August 26, 2022

Digital transformation 101. Part I: the basics

BigPicture Team

Embracing new technologies and innovative approaches can be a blessing or a curse. Done properly takes your business to another level. Done poorly – can turn your work life into a living hell. Digital transformation isn’t easy, but its necessity stems from the myriad opportunities it brings. This article will help you learn what digital transformation is, why it’s important, and how you can benefit from it.

What is digital transformation?

With broad terms like this, there are many different definitions of digital transformation.

Salesforce describes it as the process of using digital technologies to create new — or modify existing — business processes, culture, and customer experiences to meet changing business and market requirements. This reimagining of business in the digital age is digital transformation. Digital transformation begins and ends with how you think about, and engage with, customers.

For CIO, digital transformation marks a rethinking of how an organization uses technology, people, and processes in pursuit of new business models and new revenue streams, driven by changes in customer expectations around products and services. For many enterprises that build traditional goods, this means building digital products, such as a mobile application or an eCommerce platform.

Finally, let’s see IBM’s approachDigital transformation takes a customer-driven, digital-first approach to all aspects of a business, from its business models to customer experiences to processes and operations. It uses AI, automation, hybrid cloud, and other digital technologies to leverage data and drive intelligent workflows, faster and smarter decision-making, and real-time response to market disruptions. And ultimately, it changes customer expectations and creates new business opportunities.

These three definitions have a few key similarities. Digital transformation reshapes the relationship between the customer and the business. It brings both new technology and new approaches and frameworks. Finally, digital transformation relies on tools and software that help you reach previously unavailable markets.
Examples of digital transformation

Netflix – jump into the stream

Nowadays, the streaming giant struggles to stay relevant, with a dwindling number of subscribers and mixed-reviewed original content. But in the first decade of the 21st centry, Netflix was the avant-garde of digital transformation.

Up to 2007, Netflix was a service that sent you ordered DVDs via mail. It kind of worked like a rental store without the necessity of going to Blockbuster (RIP). But you still had to wait for your movie or sign up in a queue, as the company had a finite number of copies of Mean Girls or Lord of The Rings. You either sink or swim. So when the opportunity came in 2007, Netflix started its own digital platform. And just like that, from 5 million subscribers in 2006, the streaming service surpassed 100 million subscribers in 2017 to almost 293 million subscribers in 2022.

Nintendo – play everywhere

It’s shocking, but Nintendo, the cause of your neverending arguments with parents about buying a GameBoy console, was established in 1889. Yes, the company’s history spans over three centuries. Firstly, Nintendo was producing and selling hanafuda – cards for a popular Japanese game. Over decades the company dipped its toe in many different endeavors. Especially after the 50s, when they had their TV Network, food company, and taxi company. All of these endeavors met their demise, except one – video games.

In the 70s, the company has seen the market’s potential. Firstly, they distributed the hardware. But the real money was in the games, like Donkey Kong from 1981. Firstly distributed in arcade saloons, then Nintendo started porting the title on home devices, like Atari 2600. In 1983, the Super Mario Bros. game debuted, changing practically the whole industry landscape. Nintendo not only invested in games but also started to produce its own hardware. Everybody knows Nintendo Entertainment System or GameBoy pocket console.

The empire grew, and so did the competition, such as Sony with PlayStation or Microsoft with Xbox. How to stay relevant? Nintendo has chosen an interesting path. The company’s consoles don’t have the best hardware, but they always offer a library of exclusive characters with beloved characters, like Mario, Kirby, or the whole Pokemon family. Each iteration also has an interesting tweak. The best example is Switch, released in 2017. The handheld console has a great design that allows the controllers to be separated and play with another player just by tilting them horizontally. A special add-on lets you play on your TV, and the company effectively taps into your nostalgia by releasing new games from popular franchises or remastering the old beloved ones only on Switch.

Does it work? Well, the console is five years old, and it still sells, surpassing over 100 million sold units. It makes it one of the most popular gaming hardware in history. Not bad for a thing that specification can be compared to a middle-tier smartphone.

