What is Digital Transformation

8 min readJun 24, 2020

Business environments are constantly changing, and those who stand still risk falling behind their competition. In times of economic turbulence this is even more important, and the companies who have either led the transformation in their sectors or kept pace, are more likely to have broader options and a greater resilience.

But what is digital transformation?

MIT best defines digital transformation as “adopting business processes and practices to help the organisation compete effectively in an increasingly digital world”.

This transformation allows companies to use new digital capabilities to become more effective and, or, offer entirely new products and solutions.

The term “business transformation” is misleading, and often infers an immediate and singular step to achieving change. In practice, digital transformation will be an incremental process. Comparing the start and endpoints of a process will highlight the progress achieved, but the results won’t have been reached overnight.

A present example of this can be seen in the most recent SpaceX launch, which saw a private company shuttle two astronauts to the international space station for the first time in history. The world took note of the sleek and modernised rocket interior compared to the previous missions we have seen — a noticeable achievement of this voyage. The image below was widely shared on social media and is seen as an example of “Digital Transformation,” which it was. Rather than being a singular and instantaneous transformation, this level of modernisation was achieved over five decades, with continuous development and revisions, allowing each incarnation to develop from its predecessor.

Rather than seeing digital transformation as an overnight event, it’s more helpful for businesses to view digital transformation as an ongoing process. They can also use it as a spectrum to assess their progress relative to others; Each company will have its unique starting point along this spectrum, and will progress at different rates along it, to achieve their individual transformations in-line with their own company goals.

Building on numerous surveys and case studies of failures and success in several industries, we breakdown digital transformation into four layers:

Strategy
Infrastructure
Processes
Applications

Digital Strategy

The first step in digital transformation is understanding why you want to transform, and clearly defining the benefits and objectives that you seek. Defining ROI criteria is essential to avoid scope creep and ensure the project delivers the intended results.

Looking at the various surveys carried out by McKinsey, Forrseter, PwC, BDO, Accenture and PTC (which we list at the bottom), most companies have started their digital journey, with 60% — 70% of firms developing their digital strategies.

Of those that have started to develop their digital strategies, the top business outcomes they are aiming to achieve are to:

Improve operational efficiency
Reduce business risk and improve digital resilience
Improve customer experience
Pivot an existing business model
Differentiate products and services

In addition to defining goals, companies need to plan their implementation strategy carefully. There are many case studies of companies who have failed to implement their digital strategies successfully.

The most common reason for digital transformation initiatives failing are human factors, where employees have not fully adopted new initiatives.

There are several explanations for this:

1. The changes make things more difficult for employees to do their jobs, and they resist the change

2. Lack of leadership to support the overall programme and manage its roll out

3. Poor communication in explaining the reason for new initiatives, resulting in a lack of buy-in from employees

4. Lack of skill and Training on the new methods being used

For most, digital transformation will be evolutionary, rather than an immediate one-off change. There are tiers of digital maturity which facilitate the transformation process. A business matures and moves from one phase to the next, increasing their digital capabilities.

Digital Infrastructure

The next phase for most companies implementing their digital strategies will be getting access to current and validated data. It’s the single most crucial step in implementing a digital strategy.

Companies will look to capture existing data into their systems, as well as implementing new applications and systems. Integrating legacy and new data together, will allow them to capture and analyse the right information to achieve their goals.

Lack of interoperability with legacy systems is a commonly cited cause of failure for digital initiatives.

In some industries such as e-commerce, data is business-critical — without digitised workflows and processes, companies simply can’t compete. For other sectors, digital transformation offers operational efficiencies and greater resilience. However, businesses with relatively low levels of digitalisation can still operate.

In those industries, the most significant barrier to change has been the cost to clean, validate and digitise data. Thankfully, AI data analytics solutions are coming to market, which dramatically reduce the cost of data capture, making data capture an automated and repeatable process.

Digital Processes

With a digital infrastructure in place, the next phase is ensuring the business has the right combination of processes, workflows and skills established to ensure data remains current.

