The Seven Key Components of a Digital Transformation

There’s no official consensus on how many elements or components must come together in order to activate a true digital transformation.

That all depends on several factors: industry, the maturity of your data strategy, existing solutions, and what, exactly, you hope to achieve – among other things.

Below, we’ve outlined 7 key elements of any digital transformation strategy. But – before we get started, keep in mind, your strategy may include additional components, depending on your industry or business requirements.

1. Data

Data is central to any digital transformation initiative.

HBR puts it like this: if you want to scale your knowledge about customers, employees, competitors, the market, whatever, and use it to deliver predictable (and profitable) outcomes in an uncertain environment – you need data.

Experts point out that tech investments that improve your data strategy have the greatest impact on business performance – but the benefits go far beyond ‘high-impact” outcomes. Until you get your data in order, no other transformations can happen.

Early DX projects might focus on unifying data, establishing a culture that supports data literacy and providing ongoing training and development opportunities. Data needs to be clean, organized, and unified into a single system. It needs to produce insights that provide meaning and more than that, drive effective decision-making and actions that deliver the right outcomes.

You’re trying to establish end-to-end visibility by eliminating data silos and making insights accessible to everyone so they can capture and analyze insights – and eventually, leverage them to make smarter decisions and take the actions that produce the right outcomes.

But, as your data strategy matures, you’ll start building on the progress made at each stage prior.

For example, if your last DX project involved optimizing processes with simple automated workflows, the next one should take things a step further. How might advanced capabilities like data mining and robotic process optimization (RPA) impact how your business operates?

First, though, you’ll need to dig into your process data to determine whether you need to make any improvements – your current process may not produce the exact results you were hoping for. It’s better to make a few changes before getting the algorithms involved – otherwise minor details will quickly turn into massive problems.

2. Strategy

MIT Sloan researchers say that digital transformation strategy is all about tackling prerequisites building a “personalized map” for implementing large-scale change within your organization.

Putting together an effective DX strategy demands significant time, resources, and expertise. It also requires input from all stakeholders and very specific, data-backed goals.

By putting together a clear and comprehensive game plan, your business will be better positioned to tackle critical goals and ensure each transformation initiative is a success.

According to HBR, it’s problematic when orgs take on DX initiatives without a clear picture of what that looks like for their business, employees, and customers. Transformation isn’t really about ditching your old tech for something better.

Author Tomas Chamorro-Premuzic explains that the real purpose of digital transformation is to become a data-driven organization — meaning all decisions, processes, and actions are informed by data, not gut feelings. And — in order to make that happen, you have to change how people think, behave, and perform day-to-day work.

You need to set strategic goals that align with your overall business strategy, employees, and customers.

At first, you’ll probably focus on eliminating silos, establishing a culture around data literacy, and making insights accessible to everyone.

But as your strategy matures, the focus shifts — based on data gathered from those initial projects. That information should then be used to adjust goals, set new ones, and come up with a plan for reaching that next big milestone.

Eventually, you might start layering in more advanced capabilities like data mining, hyper-personalization, journey orchestration, route optimization to take prior improvements even further.

3. Leadership

Leadership is directly linked to strategy — though here, we’re talking more about ensuring that the leadership team is prepared to put strategy into action.

BCG research found that more than 70% of digital transformation initiatives are sponsored by leadership teams rather than the CIO or CTO. In other words, DX is no longer an “IT thing,” it’s everyone’s responsibility.

DX is driven from the top-down and requires buy-in from the entire organization. Department managers and internal champions play an important role when it comes to winning over their teams and mobilizing the troops on the ground. It’s this group that moves efforts along by helping everyone else understand these big changes in context with individual roles.

Everyone talks about eliminating silos, but cross-functional collaboration is the only way to make end-to-end customer experiences a reality.

Access to data and collaboration tools make it easier for employees to make decisions, solve problems, and weigh in with unique perspectives.

But — breaking down organizational hierarchies, redesigning processes, and getting people to engage in new ways requires careful orchestration.

Ultimately, it’s about creating an environment where everyone aligns around the same values, goals, and customer-centric narrative.

Harvard Business School Professor Linda A. Hill says leaders must treat employees like collaborators, not followers. Employees need to know why changes are happening, how those changes will benefit the customer, and how those changes will impact them.

And — leaders need to be transparent about upcoming plans, new expectations, and how the company will support employees with the transition.

4. Culture

Culture forms the foundation you need to transform processes, service models, IT — literally everything. You’ll need to ensure that your workforce has the right mindset, behaviors, and skills to drive transformation.

That means, digging into existing data and processes to understand where things stand/ID opportunities to make improvements – so you’ll need to address those elements first.

As you start piecing together your DX strategy, ask yourself the following questions:

• What skills do we need to work on to achieve X goal?
• What investments do we need to make to empower teams to do X or Y?
• How might we adapt organizational structures/processes to improve agility/flexibility/data literacy/etc.?
• Do we have org-wide buy-in — and if not, what needs to happen in order to get there?

People are the most important part of any DX strategy – but they’re also the most challenging. Often, it means changing the entire organization’s mindset – how they define success, work together, prioritize goals, and manage change moving forward.

