SAP’s recently published Digital Transformation Executive Study updates the facts: 96% of over 3,000 interviewed executives say digital transformation is a core business goal; for 93% technology is critically important to retaining a competitive advantage; for 84% digital transformation is critical to their survival in the next five years. Leading executives strive for true transformation, most of them starting off with customer-facing functions. Nevertheless there is a big gap between awareness and execution: only 3% of the executives have already made company-wide digital transformation efforts.
Framework for a better digital future
At SGA, we share these thoughts recently published in the MIT Sloan Management Review: it is high time to start harnessing the power of digital transformation based on purpose in order to build a prosperous future for all. Digital technologies have great potential to transform economies so that they can serve society’s higher goals. This requires proactively scanning the emerging landscape for both social and environmental risks, while simultaneously looking for opportunities to use digital technologies to resolve global challenges. At SGA, we are passionate about helping businesses pursue digital transformation with purpose. We differentiate three progressive levels in terms of impact and scale:
- Digitisation, the basic process level, is to be understood as the conversion of products to digital format including the concomitant resultant inventions.
- Digitalisation, representing a level up, is a disrupting force leading to business model innovation and new processes that exploit digital opportunities.
- Digital transformation is defined as the systems-level restructuring of businesses, economies and society that results from digital diffusion. This third level is a fundamental purposeful transition that alters behaviours on a large scale in the whole system.
Key drivers of digital transformation
In the digitally driven era, transformation is about exploiting the full potential of a better digital future. There are two principal drivers: 1. Market forces responding to the evolving demands and wishes of customers and stakeholders. 2. Digital technology itself and its associated services. A recent study of Constellation Research reveals that in terms of process change the Internet of Things (IoT) and Artificial Intelligence (AI) are key drivers for digital transformation projects. The continued evolution of technology solutions, and their disruptive capabilities, considerably influence the style and speed of digital transformation. However, one thing is crystal-clear: reimagining an organisation is a non-starter without a clear purpose.
The role of the C-suite
Experience in global business shows that purposeful digital transformation is most successful if driven by a collaborative effort among C-suite executives. For instance, a CEO must be on board with the company’s overall purpose, vision and effort to embrace industry shifts, while the technology executives can ensure systems are secure, and that new policies are being clearly communicated. Digital thinking based on purpose must be infused into every area of the business and will only succeed if the technology is adopted, introduced and exploited as effectively and efficiently as possible.
Dimensions of purposeful digital transformation
Visioning: At SGA, we begin with the end in mind by creating a vision that is context-driven and at the same time tailored to the company’s core values. Once digital platforms and complex systems come to increasingly define the organisation, the human factor is ever more critical.
Culture and leadership: A digital transformation process involves a cultural mindset shift and long-term commitment by everyone in the organisation. Success is largely dependent on the ability of the culture to evolve over time. The defining leadership characteristics are an ability to think long-term and outline the right steps to achieve short-term milestones.
Business models: Empowered digital transformation requires collaboration and tight alignment of business and technology, often including a reshuffle of leaders and teams. True digital transformation marks a sharp break with past practices, legacy systems and very often the business model. Ultimately, digital technology facilitates the growing concept of the sharing economy with its platforms that enable individuals to share goods and services.
Products and services: The manufacturing industry benefits from technologies like IoT that simplify manufacturing processes, and reduce cost and waste. Industry 4.0 represents the vision of the interconnected factory where equipment is to some extent capable of making its own decisions. Mobilisation and connectedness lead to software-enabled products and change how after-sales services are provided. Digital transformation enables transparency and offers upstream operations in the value chain in regard to material flows and services.
Processes: The alignment of technology initiatives with strategic business priorities and processes calls for capable leaders at all levels. This alignment is crucial. Still too many leaders embark on digital transformation initiatives in a vacuum. In smart factories, for example, integrated IT systems can increase production capacity significantly. Machine learning algorithms uphold production and service quality, resulting in less wasted time and materials, optimal accuracy of workflows, lower cost of production and quicker turnarounds.
Communication: Digital technologies allow customers to have access to more information from more sources than ever before. To match customers’ accelerating agility, companies have to engage in an enterprise-wide transformation, driven by the adoption of digital technologies and supported by equally important changes in purpose, culture, leadership, processes and communication.
Being purposeful about transformation
Digital transformation has completely disrupted industries like publishing, banking, retail, tourism and transportation, and manufacturing is not far behind. But businesses have the freedom to ask how digital technology can be used to tackle the world’s biggest challenges. At SGA, we see that already happening, and we are proud to be a part of it.