The term digital transformation has caught fire among enterprises in the past several years, but many companies don’t fully comprehend its implications for them today, tomorrow, and well into the future. The business imperatives, technologies, and everyday practicalities that force CIOs and IT to change the way digital technologies are delivered and used, and which can thoroughly transform the enterprise, are important to understand. Here we explore the recent advances driving enterprises toward the digital era and how enterprises can transform themselves by embracing innovation and change. 

Today’s business world is data-driven, edge-centric, and cloud-enabled. And CIOs are most often charged with using technology to help companies do more with less. Yet, true digital transformation is much more than increasing productivity. It’s about disrupting old ways of doing things, including disrupting the business the enterprise engages in. It’s about new business models, new sources of revenue, and new relationships with customers and competitors. While this has always been the case, the speed at which new entrants can arrive on the scene, scale, and begin to take market share is so much faster.

Moving an enterprise into the digital era requires a new kind of disruptive thinking, driven by the application of new technology. And transforming companies requires a holistic approach rather than relying on a technology-by-technology or department-by-department methodology.

With that as background, let’s get started.

It’s all about the data

One attribute sets the digital era apart from the past: It’s all about the data. It’s about how enterprises create data, how they consume data, how they get insights from data, how they leverage data to create differentiation and innovation, and how they monetize data. If enterprises are really serious about digital transformation, they must have an absolutely maniacal focus on data as the key aspect in their transformation. 

As an industry, we’ve been on this trajectory, this hockey stick shape of data creation, for many years. What’s different today is that companies use data to drive new revenue streams. And they’re using it to blur the boundary between the physical and digital worlds. That helps them gain insights that weren’t available to them before, such as better understanding the way customers use their services by analyzing behaviors and usage patterns. 

The amount of data available continues to skyrocket with the rise of IoT and the way we’re instrumenting the world. And it’s not just the amount of data that’s transformational but that we’re seeing data in near real time. 

We are just now gaining the necessary tools to analyze all that data. Only a small percentage of enterprise data is currently being analyzed, so we’re barely scratching the surface of looking at the datasets that flow through organizations today. 

Gathering and analyzing vast amounts of data offers many benefits, but it also raises many questions about ethics, privacy, and regulations like the EU General Data Protection Regulation (GDPR). The companies that will survive the digital era and move into it in a prosperous way are those that not only are great at handling and creating data but also great at using it in an ethical way.

Creating value at the edge

Also driving digital transformation is the way in which data and value is increasingly being created at the enterprise’s edge. As we pivot into the new digital era, much of the disruption happens outside the four walls of big hyperscale data center environments. You’re not going to differentiate your company because your CRM is better than your competitor’s. You’re going to differentiate it by creating new value—and that value will be created at the edge.

According to Gartner, by 2022, more than half of enterprise-generated data will be created and processed outside of data centers and the cloud. Because data is driving digital transformation, and most data is being acquired and processed at the edge, digital transformation needs to be an edge-in process rather than a process starting at the core and moving out toward the edge.

One example of this is the way in which automobile data is being monetized. Modern cars have between 120 and 140 sensors, capturing vast amounts of data about the car and its environment—25 gigabyte per hour of driving. The data can be used to provide enhanced driver mobility safety services and entertainment. But car manufacturers only have, at best, access to their own fleet’s data. Because their market dominance varies by region, manufacturers have sizable geographic areas about which they have little data. And they can’t deliver an exceptional driving experience for their customers in those areas.

A new platform allows manufacturers to buy and trade data, giving them access to a much wider and broader data pool. They can use that to increase the quality of in-car services—for example, warning drivers if there’s any severe weather condition that might lead to black ice or aquaplaning. It saves lives, and it also allows car manufacturers to monetize data that was previously unused. And it all happens out at the edge.

