Pros and cons of digital transformation

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Pros and cons of digital transformation

Why digitising processes and customer interactions is vital for your business – and how to avoid the traps.

You may have heard the term many times, but what can digital transformation actually do for your business? For newcomers, we’ve previously explained what digital transformation is. In this feature, we explain its benefits – and also some traps for the unwary.

If you're not convinced of the importance of digital transformation, consider this: it is expected to add $45 billion to Australia's GDP by 2021 – and increase the nation’s growth rate by 0.5 percent annually – according to Unlocking the Economic Impact of Digital Transformation in Asia Pacific, a report produced by Microsoft in partnership with IDC.

Benefits cited by the 100 companies surveyed in Australia included improvements in profit margin and productivity, reduced costs and increased revenue from new products and services.

“Australia is clearly on the digital transformation fast track. Within the next four years, we expect to see an additional $45 billion of Australia's GDP derived from digital products and services,” said Microsoft Australia managing director Steven Worrall.

“At the same time, organisations are increasingly deploying emerging technologies such as artificial intelligence as part of their digital transformation initiatives, which will accelerate growth even further.

“However, it's important to note, transformation is about people as much as it is about technology. The top two barriers to digital transformation cited in the study are strongly anchored in an organisation's ability to empower their people and transform their organisations to take advantage of the opportunity that digital transformation represents.”

Improving customer satisfaction

Another reason for thinking about digital transformation is the role it can play in customer satisfaction.

Illustrating this, the Commonwealth Bank recently won the major bank category in the 2017 Roy Morgan customer satisfaction awards, “in particular by strength in mobile and internet banking satisfaction,” said Roy Morgan Research CEO Michele Levine.

“Consumer banking satisfaction remains near historically high levels – and this can often be tied to the satisfaction derived from 'frictionless' service.”

It was a similar story in the telecommunications and utilities sector. Amaysim took the gong for most satisfying mobile phone provider, and CEO Julian Ogrin noted: “We know that one of the most popular and unique Amaysim features is that we empower our customers to move between plans at the touch of a button, giving them access to our latest and greatest plans.”

Levine observed: “In this age of 'frictionless', perhaps the most satisfying thing these providers could do is minimise – as close to zero as possible – how much their customers need ever think about them. This includes when things go wrong, or when they need to move house, modify a plan or query a usage charge.”

And when it came to the retail categories, "in these times of technological upheaval, economic uncertainty and increased competition from the seemingly endless influx of internationals (Amazon, Debenhams, TK Maxx in the last year alone), retailers need to be adaptable and prepared to meet change head on,” she said.

“But not everything is in flux: the importance of customer satisfaction remains a cornerstone of retail success, and our winners clearly understand this.”

Next: four digital transformation traps to avoid

Four digital transformation traps to avoid

Avoiding digitisation is not a viable strategy, but neither is harnessing the power of digital without a robust game plan, according to Benjamin Pring, co-director of the Centre for the Future of Work at IT service provider Cognizant.

Pring pointed to a recent study which found that digitisation within some Australian sectors is lagging behind the US and other global counterparts. The study noted that the full value of digital within Australia was yet to be realised, and whilst overall technology adoption is high, Australia is not up to par when it comes to reaching and influencing consumers on digital channels.

The study showed there is disconnect between digital intentions and digital outcomes for Australian businesses.

Pring said that businesses aiming to digitise must take care to avoid the following four pitfalls in order to cement their success and reach today’s disparate consumer base.

'Doing digital' versus 'being digital'

The superficial use of digital technology can be just as damaging to an organisation as not using digital at all, Pring warned.

For example, putting a mobile front-end on an existing application is a cheap, low-risk option, but it should only be considered as a first step on a longer journey. Small digital milestones in no way mean your business is on the true path to digitisation.

Merely ‘doing’ digital means implementing a new technology and expecting it to seamlessly integrate into the rest of the organisational infrastructure, and deliver new results. What businesses need is to be digital, which involves rethinking and re-architecting the entire supporting business model to be digital, with underlying digital principles, not industrial ones, he advised.

Imitating top companies

Many have attempted to mimic the digitisation models of some of the world’s most successful companies, including Facebook, Netflix, and Amazon. On an intuitive level, this makes sense: they are, after all, the bastions of digital innovation and have pioneered success on a level most only dream about. So many organisations find themselves thinking “how can we be more like Amazon?”

This question is now especially pertinent given Amazon's recent Australian launch.

The danger in imitating these companies outright is that circumstances vary so much – different industries, different starting places in the digital journey, and different target destinations. The founders of Amazon, Facebook, or Google built digital companies from the ground up, shaping the current environment in which businesses now operate. According to Pring, businesses now embarking upon digitisation journeys are already playing catch up and need a different approach.

But there are lessons that businesses can learn from these top companies, he said, including:

  • Understanding the new customer expectations regarding simple, personalised, seamless online customer experiences
  • Placing a high importance on data analytics to drive business objectives
  • Using AI at scale to power efficiencies within organisations

Taking an 'all in' approach to digital

Many highly ambitious teams will choose to go ‘all in’ on digital, rolling out plans to fully digitise and overhaul processes in a short amount of time, but Pring has two objections to this approach.

Firstly, it tends to eliminate a metrics-focussed measurement and evaluation stage, replacing it with a scattergun approach to project selection.

Secondly, best practice often dictates keeping initial projects relatively small and then gradually building on successes.

So he advocates identifying small but strategic changes that can have big consequences. For example, identifying flaws in key processes and devoting the best materials and talent within the organisation to amend this will kick-start a process of digital success. Reducing these pain points through automation, digitisation, or data analytics allows businesses to apply digital solutions in highly targeted ways.

Denying digital

Thinking your business will be immune to the influx of digital change is a risky path to take, Pring said.

He noted that as recently as five years ago, Borders, Blockbuster and other retailers were incorrectly conceptualising their businesses.

They defined and marketed themselves as physical retailers that sold books or rented DVDs. If they had taken the idea of digital transformation onboard, they would have seen themselves as book and DVD providers that needed to take on the relevant form for their particular markets. They didn't, and the rest is history.

Digitising business should be a serious organisational priority, advised Pring. There are a multitude of ways to digitise successfully, he said, and the right teams will be able to clearly identify and circumvent the many pitfalls that can emerge along the way.

Benjamin Pring is co-author of What to Do When Machines Do Everything: How to Get Ahead in a World of AI, Algorithms, Bots, and Big Data.

Where to next

Digital transformation is just as important for small businesses as is it for large organisations. Forthcoming Business IT articles will show how modern, integrated systems can significantly improve productivity by transferring routine low-value tasks from humans to software, and increasing customer satisfaction by providing them with accurate up-to-date information and making it easier for them to buy your goods and services.

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