Digital transformation is necessary for enterprises, though many business leaders don’t know where to start. This digital transformation primer covers best practices, challenges, tech, and more.

Digital transformation is more than a buzz phrase for the enterprise. Technology is reshaping business in numerous ways, and the overall concern is that anyone without the newest tech in place will soon be left behind. This fear is not unfounded.

“Digital is approaching a tipping point. Over the next five years, companies will begin to see digital affect the majority of their revenues. Most of today’s companies are unprepared for this change,” according to a Forrester report on the state of digital business.

SEE: Digital transformation: A guide for CXOs (Tech Pro Research)

This cheat sheet presents leaders with details and expert analysis about the benefits of digital transformation initiatives, tips on how to start these projects, and more. Also, find out how the Internet of Things (IoT), blockchain, big data, artificial intelligence (AI), machine learning, and cloud computing are having an impact in digital transformation strategies.

What is digital transformation?

The concept behind digital transformation is how to use technology to remake a process so that it becomes more efficient or effective. It’s not just about changing an existing service into a digital version but improving it.

Some of the technologies used in digital transformation projects are IoT, blockchain, big data, cloud computing, AI, and machine learning. Digital transformation is more than just adding technology–part of the transformation includes changing how employees think. If the corporate culture doesn’t support change, then it will be difficult for a company to instill new business processes and reach digital enlightenment. The shift to a digitally transformed business often means breaking down silos and relating differently to customers.

“Digital transformation is quite simple. It’s adopting what are now becoming mainstream digitization technologies such as IoT, mobilizations, customer engagement, artificial intelligence, data and analytics. How do you use those technologies to improve the value of your product? Not just the value of your product, but the value your customers get out of your product or the value they get out of that service,” said Rick Veague, CTO of IFS North America.

SEE: A guide to data center automation (ZDNet special report) | Download the report as a PDF (TechRepublic)

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How will digital transformation impact revenues?

Digital transformation is more than a trend. The IDC reported that worldwide spending on digital transformation technologies is expected to reach $1.3 trillion in 2018. That number is expected to top $2.1 trillion by 2021.

A Forrester report said that by 2020 executives predict 47% of their revenue will be influenced by digital. While the industrial sector has seen less disruption from digital than other industries, executives think this will change, with 37% of revenues in the industrial sector likely to come from digital by 2020.

The expectation of greater sales from digital transformation means executives are hopeful that business will thrive in the new environment, according to a blog post by Nigel Fenwick, vice president and principal analyst for Forrester: “This suggests not only huge awareness of the potential for digital to change today’s business but also an expectation that their company will be successful in making the transformation needed to bring this expectation to fruition.”

SEE: Digital transformation: A CXO’s guide (ZDNet special report) | Download the report as a PDF (TechRepublic)

A survey in 2017 from sister site Tech Pro Research revealed that 20% of companies already have a digital transformation strategy in place and another 60% are working on creating one. This number is only going to increase as digital transformation takes over the business world.

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Why is digital transformation a must for every company?

Regardless of industry, competition in the market spurs innovative thinking, and a company’s closest competitor may find a new solution and catch a company off guard, explained Craig Williams, vice president and CIO, Ciena. “This requires you to stay on your game by observing what is happening in your industry and whether the initiatives you implement are keeping the business one step ahead of other industry players.”

“There’s also nothing like a healthy dose of paranoia to force you to stay keenly aware of the market and motivate you to implement tools to keep the workforce competitive. IT competition isn’t necessarily the same as selling widgets, but you can pretend it is. Run your IT department like you’re running a business and understand the costs, the customer satisfaction, the competition, and see if your team is on top,” Williams said.

Digital transformation is essential for every business, according to Veague. “Using modern digital transformative techniques allow you to get closer to your customers, allow you to see how your products are really performing, and whether they’re meeting those customer expectations. In our world, if you’re not on a digital transformative strategy, your competitors are, and you’re going to get left behind,” he said.

SEE: All of TechRepublic’s cheat sheets and smart person’s guides

Digital transformation gives IT employees a chance to better integrate IT with a company’s goals, said Art Langer, a professor and director of the technology management programs at Columbia University. “Digital transformation is just an absolute fundamental requirement to get that done. This is about technology becoming clearly in the frontline of strategy,” he said.

“One of the things I always talk about is the old statement, ‘All roads lead to Rome,'” Langer said. “Well all roads today lead to a consumer. I believe that this whole digital transformation is about the consumerization of technology. If you’re a B2B [business to business] company, eventually all roads will lead to a B2C [business to consumer]. Somebody along that supply chain will be servicing the demand side, which is a consumer.”

One of the most difficult industries to transform, but that needs it the most, is manufacturing.

