On this side of the COVID pandemic, it is difficult to ignore the benefits of digital transformation. Digitally transformed businesses are those that have revolutionized their business model to adopt digital technologies that improve internal and external processes. More organizations are rushing to complete digital transformations and harness the power of the digital technologies that consumers and clients have come to expect.
Yet, digital transformations constitute massive changes to organizational structure. Introducing new digital tools and systems often involves rearranging the workforce, which can have cascades of costs, including missed milestones, delays, budget overruns, decreased productivity, low employee morale, and more. If the costs of digital transformation are so significant, why do businesses bother? The answer is simple: The value well exceeds the cost.
Digital Transformation Has Proven Benefits
The digital transformation market is huge and continuing to grow, to the extent that experts predict the market to be worth more than $1 trillion in 2025. Additional projections suggest that over 65 percent of the world’s gross domestic product (GDP) will be digitized by this year and that digitally transformed organizations will contribute more than half of the GDP — accounting for over $53.3 trillion — by next year. According to a 2019 survey, over 70 percent of organizations were developing or acting upon a digital transformation strategy before the pandemic; considering the impact of COVID-related disruptions on non–digitally transformed businesses, that percentage has likely increased over the intervening years.
If digital transformation is so costly and disruptive, why are so many organizations committed to introducing digital systems and processes? The answer, of course, is the following noteworthy advantages offered by digital transformation:
- Greater transparency. Digital tools enhance data collection, allowing business leaders to monitor almost every aspect of the organization. Transparency at every level reduces information asymmetry, giving leaders access to the data they need to make informed and impactful decisions that lead to more effective competition and greater organizational success.
- Enhanced innovation of products and services. Digital tools can help organizations develop new products and services that better solve the problems of their target consumers. Not only are digital systems more adept at capturing and identifying meaningful data about consumers’ wants and needs, but programs and systems can also assist in the innovation and design processes.
- More convenience. Digital tools and processes tend to be more convenient than analog and manual alternatives for almost every stakeholder. Within an organization, digital transformation allows employees to work faster, more efficiently, and from any location. Meanwhile, many digital services provide more convenience to customers in the form of more accessible customer service and sales.
- Lower prices. Digital tools tend to reduce an organization’s waste. As a result, digital transformation can help a company pass along savings to consumers, increasing its competitiveness within its market.
In summary, digital transformation can grow revenues, reduce expenses, better engage customers and employees and boost competitive advantage. Executives eager to capture this value can gain insights into effective strategies in digital transformation courses offered by industry experts at leading universities.
Digital Transformation Alters Value Creation
Yet, even more, critical to organizational strategy than the benefits of digital transformation listed above is the fact that digital transformation fundamentally changes how companies create value. While many companies engage in digital transformation by converting analog processes into digital ones, other companies transform through inversion, using tech to develop business models in which value is created not by employees within the firm but by external partners — even consumers.
The most obvious examples of this form of transformation include social media platforms like Meta. The content published on websites like Facebook and Instagram is authored by users, not the companies themselves. Similarly, Google, Microsoft, and Apple do not create the vast majority of the apps within their ecosystems, and Amazon and Alibaba do not manufacture or purchase most of the products available in their online stores. As a result of their digital environments, these companies can enjoy economies of scale in revenues per employee that were unimaginable even a few decades ago.
Organizations eager to take advantage of digital transformation might consider how they can adjust the value they create through the digital tools and processes they adopt. After fully capitalizing on the obvious benefits of digital transformation — the transparency, the enhanced innovation, the convenience, etc. — business leaders should consider how they might partner with external forces to create unimaginable value for consumers and themselves.