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Executives continue to believe that they need to engage in digital transformation if they want their businesses to succeed.
For example, a “KPMG 2023 CEO Outlook” survey of 1,325 CEOs found that respondents saw advancing digitalization as a top operational priority to achieve growth. Such a finding indicates organizational leaders understand that transformation isn’t just a project to accomplish, but a continuous business activity to pursue because it delivers real value.
What is digital transformation and why is it important?
Digital transformation (DX) requires the infusion of internet-based tools and technologies into a company’s processes. This lets an organization meet and anticipate the wants and needs of its customers, the market, its employees and, indeed, all its stakeholders.
As such, DX requires more than digitalizing processes or modernizing an organization’s technology environment; it calls for a continual reimagining of how the business can best engage, interact with and support its customers using digital technologies.
“Digital transformation is a means to an end. It is a means to business capability. It is a means to create business capabilities,” said Michael Schrage, fellow with the MIT Initiative on the Digital Economy. “Digital transformation should be in service of business key performance indicators, business outcomes and for how the business holds itself accountable for profitability and growth.”
That’s why some executive advisers and management consultants have started using the term digital business transformation.
While there’s nearly ubiquitous C-suite support for pursuing transformation, many organizations have reported mixed returns from their transformation efforts to date.
A separate 2023 KPMG survey of 400 U.S. technology executives found that while 51% of respondents haven’t seen an increase in performance or profitability from DX investments, 56% saw returns on their DX investments that exceeded expectations in the following areas: improving efficiency, increasing employee productivity and enhancing customer engagement.
Despite the mixed results, executives remain committed to transformation, seeing it as an essential factor to stay in business. In its 26th “Annual Global CEO Survey,” PwC found that 39% of the 4,410 CEOs who responded don’t believe their companies will be economically viable in a decade if they stay on their current path; that figure jumped to 59% when CEOs were asked to look out beyond 10 years.
What are the benefits of digital transformation?
That executive outlook on the criticality of transformation isn’t without merit, as many digital transformation programs are delivering results.
Conversely, those expected benefits continue to drive DX priorities.
According to the “2023 State of Digital Transformation” report from TEKsystems, the top 10 reasons why executives pursue transformation initiatives include the following: improved customer experience (40%), improved efficiency (38%), business process transformation (38%), modernization of IT infrastructure (35%), increased innovation (31%), improved cybersecurity (29%), improved employee experience (24%), introduction of new business models/revenue streams (23%), increased speed to market for existing products and services (22%) and introduction of new products and services (21%).
Organizations engaging in transformation initiatives often measure the success of their digital initiatives against various business metrics, just as they would measure the ROI of more conventional projects.
Although the expected ROI for DX programs varies from one program to another and one enterprise to another, experts said there are multiple benefits — all interrelated and interdependent — an organization can expect from its DX efforts.
Those digital transformation benefits include the following:
1. Increased efficiency and productivity
Digital technologies deliver gains in efficiency and productivity by speeding up processes and streamlining operations.
Technologies such as robotic process automation and AI, including machine learning, consistently demonstrate an ability to outperform humans by multifold factors in both speed and accuracy.
Meanwhile, business intelligence software and data analytics tools can collect and analyze data at a speed and accuracy unmatched by humans. Workers can use that analysis to help them make decisions faster than they could without advanced technologies.
“The economic potential of generative AI: The next productivity frontier, ” a 2023 report from global consulting firm McKinsey & Company, quantified the benefits these technologies deliver, noting experts estimate that approximately half of the work activities that exist in 2023 could be automated by 2060. The report also noted that generative AI could “enable labor productivity growth of 0.1 to 0.6 percent annually through 2040, depending on the rate of technology adoption and redeployment of worker time into other activities.”
Moreover, by “combining generative AI with all other technologies, work automation could add 0.2 to 3.3 percentage points annually to productivity growth.”
2. Better resource management
As companies transform, they’re replacing legacy systems serving individual business units with modern IT architectures designed to consolidate processes and seamlessly enable the flow of data across all departments.
Experts said this end-to-end digital technology approach has helped CIOs and other executives eliminate duplicate and superfluous technologies, as well as associated costs. Furthermore, on-demand computing resources and as-a-service platforms have helped organizations optimize their technology spending by providing as much computing capacity as needed in the moment versus paying for excess capacity to handle rare peaks in usage.
Efficiency and productivity gains aren’t limited to the IT environment; they’re found throughout the enterprise. Ramesh Vishwanathan, practice senior director at TEKsystems Global Services, pointed to the use of digital technologies in agriculture as a prime example. Vishwanathan explained that the use of data, analytics, intelligence and geospatial systems can inform farmers of the exact amounts of fertilizers, herbicides, pesticides and water they need, as well as where they’re needed and when.
3. More resiliency
Organizations that embrace digital technologies and build a digital culture to celebrate change are able to quickly adapt to shifting market forces, whether it’s the quick rise of ChatGPT or dramatic social and economic upheavals like those caused by COVID-19.
Companies, nonprofits and other organizations committed to transformation can better weather normal business ups and downs, as well as larger and once-in-a-lifetime disruptions, because they’re continually shedding technical debt and modernizing both their IT environment and processes, explained James Brouhard, director of consulting and professional services at IT services provider FNTS.
