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Is digital transformation just a catchy way to say “moving to the cloud”?

Is digital transformation just a catchy way to say “moving to the cloud”?

Article by Dr Michael Snowden, CEO, OneNet Limited

Published on 04/10/2017

The objective of digital transformation, or digitisation, is to grow revenue, increase profitable customer loyalty to beat the competition, remove internal cost, raise quality and build value to grow profitability.

Digital transformation is a never-ending expedition, not a destination.  There is a perennial imperative to build and refine digital processes to improve customer, internal and supply chain journeys. McKinsey & Company, the global consulting firm, defines this as “perpetual evolution”. 

Traditional companies typically have legacy computing architectures, designed for a bygone era, when there was more stability in their strategies and a slower release pattern of new products and services.  Born-on-the-Web competitors can often turn on a dime to deliver key changes, which otherwise would leave traditional firms floundering. 

Until very recently, mobile devices, the Internet of Things, big data and advanced analytics were not critical for effective competition.  That is no longer the case.

Cloud computing, whereby computing, storage and communications resources are made available to rent, is a prime enabler for a perpetual evolution strategy for digital transformation.

Legacy investments in on-premises information technology assets are likely to be an impediment to digitisation endeavours.  By contrast, cloud computing, providing almost any information technology “as a service”, delivers many advantages.

Speed to market is crucial for new initiatives in digitisation.  With cloud computing, new software applications can be deployed in minutes, rather than in weeks.

The ease of varying computing resources, only when needed, means that digitisation projects can be accurately provisioned.

No capital commitments are required for computing resources and computing expenditure becomes a variable cost.

Skilled IT staff can be redeployed on value-enhancing digitisation projects since the burden of “keeping the lights on” is removed.  There is no competitive advantage to be derived from owning and running IT assets, so why do it?

Security is paramount, particularly when new processes open up different avenues for suppliers and customers to interact.  Cloud service providers are well positioned to protect a firm’s security, as it is a core competence.

Integration challenges to mesh legacy software applications and new digitisation apps are well met in the cloud.  Keeping what is useful, while integrating new processes with legacy systems, helps to prevent legacy IT from putting a brake on the pace of digitisation.

However, moving to a cloud-based computing model is not, on its own, digital transformation.  

Even if all of a firm’s software applications were simply “lifted and shifted” to the cloud, there would likely be little improvement.

A perpetual evolutionary approach means a continual change in business capabilities and the technologies that lie behind them. The focus is on speed and end-to-end customer, internal and supplier journeys, rather than individual product or service processes.

Digitising existing processes is seldom, if ever, the solution.  Unless there is a focus on a redesign of the respective journeys, which often identify opportunities to unlock enormous value from simplification, benefits from digitisation will remain elusive.

Reimagining the entire customer journey, for example, with all of the interactions a customer has when making a purchase or receiving a service, is difficult after spending years making incremental improvements.

The key task is to really understand how your customers buy and imagine what a world-class customer journey could look like, rather than just following a tactical evolution of the current state. 

Challenges to a successful digital transformation also come from other quarters.  Committed and vigilant senior leadership, with a clear and bold purpose, is critical. 

Taking a sequenced and holistic approach, adopting a lean, agile process redesign, building a culture of digital aspiration, breaking down siloed data, mind-set and behaviour, keeping focused on customer, internal and supplier journeys and integrating digital and operational capabilities are key imperatives.

Even when digitisation projects are well developed, their success will depend upon how people change the way they behave. No matter how good the digitised solution may be, it will be useless and a poor investment if people  do not adopt it.

Architects of digital transformations can learn a good deal from behavioural economics, which helps to explain why people make irrational choices, usually without being aware they are being irrational. 

Risk aversion may paralyse new digitisation initiatives through an irrational fear of failure.  An appetite for risk is a precondition for successful digitisation.  Sunk cost bias may keep dead-end digitisation projects alive long after they should have been killed off. 

If a move to the cloud is considered to be digital transformation, business leaders will be disappointed.  Without a coherent plan to digitise customer, supplier and internal journeys, most of the potential benefits of digital transformation will be never be achieved.

Adoption of cloud computing will provide a powerful enabler for digitisation, deliver compelling economic and security benefits, establish a platform for innovation, enhance agility and accelerate speed to market.  However, it will not solve the digital transformation puzzle on its own.