The 4 Types of Digital Transformation Explained

  

blog-The-4-Types-of-Digital-Transformation-ExplainedDigital transformation has been a buzzword for the past decade, but the motivation to blend digital and physical processes with customer experience has never been more powerful. Depending on the industry and enterprise, the types of digital transformation may vary, but the overall goal is to drive disruptive change in your company’s go-to-market strategy.

In preparation for a post–COVID-19 economy, organizations recognize that leveraging technology is imperative to achieving their goals. Digital transformation helped 80% of companies weather the economic slowdown during the pandemic, according to a recent survey.

While improved efficiency and profitability have been key drivers for all types of digital transformation, the pandemic shifted the emphasis for many executives. Business continuity and organizational resiliency have become top priorities in transforming the way organizations approach their future. More than 75% of executives consider digital transformation significantly more critical to their organization’s success.

If your business model relied solely on physical interaction with customers, vendors and employees, COVID-19 protocols severely hindered your operations. Many legacy technology companies have begun transforming their business models and cultures from “one-and-done sales” to service or subscription models that are enabled by digital technologies. With digitally native competitors unencumbered by the burden of legacy operations, there is stiff competition in the marketplace.

Digital transformation requires rethinking how an organization delivers value. It’s not just about adding technology to existing processes. Rather, it requires a radical rethinking of how an enterprise leverages technology along with operations and people to optimize performance.

During a digital transformation process, old and new revenue streams will coexist. But resources are constrained by supporting legacy operations while simultaneously implementing an everything-as-a-service (XaaS) value proposition.

A successful digital transformation strategy requires organizations to define and articulate their digital goals to create broad organizational alignment. At the start, it is important to assess the organization’s digital maturity and readiness for change to then pinpoint the required critical capabilities and competencies.

As your organization considers the various types of digital transformation, contemplate the possible strategies for new business and revenue models to create a competitive advantage for your specific industry. Assess the design against the emerging needs and desires of your customers and stakeholders, focusing on creating value for both parties — as well as for your enterprise — through technological innovation.

What is Digital Transformation?

Although the goal of digital transformation is to use digital technology to solve traditional problems, it’s not only about technology. Rather, the operative word is transformation. It’s about using technology to change the way your organization operates, positions itself in the marketplace and delivers benefits to customers.

Simply automating or digitizing existing processes and products isn’t the only answer. Some 26% of executives identified their company’s lack of digital transformation strategy as an organizational challenge. Choosing the optimal path from among the business models is critical to accelerating transformation.

Many hardware, software and IT services markets are shrinking in the digital transformation era. Driven by the falling cost of computing power, companies are shifting to the XaaS model. For example, the supply chain industry is moving in this direction — it’s not just about owning trucks and warehouses anymore. Instead, companies are contracting for transportation and logistics as a service, outsourcing these functions to technology service experts to allow for more significant investments in their core competencies. By 2025, every enterprise will shift to a “digital innovation factory, no matter the industry.”

For original equipment manufacturer (OEM) technology companies, digital innovation requires rapidly transforming traditional IT into flexible XaaS models. But legacy technology OEMs undergoing this shift face both internal and external challenges. They must adopt a digital transformation mindset internally while simultaneously adapting their solution portfolio to enable their customers’ digital efforts, too. Ultimately, when done efficiently and effectively, the XaaS transformation strengthens, protects and even brings in new revenue streams for technology OEMs.

Types of Digital Transformation

Digital transformation doesn’t mean the same thing for all companies, and viewing it as a one-size-fits-all process could be overwhelming. There are four main types of digital transformation that organizations should consider taking advantage of in their own transformation strategy. It’s critical to realize that digital transformation is not necessarily a single, black-and-white destination in the form of a product or offering, but instead requires a long-term commitment and can evolve throughout the journey.

1. Process Transformation

Companies can revise internal processes to lower costs, improve quality and reduce cycle times. Adopting cloud connectivity helps link disparate processes and locations. For example, implementing robotic process automation can transform manual tasks found in procurement, supply chain management and other administrative functions. Modernizing your logistics network and supply chain by digitizing these processes and integrating machine learning and artificial intelligence helps to recognize and shape data patterns into actionable insights.

2. Business Model Transformation

Business model transformation aims to fundamentally change the way companies deliver value for customers. For example, Netflix made the switch from mailing DVDs to online streaming, while Blockbuster failed to make the transition, which ultimately led to the latter company’s eventual fate. Technology OEMs are also switching from a sales and support model to XaaS, where the “X” may be hardware, storage capacity or applications.

Technology companies can reshape their go-to-market strategy and support their customers’ digital transformation efforts with the flexibility to select technology that best suits their needs. Customers often signal their readiness for a different type of relationship through their purchasing patterns.

3. Domain Transformation

Organizations typically adopt new technologies to redefine their products and services. They might extend current services to a new customer base or develop entirely new technology-enabled offerings. For example, offering equipment on a rental basis rather than purchase-only enables you to reach a previously unserved segment of customers who may only need your technology temporarily.

As another example, companies that sell industrial equipment can expand by providing digital solutions to their existing customer base and customers using other equipment. CNH Industrial, a manufacturer of commercial, construction and agricultural equipment, developed its own suite of fleet telematics technology to help owners optimize operation and maintenance processes and connect them with the company’s dealer network for service.

4. Cultural/Organizational Transformation

Embracing a digital-first culture enables organizations to adopt agile workflows, develop a bias toward testing and learning as well as support decentralized decision-making. However, a successful transition to a digital-first culture requires redefining mindsets and processes while also incorporating new talents and capabilities.

A typical mindset shift alters from managing production output to focusing on customer service and innovation. Often, the cultural shift occurs organically during other transformation initiatives as internal teams adopt digital workflows and recognize the power of changing organizational norms.

Partner for Digital Transformation Success

Guiding your organization to a sustainable future requires pursuing at least one of these types of digital transformation efforts. Each transformation must focus on business outcomes, such as improved processes and new products and services that build a business case for delivering value in the post–COVID-19 economy.

However, supporting both XaaS and legacy revenue streams requires significant resources, so technology OEMs are partnering with third-party providers for product and customer lifecycle management services to refocus their resources and capital on their core business initiatives.

Learn more about the value of third-party lifecycle management partners and how to incorporate best practices to enhance the success of XaaS for your organization in “A Roadmap for Technology OEMs,” a whitepaper by Harvard Business Review Analytic Services in association with Tech Data Global Lifecycle Management.

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About the Author

Ron Brinckerhoff Bio - January 2020Ron Brinckerhoff joined Tech Data in February 2017 via the Avnet Technology Solutions acquisition and serves as the Vice President of Global Sales and Business Development for Global Lifecycle Management (GLM). Ron has over 25 years of industry experience with proven success in building strong sales teams, driving operational excellence and exceeding customer expectations.