In the world of transformation, there are many buzzwords and mis-used terms that can confuse the message. The term ‘digital transformation’ is often used quite loosely to describe anything from digitisation through to new digital products and services, but it is worth taking a moment to disambiguate different things it refers to. We think of this primarily in three stages or layers:

  • Digital Optimisation: the adoption and use of digital tools to change the nature of a process/service. Digitising analogue processes or optimising existing services will help a company remain competitive. It doesn’t fundamentally change the business model, but allows modification and efficiency. The outcome of optimisation is often not particularly exciting, but can help a company stay afloat in a new world. 
  • Digital Transformation: utilising digital tools through changing ways of working. It also doesn’t change the business model, but changes the way the business operates and makes new things possible. It expands the definition of digital to include structure, culture and leadership styles. 
  • Digital Innovation: utilising digital tools and new ways of working to completely change the business model. It opens up possibilities for a different set of products/services or modifies the company’s value chain. 

Taking the example of an accountancy firm, at the optimisation stage, the company might buy and learn how to use digital tools, such as introducing an Intranet as a tool for company wide communication. They are doing the same work but more efficiently. In the transformation stage, the firm has a chance to redesign how they work to fulfil their current business model. Perhaps data scientists and AI developers work together to produce real-time audits using big data. The company is still providing auditing services, so the business model hasn’t changed, but they are doing it in a very different way, which would hopefully give them a competitive edge. In the Innovation stage, the firm might discover that this approach opens up entirely new lines of business, such as predictive analytics or additional insights above and beyond assurance. Because of the firm’s fluidity and new ways of working made possible by the previous stages, it can test, pilot and launch these new service lines quickly. If successful this then changes or enhances their business model.

Each stage has benefits. Customers of the optimisers may see things move online or see services become faster and more responsive. Customers of the transformed will see a vast improvement in their service or be offered new products or iterations of existing products/services that improve their value. Customers of the innovators could see new products/services that could disrupt existing markets. The value has increased and expanded into new areas. 

But tempting as it is to rush straight to digital innovation, the underpinning platform, digital literacy and ways of working need to be in place to give themselves a good chance of success. On the other hand, we should not see digital as just a better email client or a way to automate poorly designed processes. Although this is a critical first step and enables the business to avoid falling behind, too often we see companies stop there. Once companies become digitally mature, they need to strive for transformation and innovation in the ways they do things and ultimately in ‘what’ they do. This is true digital transformation and it goes beyond just the tools we use. 

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