How to create a robust digital transformation strategy

Organizations are increasingly investing in digital transformation as a way to maintain or grow a competitive advantage. Organizations implementing successful business transformations are more likely to grow their existing businesses, eliminate silos, create revenue growth and business models and reinvent how they handle their operations.

A tried-and-true way to approach digital transformation is to understand the relationship customers have with the product and the brand, where that relationship currently falls short, and how it can be improved. Organizations then benefit from looking at industry and technology trends to better decide how to deliver the best possible customer experience to existing and prospective customers.

A digital transformation journey involves the introduction of new technologies—and business processes related to those technologies—to optimize customer experience and improve relationships with other stakeholders.

According to McKinsey, digital transformation helps disparate organization functions collaborate in new and productive ways. The result is nearly always the same. Digital leaders saw returns on “tangible equity, their P/E ratio, and their total shareholder returns materially more than digital laggards.” Why? There are several reasons why digital transformation and business strategy are so closely tied together:

1. Changes in customer habits and preferences

Organizations must respond to customers’ increasing pain points and needs. Customer expectations have changed since the pandemic began and organizations must change to meet them. Digital transformation often creates opportunities to establish new business models and create new products, revolutionize user experience, and help an organization embrace modernization.

2. The rise of advanced digital technologies

Technological developments improving organizations include automation, quantum computing and cloud computing, artificial intelligence, machine learning and the Internet of Things (IoT). The right technology creates an opportunity to create new digital solutions and improve operational efficiency. It also enables an organization to better respond in real-time to competitive challenges.

3. Increased competition and business pressures

Existing organizations are under pressure from digital-first startups and other established organizations that have quickly embraced digital transformation initiatives. To maintain their current business value and hopefully grow, organizations must take transformation into their own hands to establish new capabilities as a bulwark against competition and fuel for growth.

Digital transformation is top of mind for so many organizations and executives because it can contribute to important business outcomes and create increased adaptability in a hyper-competitive marketplace. But what is a digital transformation strategy and how does an organization successfully execute it?

1. Secure executive-level buy-in

Digital transformation projects are unlikely to succeed if they are not endorsed and driven by executive leadership. There is a reason why digital transformation is often a key component of change management: it completely alters how a business operates. Some leadership teams may need guidance on how digital transformations, which incur upfront and ongoing costs, contribute to business goals and ultimately drive value.

One way to understand digital transformation is to remember it not only pushes a business forward to achieve future goals, it also protects them against competition that is likely undergoing a digital transformation process as well. An organization’s CEO, for example, must work directly with the CIO and other executive suite members to plot how digital transformation will affect their departments, so the organization has a complete picture of what changes will occur and how it will improve the organization’s standing.

2. Understand the impact

One must understand that digital transformation is as much an organizational or business transformation as it is a technological one. Comprehensive digital transformation creates a significant cultural change. It addresses workflows to create greater efficiency. It introduces technologies that will fundamentally change employee ways of working, often reducing manual processes while enhancing their decision making and the value they bring.

For example, digital transformation may introduce a suite of digital tools that enhance their decision making. It may replace spreadsheets and word-processing files with centralized online portals, forcing employees to change how they work. However achieving that balance usually requires training and re-orientating many processes, which some long-standing employees may find difficult. That’s why it’s incredibly important to communicate the value of the digital transformation successes and encourage employees to help shape the roadmap to make them successful.

3. Treat digital transformation as a never-ending process

Digital transformation is an always-on process. There is a beginning, but no ending, to a successful digital transformation. Organizations that engage in digital transformation will routinely discover new ways to improve, must consistently assess how the process is going, identify which new technologies and external forces impact it and course correct when necessary.

4. Map out what success looks like

While digital transformation does not have an end date, individual initiatives within will have milestones and goals. As an example, organizations may move from a telephone-based customer service to a digital innovation like chatbots or knowledge-base wikis. By doing so, they should expect resolved customer service issues and customer satisfaction to improve. If the organization is encountering issues with legacy technology, it may need to prioritize application modernization. In doing so, an organization should expect downtime and security incidents to decrease, driving increased efficiencies.

5. Obsessively track results

Every successful digital transformation involves the establishment of key performance indicators (KPIs) and the rigorous tracking of metrics. That way, the organization understands where they’ve had successes and where they’ve fallen short. Any successful digital transformation must include a robust data analytics component to accurately track successes.

For example, if an organization is looking to improve customer satisfaction, it should benchmark Customer Satisfaction (CSAT) scores and Net Promoter Scores (NPS) before and after the digital transformation. If it is using digital transformation to change its digital marketing strategy, it should track metrics like return on ad spend (ROAS) and cost per acquisition. By doing so, the organization can ensure the digital transformation is producing results and driving value.

6. Embrace the ecosystem

Digital transformation creates digital capabilities that can create unlock partnerships within ecosystems. For example, organizations that enable APIs can share real-time information and data with partners to better serve each others’ end customers. For example, an e-commerce organization that pulls in APIs from several payment processors can complete sales with customers regardless of what payment option they prefer.

7. Find the right partner

Digital transformations are complex, time consuming and often require an organization to step out of its comfort zone. They have a better chance of succeeding if they include the right partner who can using tried-and-true levers to help unlock maximum value.

According to a report from the IBM Institute of Business Value, digital transformation is a powerful tool for any organization looking to improve its relationship with customers and better adapt to an ever-changing world. While digital transformations require investment and ultimately change how an organization conducts its business, there are many benefits if done correctly. Those organizations that succeed at digital transformations will stay ahead of the competition, drive better relationships with employees and customers and be better prepared for what may come in the future.

Emerging technology and social forces are creating new customer experiences that result in changing expectations and demands and disrupt business models. IBM Consulting’s professional services for business help organizations navigate an increasingly dynamic, complex and competitive world by aligning digital transformation with business strategy to create competitive advantage and a clear focus on business impact.