Special Feature
Part of a ZDNet Special Feature: Digital Transformation: A CXO's Guide

Digital transformation: Retooling business for a new age

Digital transformation is about reshaping organisations' culture, business processes and IT operations around new technology in order to better engage with their customers and streamline their internal processes.

'Digital transformation' is a buzzword that has been tripping off the tongues of vendors, analysts and industry observers with increasing frequency in recent years. In a sense, digital transformation of business has been ongoing for decades, starting with the mainframe and minicomputer and progressing through the PC/client-server, internet/web and mobile/cloud eras. Arguably, it's set to make the biggest impact yet in the next few years, in the brave new world of AI-driven computing.

Defining digital transformation

But what exactly is 'digital transformation'? Here are a few definitions and descriptions from various quarters:

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Digital Transformation: A CXO's Guide

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"Organizations must begin to look at digital holistically and transform by applying digital thinking across everything they do -- how they win, serve, and retain customers; how they operate internal processes; and how they source business services. In short, they must become a digital business" (Forrester).

"[Digital transformation is] the realignment of or investment in new technology, business models, and processes to drive value for customers and employees and more effectively compete in an ever-changing digital economy" (Altimeter).

"[Digital transformation is] the result of IT innovation that is aligned with and driven by a well-planned business strategy, with the goal of transforming how organizations serve customers, employees and partners; support continuous improvement in business operations; disrupt existing businesses and markets; and invent new businesses and business models" (451 Research).

"The goal of digital transformation isn't better social or faster analytics... it's to remake brands to be more adaptable, better at learning and above all, able to tie together the strands of product, sales marketing and service that make up the customer experience" (Adobe).

A pretty broad remit, then, and one that stretches well beyond the purview of just the CIO. For example, in many organisations digital transformation is moving inwards from the customer-facing edge, via a revamping of the 'customer experience' or 'CX'. That's why the CMO is regularly mentioned in digital transformation dispatches. But analysts and surveys also note that more digitally advanced organisations tend to have a holistic strategy, driven from the top down by the CEO with buy-in from the entire C-suite.

It's important to bear in mind what's at stake here: a 2017 survey of over 500 C-suite executives across Europe and the US (from ChristianSteven Software, conducted by GITNS) found that two-thirds (65%) believe that 40 percent of Fortune 500 companies will not exist in 10 years' time. Over half (53%) of those surveyed said they were concerned about competition from disruptive businesses, although almost all (91%) were hopeful about the future of technology in their organisations.

For a pointer to business leaders' high-level priorities in 2018/19, we can examine Gartner's 2018 CEO and Senior Business Executive Survey, which canvassed 460 CxOs. "Although growth remains the CEO's biggest priority, there was a significant fall in simple mentions of it this year, from 58 percent in 2017 to just 40 percent in 2018. This does not mean CEOs are less focused on growth, instead it shows that they are shifting perspective on how to obtain it," said Mark Raskino, vice president and Gartner Fellow in a statement:

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Image: Gartner

To realise their growth ambitions, Gartner found that CEOs are looking to modify the structure of their organisations (via new strategies, partnerships, mergers and acquisitions) and prioritise IT-related issues, including digital transformation. According to the survey respondents, talent shortage and workforce capability is the biggest inhibitor of digital business progress.

How established enterprises manage the introduction of new technology in the coming years will play an important part in determining which ones survive in the face of competition from a new generation of highly focused, agile startups -- which, of course, don't have the requirement to maintain and upgrade legacy systems. As Tim Yeaton, senior vice-president of Red Hat's infrastructure business, told ZDNet's sister site Tech Pro Research in 2016: "In five to ten years, I think it's about how much can be abstracted, how much can be automated, how much can be driven through machine-to-machine and artificial intelligence, with developers adding value to what's come before. That's where you're going to see the pace accelerate." In this new world, the CIO will become much more of a curator and enabler of IT initiatives and developments -- a "broker of the resources," as Yeaton put it.

Let's take a look at some studies on digital transformation.

SEE: Digital transformation: A CXO's guide (ZDNet special report) | Download the report as a PDF (TechRepublic)

What the surveys say (2017)

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Image: Forrester

A March 2016 report, Leading Digital Business Transformation, commissioned by SugarCRM and Squiz from analyst firm Forrester, canvassed 410 senior executives from enterprises in Australia, China, France, Germany, India, Singapore, the UK and the US. Sectors represented in the survey were financial services and insurance, government, higher education, media and publishing and retail.

Here are the key findings from Forrester's study.

