Digitization is about standardizing business processes and results for cost savings and achieving operational excellence. In essence, this is about "disciplining" how business processes run and how the business "operates" in the backend. SAP, PeopleSoft and other monolith ERP platforms have already helped pave the way for more digitization, but are not enough. Something else has popped up, call "Digital" - which is about creating digital for customers, not for efficiency.
Digital is an adjective. It refers to a large number of powerful, accessible and potentially disruptive technologies, such as social media, mobile, cloud technology, analytics, the Internet of Things (IoT), cognitive computing and robotics. It also refers to the transformation that companies must undergo to take advantage of the opportunities that these technologies create. A transformation around Digital means that the full value proposition of the company is reviewed, not just its activities. A digital company innovates to deliver improved products, services and customer engagement.
Many CxOs think of Digital as advanced digitization, such as improving the customer experience through mobile technologies or implementing IoT to improve business operations. But "Digital" goes way beyond "digitizing."
Businesses must become Digital today to compete in a world where both end-users and business customers expect products and services to meet their specific needs on-demand, anytime and seamlessly across all channels. In many industries Digital therefore is a pure necessity to remain relevant. Digitization is of course an important precondition for Digital, but even 100% digitization does not make a company a Digital Enterprise. They are interconnected, both bring significant change, but are different and have different strategic consequences for an organization. First, let's look at digitization.
Digitization means a focus on business processes
The benefits of digitization are significant: improved customer interaction, realizing operational excellence, predictability of product and service quality and improving business productivity. Digitization is an essential activity in companies. Disciplined and standardized business processes ensure the accuracy and certainty of core transactions and back office processes. They make data accessible and reliable. Without digitization, companies cannot cope with the complexity of extensive product portfolios, they cannot personalize services and are not scalable.
Unfortunately, most companies have greatly underestimated the challenges of digitization. In many cases, organizations have dedicated themselves to digitization initiatives, of which they think these initiatives will bring change "by themselves" and render value. However, many organizations do not see that digitization has a fundamental impact on how people work and what it requires from the corporate culture. That is why digitization initiatives are often much more expensive than expected and with far fewer short-term benefits than hoped for.
Only a limited number of well-known, established companies have been digitizing successfully. This is an issues as companies must first be digitized before they can become Digital. Without fundamental digitization of business processes, management's attention remains completely absorbed by what is conventionally going wrong in the company today. There will be no headspace for innovation and CxOs therefore do not have - or will not get - the resources to invest in a digital transformation.
Digital is putting the customer first and transforming the value proposition
To become Digital, leaders must first formulate a visionary digital value proposition. This value proposition should help validate how digital technologies can improve or change the existing purpose, abilities and capabilities of an organization to create (new) customer value. Digital is therefore not only the introduction of mobile apps for customers. It is a strategic topic and gives the opportunity to redefine a company and perhaps even create completely new industries and markets.
Large, long-standing companies already started defining visionary Digital value propositions some time ago. It is almost always about offering a "customer / user experience" instead of pure product quality.
Adidas used to provide quality shoes, now the brand helps you to live a healthier life by integrating your sports activities with mobile apps and online fitness coaches. BMW used to make high-end cars, it now provides an intelligent driving experience with total connectivity. These companies clearly took risks but their efforts paid off well.
Organizations must consciously work on their Digital propositions in order to pursue a digital vision and become "Digital" and to build concrete, digital propositions that provide clear value for the customer. The results are growth in sales and margins, improved customer loyalty and other and indirect strategic benefits, such as attracting talent, making further growth possible again.
Get to work
Successful companies will all be Digital (generating customer value) and highly digitized (to provide scalability and efficiency). Although companies still have problems with internal digitization, it is now clearer what it means and how to tackle it. It simply is a difficult exercise that requires expertise, the right tools, time and perseverance. ``
Digital, on the other hand, is much less well understood. Defining a digital, customer-centric value proposition that attracts customers who are willing to pay for added value is often more art than science. Here are five tips that we can give you if you want to digitally transform, both customer-centric or with the emphasis on business processes:
1. IT cannot be ultimately responsible
This is a business transformation and is not an IT responsibility. If you think the CIO will realize it, the chance of success is zero.
2. Involve IT in the creation of the vision and in the strategic planning
Important barriers to the digital transformation are the corporate culture and embedded organizational structures, but the most determining factor is the flexibility of your legacy IT systems. Even though the transformation is not the responsibility of the CIO, by working out the vision and roadmap integrally and together with IT, options and steps become clear.
3. Work with architecture
If you would not add a new room to your home without consulting an architect, make sure you have an enterprise architect that allows you to understand the impact of Digital on business components such as roles, structures, processes and systems. Stop thinking about architecture as an "IT" area and use architecture as a business tool.
4. Be persistent and patient
Understand that you will have to invest time and money in your digital initiatives, just like venture capital companies invest in innovative companies in the longer term. The cost savings with digitization were fairly easy to follow. The new income from digital initiatives is probably not coming as fast.
5. Co-create with customers
Unless you know exactly what customers want, you must work with them to determine your approach. It will take a while to get into the rhythm of a digital enterprise bringing value to your customers. It takes even longer to identify, build and reuse business components so that new digital solutions can be easily configured and deployed.