“Traditional manufacturing remains extremely siloed, with deployment of best practices across different cultures and systems difficult at best,” said Richard Lebovitz, CEO of LeanDNA.

Digital transformation breaks down silos to deploy best-practice analytics across multiple sites and suppliers in weeks versus months or often years. With a focus on improving working capital efficiency and on-time delivery performance, manufacturers, for example, can use digital transformation to work faster, cheaper and achieve better results, Lebovitz said.

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What are the components of digital transformation?

There are three components that comprise digital transformation.

“There is infrastructure at the bottom of the pyramid,” Langer said. “At the top, which is your CEO and C-level people, you’re trying to transform new types of business opportunities and marketing opportunities and give them a competitive advantage. On one hand you’re trying not to be disrupted because what you really want to be is the disruptor. Then in the middle, which is significant, is the operating model of the organizations.”

In a digital transformation, people will have new roles and responsibilities, with some jobs lost and others added.

Langer said, “The biggest part about digital transformation is an old Burger King cliché, ‘Have it your way.’ That’s what digital transformation demands. The consumer wants choice. The consumer wants options. When you look at the success of Amazon, what are they giving you? They’re giving you multiple ways of doing business, and they’re charging you for different things. You want something delivered right away? Amazon has Amazon Prime. Will you pay more? Yes. All right, so it’s a myriad of options. The other aspect of digital transformation is 24x7x365. Amazon is a store that never closes.”

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What are the most important technologies for a digital transformation?

“Digital transformations that leverage multiple technologies at the most effective points will be the most successful. For example, LeanDNA leverages cloud computing, AI, and ETL for data connection and extraction. We also leverage new web technologies to create powerful user experiences and interactive collaboration tools. The combination of these technologies allows customers to perform powerful analytics on extremely large and complex business data on the back end while providing a simple web-based front end that makes results easy to understand and actions easy to execute,” Lebovitz said.

SEE: America’s coolest company: How Big Ass Fans went from cooling cows to a multinational tech powerhouse (TechRepublic cover story) | Download the PDF version

IoT, blockchain, big data, AI, machine learning and cloud computing are among the most common technologies used in digital transformations.

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What are the biggest challenges to digital transformation?

Digital transformation projects fail when they’re too ambitious, Veague explained. “What we’ve seen in our customers who have gone down this journey, whether it’s implementing IoT or AI-type technologies or big data or whatever, is that they learned an awful lot along the way. And they changed their expectations about the value and what they’re going to get from it, based on what they learned.”

A digital transformation is truly about digitizing every aspect of a business, but not every company realizes that when it begins down the path to change.

Langer said, “It’s about how does one take a company, whether it’s a Citibank or it’s Macy’s or your most recent catastrophe, which is Toys “R” Us…and how do you transform not just the supply chain activities, but also the culture? Where you see companies failing at it is mostly in the cultural assimilation area. They’re just not digital people. They don’t have the cultural aspects on how to do that. There is this incredible opportunity, in my mind, through the technology people to also transform themselves.”

SEE: Culture remains biggest barrier in APAC digital transformation (ZDNet)

There is inherent risk in digital transformation.

“You have to deliver lots of things, and not everything is going to work. You have to develop what I call a batting average. A baseball player gets up to the plate, and if he gets a hit one out of every three times, he goes to the Hall of Fame. When you talk to IT people, they think they have to deliver everything on time and on budget. The reality is in digital transformation you fail fast, and you go on to the next thing,” Langer said.

Lebovitz said, “What many companies call ‘digital transformation’ is simply more of the same manual and static processes. Business Intelligence (BI) has been rather hot over the last 10 years, but it is really just a better form of Excel, and it’s nothing new. To be successful, organizations must focus on deploying solutions that can be adopted across all levels of the company. Successful digital transformations need to make working both easy and improved. Unfortunately, many initiatives fail to target specific improvements. Teams get excited about terms like big data, predictive analytics, and AI, yet remain too focused on the technology instead of solving an important business problem with a clear ROI.”

When a team is too focused on technology rather than solving a problem, the project is likely to fail and the team will resist starting over.

SEE: Straight up: How the Kentucky bourbon industry is going high tech (TechRepublic cover story)

“There are many cases in the manufacturing sector where a failed system implementation has nearly killed a business. This sector tends to be more risk averse than others and requires more examples of successful digital transformations. I am working to change the paradigm with LeanDNA demonstrating what can be done with real results,” Lebovitz said.

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What are examples of successful digital transformation projects?

BMW, Apple, and Amazon are among the many companies that have undergone digital transformations and thrived as a result. The financial industry is also changing, as blockchain makes an impact, and the education and airline industries are ripe for change.

