Transforma logo
Sign Up Login

Digital Transformation

 

The topic of Digital Transformation (DX) has been hitting the headlines in the technology world for the last few years. If reports are to be believed, every large corporation is going through a fundamental technology-driven change that will transform every aspect of how it does business. As is typical with new technology concepts, the truth is rather more complicated. IT has started to become, and will continue to be, increasingly strategically important to every sector: the core products of the organisation are being changed by new technology in meaningful ways. Think of how the internet changed retail. This type of fundamental technology-based change is coming to almost all industries, and it will radically shake up how they do business.

What is Digital Transformation?

Above all else, Digital Transformation (DX) is a useful umbrella term for a diverse set of technologies that can be applied in specific ways to effect a change in the way that an enterprise operates. Companies, despite the headlines, do not really enact a ‘digital transformation’. In reality it is shorthand for the adoption of specific technologies to implement particular capabilities which a company has identified as valuable for competitive differentiation, cost reduction, compliance or some other relevant business issue. This is likewise the case for most of the various technology hot topics, such as IoT or AI: the headline typically belies a narrow implementation aimed at solving a very specific need within the organisation.

It is worth noting that even the words

being used are unhelpful. Everything we do these days is digital, rendering the term meaningless. Furthermore, no enterprise should think of itself as undergoing a transformation. Success comes from adopting a permanent state of identifying and appropriately reacting to technological change, whereas the term ‘transformation’ implies an end point.

A spectrum of change

The first thing to note is that DX exists on a continuum of technology-driven change within enterprise, as illustrated in the figure below.

Transforma_Insights_DX_spectrum.png

Modernisation is characterised as the incremental application of new technologies in already existing environments, for instance deployment of new types of software container, or leveraging cloud infrastructure or software defined networks. It does not radically change business processes or value propositions, but the techniques to achieve the same results are upgraded. These can be very sophisticated endeavours but are not properly transformational in terms of business activities.

The first tier of transformation is Computerisation, which concerns rendering information from the analogue world to digital. Examples include analogue sensor readings, or even scanning physical documents. Computerisation is about using digital formats, but not necessarily changing associated processes. Next is Digitisation, which involves reengineering those corporate processes to use digitised information, for instance allowing employees worldwide to access and act upon the digital data mentioned above.

True Digital Transformation involves new business propositions, or the overhaul of operational processes in such a radical way that it gives a competitive advantage. This is often closely focussed on end user needs rather than being a simple iterative evolution of the existing products and services. At a macro scale, there is Digital Disruption, which is transformation at an industry level. At this level, technological change within the industry alters the market dynamics, radically affecting some organisations, for instance Kodak being overtaken by the advent of digital photography.

New technologies: IoT, AI, distributed ledger and more

The key enabler and driver of DX is the emergence of new disruptive technologies or the use of existing technologies in disruptive ways. It’s worth noting that even older technologies can become disruptive in certain circumstances, most notably where the price to implement them falls below a certain threshold, or they become significantly more user-friendly. One example is in publishing, which historically was owned by large publishing houses, but decreasing costs and the arrival of new enabling platforms have allowed it to become much more democratised with the likes of print-on-demand services from Amazon.

Transforma Insights considers Digital Transformation to currently comprise twelve families of new technologies, each of which incorporates numerous concepts that can be applied by organisations to improve th

eir prospects, as illustrated in the graphic below. Collectively they bridge the gap between the real and the virtual world and involve the handing over of autonomy from human to machine.

DX12.png

In some cases, the activity concerns sensing real world processes. IoT, for instance, is at its most basic level about a network of sensors converting the real world into data which can then be applied to other processes, or fed back into actions. The same is true of technologies such as Augmented Reality/Virtual Reality (AR/VR), which we include in the category of Human-Machine Interface (HMI), which senses human behaviour and blends it with data from the virtual world. Much of the latest generation of Product Lifecycle Management (PLM) is also concerned with taking real world data about the performance of products, and feeding it back in the form of, for instance, Digital Twins.

Other technology groups work in reverse, translating the virtual world into the real world. Clearly this is the case with 3D Printing, for instance. Autonomous Robotic Systems such as drone fleets can also be considered in this way: using the intelligence of the virtual world to control something in the real world, independent of human intervention.

The third category is those technologies that exist only in the virtual domain but convert processes previously undertaken by humans into those performed by machines. Artificial Intelligence, in all its diversity, is essentially intended to do this. Also, Robotic Process Automation takes manual human activity performed in the virtual world and replicates it to remove or reduce the need for human intervention.