Additionally, their pervasive use of digital technologies, particularly cloud computing, delivers built-in redundancies and elasticity that further resiliency.
4. Greater agility
Digitally savvy enterprises have the ability to not just react to change but to capitalize on it, DX experts said.
As Brouhard explained, transformation programs force organizations to modernize their legacy cultural and technical debt, both of which were designed for stability and, thus, require a long time to change. In doing so, these organizations can adjust more quickly, for example, by using cloud resources to rapidly scale up or down based on needs.
Similarly, their move to modern software development methodologies such as DevSecOps and Agile enable better collaboration among teams and let them rapidly create and roll out new features and functions to satisfy market needs as they evolve.
5. Improved customer engagements
Digital transformation calls for becoming customer-centric, Schrage said.
Consequently, digitally mature organizations have learned to innovate by first asking how they can better serve their customers through new products, services and experiences and then determining what digital capabilities will let them deliver those in a “faster, cheaper, better and more agile” manner, he said.
Those organizations “design from the customer or client experience in” as opposed to making design decisions based on their technology assets, Schrage explained.
That work is supported by digital technologies that let businesses collect, store and analyze customer data so they can learn more about their customers. Companies can use data analysis and AI to gain greater insights, allowing them to create and offer products and services tailored to the unique preferences and needs of each customer.
“Digital puts a lens on your customer experience and making that experience as seamless as possible for the customer, so that [the company] can retain or build its market share,” said Joan Smith, managing director and global solutions lead
at Protiviti Digital.
6. Increased responsiveness
Digitally transformed organizations have better customer engagement initiatives, so they’re better able to anticipate evolving customer requirements and changing marketplace dynamics.
“Companies are leveraging technology to change the ways they create and deliver a value proposition to their customers,” said Bryan Throckmorton, global digital strategy and transformation lead at management consulting firm Protiviti.
7. Greater innovation
Digitalization creates new opportunities for companies across all industries to develop products and services they couldn’t create previously. Examples include tool companies that offer online services to match contractors with customers and personal gym equipment that delivers virtual on-demand exercise instruction.
“New technology solutions enable organizations to innovate their business models, opening up avenues for diverse revenue streams,” explained Kamales Lardi, author of The Human Side of Digital Business Transformation and CEO of Lardi & Partner Consulting. “For example, a car manufacturer might introduce a subscription-based model for electric vehicles, offering charging maintenance and periodic upgrades as part of the package, thus creating a recurring revenue model.”
8. Faster time to market
One of the biggest digital transformation benefits is a shortened product lifecycle, as companies can lean on modern technologies such as digital twins, which virtually replicate environments, and modern processes such as analytics for insights and decision support to rapidly test, pilot, iterate and launch.
“It’s about how fast you can go from ideas to putting ideas into the world,” said Sheldon Monteiro, chief product officer at Publicis Sapient, a global digital transformation consulting company. “If it took you months or years before, transformation can help you reduce [that timeline] to weeks, days or hours.”
9. Increased revenue
Although studies have found that executives don’t always see the ROIs they anticipated from their transformation efforts, research has confirmed that digitally mature companies do see a boost.
The June 2023 “Digital Maturity Index Survey” from professional services firm Deloitte Digital reported that digitally mature companies achieve 6% more earnings before interest and taxes.
Similarly, a 2023 study by McKinsey & Company found digital leaders outperformed digital laggards in several financial metrics, including total shareholder returns.
10. Continued relevancy
When done right, transformation initiatives give organizations the ability to rapidly identify customer needs, marketplace trends and new opportunities and quickly pivot to meet them.
That capability, experts said, keeps organizations, regardless of industry, not only in business but ensures their long-term competitiveness.
But those organizations that lack that capability might not survive. “When my customer wants a certain thing, and I’m not providing it, then why am I in business?” asked Raja Ranganathan, chief growth officer at Randstad Digital.
11. Encourages employee excellence
A July 2023 survey commissioned by SaaS company 10x, found that 94% of surveyed product managers in the banking industry would leave their jobs to work for a bank with better tech; 92% would leave for a bank with more ambitious transformation goals.
DX experts said that research, although focused on only one industry, reinforces what they’ve seen across sectors: Employees want to work with leaders, not laggards.
Moreover, Smith noted that organizations engaging in transformation are changing internal processes and employee experiences as part of their efforts, giving their own workers not only an incentive to stay but the digital tools — such as automation and AI — to help them be more effective and innovative in their roles.
That, in turn, further helps boost retention. “Improving employee experience allows you to retain folks,” Smith said, an especially important benefit in a tight labor market.
12. Improves future digital growth
One of the biggest benefits of a successful digital transformation effort is its ability to propel an organization to further success, DX experts said.
“It helps keep you competitive, improves your ability to move forward and instills the mechanisms for more innovation,” Smith said.
Successful DX efforts, Brouhard said, are “a force multiplier. With digital transformation, you have an opportunity to bring parts of your organization together that haven’t historically worked together to achieve something great not just for one [department or function] but for the entire organization,” he said. “And you’re creating relationships that otherwise wouldn’t have existed, giving those people a common goal to meet and giving them the opportunity to innovate into the future.”
Mary K. Pratt is an award-winning freelance journalist with a focus on covering enterprise IT, cybersecurity management and strategy.