Langer said, “If you’re BMW, you’re B2C, but there’s a whole bunch of companies that are supporting BMW that are B2B. Ultimately what is going to shake its way down is if a consumer wants something from BMW, that’s going to have a domino effect all the way down every B2B. What I’m telling all the B2Bs is you better be very close to your inevitable C [customer], because the consumer is in charge. They demand a lot. They’re very smart. They’re very technology savvy. Why is BMW changing their cars every two years when they used to do it every six or seven? Because of technology and because people want the latest and greatest in these cars and more innovations and driverless cars and parking and cameras. If you’re a B2B and you’re not on top of what’s going on in the C [customer] level, you’re going to lose touch with your clientele.”

Staying on top of the need to change is the key to successful digital transformation.

“This whole idea where you used to be a vertical and you used to be able to be in one industry and do it really well, everybody’s becoming more horizontal. Some are struggling, right? Look at GE, where they created GE Digital. Let’s look at Uber. I know they’ve had problems, but look at how they have transformed the way people travel. Or Lyft. We see these individuals, that these small companies, the Davids are beating up on the Goliaths because they’re more agile. They’re catering more to the buyer or the consumer,” Langer said.

SEE: How Sephora is leveraging AR and AI to transform retail and help customers buy cosmetics (cover story PDF) (TechRepublic)

Older companies often try to save the primary business, and that is a mistake.

“If you look at Barnes & Noble, they’re not going to give up on having stores. If you look at Macy’s, you can order stuff online at Macy’s, but it’s not a pleasant experience, as it is for customers ordering from Amazon. It’s very, very hard to ask these companies, from a management point of view, to let go of the tradition,” Langer said. “IBM almost went out of business because the mainframe people were running the company. Macy’s hasn’t given up on the idea that the store is still the key place. Automobile companies are focused on the fact that you still need to go through a dealer. These are very significant issues if you don’t transition.”

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Where should our company start with digital transformation?

For some companies it’s difficult to know where to start when it’s time to implement a digital strategy. Overcoming the initial inertia is the key to starting down the path to digital change.

“I’m a big believer that you start in the beginning and adopt a crawl-walk-run approach, especially if some of these technologies are not familiar or not in widespread use within your organization. Pick some small projects and get started with them. Because the hardest part to a digital transformation journey is just getting started. And I’m not so sure it matters where you start because the insights you gain and the experience you get will tell you what the next step is,” Veague said.

SEE: Digital transformation: An IT pro’s guide (free PDF) (TechRepublic)

If an executive starts with a modest set of expectations, and doesn’t oversell the value of the project, it can serve as an innovative and learning experience. Whatever knowledge is gleaned from the first project can be reapplied to the next project. By repeating this a few times, it results in an agile approach and that will give the best results.

Within companies that have started thinking about how to develop a digital transformation pathway, there is typically a moment when it becomes obvious how technologies could be used to do a task differently. Veague said, “The real objective of getting started and pushing that strategy is to get to that moment where you can say, ‘Wow, now that I can see this, if I only had this or that or a little bit more information, if I could only gather one more piece of data, I could get to the next step.'”

Once that process begins, it spurs more changes and becomes a self-driving exercise and the transformation begins rolling out, Veague explained.

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Who should lead digital transformation projects?

For digital transformation efforts to succeed, who you hire matters.

“Regardless of industry, talent is the number one tool of any digital transformation undertaking. It’s part hiring, part development, and part inspiration of talent (culture) that sets an IT team apart from others. A company can have a great business model, but without a great culture and workforce behind it, it will fail. If you’re are not actively seeking new talent or elevating existing talent, you’ll never transform digitally,” Williams said.

SEE: IT leader’s guide to achieving digital transformation (Tech Pro Research)

Opinions vary about who should spearhead digital transformation within a company.

“Simply put, digital transformation is the CIO’s job and should be at the forefront of what he/she thinks about. He or she should have an up-to-date understanding of business problems and what IT can do to address them with people, technology, improved processes, models, and IT competencies. CIOs should be in the business of transforming their company with the assets at their disposal all the time,” Williams said.

Lebovitz said, “There is an emerging role in manufacturing called Chief Transformation Officer–they are often a key driver of these projects. For other companies, the typical leader would be the CIO, Chief Procurement Officer, VP of Operational Excellence, or VP of Supply Chain.”

Digital transformation doesn’t have to be radical; instead, it’s about ongoing innovation.

Langer said, “The sayings ‘Either you’re growing or you’re going,’ and ‘Stagnation breeds failure’ are more relevant today than ever before. Successful organizations have to grow. If you don’t like change, you’ve really got a big problem. There’s never been a research article that says organizations love change, but you have to be change ready.”

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