As with Digital Transformation itself, the categorisation here is subject to questions of definition. IoT can incorporate multiple aspects of the other technology groups, and has an inextricable relationship with, for instance, Artificial Intelligence, enhanced PLM and robotic systems. Some would describe RPA as a small subset of AI. Furthermore, there are a number of our identified technology groups that are largely there to enable the others including Data Sharing, Distributed Ledger, Hyperconnectivity or Edge Computing.

The Transforma Insights framework aims to highlight those technology groups that have a direct transformational impact today. Beyond that there are a further set of technologies, such as graphene, quantum computing and nanobots, which we categorise as ‘Future Technologies’ that are not really being commercialised today but offer interesting opportunities in future and should be on the medium-term horizon scanning of any large organisation.

Transformational use cases

Technologies in isolation are irrelevant, they must be given practical applications. Accordingly, the second dimension of our research focuses on a comprehensive understanding of Transformational Use Cases. We categorise these under three headings: Business Efficiency (including the likes of customer behaviour analysis, workflow optimisation, and process automation), Data-Centric Business Models (including predictive maintenance, image processing, and bots), and Connected Things (covering diverse categories such as smart grid, autonomous vehicles, and smart speakers).

Every ‘Digital Transformation’ really involves the implementation of a series of different use cases that are relevant to the specific requirements of the organisation. A car manufacturer, for instance, will often focus on use cases such as factory automation, product lifecycle management and autonomous vehicles. A retail bank, in contrast, will typically be looking at systems optimisation, robotic process automation and new payment mechanisms. Which use cases are relevant will depend completely on the enterprise and its requirements and strategic focus.

There is a sliding scale of impact on the enterprise of the various digital transformation initiatives. Some have a relatively modest impact, often just focused on streamlining an existing process. For instance, a pallet-tracking use case will not radically transform the operations of an organisation. Similarly, an RPA application for simplifying the process of handling incoming invoices. They are very useful, and cost savings can be significant, but they are unlikely to represent a fundamental change in the organisation. Contrast that with other use cases, for instance a company that manufacturers industrial equipment shifting from selling the machinery outright to offering it ‘as-a-service’. The implications of this are substantial for how that company operates.

Digital transformation means enterprise transformation

Embracing the opportunities of new technologies and transformative use cases, particularly in the most sophisticated ways bringing the most significant impact, is about much more than just technology. Adopters must give ample consideration to the commercial and operational implications of deployment and make the appropriate changes within their organisations.

It is well known that the biggest barrier to implementing any Digital Transformation initiative is typically internal. They involve culture changes, new business models, new processes, different skills, and new partnerships, all of which can be challenging and need careful implementation through a considered change management process. At Transforma Insights we identify seven areas within the enterprise that will be affected by new disruptive technologies (IoT, AI etc.) and the various use cases facilitated by them.

7 changes.bmp

These areas are:

  • Process – Unless you’re doing something very wrong, DX creates new processes of some sort. At the very least it creates new data streams that have to be gathered, stored and used in some way. At the most extreme it necessitates a complete overhaul of how an organisation operates.
  • Business Model – The various use cases that live under the DX banner represent a spectrum of implications for organisations’ business models. In some cases, it’s a simple streamlining of existing processes, for instance automated meter reading which saves a utility from having to send someone to read the meter manually, or a port which can make substantial savings by relatively marginal individual gains in more efficient container handling. In other cases, it completely transforms the organisation and how it operates.
  • Finance – New business models often mean changing mechanisms and conventions for payments. Connected car services, for instance, provide an ongoing revenue stream for the car manufacturer, which is a great novelty. In others it represents a shift from selling a piece of hardware to selling it as-a-service. The latter business model has implications for the amount of debt on the balance sheet, with the seller no longer receiving a huge chunk of cash up front. There are ways of managing that, of course, but it certainly demands some consideration.
  • People – With the adoption of new technologies comes the additional requirement to have internal resources capable of managing them. While suppliers will help with the heavy lifting of implementation, there is still an underlying requirement for someone internally within the organisation to be able to work with the new technology. Demand for in-house data scientists, for instance, is booming.
  • Partners – Most organisations are going through a process to become more IT-centric. As Marc Andreesen, co-founder of Netscape, put it: “software is eating the world”. Every company is an IT company now. For most organisations this means working with a wide range of partners rather than, heaven forbid, create every aspect of their new capabilities in-house. Managing those partners becomes a task in itself.
  • Systems – It almost goes without saying that new DX capabilities introduce new systems, including data analytics and much more. These new systems need to be implemented, run and integrated with existing systems such as enterprise resource planning and customer relationship management.
  • Culture – Notwithstanding the practical changes required of systems and skills, there is also the potential need for a change in culture within the organisation. Shifting from selling products to selling services or harnessing a wide range of additional company data requires a culture shift to become more services- or IT-focused.