Mature digital businesses are rare (just 11% of companies surveyed). The CEO drives the digital vision and strategy in these organisations (41% of CEOs set the digital strategy, while 59% understand and support it). Customer experience is the 'North Star' for digital transformation initiatives (the top three drivers for mature businesses are improving customer experience, increasing the speed of innovation and improving time-to-market). Cultural and organisational issues are key challenges even for mature firms (43% of mature digital businesses see competing departments wanting to 'own' digital as the most significant barrier to effective transformation). Digital is a journey that requires businesses to be agile (94% of mature businesses plan to address the threat of digital disruption by making systems and processes more agile).

A key detail from Forrester's report is the clear emphasis placed by mature digital businesses on analytics to improve customer experience:

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Image: Forrester
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Image: Altimeter

September 2016 saw the release of Altimeter's The 2016 State of Digital Transformation report (the analyst firm's second on the subject), based on a survey of 528 "qualified digital transformation strategists and executives leading change within their companies". Respondents came from companies in a variety of industries -- all with more than 250 employees -- in the US, Canada, the UK, France and Germany.

Here are some of Altimeter's key findings.

Customer experience was the top driver of digital transformation (although IT and marketing still influenced technology investments), with 55 percent of those responsible for digital transformation citing "evolving customer behaviors and preferences" as their primary catalyst. However, only half (54%) of survey respondents had completely mapped out the customer journey within the last year or were in the process of doing so. The top three digital transformation initiatives at organisations were: accelerating innovation (81%); modernising IT infrastructure (80%); and improving operational agility (79%). Digital transformation is largely led by the CMO (34%), but only 29 percent of companies had a multi-year roadmap to guide digital transformation evolution.

As noted above, Altimeter's survey found customer behaviour to be the main driver of digital transformation. This was followed by the need to expand into new markets, to respond to competitive pressure and to accommodate new regulatory and compliance standards:

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Image: Altimeter

Analyst firm 451 Research's most recent spotlight on digital transformation on echoes the Forrester and Altimeter studies in emphasising that this process is still in its early stages. Less than a quarter (22%) of organizations that participated in an April 2016 survey said they had a well-defined formal digital transformation strategy, while 36 percent were either considering or planning a strategy and 29 percent had no strategy at all:

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Image: 451 Research

According to the analyst firm, the main drivers of digital transformation are: intelligence (generating insight from data and moving to data-driven decision making); agility (essential because "digital disruption is coming to your business"); and customer-centricity ("the age of personalised marketing is upon us, so rather than individuals being grouped into vague demographics, it is now possible to know precisely when you are walking down the aisle of a specific supermarket, or have entered the lobby of a specific hotel").

When it comes to the aspects of an organisation that are transformed digitally, 451 Research identifies three main areas: information usage, business processes and technology platforms.

Transformation of information usage is all about two-way engagement with customers over multiple communication channels, and extracting insight from the resulting data via advanced analytics and machine learning. Business process transformation requires cultural and technological shifts -- for example in the adoption of modern collaboration tools such as Slack, or agile DevOps methods in the IT department. Technology platform transformation, meanwhile, concerns the shift from siloed on-premise 'systems of record' to flexible API- and microservices-driven 'systems of engagement' running in hybrid cloud environments.

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Image: Adobe

Adobe's 2017 Digital Trends report is based on an extensive global survey of 14,163 digital marketing and ecommerce professionals across EMEA, North American and Asia Pacific markets. Conducted in November/December 2016, the Adobe/Ecoconsultancy study offers the following key insights.

Just over a fifth (22%) of respondents rank optimising customer experience as the single most exciting opportunity for 2017. These respondents also look beyond mobile to focus on the IoT, augmented reality (AR) and virtual reality (VR). However, the role of data fell down marketing's priority list in 2017 compared to 2016 -- perhaps because these investments have already been made.

The vast majority (86%) of survey respondents agree that design-driven companies outperform other businesses, while 82 percent believe that creativity is highly valued within their organisations and 77 percent are investing in design to differentiate their brand. That said, 44 percent believe they lack the processes and collaborative workflows to achieve a design advantage.

The survey reveals an apparent split between between companies that find it easy to build a collaborative, customer-centric culture and those that don't. The implication is that the former are smaller, more agile startup-type companies while the latter are more traditional enterprises.

Personalisation, and channels that lend themselves to personalisation, are a driving force behind marketing success, the Adobe survey finds, while marketers in APAC are more likely to prioritise engagement via mobile apps and social media.