In a recent white paper, Becoming an Innovative Organization, Microsoft emphasizes that business continuity and resilience hinge on a company’s ability to innovate. Organizations that can effectively leverage innovative tech to solve problems and weather future storms will be in the best position to stay competitive – even in a crisis.

That all seems pretty straightforward, but innovation doesn’t just happen organically.
There needs to be tight alignment between teams – with everyone working toward a common set of goals.

You may need to restructure your org chart to facilitate participation and collaboration between teams not used to working together.

Employees need to develop the right skills – not just for working with your current tech and planned investments, but also new innovations that haven’t yet made their way to the mainstream.

Finally, becoming an innovative company requires everyone to embrace a growth mindset where people are eager to experiment with out-of-the-box solutions and learn from those experiences.

This is easily the most challenging element of any digital transformation – largely because it requires all employees to get comfortable with failure and be vulnerable in front of colleagues. For some folks, that’s a big ask.

Customer Experience

CX should drive all DX investments. Improving processes, modernizing tech, enabling employees — all of these projects should be in service of the customer.

BCG’s 2020 report, The Evolving State of Digital Transformation, says that while companies have historically pursued transformation goals in isolation, as opposed to a holistic, end-to-end approach, DX is changing. 90% of participants said customer-facing goals have become a top priority.

Where traditionally, DX efforts have focused on cost-cutting, orgs are learning that focusing on the customer is the best way to boost the bottom line. Orgs that fail to center DX strategies on the customer will lose business — and struggle to replace customers who churn.

Here, the goal is learning as much as you can about your customers, then working your way through the following steps:

• Define what customers need/want from your business.
• Capture feedback – behavioral data, support tickets, insights sourced from actual conversations.
• Analyze competitors & market trends to identify opportunities to meet customer expectations and carve out a competitive advantage.

Customers expect on-demand services, digital payments, simple interfaces, self-serve options, etc. Investing in these areas should be a no-brainer – as offering products, services, and experiences that people really like tends to be good for the bottom line.

This “new mindset” isn’t really new. Yes, COVID did bring a greater urgency to CX.
But, the ability to quantify the impact of “soft” interactions and correlate them to financial performance with widely-available tech really changed the game.

6. Business Processes

Transforming business processes is a long-term strategy all about changing the way things are done and continuously refining operations to adapt to new conditions and goals.

Efforts might focus on driving greater efficiencies, improving quality of products and services, or embracing new ways of doing business.

CIO describes business process transformation as these sort of “mini-transformations” that focus on improving operational units with technologies. Units represent a set of related tasks that, together, generate value for the business and its customers – think Service Delivery, Product Development, or Expense Management,

As an example, when Forrester released its 2022 US Customer Experience Index rankings, analysts learned that CX quality scores dropped for the first time since 2017. Yet, emotional quality scores remained consistent. This suggests that there may be an alignment problem.

Forrester experts advise business leaders to think critically about their enterprise goals and focus on the actions and enablers that will get them back on track. In this case, that means focusing on process improvements that stabilize CX scores.

Here’s a screenshot of the table used in the report to give you a better idea of what that might look like.

How it works is, you’ll select one of the high-level goals from your strategy. So, let’s say you’d like to improve processes related to “Future of Work.”

Here, actions represent what you’re trying to achieve. Sticking with the same example, you’re trying to improve your ability to plan for future disruption and create a more adaptive culture that makes it easier to evolve alongside your customers.

Then, you have your enablers, which represent the individual processes, programs, and strategies that support lasting success.

That might mean revamping your approach to recruiting or change management. Or – developing a continuous learning program to ensure employees always have the right skills to meet the moment. Enablers may also include improving your approach to remote/hybrid work so that employees can provide better service to more customers.

Instead of CX, you might aim to modernize expense management processes by updating the architecture and automating data entry, approvals, and audits. Or maybe, you’ll revamp field services so you can finally move away from reactive break-fixes and get a handle on your resources.

Ultimately, the goal is identifying specific opportunities to improve with technologies like AI, ML, analytics, hybrid clouds, etc. and setting really clear KPIs for monitoring your performance and adapting the strategy as things change.

7. Technology

It’s counterintuitive, but technology is the last piece of the puzzle.

Tech is the enabler for executing on your vision from all sides – whether that’s empowering employees to create better experiences for customers, using automation to deliver faster service, or tapping into the power of predictive analytics to prepare for many different versions of the future.

The Microsoft white paper we mentioned called technology a competitive driver that allows organizations to get things done. But in order to use it effectively, they need to understand how it supports customer needs, daily work, and how it enables them to disrupt and differentiate.

According to a Deloitte report, Putting Digital at the Heart of Strategy, strategic intent needs to guide technology investment. What that means is, the management systems, culture, skills, and capabilities you need to compete drive all decisions about technology. This includes everything from IT infrastructure and software to which vendors you partner with and what your budget looks like.

Final Thoughts

The most successful organizations — regardless of size or sector — are always looking for opportunities to innovate, optimize, and differentiate in the digital age.

But you’ll need to make sure all the right pieces are in place — and working together — before that can happen.

Partnering with Velosio can make the digital transformation process faster, easier, and more effective. We provide industry-specific solutions and deployment models, hands-on guidance throughout your transformation journey, and ongoing support to help you maximize the value of your DX investments long-term. Contact us today to learn more.