Digital transformation: 3 formative steps
Digital transformation is everywhere; it has become a true container concept. Beyond the dogmas, however, there is a way for companies to structure this transformation in order to build a future in the new economic order.
Criticized for their slowness, companies and institutions are constantly under pressure from the media, influencers and public authorities to carry out their digital transformation. This can lead to magical thinking: train your employees on social media! Give them tablets! Create a digital department! Switch to e-commerce! Move to San Francisco! Go into startup mode! In such a fog of buzzwords, often perpetuated by the potential leaders of this transformation, it can be challenging to move forward. This frequently leads to adopting a symbolic strategy driven solely by communication objectives.
There is, however, a way of structuring this transformation, breaking it down into steps that allow companies to build momentum and track progress, while learning and developing the skills and culture necessary to build a future in this new economic order. Digital transformation can be broken down into three major steps:
The first step calls for integrating technology into the way the company does business. In short, this means continuing the same activities while optimizing them through the use of technology. Adding e-commerce, digitizing customer service, expanding online communications, improving methods and internal processes through technology…this type of initiative contributes to strengthening a company’s performance, while changing neither its offer, nor its long-term strategy. In the insurance sector, for instance, this involves everything from allowing clients to subscribe online, to managing contracts and claims through digital interfaces, to developing a company presence on comparison websites and social media, etc.
2. Improvement through technology
The second step focuses on improving the offer and core business of the company; in other words, beginning the company’s transformation without yet changing its business model or disrupting market conventions. During this phase, the company takes advantage of technological opportunities: opening new markets, developing new offers made possible by technology, exploring related sectors and business activities, organizational changes and bringing the company up to speed digitally. Whether a retailer opens a marketplace, or an insurer launches a reputation protection service or fits vehicles with a black box to offer rates based on actual kilometres travelled, the opportunities for growth are many, and impact the company’s strategy and business model up to a certain point. This progress, however, still relies on existing market conventions, and does not attempt to re-evaluate the company’s core business.
In order to face the challenges posed by newcomers, companies must go further, reconsidering their core activities and business model in view of the real needs of individuals, This is the strength of digital disruptors. It involves reassessing the way the company does business in order to identify its unique capability or skill, its core competency. In the case of insurers, it is their actuarial skills that make them indispensable: quantifying risk is a unique and highly useful competency. Next, companies should study the needs of individuals, placing more emphasis on their core business than on market conventions: for insurers, exploring the connection to risk, rather than to insurance products. This is how disruptive innovation, the ultimate goal of digital transformation, is born: a radically new offer, digitally driven and based on the real needs of individuals, regardless of market conventions.
Digital transformation is, in reality, a business transformation made necessary and possible by technology. Necessary, because individuals have new needs and new expectations. Possible, because technology allows companies to offer unprecedented and lucrative responses to these needs.
It is indeed time for companies to take an active approach to digital transformation. Many have already launched initiatives, but few have a long-term vision of the business revolution they must carry out, and how much sustained effort lies ahead. Taking inventory of these initiatives and categorizing them to better understand the role they play is an important first step.