Digital Transformation: What Is It?

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Many companies nowadays are talking about their digital transformation. When you ask CxOs, what this means for their organizations, their responses are surprising; it seems like every organization has their own interpretation of what digital transformation is. As a result, I did some research into this subject and will now share what I found. Fortunately, I learnt a lot in this area when I attended sessions about this topic at MIT CIO Forum. I have added some of what I learned at the Forum in this article as well.

A little history lesson helps me to tell you the full story on digital transformation. Throughout our history, human beings have adapted to transform our way of working and living. Our last major transformation was the Industrial Revolution. Industrial revolution happened when we found a way to outsource human physical efforts to machines. As time progressed, machines became more powerful and eventually reached the point where they could do physical tasks which were previously thought impossible by humans. This allowed us to build products ranging from large and complex to microscopic and precise.

Due to the industrial revolution, we transformed the way we do work from pure physical labor to machines. More specifically, using multiple machines in factory assembly lines, which mass produced goods for consumption at low costs. Prices lowered due to efficiencies built into volume and increased productivity. The Industrial Revolution not only changed how we worked, but also changed how we lived. The Industrial Revolution made many consumables, which were previously only affordable by the rich and privileged, available to masses.

The next major transformation started in the early 20th century with the Digital Revolution, when we humans looked to outsource our mental capacity. If we can make machines do our physical work, wouldn’t it be great if they could think for themselves instead of waiting for human instructions? Humans are intrinsically slow to react and do not always make consistent, data-driven decisions. This leads to mistakes and loss of productivity.

For the digital revolution to happen, we had to figure out a way to feed data to machines and then have these machines process data and provide us with their logical conclusions. The invention of computers in the early 20th century allowed us to get this started. Therefore, we started feeding data to computers so that these machines would help us make appropriate decisions based on the data. For most of the 20th century, the computers’ data storing capacity and their processing power were simply not enough to do any tasks beyond that, digital transformation required them to do more. In the early 80s, when super computers were introduced, this looked possible. However, these machines were costly and too large and complex to be widely used. At the turn of the century, however, new techniques in chip manufacturing allowed the data storage capacity and processing power to increase exponentially. Organizations now had the volume of data, the storage capacity to store that data (either on premise or on cloud), and the processing capacity for organizations to start having conversation ‘digital transformation’ in relation to their organizations.

Digital transformation is simply automating processes and decision making with a high degree of relevance, reliability, and repeatability. This allows output with low error rates and high productivity.

We actually experience this in our GPS systems. When we put our destination address into our GPS and start driving, the GPS tells us how to reach our destination. GPS decision making is relevant, reliable and can be repeatable. Given those parameters, most of us simply follow instructions given to us while driving with confidence that we will reach our destinations. Error rates are low and it helps us to efficiently drive to our destination.

Extend this analogy to organizations, who are trying to do their digital transformation. In our example, for the technology within the GPS instrument and supporting satellite technology to work, streets and street names on the ground should be consistent and in sync with the data within the GPS systems.

As a result, for any organizations attempting to do their digital transformation without making sure that their streets and street names are consistent, this effort is bound to fail. Street input to GPS is analogous to business processes within the organizations. The business processes must be well defined, properly set in place, and consistent in all circumstances. Many organizations try to bring in technology without setting the business process in place first. This is bound to fail miserably and many invariably place the blame on the technology. No matter how much powerful of a GPS system you install, if you constantly change streets or street names you are bound to reach wrong destinations.

For any organization, digital transformation starts with laying out the proper ground work to ensure that you are following the best practices in your industry with regards to business processes and inter-communication. Well laid-out business processes and work-flows will pave the way for organizations to work, interact and prosper in the era of profound digital transformation. Organizations that do not take time to set business processes and work-flows in place will be subject to an inadequate or incomplete digital transformation journey.

Laying out business processes based on solid fundamentals is the most difficult yet crucial step. Usually, department heads would have set a process that works for them and their team very well. They would be delivering as expected, so management would be convinced not to break something that is working. However, if the current process is there because they always did it that way and it works well, organizations have a hard time to look into changing it. Yet if those processes are not based on fundamentally sound principles, they won’t be able to adapt to external influences due to market change, or customer preference and most likely those organizations won’t be able survive the changes.

At the MIT CIO forum, Dr. Jeanne W. Ross, the principal research scientist at MIT Sloan Center for Information Systems research, identified the following building blocks for organizations to undertake for their digital transformation journey. It is important to follow correct sequence and completely implement the block before taking on the next block. The following are the building blocks (ref: Dr. Ross) of digital transformation:

Block 1– Operational Backbone – ensure that there is a coherent set of standardized, integrated systems, processes and data supporting company’s core operations.

In other words, make sure your process and systems are standardized and in sync with your business core operations.

Block 2-Digital Platform-Single source of truth, repository of business, data and infrastructure components used to rapidly configure digital offerings

Software platforms available in the market like ServiceNow can quickly and efficiently help you build this block based on the best practices in your industry.

Block 3-External developer platform- Repository of digital components open to external parties

In other words, allow your internal and external customers to consume the digital components. With ServiceNow integrated to other systems, this block can be accomplished, albeit with some effort in configuration and integration.

Block 4-Shared Customer Insights – Organizational learning about what customers will pay for and how digital technologies can deliver to their demands

Built-in mechanisms for customer feedback and insights via digital technologies allow organizations to quickly assess and precisely deliver what the customer wants.

Note that in a truly digitally transformed organization, all this is delivered by computers and not by humans. Humans will have very little input and interaction; computers are letting employees know what customers want and guiding humans towards what they need to do for organizations to serve up those customer requests.

Block 5-Accountability Framework-Distribution of responsibilities for digital offerings and components that balances autonomy and alignment

In other words, humans and machines are working together as partnership with well defined responsibilities and a balance between autonomy given to computers to act on their own and to humans to ignore some computer instructions – as long as they align with the overall goal of providing the best possible service to customers. This should be well set and boundaries placed on autonomy.

When organizations implement all five of these blocks, they are truly digitally transformed. Then, organizations can run on auto-pilot with humans ensuring that proper route is being followed and take over controls in rough weather conditions. Digital transformation then truly helps organizations to achieve efficiencies and high productivity that would only be possible with the advent of digital economy. I think in about a decade (max 2 decades) those companies that undertake this digital transformation journey will flourish and prosper due to higher productivity and profitability and those who don’t will simply perish because they would not be able to compete in a market where digitization has pushed production prices further down (just like factories did in industrial revolution) and those who did not participate will not be able to match on pricing and quality.

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This piece was written by Raghu Nandan, President, Soltrix Technology Solutions, Inc.