Now in its fifth year, our annual State of Digital Transformation research continues to document the constantly evolving enterprise. As disruptive technologies and their impact on organizations and markets continue to progress, our research aims to capture the shifts and trends that are shaping modern digital transformation.
In 2019, strategic digital transformation is only becoming more pervasive moving beyond IT to impact competitiveness throughout the organization, this according to State of Digital Transformation research by Brian Solis.
Brian Solis (Twitter: @BrianSolis) is a principal analyst at Altimeter, a Prophet company. He's a digital analyst, business strategist and futurist who creates new media strategies and frameworks that build bridges not only between companies and their customers, but also with employees and key stakeholders. Brian specializes in change management that empowers business leaders to introduce new media resources, systems and processes, and deliver an infrastructure that allows their organizations to excel in today's era of the connected customer.
Solis' research also highlights the following: 1. Budgets are soaring; 2. The list of disruptive technologies on the radar of stakeholders is expanding; 3. Ownership is moving to the C-Suite and managed by cross-functional, collaborative groups; 4. Customer experience (CX) continues to lead digital transformation investments; and 5. Employee experience and organizational culture are also rising in importance to empower and accelerate change, growth, and innovation. I spoke to Solis and here are the 5 takeaways from his research:
The State of Digital Transformation: 5 Key Takeaways
- A successful digital transformation is an enterprise-wide effort that is best served by a leader with broad organizational purview. For the second year in a row, CIOs are reported as most often owning or sponsoring digital transformation initiatives (28 percent), with CEOs increasingly playing a leadership role (23 percent).
- Market pressures are the leading drivers of digital transformation as most efforts are spurred by growth opportunities (51 percent) and increased competitive pressure (41 percent). With high-profile data breach scandals making daily headlines, new regulatory standards like GDPR are also providing impetus for organizations to transform (38 percent).
- While there is a growing acknowledgment of the importance of human factors in digital transformation – like employee experience and organizational culture – most transformation efforts continue to focus on modernizing customer touchpoints (54 percent) and enabling infrastructure (45 percent). But many organizations are not doing their due diligence when it comes to understanding their customers, with 41 percent of companies making investments in digital transformation without the guidance of thorough customer research.
- Organizational buy-in remains a top challenge for those leading digital transformation. The companies we studied report digital transformation is still often perceived as a cost center (28 percent), and data to prove ROI is hard to come by (29 percent). Cultural issues also pose notable difficulty, with entrenched viewpoints, resistance to change (26 percent), and legal and compliance concerns (26 percent) stymieing progress.
- Innovation is staking its claim within the organization. Nearly half of respondents report that they are building a culture of innovation, with in-house innovation teams becoming the norm.
Here are other key findings that I believe every digital transformation (DX) leader should consider as they develop a benchmark of their current capabilities and develop there future investment thesis.
The six stages of digital transformation
The digital maturity blueprint is centered on the digital customer experience (DCX) and it consists of six stages: 1. business as usual; 2. present and active; 3. formalized; 4. strategic; 5. converged; and 6. innovative and adaptive.
Areas of focus for digital transformation: IT led and expanding
Eighty-five percent of companies surveyed report that their digital transformation efforts have expanded beyond IT into organization wide initiatives. That said, IT continues to lead DX efforts. The top 5 digital transformation focus areas are: 1. IT; 2. Customer Service; 3. Operations; 4. Innovation; and 5. Marketing.
Business unit-level digital transformation efforts: Collaboration with IT, Marketing, and Customer Service
"The digital transformation journey usually begins with a technology-first mindset: Fifty-one percent of these companies are aiming their digital transformation investments at modernizing IT infrastructure and technologies (e.g. cloud, collaboration, communication, security, mobile. Digital transformation is about modernizing the sum of the organization's critical parts by investing in modernizing the parts (the business units and functions) themselves. It's a shift from an ownership tug-of-war between marketing and IT to a distributed balance and collaboration across the organization. " said Solis.
Key drivers of digital transformation: New business model innovation is top priority
More than half of the companies (51 percent) reporting it as the leading driver for their digital transformation efforts, exploring growth opportunities in new markets jumps to the number one spot. Historically the top priority revolved around modernizing technologies across the enterprise and investing in customer experiences. Today, new business model innovation opportunities, driving new sources of incremental revenue, is the top driver.
The top five drivers of digital transformation are: 1. growth opportunities in new markets; 2. evolving customer behaviors and preferences; 3. increased competitive pressure; 4. new standards and compliance; 5. evolving employee behaviors and preferences.
Digital transformation is a long game -- and winning is all about the customer experience
Accroding to the research, the organizations who are further along the six stages of digital transformation develop customer-centered roadmaps and then divide and conquer against those initiatives across the enterprise. The research findings is a reminder to all business trailblazers that DX is journey, not a destination. The north star (or guiding principle) during the journey is speed, mass personalization and intelligence collaboration aimed at stakeholder (employees, customers, partners and communities) co-creation of value
Top challenges digital transformation face in 2018: Lack of data to support digital transformation (DX) ROI
The top DX challenges continue to revolve around measuring the ROI of DX, budget, culture, risk and change management, and talent shortage. Technical debt is also a challenge. These challenges will always exist for any type of transformation. I am reminded of the sage advice from management legend Peter Drucker:
It is not necessary to change. Survival is not mandatory. -- Peter Drucker
Top priority technology investment in 2019: Cloud, Security and AI lead the way
Cloud computing and mobile investments have historically led the investment priorities as it related to DX. For 2019 and beyond, the top tech investment priorities now include a strong emphasis on cyber security, artificial intelligence, big data, internet of things (IoT), real-time analytics, e-commerce platforms and social media. There is also an appetite for blockchain, 5G and wearable technology. I believe that if we add 'machine learning' and 'real-time analytics' to the 'AI' category, then AI would be either No. 1 or No. 2 tech investment priority for 2019 and beyond.
Digital transformation metrics: Growth and operational performance
The top three metrics reported by companies are aimed at tracking business growth and operational performance: 1. growth (leads, conversions and sales); 2. operational efficiency (cash flow, gross margin); 3. business performance (revenue and profit). Customer and employee engagement is high on the list, with customer metrics that speak to advocacy (satisfaction, net promoter score (NPS) and lifetime value) as the fourth most important metric.
Solis recommends the following seven priorities to accelerate digital transformation success:
- Audit the state of DX at your company across the six stages
- Study the digital customer journey and organize efforts around insights and opportunities
- Study the employee journey to improve employee experience
- Make data the center of your decision making
- Align digital transformation investments with business objectives
- Consider carefully how technology trends factor into your digital transformation roadmap
- Prioritize a culture of transformation and innovation
In addition to the seven priorities, I would like to add an eighth recommendation. DX business leaders must recognize the global business shift from an era of experimentation to an era of multiplied innovation. Digitally determined organizations recognize that the only path to sustainable growth, and resilience towards being disrupted, is in investment thesis that is based a combined set of emerging technologies (cloud, mobile, social, AI, IoT, e-commerce, etc.).
- Five winning plays for digital transformation
- Digital transformation: Getting beyond the hype
- How Neiman Marcus's top-down innovation strategy transformed retail and increased revenue
- Culture remains biggest barrier in APAC digital transformation
- How retailers across the globe are undergoing digital transformation through personalization
- Eight obstacles to overcome in your digital transformation journey