital transformation?

• Ideally, the process is led by the CEO, in partnership with CIOs and other stakeholders.
• All the employees should understand and take part in the process to leverage internal expertise.
• To roll out new products or systems, you will need software engineers, cloud computing specialists, product managers, and DevOps.
• For data analysis, AI, and machine learning you should look for data scientists and data architects.
• For business-wide, consistent transformations you might need a variety of professionals: UX designers, content creators, brand strategists, compliance managers, digital trainers, etc.

Step 6. Implement best practices

One part of it means keeping up-to-date with the latest trends. You can read an in-depth analysis of a rapid digitalization due to pandemic here. To save your time, here’s a shortlist of digital transformation trends for 2021:

• Automation of processes
• Democratization of IT (low/no-code solutions)
• Data governance and analytics, CDP services
• Integrated cross-functional teams
• 5G and IoT revolution
• Advancement of AI and machine learning
• More mergers and acquisitions in IT outsourcing
• Distributed teams
• Microservices
• Cybersecurity (especially API security)
• Hybrid cloud adoption

The second part is knowing what practices are tried-and-true. Here is a great hint: a list of key factors that have led to successful digital transformations in many companies.

Step 7. Evaluate results

We are happy to see you at the last step! Time to count the revenue, isn’t it?

Evaluating ROI for digital transformations can be tricky. These projects can be used as experiments to gain experience, can cross functional and business boundaries, and completely reshape companies. Some may have a short-term payoff, others serve for strategic, long-term goals.

Therefore, the best thing you can do is take a holistic approach. Focus on the overall performance of “the portfolio”, just like a venture capitalist would do. One particular underperforming project shouldn’t overshadow all the efforts. It’s important to build tolerance for the necessary risks associated with digital transformation. 

Here are some bests practices in evaluating digital transformation:

• Setting metrics in advance, even hypothetical.
• Implementing micro-metrics for experiments, they let you learn and adjust by receiving immediate value and quickly shutting other ideas.
• Using your KPIs and other metrics of strategic, operational, and cost impact (revenue growth, CLTV, TTM, productivity and operational improvements, etc.)
• Reviewing regularly, perhaps quarterly, whether particular projects should continue working.

We hope this step-by-step guide has clarified the situation. If you have any questions left, our team is always ready to help. 

Read case study – Online showroom