The term “digital transformation” is everywhere you look today. It is so prevalent, in fact, that your brain might automatically numb or skip over the term when you encounter it. And who could blame you? To some, it sounds like business hype or jargon with little practical application.
But here’s how you can know that digital transformation (or DX, as it’s shortened) is more than just hype: follow the money (these numbers come from a Wikibon article):
- In 2015, the private-cloud and public-cloud markets together were valued at about $32 billion.
- By 2020, those markets are projected to grow to about $100 billion.
- During the same period, spending on traditional IT infrastructure hardware and software is expected to decrease by about $200 billion.
So enterprises are expected to increasingly bet on clouds to do what their current traditional infrastructures are doing—but they want greater innovation, agility, and adaptability from these environments. They expect the cloud to lay the foundation on which they will build their digital strategies.
In fact, according to a Forbes Insights report, the top drivers of digital transformation are new business models and new technologies. And it is telling that businesses measure the success of their DX initiatives by three crucial criteria: ability to innovate, revenue growth, and cost reduction.
So will those enterprises who spend $100 billion on digital transformation in 2020 realize the benefits they expect? My crystal ball is murky, but consider these data points:
- Companies that spent more on technology during the recession had a 60% higher compound annual growth rate (CAGR) than companies that spent less (according to the Forbes Insight report).
- Companies that execute on their digital strategies are seeing real results—9% increased value creation, 26% increased impact on profitability, and 12% increased market valuation (according to the World Economic Forum).
- Companies that transform themselves digitally see a 41% increase in market share and 30% increase in customer revenue (according to “The 2016 State of Digital Transformation”).
So, while the past cannot predict the future, those companies that go for digital transformation have a good chance of achieving what they set out to do.
What Is Digital Transformation, Anyway?
It can be tricky to pin down a definition of digital transformation because the term is so ubiquitous. What it means depends on whom you ask. Based on four years of market research and interviews with innovation leaders, this definition makes sense to us at Prowess:
The realignment of, or investment in, new technologies, business models, and processes to drive value for customers and employees and more effectively compete in an ever-changing digital economy (from “The 2016 State of Digital Transformation”).
While this definition is clear, you can understand DX more thoroughly by considering some examples of digitally transformed (or transforming) companies:
- Under Armour is not just selling shirts and shoes; it is connecting 38 million people on a digital health platform.
- Uber is not just another taxi company; it is transforming into an “urban-logistics” company with 200,000 drivers, roughly double the size of the UPS delivery workforce.
Companies that execute on DX strategies could have an important competitive edge. Here’s why: research shows that 90% of CEOs believe the digital economy will have a major impact on their businesses, but only 25% have a DX plans, and only 15% are executing according to their plans (according to an SAP white paper). Those numbers look like opportunity. Act on a DX strategy and your enterprise could be in the top 15% of businesses that achieve DX benefits ahead of the curve.
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