The cloud era makes way for the digital age

The third technology driving digital transformation is cloud computing. The cloud era moved IT away from a cost-center, transaction-heavy, siloed experience and toward a new service model of IT as a utility, similar to the way in which electricity is consumed and paid for. It created a center-out conversation, because most of the applications, back instances of record, and big transactional engines sit somewhere in a core. Using the cloud for this allowed enterprises to be more agile and act more quickly and effectively.

The cloud era was, above all, about reducing risk. Enterprises no longer needed to build massive data centers and buy hundreds or thousands of servers to launch new digital projects. Instead, they could spin up as many cloud-based instances as needed. If the project didn’t succeed, very little was lost, because not a great deal of time or money was spent. That allowed innovative thinking to flourish, because it reduced the risk and therefore the costs associated with trying something new.

However, the cloud era was still core-centric and in itself not transformational—it allowed companies to re-engineer their digital supply chain and pass those savings on to the business but didn’t transform the business in any significant way. Businesses just trying to move to the cloud aren’t being digitally transformational. Rather, they’re optimizing their digital supply chain, which may be a good thing but doesn’t transform the enterprise.

What this means for digital transformation

The digital era, by way of contrast with the cloud era, isn’t just about improving productivity, reducing costs, and doing more with less. It’s about truly transforming the business. Enterprises looking to digitally transform themselves are not simply using technology to better optimize the way they operate. They’re using technology to fundamentally look at how they make money and how to gain new revenue streams—and they’re asking if technology can shift them to the next level.

Achieving digital transformation is easier said than done. Enterprises often aren’t clear about why they’re launching a new digital project. Before launch, they need to determine whether a project has an optimization agenda or a transformation agenda. Are they looking to reduce costs and do more with less? If so, the project has an optimization agenda. Or are they looking to transform their business and find new revenue sources? That’s a transformation agenda. 

Another way to look at it is that an optimization project does not fundamentally change what a business does. It might change how the business does it, but that’s all. A digital business transformation project, though, changes what an enterprise does, what it sells, and how it sells it.

Just knowing the agenda for new projects isn’t enough, though. Companies also need to determine the approach to take for them, which can be predictable or exploratory. The exploratory approach is loosely but not directly coupled to the digital business transformation agenda, and the predictable approach is loosely but not directly coupled to the digital business optimization piece. 

By predictable we mean a project with a defined ROI, where the impact of the technology is relatively well known. In an exploratory approach, the ROI is undefined, as is the impact of the technology. The greatest opportunity comes from the exploratory approach. You have the ability to change the game, whereas on the predictable side, you know what the outcome is going to be. And if you know what the outcome is going to be, so will everybody else in the market. And everybody else will be able to do the same thing you are doing.

Monetizing automobile data is a perfect example of the difference between a digital transformation project (exploratory) and an optimization one (predictable). The company that built the platform to allow automobile manufacturers to buy and sell data from one another is in the business of manufacturing car parts. If it had launched a project to make more parts more cheaply using better CRM, faster design analytics, digital optimization of their physical supply chain, and new applications, it would have been an optimization project—it would have had additional revenue but wouldn’t have changed the company’s business model. But instead, it followed a vision to shift the company to becoming a mobility services provider and used the exploratory approach to do it. That was a true digital transformation because it used technology to build new revenue streams that align to its new vision of the company’s future.

Your transformation agenda

Artificial intelligence, machine learning, the cloud, and edge technologies have paved the way for the new era of digital transformation, in which enterprises use data to transform the way they work, what they sell, and how they sell it. But to achieve that, they need to clearly focus on a transformation agenda rather than an optimization one and consider taking an exploratory approach to new projects rather than a predictable one. Only then will businesses be able to succeed in the new digital era.

Digital transformation success factors: Lessons for leaders

• A predictable approach is a project with a defined ROI, where the impact of the technology is relatively well known. 
• An exploratory approach is where the ROI is undefined.
• The greatest opportunity comes from the exploratory approach. 
• A maniacal focus on data is the key aspect in a digital transformation.