Digital transformation is the fundamental rewiring of how an organization operates. The goal of a digital transformation, as outlined in the age of digital and AI coming, should be to build a competitive advantage by continuously deploying tech at scale to improve customer experience and lower costs.

​Like many commonly used phrases, “digital transformation” has devolved a catchall term that means different things to different people. That’s a problem. Digital transformation is critical for organizations to not only compete but survive. If leaders can’t be clear about what a digital transformation is—and align their organization around a specific program—they can’t expect to be successful.

Digital transformations are different from regular business transformations, in both small and big ways. For one thing, business transformations usually end once a new behavior has been achieved. Digital transformations, on the other hand, are long-term efforts to rewire how an organization continuously improves and changes (and that means really long-term; most executives will be on this journey for the rest of their careers). That’s because technology is not only becoming further integrated with the business but also constantly evolving. For example, given the growing importance of AI in generating business insights and enabling decision-making logic, any digital transformation should also be an AI transformation.

As we’ll show, successful digital transformations hinge less on how companies use digital and more on how they become digital.

What do we mean by digital and AI transformation?
A digital and AI transformation is the process of developing organizational and technology-based capabilities that allow a company to continuously improve its customer experience and lower its unit costs, and over time sustain a competitive advantage.

What capabilities are needed to move the needle on digital transformation?
Successful digital transformation requires a variety of coordinated actions. below lays our six capabilities critical for successful digital transformation:

1. The ability to craft a clear strategy focused on business value. Companies should focus their transformations on specific domains (customer journeys, processes, or functions) that generate significant value for the business. The transformation should be guided by a road map, which details the solutions and resources needed to deliver change to prioritized domains.

2. A strong talent bench with in-house engineers. No company can outsource its way to digital excellence. Being digital means your own bench of digital talent working side by side with your business colleagues. The best digital talent programs go way beyond hiring: they should include employee value propositions that attract and retain the best talent; agile and digital HR processes to find, manage, and train talent; and a healthy environment where the best talent thrives.

3. An operating model that can scale. Digital transformations depend on cross-functional teams that bring together people from across the company. Most companies already have a handful of these teams, but scaling to support hundreds or thousands of them requires a new operating model. There are three primary operating models to consider: the digital factory, the product and platform model, and the enterprise-wide agility model.

4. Distributed technology that allows teams to innovate independently. Technology in an organization should make it easier for teams to continually develop and release digital innovations to users. To make this happen, organizations should foster a distributed technology environment where every team can access the data, applications, and software development tools they need. Recent technology advances can help create this distributed environment—these include the thoughtful use of APIs to disengage applications, the availability of developer tooling, the selective migration of high-value workloads to the cloud, and the automation of infrastructure provisioning.

5. Access to data that teams can use as needed. Reliable, current data are crucial to successful digital transformations. Data architecture should produce data that are easily accessible by teams across an organization and should be continually assessed and updated. Strong governance is required to enable this capability. The core element is the data product, which structures various pieces of data a coherent unit that can be easily consumed by a range of teams and applications.

6. Strong adoption and change management. In the past, the technology adoption cycle was a linear process of gathering requirements, developing solutions, testing, and then training the end user. This process often resulted in low adoption rates and ultimately low business value. Digital transformations follow a far more iterative process of designing, prototyping, collecting feedback, and improving the solution so it can capture the full value potential. As a rule of thumb, for every dollar you spend on developing a digital solution, plan to spend at least another dollar on implementing process changes, user training, and change-management initiatives. Companies should think about adoption and scaling at the beginning of their transformation so they can build in the resources needed to deliver the change.

No digital transformation can be successful without coordinated action across all these areas.

Original article source: What is digital transformation | McKinsey & Company

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