McDonald’s – a process with no end date

Fast food, with ever-growing offers and deals, can become much slower. How to remove this bottleneck? To answer this question, the fast-food chain established McDonald’s Digital Innovation Team in 2014. Its purpose:

  • To “unbundle the restaurant experience”
  • Develop the next generation of friction-less drive-thrus
  • Deliver food anywhere, any time

You can already see their efforts. Digital kiosks that can take your orders and ease the queues, especially during rush hours. An AI-powered drive-thru that requires no human assistance to take orders. Even small things, like the ability to personalize your order and avoid unwanted ingredients or an app, in which you can order your food directly to your parking spot outside McDonald’s. The pandemic only accelerated these changes, especially the trend to order items contactless. Some say there is still one crucial step the company must take: to make franchise owners adopt the changes on a massive scale. Well, digital transformation is also about soft power.

LEGO – reinventing the brick

In May 2022, the company announced it plans to triple the size of its digital team to more than 1,800 employees over the next three years. Digital transformation is one of the company’s key investments in this generation, and we can already see the effects.

Lego is really deep into the partnership business with the biggest franchises. Although they have their own cult lines, like Technics or Friends, the sets from Star Wars, Harry Potter, or even Jurassic Park regularly flood the shelves. But the partnership doesn’t end here. Lego has quite a rich library of games based on these franchises. The latest one, LEGO® Star Wars™: The Skywalker Saga, came out in April 2022 and met with a warm welcome from the players and a good financial start, selling 3.2 million copies in the first two weeks after its release.

Lego games are now basically their own genre and deemed as high-quality tie-ins to the movies of franchises, instead of usually expected quick cash-grabs some of the studios release to earn an easy buck. Lego also plans to create a kid-friendly metaverse space in the future.

The Danish company also invests in AR. Especially in the Lego Technics series, where you can use the dedicated app to control your vehicle instead of a dedicated remote or prepare a virtual track that appears in front of you.

But digital transformation can also affect the core of Lego – the brick. A few years ago, the company announced moving from oil-based plastics to greener, more sustainable materials. The bricks, in the long run, will be made from sugarcane plastic, a much more eco-friendly material. The company also announced its manufacturing sector. The new factory in Virginia, an investment of over a billion dollars, will be carbon-neutral as a part of the sustainability shift in the company’s philosophy.

Spotify – listen to the wind of change

To close the circle, let’s get back to the streaming services. Spotify is well known for its algorithms, user-oriented changes (such as lyrics to the songs), and recommendations system. But the truly innovative and transformative aspect of its business is the way it uses Agile to influence its workflow. As The Power Business School describes:

The “Spotify Model” is similar to an Agile “Matrix Organizational Model”; engineers and team members report to a single area (product owner) but work within a cross-functional team.

That is to say, people are grouped into Squads, where people with different skill sets collaborate to deliver a great product or feature. This is the vertical dimension in the matrix and where people spend most of their time. The horizontal dimensions are for sharing knowledge, tools, and code. For example, it’s good practice that certain roles align on best practices and organizational standards.

As the author notes, Spotify seems like a simple music-streaming service. But behind closed doors happens hard work that require an extremely complex combination of behavioral prediction algorithms, innovation, and seamless cross-departmental collaboration. Effectively, the “Spotify Model” allowed the company to identify opportunities and adapt them quickly to the platform.

Digital transformation roles and skills

The importance and benefits of digital transformation

In one of the previous paragraphs, we described some companies that embraced digital transformation to their benefit. The list contains mostly multi-billion dollar companies, but practically every sector benefits from embracing this type of change. Barbers can offer their services via booking apps, car mechanics can target potential customers through Google Ads, and schools can teach their pupils using new, exciting ways, such as Augmented Reality or interactive tables. Here is the list of potential advantages you get from digital transformation:

  1. Staying relevant.
  2. Attracting new customers.
  3. Exploring new markets or niches.
  4. Possibility to pivot your business model.
  5. Attracting investors and hedge funds.
  6. Improving User Experience.
  7. Attracting young talents to work.

That concludes our opening article about digital transformation. Stay tuned, as more is yet to come.