What is the impact of digital transformation on business strategy?

Finger pressing an interface with the text digital transformation. Concept of digitization of business processes. Composite between a photography and a 3D background
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Nov 14, 2023

In a rapidly evolving business landscape, digital transformation has become a critical success factor for any organisation that wants to grow or stay competitive. This is because digital transformation – which refers to the comprehensive integration and use of digital technologies within an organisation – is linked to:

  • increased operational efficiencies
  • greater organisational adaptability and resilience
  • enhanced innovation and creativity
  • optimised business performance
  • new opportunities for growth.

Businesses need to adopt and embed a comprehensive suite of technologies to support – or deliver – their strategies, processes, and operations to create successful digital transformation. But it’s also important to remember that digital transformation is not just about incorporating technology – it is a strategic approach that reimagines how businesses operate, how they interact with their customers, and how they prepare for the future.

“Digital transformation is the fundamental rewiring of how an organization operates,” writes McKinsey in a 2023 article about digital transformation. “Digital transformation is critical for organizations to not only compete but survive.”

How technology is transforming businesses

According to a 2015 article in MIT Sloan Management Review, it is strategy, rather than technology, that drives digital transformation:

“The power of a digital transformation strategy lies in its scope and objectives,” the article states. “Less digitally mature organisations tend to focus on individual technologies and have strategies that are decidedly operational in focus. Digital strategies in the most mature organisations are developed with an eye on transforming the business.”

It’s also fair to say, however, that digital transformation projects are delivered by technology as without systems and programmes, devices and apps, a digital strategy would be impossible to fulfil.

Collectively, though, these technologies and the strategies that underpin their use are helping to transform virtually every area of businesses and organisations.

Strategic decision-making

Strategic-level decision-making is one of the most significant business areas transformed by digital technology.

This is because organisations now have access to huge pools of data – even big data, in some cases – alongside sophisticated data analytics tools. These resources enable organisations to gain valuable, real-time insight, and make informed, data-driven decisions.

The impact, meanwhile, can be significant:

“Intensive users of customer analytics are 23 times more likely to clearly outperform their competitors in terms of new-customer acquisition than non-intensive users, and nine times more likely to surpass them in customer loyalty,” McKinsey reports. “Our survey results also show that the likelihood of achieving above-average profitability is almost 19 times higher for customer-analytics champions as for laggards.”

Customer experience

Digital transformation projects have driven fundamental changes to the way businesses build and manage customer relationships, and have offered new tools to enhance client interactions and engagement

For example, businesses can now create streamlined online experiences for their customers, offer tailored recommendations based on customer preferences and behaviour, and provide instant customer service. Through websites, apps, and other digital platforms, businesses and customers are more connected than ever before – and customer experiences have been elevated to new heights. 

Business processes

Digital has helped overhaul business processes across all sectors and industries. Automation, for instance, has helped streamline operations and drive productivity and efficiency. Other technologies, such as cloud computing, robotics, and big data analytics, similarly offer huge benefits to businesses in everything from information technology (IT) to human resources (HR).

An effective digital transformation process can also support entirely new business models. In fact, digital business model innovation is an important area of digital transformation, and it enables leveraging new technologies to open up new markets and revenue growth streams. This is often referred to as digital disruption – using new technologies to disrupt traditional business models and practices, particularly in the startup environment.

Marketing and communications

In many areas of marketing and communications, digital channels have overtaken more traditional channels, such as print, in popularity. Social media platforms, for example, have provided businesses with unprecedented levels of reach, and are now essential tools for engaging with customers and building brand awareness. And other digital marketing initiatives, such as digital advertising or personalised marketing campaigns, offer organisations opportunities to use their unique insights into consumer behaviour to refine their marketing strategies and tailor their messaging for maximum impact.

Supply chain management

The global supply chain has struggled in the wake of the global COVID-19 pandemic, but digital tools offer opportunities to create efficiencies across the entire supply chain lifecycle – also known as the value chain – from procurement to delivery. This is because digital tools – such as real-time tracking, predictive analytics, and blockchain technology – enable better collaboration, visibility, and responsiveness within supply chain management systems.

For example, a Harvard Business Review article from 2020 suggested that blockchain – the technology behind cryptocurrencies – “can greatly improve supply chains by enabling faster and more cost-efficient delivery of products, enhancing products’ traceability, improving coordination between partners, and aiding access to financing.”

Employee experience

The digital age has brought big changes for both business leaders and their customers and clients, but it’s also meant significant change for the workforce. 

New digital technologies have empowered employees with tools and platforms that enhance collaboration, communication, partnerships, and productivity. In many cases, these technologies are also important contributors to employee satisfaction, such as when they enable rethinking around flexible working arrangements. For example, with the right digital infrastructure in place, employees can work remotely, access critical information instantly from anywhere with an internet connection, or engage in virtual training and development initiatives. 

Change management

Change projects can be difficult for businesses, but digital technologies can support everything from making the right changes to effectively communicating the changes with staff and stakeholders.

Effective digital transformation also aids change in other ways. For example, it ensures businesses can adapt to digital change or external changes – such as market conditions or economic environments – with agility, or identify emerging customer needs early – which can prove to be a huge competitive advantage.

The future of digital transformation for business

Business models that embrace and embed a digital transformation strategy as standard are more likely to adopt – and benefit from – new and emerging technologies. Some examples include:

The Internet of Things (IoT)

The Internet of Things (IoT) is essentially a kind of digital ecosystem. It digitally connects physical objects and devices on a network, and spans everything from ordinary household items, such as fridges, to the possibility of so-called smart cities. The IoT presents new opportunities for innovative businesses that want to become better linked with their customers through their products.

Artificial intelligence and machine learning

Over the past decade, artificial intelligence (AI) and machine learning have had a significant impact on business strategies. This impact is expected to grow in the future, with businesses more efficiently automating their internal processes, gaining new insights from data, and predicting customer needs to drive better experiences.

Learn more about digital transformation and business strategy

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