In addition to these seven areas, consideration must also be given to Change Management. It’s not so much an area in its own right, but it certainly requires attention. The idea that the transformations implicit in the areas outlined above will happen without substantial effort is hopeful, to say the least. What is needed is a formal change management process with dedicated resources.

A Digital Transformation journey

Above we have noted the technologies, use cases and changes that are implicit (to varying degrees) in an enterprise’s Digital Transformation. However, there are a huge range of things that need to be taken into consideration for an enterprise to implement a project successfully. Some of the key things that need to be considered as part of your Digital Transformation journey are as follows:

  • Prioritise. You cannot undertake every conceivable project. Prioritise based on objective assessment of the commercial impact on the organisation. Often the low-hanging fruit of process automation bring the best returns before more fundamental overhauls of the organisation should be considered. But such short-term initiatives should be consistent with long-term objectives.
  • Set clear objectives for the project. Do not try to implement a hazy grand concept of ‘Digital Transformation’, rather specific projects aimed at achieving a well-defined set of objectives. Projects must be couched in terms of improving efficiency, or some other similar impact, rather than ‘deploying AI’, for instance. Objectives should be communicated transparently across the organisation.
  • Involve the C-suite. DX projects that are led by a C-level executive are much more likely to succeed. DX projects are usually more than just IT projects and must involve input from all aspects of the organisation.
  • Run commercial and IT considerations in parallel. Every IT decision must be supported by an assessment of commercial value and the two need to be considered together. For instance, using AI for fault prediction of a particular component may prove a less effective or more expensive approach than simply replacing it with a more robust alternative component.
  • Have a structured change management process. Many DX projects will be transformational to the activities of the organisation. Consider every facet and include these in a formal change management programme. Depending on the scale of the project this might involve dedicated teams across the organisation.
  • Bring the workforce with you. Many projects involve substantial change to how the organisation operates, which results in anxiety in the workforce. Seek feedback from the team, particularly those that are customer facing. Clearly signpost the change process. Redefine individual workers’ objectives and communicate those early. Demonstrate the value of the change to the workers affected.

Who are the key vendors?

Once you have identified your Digital Transformation project, one of the key next steps is selecting your vendor partners. Transforma Insights’ set of Peer Benchmarking reports can provide invaluable assistance here in understanding the capabilities of the key vendors in a space. Nevertheless, the answer to “who is the right supplier for me?” will depend on your specific needs. Transforma Insights identifies six main dimensions against which buyers should measure DXSP propositions:

  • Phase – Is your project in the initial planning phase, or deep into mass implementation? This will dictate choice of vendors, particularly in terms of picking long-term strategic partners versus short-term suppliers.
  • Function – The ‘DXSP’ umbrella covers a range of companies performing a variety of roles, from the very strategic through to the very practical. Choice of which company to engage will, in large part, be determined by what the project requires. Consulting firms such as Accenture and Deloitte will be stronger at the strategy consulting elements, whereas IT services vendors such as Tech Mahindra and Wipro will be better placed for heavy-lifting systems integration.
  • Solution – Not all end-user solutions need to be developed from the ground up, and in many cases an end-user may find that there are vendors in the market that already offer the specific solution that they need, or something very similar. As more and more DX solutions become ‘mainstream’, the role of DX solution providers can only be expected to increase in the marketplace.
  • Capability – In cases where an end-user needs a solution of a type that has not yet become ‘mainstream’, then vendor technology capabilities are more relevant. Examples include any of the technologies identified above, and additional niche concepts such as VR/AR, physics-based modelling or geospatial analysis. Some vendors have stronger portfolios related to certain technologies. IBM, for instance, is a market leader in AI, while T-Systems is strong in areas related to connectivity. Probably any vendor can support any technology, but a vendor with an existing product and solution portfolio related to the project is generally preferable to one that is using an unfamiliar product or introducing a third-party partner.
  • Context – Some vendors specialise in different contexts, for example Industry 4.0, ERP integration, or servitisation. Such specialisations can be a relevant consideration, particularly in the case of more ground-breaking projects.
  • Industry – Enterprises should favour organisations with experience in relevant domains. Often utilities will favour different suppliers from retailers or financial services companies, for instance. By virtue of their heritage, some vendors already have particular expertise in certain verticals, e.g. Hitachi or Siemens in heavy manufacturing. Others might have experience of functions that cut across verticals, e.g. supply chain management.
six-criteria-selecting-dxsp.jpg

Related Content