What is digital transformation?
Digital transformation is a business buzzword that has transcended the IT industry in which it originated, grown in popularity over the last few years, and gone mainstream during the COVID-19 pandemic. But what does it actually mean?
“I think it’s a simple concept gone wild,” explains Cathleen Gagne, managing editor at InformationWeek. “At the core, it’s about updating or upgrading your technologies to gain competitive advantage – and ultimately stay in business Nothing new there.”
“[But] it’s not just about the actual technology,” she adds. “It’s also about operational change, from both a cultural and process perspective. [And] those latter points are what seem to make digital transformation confusing.”
The rise of digital platforms
During the COVID-19 pandemic, videoconferencing, messaging, collaboration tools and document sharing all became common for facilitating remote working. By the end of March 2020, Slack had added 9,000 new customers in Q1 – up from about 5,000 in each of the previous quarters. Zoom saw its shares go up 112% on the year. Meanwhile, in China, there was a surge in demand for video-conferencing apps such as Tencent’s WeChat Work and Alibaba-owned DingTalk.
For companies that had already begun the process of digital transformation, the situation was manageable. Technology enabled people to stay connected, keep working, and ensure business continuity. In China, an IDC survey of CXOs in March found the top three positive impacts of the pandemic were ‘improved corporate ability of long-distance collaborative work’, ‘gaining ability of online marketing and business development’, and ‘wide recognition of the value of digital transformation and information technology among all employees’.
The downsides for companies slow to act
However, the pandemic placed a lot of pressure on businesses that had previously been slow to transform. “The pandemic has brought into sharp relief how vulnerable companies really are,” reported McKinsey, pointing to instances of network overloads, security breaches and privacy issues.
“Corporate networks, unused to having a majority of their connections coming in over virtual private networks (VPNs), are experiencing unusual quirks, while internet service providers have come under pressure to lift bandwidth caps so that remote workers do not get cut off from their employers halfway through the month,” reported The Guardian.
The International Association of IT Managers highlighted the tech risks arising from homeworking, including assets that were being purposely left unsecured to simplify remote work; the rapid addition of new hardware that leaves little time for security; that assets on home networks are fundamentally less secure; and that unprepared users were making mistakes.
What became clear during lockdown was the importance of having a safe and uninterrupted digital environment. Even post-pandemic, Risk & Insurance points out the other risk factors that might disrupt the workplace each day. While Covid-19 led to 94% of the Fortune 1000 seeing supply chain disruptions, natural disasters can also cause problems (in 2019, 14 extreme weather and climate events had losses exceeding $1 billion, each), while downtime caused by malware grew 34% to 16.2 days in 2019 Q3.
The future of digital transformation
So, what will happen in terms of digital transformation in the future? Which quickly adopted changes will stick? And which won’t?
Wade Foster is the co-founder and CEO of Zapier, a maker of workflow automation tools. Speaking to The Information in March 2020, he explained his concerns that the current crisis-driven approach could lead to missteps in implementing remote work – and thus cause businesses to abandon it altogether following the pandemic. “I worry they will say, ‘Remote can’t work’,” he said.
However, research by McKinsey suggests that organisations that are willing to make changes will be best positioned to accelerate out of the post-pandemic downturn. “Companies that move early and decisively in a crisis do best,” it reported. “In the recessions of 2007-08, the top quintile of companies was ahead of their peers by about 20 percentage points as they moved into the recovery in terms of cumulative total returns to shareholders (TRS). Eight years later, their lead had grown to more than 150 percentage points.”
“The value of digital channels, products and operations is immediately obvious to companies everywhere right now,” says Sandy Shen, Senior Director Analyst, Gartner. “Businesses that can shift technology capacity and investments to digital platforms will mitigate the impact of the outbreak and keep their companies running smoothly now, and over the long term.”
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