AWS Cloud Enterprise Strategy Blog
Digital Transformation: The Why, Who, How, and What – Part 1, “The Why”
Digital transformation is the process of using digital technologies to fundamentally change how an organization operates and delivers value to its customers. It involves the integration of digital technology into all areas of a business, changing how the business operates and how it delivers value to its customers. This process can be challenging and disruptive, but it can also provide significant opportunities for organizations that are willing to embrace it. In this blog series, my colleague Gene Shadrin and I will delve into The Why, Who, How, and the What of Digital Transformation and will provide guidance on how to succeed. – Tom
Technology is often disregarded as the solution to business problems, held back by overpromises, siloed mindsets, growing technical debt, and the failure of large, all-or-nothing, monolithic projects. COVID-19 changed our priorities, habits, and needs; and further magnified many of these shortcomings. Simultaneously, customers are continuing to raise their expectations of the technology they use in their everyday lives. They have grown accustomed to using applications like Netflix, Uber, and Airbnb; and they expect their governments, banks, schools, and employers to offer the same integrated digital experience. To meet these expectations, successful organizations are including digital transformation as a key enabler of their business strategy. According to Deloitte, 85% of CEOs accelerated their digital transformation strategy since the pandemic.
But what does it mean to be digitally transformed? Haven’t we been using technology and computers for well over thirty years now? Digital transformation is more than the latest idea driven by the technology department. It is the integration of new digital technologies and cultural changes into a business to fundamentally reimagine how to improve customer journey, to digitally optimize operations to become more efficient, and to capitalize on new business models. In fact, by 2025, IDC—a global market-intelligence firm—projects that global spending for digital-transformation efforts will reach $2.8 trillion.
Digital transformation is also not just implemented once or purchased from a partner. Instead, it is a change in the overall behavior of the entire organization supported by a series of ongoing and enabling projects. As such, it is much more complicated than many might consider.
This four-part blog series will cover the why, who, how, and what of digital transformation and explain why it is important for your organization. We will share where we have seen others struggle and what best practices you can use to ensure digital transformation succeeds in your organization.
Improving the Customer Journey
An outstanding customer journey is critical to the sustained growth of the business. A positive customer experience helps you retain customers, promotes loyalty, and encourages brand advocacy. The transformation of the customer journey starts with a deep understanding of the customer’s needs. At Amazon, we call this working backward. Through this process, organizations have captured and analyzed data to better serve their customers. New, multi-experience solutions (e.g., touch, voice, gesture) can meet customers where they are by providing digital solutions that integrate into their daily lives. McDonald’s transformed and personalized the drive-thru experience for its customers with recommendations based on various factors, including the location, time of day, and content of past orders. Fashion companies now offer virtual fitting of their garments via virtual reality (VR) and mobile applications to allow customers to shop from home. Many local governments have created services to automate payments or to notify drivers about available parking spaces.
Digitally Optimizing Operations
Digitally optimized operations ease friction in the organization, leading to improved productivity and reduced risk – which are critical success factors to drive desired business outcomes. Digital transformation optimizes operations in two ways: first, through the capture, analysis, and subsequent insights gleaned from the growing data within organizations; second, by using technology to automate and integrate existing processes.
Information processing has transformed into mostly real-time data capture and insights, enabling faster insights and decisions. For example, condition-based maintenance—informed by the real-time health of manufacturing equipment—can avoid costly and unnecessary repairs performed during proactive maintenance. Japanese manufacturer AiSIN AW avoided costs associated with extended downtime when the artificial intelligence system they designed detected abnormal conditions in their manufacturing process. The system passed this information to front-line workers in real-time, who could take immediate action.
New Business Models
Developing new digital business model enables your organization to rapidly emerge and move into new markets, expand your brand with new and existing customers as an innovator, and uncover and form partnerships. The growth in the use of mobile devices, ubiquitous connectivity, and the availability of compute platforms through cloud computing is creating new business models. For instance, automotive companies have started using data as a product by capturing, analyzing, and selling driving data to insurance companies.
At its simplest level, business-model innovation starts with a traditional business process and supplements or extends that process using new digital technologies. As an example, the state of Rhode Island’s Department of Labor and Training built an online information dashboard and intelligent chatbots to improve transparency and provide more holistic unemployment support instead of requiring residents to go to multiple applications and websites.
Next, we come to a new way of doing business—the digital business. Think of car sharing disrupting car rental, or location-based connected services disrupting offline services, or the metaverse disrupting multiple industries; from gaming and fashion to manufacturing and sales.
Keys to digital transformation success
Broadly speaking, there are six things digitally transformed companies have in common:
1/ Clear, business-driven digital transformation strategy supported from the top down
Your digital-transformation strategy needs to be grounded in business value, not done for technology’s sake. Do it because you have a specific business opportunity or need, and digital transformation can help meet that need; do not implement digital transformation because it seems that you should or because your competition is doing it. Digital transformation is not an addendum to your business strategy; it is the means to achieving your business strategy.
Given the importance and pan-organizational impact digital transformation has, digital transformation must be supported and understood. Often we see that the senior executives of an organization don’t know what it means to be “digitally transformed,” and that starts with being clear on the ‘why.’
2/ The whole company is involved in digital transformation: it’s not just a technology project
Digital transformation should not be relegated to just the technology team. It must involve the entire company, from HR to sales and marketing, to product development, through operations and finance. We are aiming to transform the business with technology. Technology is just a tool to enable that transformation.
3/ Digital transformation is an overarching and ongoing activity and not just a project
Digital transformation requires fundamental changes to how things currently and historically have been done; it is not something that an organization can purchase, nor is it something that a business can implement only to move on. Transformation requires more than standing up a team, listing requirements, and producing status reports. It requires honest self-examination, self-assessment, and goal-setting that looks in new directions.
4/ Embrace an organizational culture that tolerates experiments and errors
High-performing organizations foster a culture that tolerates mistakes. They understand the need to experiment and try new ideas rapidly to meet customer and market demands, but there are bound to be ideas that don’t work. As Andy Jassy, CEO of Amazon Inc., says, “Invention requires two things: the ability to try a lot of experiments, and not having to live with the collateral damage of failed experiments.”
5/ An openness to changing ways of working
Actual transformational change comes from reimagining existing processes enabled by new technology and not implementing a digital twin of an existing process. The idea is to use technology to transform a service into something significantly better.
6/ A desire to invest and an appreciation of a learning culture
Digital transformation requires new skills. Not just new skills to learn how to implement and operate new technologies but also new skills around agility and product development, new business models, and new ways of working. Successful organizations see this and invest broadly across their organizations in developing those skills.
The second blog in this series focuses on ‘The Who’ and brings to light the organizational, culture, and people changes necessary to support digital transformation.