We have reached an inflection point where business success will be determined not just by sound business thinking but by the use of technology to execute on that thinking in an optimal fashion. Digital transformation is all about thinking and imagining how business models and processes are affected by the application of technologies that, up until a few years ago, were nonexistent in the business world or deemed cost-prohibitive.
It is a challenge to pin down exactly how advanced business transformation is in the modern economy. But a 2016 survey from Vanson Bourne and Dell suggests that, at the time, only one in three businesses had implemented elements of digital transformation. Just three years later, IDG’s 2019 State of Digital Business Transformation(registration required) suggests 93% of traditional, established businesses — and 89% of startups — are putting in place digital business plans.
Of course, there is no standard definition for digital transformation. The Vanson Bourne study defines digital transformation as being able to innovate in an agile way, predict new opportunities, increase transparency and trust, offer personalized experiences, and be always on in real-time.
More Than One Definition
A research report from Forrester (paywall) defines digital transformation as:
• A focus on customer outcomes. Digital transformation increases business velocity and customer engagement by monitoring customer outcomes in real-time. This may also enable the servitization of product-based business models so a customer can, instead of buying the product itself, buy the outcome the product provides.
• The reinvention of business models and new revenue opportunities with digital technology at the core, often with the realization of new business models, arises from new business opportunities not possible prior to digital transformation.
When we define digital transformation like this, we see a great deal of it has already taken place in industries like manufacturing.
My company’s 2018 study of manufacturing transformation, for instance, reveals that manufacturers have dramatically shifted from make-to-stock manufacturing to a to-order approach. This change is highly dependent on the adoption and full exploitation of company-wide planning and execution systems like enterprise resource planning (ERP) to match inventory and capacity to anticipated demand in real-time. Study respondents claimed they are three times as likely to engineer products to customer orders as they were in 2011.
In all, 80% of manufacturers in our study are now engaged in to-order business models. What is even more interesting is that, while models like engineer-to-order or configure-to-order have been associated with business-to-business companies, including industrial manufacturing, we see food and beverage manufacturers and other consumer companies involved as well.
What this means is that ERP technology has already helped these companies respond faster to inbound demand and start manufacturing processes the day of an order and sometimes even ship that same day. That was unheard of years ago.
Of course, ERP has enabled digital transformation for sectors outside of manufacturing, but these industries have not adopted ERP as thoroughly. Respondents also included oil and gas extraction, mechanical contracting, telecommunications, aerospace and aviation. Twenty percent or more of these overall respondents said their enterprise software could incorporate data from internet of things (IoT), be opened up as a web service to outside users and be used through a mobile-friendly interface — evidence of fairly advanced digital transformation.
What Is Next?
ERP has already quietly delivered digital transformation, enabling a manufacturing evolution toward to-order business models. The next round of change will be more disruptive and overtly digital, driven by IoT and artificial intelligence (AI). A different study my company conducted focused on how companies are budgeting for digital transformation. Most funded projects, though, focus on more proven technologies, including mobility and analytics.
Analytics may seem like yesterday’s news, too, but the democratization of analytics drives change as users can configure their own data cockpit to display the real-time information required for their specific jobs. This puts more information in the hands of frontline employees, enabling faster, distributed decision making that still reflects the concerns of the business.
Are you able to keep pace with these rapid changes? To make sure, why not conduct a quick audit of:
• Business processes that are a constraint to your success along with the enterprise systems that touch each process.
• Processes that define and differentiate your business and the enterprise system each process touches.
• The different pathways your enterprise software offers for data to enter the system from mobile or connected devices, customers or suppliers.
You may use what you discover to eliminate barriers to improved customer experience, scale and expand upon current customer experience successes, launch a new product or service offering or even servitize an existing product-based business model.
The time to ask these questions and implement transformational technologies is right now. The budgeting study revealed that only 5% of respondents planned to reduce their budgets for digital transformation. Just over half say their digital transformation funding will increase in the next two years.
Perhaps most remarkable is that companies who report being behind the trend (digital transformation laggards) are 6% more likely than other respondents to plan budget increases of 10% or more. Companies that are behind are making investments so they can gain ground against their competitors.
So digital transformation has already happened. The next surge of digital transformation is already underway, and companies that ride the wave will surge ahead while those sitting out will be left behind.