Product School

Why Digital Transformation is Essential for Business Growth

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Author: Product School

February 29, 2024 - 10 min read

Updated: March 1, 2024 - 10 min read

All companies today are tech companies. The adoption of new technologies is part of the strategy underlying most business operations. A plant grows in two directions: it sprouts stems and leaves and reaches for the sun at the same time that it digs roots into the soil. In the same way, digital transformation allows businesses to grow in two directions. 

  1. Up and out: Digitally enabled products and services that improve UX, increase stickiness, and maximize revenue. 

  2. Down and deep: Operational efficiency that accelerates processes, enables cross-functional collaboration, and supercharges productivity. 

There are so many directions to grow in that sometimes companies find they lack the nutrients they need to maximize performance. In order for digital transformations to be successful, it is important to put people first and create enthusiastic digital change agents who have the resources they need to flourish.

Blog image: Tree showing digital transformation

Seamless integration of digital technologies

There is a lot of emphasis on adding, changing, and updating technology in a “seamless” way. It’s interesting how the idea of seamlessness that was so important during the last major technological shift, the Industrial Revolution, continues to inspire technologists today. The circular knitting machine, also known as the circular loom, was invented in the 19th century and allowed for the continuous production of tubular fabric, which could be used to create seamless garments or garments with fewer seams. This technology significantly impacted the textile industry by increasing efficiency and the potential for mass production of knitwear. Gone were the uncomfortable stitches that chafed and were inefficient to produce. 

Similarly, when businesses look to incorporate new technologies into their business operations, they are looking for efficient solutions that don’t chafe employees, customers, or suppliers. Harnessing emerging technologies such as artificial intelligence, machine learning, and big data analytics, can unlock new opportunities for innovation, reduce costs, and deliver superior customer experiences.

Companies prioritizing not just their business model but also the underlying operating and technology models that support it, stand to gain markedly. According to PwC, by focusing on supporting operations with technology, companies enjoy a performance premium — the combined effect of profit margin and revenue growth, adjusted for industry — that is over 13x that of their peers

Long-term strategic shifts over short-term gains

The emphasis on operational efficiency and technology does not merely translate to short-term gains. It positions companies to be more adaptable and responsive to future disruptions and market shifts. By building a robust digital foundation, businesses ensure that they are not just surviving but thriving in the digital era, ready to capitalize on new opportunities as they arise.

In essence, the journey towards digital integration is not just about adopting new technologies; it's about reimagining how business is done. It's a strategic move that requires commitment and a clear vision, but the potential rewards in terms of performance gains and cost savings are substantial. As highlighted by the PwC findings, the path to achieving these benefits is through a comprehensive approach that aligns the business model with the operational and technology models that enable it, thereby unlocking unprecedented levels of efficiency and growth.

Blog image: PwC survey digital transformation

Overcoming Workforce Challenges in the Digital Era

At the center of any successful transformation is people. As companies adopt emerging technologies, they often encounter hurdles related to collaboration, skills compatibility, and organizational culture. These challenges, if not addressed, can impede the integration of new technologies and the realization of their full potential.

Cross-functional collaboration makes complex solutions possible

Collaboration breakdowns are one of the primary obstacles in the digital transformation journey. In an environment where interdisciplinary teams and cross-functional cooperation are crucial, siloed operations can significantly hinder progress. Effective collaboration is the backbone of innovation and problem-solving, especially when integrating complex digital solutions that impact multiple facets of the business. Ensuring that communication channels are open and that teams are aligned in their objectives and methodologies is paramount for a smooth transition to new digital practices.

Product managers are, by definition, cross-functional, sitting at the crossroads between business and technology. For this reason, product managers must be empowered to promote continuous improvement in terms of collaboration. 

Lack of skills hinders adoption

People can only use the tools they know how to use. Just as importantly, teams need to understand why they should invest their time in learning new skills and know that they are supported by the organization as they reskill and adapt. Employees’ performance might even lag in the short term in order to achieve the long-term adoption that an organization needs to survive. 

The rapid pace of technological evolution means that the skill sets required yesterday may not suffice tomorrow. This evolving landscape demands continuous learning and adaptation from the workforce. Organizations must invest in training and development programs to equip their employees with the necessary skills to leverage emerging technologies such as artificial intelligence, big data analytics, and machine learning. This not only involves technical skills but also the ability to think critically and adapt to new ways of working.

Moreover, a risk-averse culture can stifle innovation and slow down the adoption of digital initiatives. The KPMG 2023 CEO Outlook report highlighted that 40% of the challenges in transformation progress stem from a culture that fears taking risks. This apprehension towards change can lead to missed opportunities and a lag in responding to market demands. Cultivating a culture that embraces experimentation, learns from failures, and rewards innovative thinking is crucial for businesses looking to thrive in the digital era. It's about shifting the mindset from avoiding risks at all costs to managing them intelligently and seeing change as an opportunity rather than a threat.

