- "Digital transformation is not just about deploying more digital capabilities. Digital transformation is about understanding a new business environment, opportunities and threats, and making the best use of technologies throughout the business accordingly."
Milestones in the history of structured IT departments are not well documented, but it is safe to say that modern IT departments started in mid 1990s, when the role of IT changed from supporting selected management functions to broadly supporting white-collar employees. In the last 20 years many things within IT significantly changed: technologies used and their roles, skill sets required, stakeholders supported (customers, partners, etc.) and expectations for performance. The only area that has been changing very slowly is: the role that IT itself plays in the enterprise. Even though CIOs are reporting that 41% of their time is being spent on business activities and that they are being evaluated by the value of IT to the business, the role of IT still predominantly consisted of supporting strategies that other parts of business created.
At the same time, technology is becoming a key part of many business areas and IT-related technologies are creating opportunities for gaining a competitive advantage, opening new markets and enabling new business models. McKinsey identified 12 disruptive technologies that will change life, business and global economy and the top 4 (Mobile Internet, Cloud Computing, Internet of Things (IoT) and Automation of Knowledge Work) are IT-related, with a combined estimated economic impact of $20 trillion per year by 2025. Other IT-related technologies, such as social, Big Data and analytics and different flavors of IT-enabled commerce are reshaping how companies are doing business and have created a new business environment: Digital Economy.
In order to gain a competitive advantage in Digital Economy companies need to take the next step in the evolution of IT and make it the core of the business, as opposed to just another management department. There are many signs that point out that making a drastic change in the role of IT is not optional, but inevitable.
When I say drastic change I am not talking about asking IT to support another business channel (mobile, Web, etc.), figure out how to get more value out of data or even CIOs having a more significant voice in the boardroom. I’m talking about a new organizational mindset that leads to new business strategies and models, major shifts in business processes and policies and a brand new approach for gaining a competitive advantage. This is causing the beginning of the end of IT as we know it and also the beginning of a next generation enterprise – Digital Enterprise.
Key characteristics of Digital enterprise include:
- IT-related technology as a core of the business. Transformation to digital enterprise is much more than just changing the role of IT. It is about creating an overall business strategy and organizational mindset around the use of technology throughout an entire value chain.
- Decentralization of IT purchasing decisions. Employees are increasingly asking to be able to select technologies that will make them most effective in completing their tasks.
- I2I (individual-to-individual) business approach. Digital transformation requires business leaders to revisit a fundamental question: What business are we in? Traditional approaches, such as B2C or B2B, are being replaced with an I2I approach through personalization of services and customer experiences and enabling employees to use technologies of their choice to empower this approach.
- New skill sets for both IT and business employees and leaders. Digital transformation is a major opportunity for IT professionals, but in order to take advantage of this opportunity they will need to develop new skill sets and shift a recognized trade-off between losing some of the control that they have now, while getting to have more impact.
- Five core organizational principles: agility, innovation, entrepreneurship, information driven, outward-focused. In order to successfully implement these principles organizations need to: 1) get a buy-in from all key stakeholders in the organization; 2) clearly understand the business benefits of digital transformation; 3) make significant changes to their business processes.
Digital transformation is not just another stage in the evolution of IT, but a revolutionary process that could come at a very high cost for organizations that will try to avoid it. There are many trends that point out that digital transformation and change of the role of IT is not only beneficial, but inevitable.
Why Digital Transformation is Inevitable
- A perfect storm of technology trends. With the proliferation of Big Data and Analytics, Cloud services and mobility and the emergence of IoT and technologies for the automation of knowledge work, one can argue that we are witnessing the biggest impact that technology is having on business since CERN made Internet generally available in 1993. For many companies, ignoring requirements of Digital economy would equal a commerce company that still doesn’t have a website.
- Competitive position. Gartner predicts that a lack of digital business competence will cause 25% of businesses to lose competitive ranking by 2017. Even though digital transformation is a complex process, for many organizations it is a step that they have to take in order to be relevant and competitive in a new economy.
- It already started. TRAC Research found that the impact of business users on IT purchases has increased over the last 12 months for 64% of organizations. Thirty-two percent of business leaders in Gartner’s recent survey reported that they have digital business. Many organizations are appointing Chief Digital Officers (CDO) as one of the key business leaders. Given that becoming a digital business could be a complex and lengthy process, organizations need to recognize that their competitors have already started this process and start developing blueprints for this transformation as soon as possible.
- Next generation workforce. University of North Carolina’s research shows that Millennials will make up 46 % of the workforce by 2020. Accenture’s study on Millennials’ use of technology shows that state of-the-art technology is a vital consideration in selecting an employer for 52% of Millennials in the US, while 66% reported that they do not abide by IT policies. As Baby Boomers are being replaced with a generation that was building websites in grade school, the choice of technologies that are being used across the enterprise is becoming more important for attracting and retaining top talent.
- Consumerization of IT. One can argue that from PCs, networking and smartphones the most disruptive technologies were first brought to the enterprise by the employees. IDG’s research shows that 82% of organizations have made a change as a result of the increased use of personal devices at work. Consumerization of IT goes well beyond BYOD initiatives and includes areas such as file sharing and collaboration, social networking tools, enterprise applications (CRM, talent and human capital management, financial management) and other types of cloud-based services. The most recent trend is gamification, which is the process of using elements of game playing for other applications such as customer engagement, organizational productivity or learning.
Digital transformation is not just about deploying more digital capabilities. Digital transformation is about understanding a new business environment, opportunities and threats, and making the best use of technologies throughout the business accordingly. Business leaders that try to avoid digital transformation will look like the CEO in the 1990s, who bought a computer and hired an IT guy to help his CFO crunch numbers, while his competitors have personal computers with ERP systems on every desk.