Turning the Gears of Digital TransformationTurning the Gears of Digital Transformation

Eight principles characterize companies using technology for true transformation.

Digital transformation initiatives are in full swing at nearly 70% of companies. But the extent of those initiatives--and their level of success--varies greatly.

Nemertes Research recently completed a detailed study to evaluate digital trends and best practices among 368 companies. One of the most prevalent issues is simply understanding what digital transformation really is, and what principles comprise the latest buzz phrase.

Digital Transformation Defined
At its basic level, digital transformation requires a) the innovative application of technology to b) improve something that ultimately c) drives value. These three components are interlocking, as a set of gears in a well-oiled machine. If one gear stops, the entire machine fails. Companies can implement new technologies, but if they do not improve something, they will realize no new value -- and therefore, no transformation.

Digital transformation defined

The technologies that generate transformation can be foundational, such as the network that enables real-time apps to perform well or highly innovative embedded apps interwoven into products for sale. Or, a company can transform by how it collaborates -- internally with colleagues and, more importantly, externally with customers. The technology then acts as a catalyst for improvement.

The measure of improvement is typically situation or behavior-specific. For example, digitizing the automobile accident claims process through the use of mobile device cameras, electronic forms, and electronic funds transfer has shortened claims time from two to three weeks down to 24 to 48 hours.

The value is the positive result from that improvement. For the auto insurance claim, the value is in reduced cost (because a claims adjuster no longer must come to the accident scene or car owner's house and fill out paperwork; the customer, the mobile form, and mobile camera do the job for him). And, it's in improved customer experience (because the customer receives a settlement check electronically deposited in one to two days without much inconvenience).

Nemertes' Principles of Digital Transformation
With that general framework in mind, we developed eight principles of digital transformation and asked IT leaders how they applied to their own initiatives. It's important to note that every one of these principles will not apply to every company. Much depends on your business model. But at least half should if you truly want to transform your company through the use of technology.

Nemertes' Principles of Digital Transformation

Data Has Value – Applies to 26% of companies today and another 41% by late 2017. Companies aim to monetize the data they capture on products, customers, and purchasing habits. For example, a tire manufacturer may embed tires with sensors to capture data on distance, wear, average speed, etc., and sell that information to rental car companies. The rental car companies, in turn, can use the data to make a plethora of decisions about the type of cars to buy, correlations between renters' ages, purpose (business or pleasure), and rental history to connect the best vehicle to the customer for maximum tire performance that still results in solid customer experience.

Subscription Economy – Applies to 16% of companies today and another 40% by late 2017. Here, companies move from a one-time purchase option to a fee-based paradigm. Think of "everything as a service," or EaaS. For example, a jet engine manufacturer moves from selling jet engines to leasing them to the airlines, shifting its cost from capital to operational, bundled with maintenance. Similarly, companies are shifting their app and infrastructure costs from on-premises solutions to cloud solutions with fixed monthly costs and ongoing upgrades.

Strategic Use of Free – Applies to 18% of companies today and another 35% by late 2017. Companies in this category are shifting to delivering elements of their products and services for free, typically to get information they then can monetize. Examples of this include Instagram or Snapchat, which offer free online photo/video posting in exchange for user data that advertisers then use to creatively entice the right demographic with photo or video posts.

Value of Customers – Applies to 27% of companies today and another 34% by late 2017. These companies are shifting their definition from "We sell X" to "We deliver customer service around X." A great example of this principle is Amazon, which defines itself as a customer service company and not an online retailer. This culture of simply doing what it takes to get the customers what they need paved the way for Amazon's transition from just selling books online to becoming a highly interactive, data-driven sales outlet for everything from groceries to furniture to construction services. Other companies are researching how their customers want to interact, and delivering channels to address those preferences. Examples include collaborative tools such as video kiosks in bank branches; chat screens on websites; and the ability for high-value customers of any company to view presence status of their account reps to initiate the right type of communication. These all focus on using technology to improve the customer experience and build loyalty vs. simply selling something.

Crowdsourcing – Applies to 24% of companies today and another 32% by late 2017. These organizations proactively provide a technology platform, gamification, and moderation for crowdsourcing around their products and services. Many even are adding UC capabilities to let people check presence status and launch video conferencing sessions with one another, for example. Mobile app provider GiffGaff has no customer service. Rather, customers support each other on a moderated, gamified site, reducing the company's support costs and providing customers with a platform to communicate and help one another while winning badges for doing so.

API Economy – Applies to 19% today and another 32% by late 2017. Here, companies are using APIs to shift from providers of services to integrators of services, ultimately delivering more convenience to customers. One example is travel site Kayak, which aggregates data from multiple travel sites, saving customers the time they'd otherwise spend searching for the best price or flight times.

Extreme Personalization – Applies to 24% of companies today and another 34% by late 2017. These companies are moving from a one-size-fits-all delivery model to letting customers personalize every aspect of their purchases, including things like color, warranty, and support. Auto manufacturers offer "design your own car" sites, coupled with delivery to the doorstep. Similar personalization is available from clothing manufacturers. For a premium, Nike customers can go online and design their own athletic shoes through the use of interactive Web tools.

Continuous Delivery – Applies to 23% of companies today and another 36% by late 2017. These companies no longer offer products with quarterly or annual upgrades. Instead, these upgrades happen on an ongoing basis with small, incremental improvements that happen almost invisibly to the customer. For example, online grocer Peapod enhances and upgrades its website many times a week, and users barely notice.

What fits your business model, and how are you starting to turn the gears that drive digital transformation?