After spending significant time and money on validating their data and making it accessible, a high risk that businesses then face, is do they have the right skills and processes in place to keep it that way?

For most, it’s during this phase that the change is most harshly felt. Traditional ways of operating change, instigating cultural change as well as operational change.

To handle this change and ensure it’s embedded, companies need to recruit new employees with different skills. For example, Oil & Gas companies are employing both Data Scientists and Cybersecurity experts. Furthermore, the number of roles with the word “Digital” in the title is increasing.

While the most significant barriers to digital transformation are fears around cybersecurity, the biggest causes of failure are human factors.

It’s human nature to be wary of change and for employees to be fearful of losing their jobs. Employee pushback can seriously undermine a digital strategy. Therefore, it is vital for companies to:

Clearly articulate the vision
Support and lead change from the Executive level
Communicate well with employees
Bring in new talent

Without the data infrastructure and processes, it’s difficult for companies to implement digital applications. Without access to data, or the trust that underlying information is correct, employees will revert to traditional and more familiar ways of working.

Digital Applications

The final phase of the digital transformation process is implementing the applications, programs and dashboards, which allow the business to operate differently.

This helps the company to deliver on goals such as:

Improving operational efficiency
Reducing business risk and improving digital resilience
Improving customer experience
Pivoting an existing business model
Differentiating products and services

AI applications promise valuable data-led insights, and software vendors are promising quick plug-and-play data analytics. It is tempting for companies to leap ahead and implement the top layer of digital applications before they have the foundations in place, meaning they haven’t built an adequate level of digital maturity across the business to handle these applications.

The risks in doing this are principally around trust. AI is still fairly new to businesses and there has been much debate around black box AI systems. AI algorithms are created by humans, and it’s easy for unintentional biases to be built into the decision processes of the algorithm. Black-box AI systems in particular, make it difficult to audit the decision-making process.

During late 2019 there was much debate around Apple’s new credit card, and whether its algorithm gave women a worse credit score than men. We’re still building our trust in these systems and, as a result, many predictive maintenance platforms used in Oil & Gas companies ensure the issues they identify are validated manually.

Moving too quickly undermines the perceived value. If an AI analytics tool can identify an issue, but the underlying data or systems don’t exist within a company to validate that issue, then confidence is lost, and it’s the employees who still have to do the work to find a resolution.

For example, imagine your local garage had a tool that could diagnose the health of your car and predict an issue. Having identified the issue, if they then couldn’t tell you whether they had the relevant part to fix it, how long it would take to fix, or how much it would cost, then chances are, you would go elsewhere. This is because their systems aren’t integrated to provide you with the full picture and resolution.

Overwhelmingly, the success of digital transformation is linked to the applications and insights created from business data. The analytics layers are the most visually impressive, and are the most demonstrable part of digital transformation, as we saw from the recent launch of SpaceX rocket. Despite this, companies need to implement a structured and repeatable transformation program.

Once companies have implemented their first digital initiatives, they can build on this by extending this further. Companies can repeat the process by extending their digital strategies, infrastructure, digital processes and digital business applications.

For most businesses, digital transformation will be a continuous process, but rather than playing catch-up, they can evolve their business in-step with their markets.

In Summary

While the term “digital transformation” suggests a singular dramatic change, such as when we contrast pictures from different space programs, the reality is that the change is continuous; companies continuously mature and evolve.

Digital transformation isn’t easy, and there are several steps that all companies need to go through to create value. If digital change programs are implemented with purpose, supported by the leadership teams and achieved collaboratively with all company stakeholders, businesses can create significant advantages.

About the author

Les is the Founder of Lighthouse Analytics, a fast-growing, premium research & advisory firm focused on Digital Transformation.

Les is an industry expert with over 20 years of experience within the industrial and technology sectors. He regularly consults with Private Equity firms, investors and funds who are looking to learn more about the Industrial Technology sector. Les, originally a Chemical Engineer, has hands-on experience in Executive leadership, strategy and M&A roles, and has a comprehensive understanding of the Industrial Technology markets.