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Learn the 5 types of digital transformation
A company's business requirements affect which type of digital transformation strategy is most likely to succeed. Learn more about the five types of digital transformation.
At a certain point, companies might need to make a massive change in their processes by undergoing a digital transformation. Some types of transformation might work better for a company than others, depending on an organization's business needs, finances and culture, so leaders should ensure they've chosen the right one.
Changing industry conditions, competition and the desire to become more efficient might all lead a company to embark on a digital transformation. However, any changes to employees' processes can be challenging to implement, so leaders should attempt to make the transition as smooth as possible. In addition, a company might combine more than one type of digital transformation to make the transformation as effective as possible.
Learn about the five different digital transformation types and why selecting the right one is crucial for success.
1. Process transformation
The primary goal of a process transformation is to make internal processes more straightforward and efficient. A company undertaking a process transformation is aiming to reduce throughput time, costs, errors and complexity by rethinking current strategies. Potential results include simplifying or removing steps, improving reporting and minimizing keying errors. An evaluation of the company's existing software is essential for a successful process transformation.
Introducing a brand-new system during a process transformation might be tempting, but company leaders should consider several factors when introducing new software applications during a transformation. First, leaders should examine implementation timelines, change management and the urgency of the change. For example, a new application's implementation might take more than a year, which would require interim measures to resolve potential issues.
Second, SaaS application feature updates occur frequently, so a company's current vendor might now offer previously unavailable features, potentially eliminating the need for a brand-new software system implementation.
Third, this type of transformation might affect external vendors and customers. For example, accounts payable process revisions might alter the invoice submissions process, so change management would be essential for internal employees and external stakeholders.
The fast-food industry is one example of process transformation. In the past, a customer would enter a physical establishment and place their order with an employee. Today, when customers go to a restaurant, they can place their own order using a kiosk or pre-order their meal using the restaurant app.
2. Business model transformation
A business model transformation is a more drastic approach to digital transformation than process transformation. In this situation, a company is attempting to revamp part of its business by digitizing a product or service that was previously delivered through another means.
A company usually undergoes a business model transformation because leaders see an opportunity to change the way consumers purchase or use a product or a service or because market competitors are moving in a particular direction, and the company wants to do the same.
Important considerations for a business model transformation include avoiding being too reactive and potentially needing to hire employees with new skill sets or retrain the existing workforce.
Peloton is an example of a business model transformation. The company initially focused on producing exercise machines. However, as technology changed and competition grew, Peloton shifted its focus to the experience of exercising by allowing users in separate locations to connect while exercising.
3. Domain transformation
A company undergoes a domain transformation when company leaders want to enter a new market.
Some potential reasons for undergoing a domain transformation include competitors or new technologies making it difficult to continue a current business plan and leaders looking to diversify the organization's portfolio.
For example, a company might undergo a domain transformation if the organization has developed software to automate processes and begins to sell the software to other companies, creating a new revenue stream.
IBM is an example of domain transformation. IBM first produced computers and other hardware devices, and as competition in that area increased, the company shifted its business to focus on consulting services and software applications.
4. Cultural/organizational transformation
A cultural/organizational transformation will usually affect a company significantly and is sometimes difficult to implement because it can require major change for employees.
An organization might go through a cultural/organizational transformation if the company was recently acquired or has experienced a change in leadership. Negative circumstances, like a lawsuit or a negative industry reputation, might also lead a company to undergo a cultural/organizational transformation.
COVID-19 lockdowns led to culture transformations at some companies because of employees working from home. Employees' daily approach to work was affected by the change.
5. Cloud transformation
In the past, companies often managed their own systems, applications and hardware using an on-premises model. As large data centers became more common and cloud applications became available, IT leaders had to decide between continuing to manage their own technology and switching to the cloud.
An on-premises model provides more control over the system but requires employee resources. Meanwhile, switching to the cloud is a major undertaking, and a company might have customized its current system to meet organizational needs.
SAP is an example of the transformation from on-premises to cloud. In the past, its HR application was only available on-premises. As cloud software became more prevalent, SAP acquired SuccessFactors, a cloud-based HR application.
Eric St-Jean is an independent consultant with a particular focus on HR technology, project management and Microsoft Excel training and automation. He writes about numerous business and technology areas.
