Digital Transformation: Hype or a Strategic Necessity?
While the term digital transformation has become slippery and overused, it nevertheless remains a priority of many business and technology executives. In this blog post, Dr. Saša Baškarada, a senior transformation architect at Amazon Web Services (AWS) Professional Services, explains the drivers of digital transformation as well as its three interdependent stages. The resulting conceptual model may facilitate the construction of more effective transformation strategies.
Guest post by Dr. Saša Baškarada, Senior Transformation Architect, AWS Professional Services
The only constant in life is change.
Like agility, digital transformation is one of those overused terms that mean different things to different people and are at risk of becoming meaningless. That is rather unfortunate, since, like agility, digital transformation is a fundamentally important concept that is critical for continuing success in today’s dynamic business environments. For that reason, please allow me to indulge in a little conceptual clarification.
The need for digital transformation is driven by increasing competitive pressures due to the accelerated emergence and proliferation of new digital technologies. While digital technologies may help you create new value, reduce risk, and optimize operations, they also increase the threat of new competitors (by lowering the barriers to entry) and substitute products or services. At the same time, technology-savvy customers are changing their expectations and behaviors. No industry is seemingly immune, as evidenced by the disruption to the hotel industry caused by Airbnb and the disruption to the financial services industry caused by various buy-now, pay-later platforms, just to name a few.
Drivers of Digital Transformation
Digital transformation is especially relevant for established enterprises that are being forced to reinvent their legacy operating and business models. An organization can leverage digital technologies to improve existing, or develop new, capabilities that may allow it to gain a sustainable competitive advantage by creating and capturing more value as well as by potentially entering new markets or industries. For instance, Nokia has successfully reinvented itself several times over the last 155 years, from its humble origins as a single paper mill to a leading multinational telecommunications corporation.
Digital transformation is equally relevant for public sector organizations that focus on improving citizens’ experience of government services through digital technologies. Similarly, born-in-the-cloud digital native businesses, which depend on the quality and speed of their innovation, cannot afford to stand still and need to engage in continuous transformation.
Below, I describe three interdependent stages of digital transformation: technological, operational, and strategic. While the below description is linear (moving from left to right), in reality, you may be forced to tackle multiple stages at the same time by moving from right to left. For instance, competitive market pressures may force you to urgently reinvent your business model in a strategic transformation. This would force you to operationally transform by reinventing your operating model, which in turn would force you to technologically transform at the same time.
Stages of Digital Transformation
Ideally, the first step on your digital transformation journey is to retire your existing technical debt. This may include migrating your workloads to the cloud and modernizing your legacy technologies. Although technology focused, this step will also require some changes to your existing IT capabilities and operating model. Resulting business outcomes may include reduced cost of ownership, improved IT staff productivity, improved operational resilience, and greater technical agility. Experience shows that migrating from on-premises systems to cloud-based AWS leads to 31% average infrastructure cost savings, 62% more efficient IT infrastructure management, three times more features delivered per year, a 69% reduction in unplanned downtime, and 43% fewer security incidents per year. Having retired your technical debt, your attention should now shift to optimizing your business operations.
Once you have retired your technical debt, you should optimize your enterprise operating model and become a data-driven organization. This may include leveraging new data and analytics platforms to create actionable insights and improve customer experience or using machine learning to automate your business processes. For example, you may wish to focus on improving your customer service experience, employee productivity and decision-making, business forecasting, fraud detection and prevention, industrial operations, and the like. Although this step will likely be significantly more complex than a technological transformation, as it involves enterprise-wide changes, the resulting improvements in operational efficiency, effectiveness, and agility will likely lead to outsized business outcomes. While operational transformation may help increase your productivity, given the continuously evolving business environment, you may also be forced to reevaluate your overarching business model.
Once you have retired your technical debt, optimized your operations, and become a data-driven organization, you may wish to reinvent your business model. Business model reinvention is a strategic exercise that reconsiders how you create customer value and capture the resulting profits. This may include leveraging digital technologies to enter new markets or industries and may be of particular relevance if your current business model has become unsustainable. Conversely, strategic transformation may not be a priority if your current business model is not under threat. Any changes to your business model are likely to require new or improved business capabilities, which in turn drives the need for further operational and technological transformation.
Continuous Digital Transformation—A Strategic Necessity
As technological innovation shows no sign of slowing down, we can expect that the need for continuous digital transformation will likely become even more pressing over time. The ultimate objective is to become strategically and operationally agile so that continuous transformation becomes part of your modus operandi.
About the Author
Dr. Saša Baškarada is a Senior Transformation Architect at Amazon Web Services (AWS) and the global lead for the AWS Cloud Adoption Framework (AWS CAF). Prior to joining AWS, Saša spent 10 years as a science and technology executive at the Australian Department of Defence, and another 10 years as a university academic and researcher. Saša has published extensively on a broad range of topics, has a PhD in Information Systems and a BIT(Hons) in Software Engineering, and is currently completing a master’s degree in Public Leadership and Policy.