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What is Digital Transformation?

Over the course of the end of the 20th century and into the start of the 21st century, one cannot deny that the world has been  completely reshaped and transformed. One of the key ways to stay successful as a business is to constantly stay up to date with customer needs.  with the digitalization of our world, many companies are choosing to tackle customer challenges through their own digital transformation. This allows them to stay up to date in their market while also moving past their competition with their own innovation and better servicing their current and potential customers..

Consider Netflix’s origin compared to their current business model. When Netflix started in 1997 as a video rental service, they became so popular they rivaled Blockbuster and pushed Walmart to create their own nearly identical service. Netflix had been wanting to offer an online video-on-demand service, inspired by YouTube, even before the data speed and bandwidth capabilities existed. Once the technology was available, Netflix decided to focus more on their streaming service, first launched in 2007. Netflix’s digital transformation disrupted the video rental industry and caused DVD sales to drop from 2006 to 2011. Today, Netflix is available in 190 countries with 139 million subscribers worldwide, while Blockbuster has just one remaining location.

Today, 40% of technology spending will go towards digital transformation, accumulating to about $2 trillion through 2019. With so much capital going towards a change in company culture, it is worth taking the time to understand what digital transformation means and why it happens.

Digital transformation is a cultural change in an organization that marks a rethinking in how digital technology is integrated in an effort to change business performance. This change occurs across all departments of an operating business. In a survey of 460 executives, 62% said they had a digital transformation initiative in place, and 54% of them said their initiative is transformational to their business, while the remaining 46% said their objective was optimization. Whether a business wants to completely change its objective or simply improve their current functions, digital transformation aims to upend company habits in an effort to improve performance.

Digital transformation occurs for two main reasons; as an attempt to shed outdated processes and technology and/or as a reactionary response to market disruptors. For example, in the healthcare industry, 80% of clinicians reported that they still used hospital-provided pagers. While pagers (you may know them as beepers) have some positives in a hospital environment, their clunkiness causes poor communication since they can only receive messages and not send them out. Sprint’s need to compete with giants such as Verizon and AT&T led them to adopt an open-source software to read through data generated by logs, emails, etc. to gauge their performance. Previously, each application’s team monitored their own software performance. These efforts increased digitization of customer service by 200% and increased new phone sales through Sprint’s website by 300%.

Uber’s introduction shook up the transportation market by popularizing the ride-share format. This intrusion has created a problem for taxi companies, public transport, car rental agencies, and other transport services as customers see Uber and similar ride-sharing services as either cheaper or faster. This has led to Uber’s rivals trying to incorporate a similar ride-sharing program or other services Uber can’t offer into their business models, such as bikes and scooters.

Along with the digital transformation comes a natural shift in a company’s culture and what role CIOs and IT play in the company. In the 2018 Harvey Nash CIO survey CIOs of companies that were classified as digital leaders said that their top three priorities were “Developing innovative new products, delivering stable IT, and enhancing customer experience.” While the latter two fall into the traditional realm of IT the top priority whole new concept for this field. Gone are the days when IT would just help run the servers or mainframe. Now the job is to be at the center of the innovation within their companies. Having this change in mindset for CIOs and IT department is key to a digital transformation. Essentially they are now becoming responsible for generating revenue for the company.

However, the most important thing to remember is that while IT does have a lot to do with the transformation, digital transformation needs to be embraced by every person in the company. As digital transformation’s goal is to improve the company’s performance through optimization or transformation, the employees must accept this new policy in order to implement those changes at their level. Without every person in the company supporting and adapting to this change, the digital transformation can not be successful.

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