Published in May-Jun 2023
In today’s world, technology is the determining factor of success for any business everywhere in the world. Once seen as an enabler, technology is now a critical driver for businesses, large and small, and a necessary element in their survival. In this highly tech-dependent era where everything is becoming digital, ‘innovation’ is key if businesses are to grow. However, for innovation to take place and at scale, organisations must move towards digital transformation. Gone are the days when companies could rely on one-off tech project implementation to cater to a business need. Today, they have to take technological advancements and business development in parallel.
What is digital transformation? Before we move on to understanding the concept of digital transformation and how businesses are adopting it, it is important to understand the basic difference between the three terminologies that people often tend to use interchangeably: digitisation, digitalisation and digital transformation.
Digitisation is converting analogue information into digital format. For example, scanning documents or entering data into spreadsheets is digitisation, as digital tools are used to save data in a digital format. Digitalisation, on the other hand, is a layer on top and involves the streamlining of business processes through automation, using the power of technology. Using Enterprise Resource Planning (ERP) and Customer Relationship Management (CRM) software to make core business functions more efficient and effective falls under digitalisation. Digital transformation is the overarching, all-encompassing, broader concept that calls for changes at the organisational level with technology at the root of it. Rather than removing complexities at the project or process level, digital transformation takes a leap forward and calls for change at the organisational level – from structure to culture to operations and processes. It happens when companies embed technology across all horizontal functions and verticals in their businesses and often results in building new capabilities and creating new business models.
Why is digital transformation so important? Efficiency, agility, growth, fast responsiveness to change and, above all, customer satisfaction. Before Covid, digital transformation was largely centred around enhancing customer experience. The pandemic pushed organisations across industries and sectors to accelerate change. This resulted in digital transformation becoming the nexus of operational efficiency and innovation. The next question is, if there are so many advantages to digital transformation, why are a large number of businesses still not adopting it? What is holding them back? The answer is that bringing digital overhaul at the organisational level comes with its share of challenges at the process as well as human level. Efforts to digitally transform an organisation cannot be accomplished without a well-planned implementation strategy. The core of digital transformation lies in unlearning and relearning – taking a new approach and changing the way things are done, using technology as an enabler. Be it creating new business processes, developing teams, cultures with new values and norms, or identifying new ways of enhancing customer experience.
In the developed world, large companies are injecting millions of dollars to bring in digital transformation. Yet, a large percentage of them fail mainly because they are focusing on a specific technological change, rather than an overall change in approach at a strategic level to facilitate the absorption of that change. A large proportion of companies go wrong by implementing tech initiatives as a set of disconnected efforts within the IT department rather than envisioning how the tech changes they introduce will impact the entire spectrum of business from end-to-end.
Digital transformation calls for aligning technology initiatives with business strategy. It calls for taking on board the people working within the organisation, making them understand the benefits and taking away their fear of losing their job because of technology. It calls for a mindset shift not just at the management or at a lower level, but at the top. As per a study published by the Boston Consulting Group in 2021, only 35% of the 950 companies surveyed were able to successfully implement digital transformation.
Implementing digital transformation: Executing transformation at an organisational level cannot happen effectively without proper planning and strategy. Below are some areas that businesses that intend to digitally transform must address at a strategic level.
1. Putting technology at the core of business strategy. This approach will bring in operational efficiency as well as possibly change the business model, and scale it.
2. Realigning business operations with what customers and employees need and how technology can help in the process.
3. IT Uplift. Digital transformation starts with upgrading the company’s IT infrastructure so as to increase employee efficiency, lower tech maintenance costs and increase customer satisfaction.
4. Digitising operations. This means simplifying existing processes and often comes in at the initial stages of the digital transformation journey. At a small business level, this can involve simple changes, such as replacing manual activities with digital. At a larger scale it can involve creating a new architecture for the entire system to meet customer needs.
5. Implementing a flexible tech architecture supported by modular platforms and adopting new ways of working to ensure agility and keeping up with the pace of changing customer expectations.
6. Avoiding reliance on any one technology, but keeping processes flexible in terms of core technology, to allow for continued innovation and sustainability.
7. Reimagining the role of technology as a business and innovation partner, rather than a standalone business process.
8. Flat organisational structure to avoid delays in decision-making due to hierarchy, and ensuring agility.
9. People and change management. This requires upskilling people in terms of technological as well as human skills, building human capacity, people change management at the leadership level, and a cultural shift to encourage change. This means training teams to communicate better, increasing trust levels within teams, redesigning roles and responsibilities and exploring ways through which technology can enable knowledge sharing. Most importantly, leaders must empathise with employees, recognise their fears of being replaced by technology, reframe their mindset and convince them that the digital transformation process is an opportunity to upgrade their expertise. This means taking an ‘inside-out’ approach. To overcome resistance, leaders should involve the teams in the process, take their feedback, teach them their strengths and how they can contribute to business growth by using technology as an enabler.
Implementing digital transformation: Despite the challenges involved in effecting digital transformation in a business, there are solid examples of companies that successfully implemented transformation and experienced hyper-growth as a result. Ikea and Nike are noteworthy examples. Both companies made use of digital channels, AI and predictive analytics to establish an omnichannel presence, target prospects and enhance customer experience. Both companies have set new standards for shopping experiences in their own domains, leveraging the power of digital. End result? An increase in brand loyalty by a multiplier effect and a fast-paced growth in business.
Large businesses or can small businesses? No matter the size of your business, customers will always demand convenience and a better experience, and small businesses can begin their journey and reap the benefits. It can simply begin by conducting an internal need-gap analysis, identifying the areas that need changing, leveraging data analytics by using online tools and harnessing the power of digital marketing.
Are Pakistani businesses ready? Digital transformation is the need of the hour; however, a mindset shift is a pre-requisite. Although moving towards digital transformation in the current economic situation may appear like an added cost, in the larger scheme of things, it is an investment that will pay off in the form of increased efficiency and decreased cost. A risk-averse approach has been a common hurdle in business transformation in Pakistan, especially for family-run businesses and SMEs. To succeed bold decisions need to be taken at a strategic level and business leaders need to understand that the present economic state of affairs is an opportunity for them to adopt digital transformation to sustain themselves and eventually scale.
Today, technology is not an enabler but a determining factor in the success of any business. Pakistani businesses must recognise this and adopt a globally validated transformation process to strengthen the country economically.
Nabeel Qadeer is CEO, DirAction.