Looking further ahead, the most exciting prospects for digital marketers seem to be VR and AR, IoT devices and AI/bots (particularly in Europe):

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Image: Adobe

What the surveys say (2018)

Report Survey statistics Key findings/themes
The Sorry State Of Digital Transformation In 2018 (Forrester)

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1,559 North American and European enterprise business and technology decision makers Over Half Of Firms Are Transforming -- And A Very Confused 21% Believe They've Finished
One firm said, "It's a war between old-school, technophobe leaders and the technology innovation that represents a completely different way of doing business."

"Any Job That Can Be Automated Will Disappear"
And if you don't automate away your own jobs, a disruptor will do it first instead, thus changing the economics of delivery. Technology will ultimately transform every position in your company.

In 37% Of Firms, CIOs Lead The Transformation
Sometimes a chief digital officer is the best outside thinker, able to see what must be done. But an enlightened CIO -- a rare breed, for sure -- has the technology awareness and the enterprise visibility to unify the changes you need to make.
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Image: Forrester
Real Digital: Success factors for digital transformation (Fujitsu)

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1,535 CxOs and decision-makers at large and mid-sized companies from key industry sectors across 16 countries worldwideAn uneven digital landscape
Exclusively online businesses have embraced digital transformation, while it's a work in progress for more traditional businesses. Business drivers behind transformation differ across industry sectors. Outside of online-only companies, the finance industry is the furthest advanced.

Outcomes of digital transformation
30% of digital transformation projects have delivered successful outcomes in finance and retail; 25% in transportation; 21% in manufacturing; and 14% in healthcare.

Success factors of digital transformation
Leadership, people, agility, business integration, ecosystem and value derived from data -- a company's 'digital muscles'.

Attitudes to AI
68% believe that the future will involve people and AI working collaboratively.
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Data: Fujitsu / Chart: ZDNet
2018 Digital Transformation Readiness Survey (DevOps.com/Appian)

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Participants came from organizations of varying sizes and based around the world. They were invited to participate via social media and email invites sent to
DevOps.com's qualified database of IT professionals. Number of respondents: 463
82% of organizations can't attract and retain the quality and quantity of software engineers they need to feed the business with innovative technology.

72% of respondents don't believe they'll be able to scale their efforts to keep up with business demands in the coming years.

More than 1 in 5 organizations say they've got 50 or more major application development requests in their application backlog.

93% of organizations say AI is a top area of focus for digital transformation efforts in the next five years.

91% of organizations struggle with technical debt.
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Data: Appian / Chart: ZDNet
The 2018 Digital Transformation Report (Adobe)

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200 executives from across the travel industryToday's customer experience is omnichannel
Today's travel brands must cope with a proliferating range of customer interaction touch points, both offline and online.

Rising customer expectations shape digital priorities
The world-class customer experiences offered by leaders like Amazon, Google and Airbnb are setting a high bar for customer expectations.

Mobile is no longer a trend: it's a requirement
Two-thirds of respondents said mobile devices now make up 20% or more of their website traffic.

Travel organisations are drowning in data
Rather than empowering many travel organizations, digital tools and processes can often lead to decision paralysis.

Personalization must balance the digital and the human touch
Digital personalization needs to be balanced by a decidedly human touch -- otherwise it may fall flat.

Separating emerging trends from immediate opportunities
Tech tools like blockchain get plenty of industry attention, but it's opportunities like localization, chatbots and prescriptive analytics that have the most immediate potential impact.
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Image: Adobe
2018 Digital Transformation Survey: Creating Products and Services in a Digital World (CorporateLeaders/PTC)

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128 executives in product development, engineering, production, corporate management, IT and marketing, with respondents from Europe, North America, the Middle East and AsiaCompanies are moving towards digital processes to make money, save money, mitigate risk, and discover new business opportunities, within their organizational processes. With digital PLM [Product Lifecycle Management], IoT and the cloud, all these boxes are ticked. The companies that can't or don't tick these boxes, are now finding themselves to be digital laggards within their industries.
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Image: CorporateLeaders/PTC

Outlook

Digital transformation is about reshaping organisations' culture, business processes and IT operations around new technology -- social, mobile, analytics (including AI and ML) and cloud, plus VR/AR and IoT -- in order to better engage with their customers and streamline their internal processes.

Surveys suggest that many organisations are still in the early stages of this transformation. Some are starting with the customer experience, while smaller, more agile companies may be finding the process easier than large enterprises with legacy baggage. Talent shortage is proving a major barrier to digital transformation progress in many organisations.

Data is a key raw material for the digitally transformed business, and data science will turn this raw material into realisable value. But raw materials and value-added assets can be stolen, held to ransom or otherwise misused, so next-generation businesses will need to guard and govern their data carefully or risk serious damage to their brands and punitive fines under increasingly strict regulatory regimes.

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