The path to digital transformation is as much about people as it is about technology. Overcoming workforce challenges requires a strategic approach that includes fostering a collaborative environment, investing in skills development, and nurturing a culture of innovation and risk-taking. By addressing these critical areas, companies can ensure that their digital transformation efforts are not just successful but also sustainable in the long run, leading to significant improvements in operational efficiency and customer satisfaction.

Unlocking Growth with AI and Data Analytics

Artificial intelligence (AI) and data analytics stand at the forefront of technological advancements, offering unparalleled opportunities for companies to drive growth, maximize efficiency, and reduce costs. The integration of AI and machine learning into data analytics processes can transform how businesses operate and deliver value to their customers.

AI and machine learning algorithms excel in identifying patterns, predicting outcomes, and making data-driven decisions at a scale and speed unattainable by human capabilities alone. This ability to harness vast amounts of data and extract actionable insights enables businesses to optimize their operations, innovate their product offerings, and personalize customer experiences. The result is a more agile, responsive, and competitive organization that can adapt to market changes and customer needs with unprecedented precision.

Research from McKinsey Global Institute underscores the significant economic benefits and cost savings that AI can bring to the table. They estimate that 16 business functions can unlock potential value in the range of $2.6 trillion to $4.4 trillion annually. Out of these 16, four—customer operations, marketing and sales, software engineering, and research and development— account for 75 % of that value. These functions stand to benefit from AI across various sectors, from healthcare to finance to energy. AI-driven enhancements in products, services, and internal operations driven by A not only contribute to top-line growth but also to significant efficiency improvements and cost reductions.

In the realm of customer experience, chatbots and automated customer service solutions, are powerful tools for transforming customer operations. By integrating AI-driven chatbots into customer service functions, businesses can provide 24/7 support, resolving queries and issues promptly without the need for extensive human intervention. This not only improves customer satisfaction through immediate responsiveness but also allows human employees to focus on more complex and nuanced tasks.

According to the McKinsey Global Institute, applying generative AI to customer care functions could amplify productivity, potentially increasing value by 30 to 45 percent of current function costs. This statistic underscores the significant cost-saving and efficiency-enhancing potential of AI in customer operations.

AI-driven analytics enable a more granular understanding of customer preferences and behaviors, facilitating the development of highly customized products and services. This level of personalization enhances customer satisfaction and loyalty, leading to increased revenue and market share. Additionally, predictive analytics can streamline inventory management, optimize supply chains, and reduce operational inefficiencies, contributing to substantial cost savings.

However, unlocking the full potential of AI and data analytics requires a strategic approach, including investment in technology infrastructure, talent development, and a culture that fosters innovation and data-driven decision-making. Organizations must also navigate ethical considerations and data privacy concerns, ensuring that their use of AI and analytics aligns with regulatory requirements and social responsibilities. What’s more, 52% of companies surveyed in a recent survey sponsored by Microsoft cited a lack of skilled workers as the main impediment to AI adoption.

In short, the barriers to digital transformation at large especially apply to the most disruptive aspects of it: data analytics and AI.

Success Stories: Transforming Challenges into Opportunities

The digital transformation journey is replete with challenges, yet numerous companies have adeptly turned these hurdles into opportunities for growth, innovation, and enhanced customer satisfaction. Through strategic implementation of digital technologies, effective project management, and team collaboration, these organizations have not only improved their products and services but also optimized their operational processes.

General Electric (GE) and the Internet of Things

General Electric, a multinational conglomerate, embarked on a digital transformation journey in 2016 with its Predix platform, a cloud-based PaaS (Platform as a Service) designed specifically for industrial data and analytics, to enhance its operational efficiency and develop new services for customers. By integrating IoT (Internet of Things) technology, GE improved its machinery maintenance processes through predictive analytics, significantly reducing downtime and costs. 

Domino's UX makes ordering pizza as easy as eating it

blog image: Domino's case study

Domino's Pizza transformed from a traditional quick-service restaurant chain into a digital-first enterprise, redefining the customer ordering experience. Domino's embraced DX when it introduced an array of ordering options, including via their website, mobile app, social media platforms, and smart devices. This digital overhaul required meticulous planning and execution. The result was a highly flexible and responsive ordering system that catered to customer preferences in real time, significantly boosting sales and customer satisfaction.

Nike gets personal

Nike's digital transformation strategy focused on personalization and direct customer engagement through its digital platforms and apps, such as Nike+, Nike Training Club, and SNKRS. These platforms offered personalized training programs, product recommendations, and exclusive releases, enhancing customer experience and loyalty.

Nike improved these platforms based on real-time customer feedback and data analytics, ensuring continuous improvement in both their products and the customer experience. This customer-centric approach not only solidified Nike's brand loyalty but also drove significant growth in their direct-to-consumer sales channel.

The Imperative of Digital Transformation for Sustained Growth

The journey of digital transformation is no longer a choice but a necessity for businesses aiming to thrive in the modern marketplace. Digital transformation is the linchpin for businesses seeking to remain competitive, agile, and innovative in an increasingly digital world. In the digital forest, growing trees compete for light, water, and nutrients. Only the ones that take advantage of all types of growth have a chance of standing out. 

Updated: March 1, 2024

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