What is digital transformation?
Digital transformation is the integration of digital technology into all areas of business, fundamentally changing the way a company operates and delivers its products and services to the customers. It’s also a cultural shift that requires companies to continuously challenge the status quo, experiment and be comfortable when facing failure.
Digital transformation completely changes the way a business functions and it is a necessary process, especially for small and medium-sized enterprises, which will contribute to the development and offering of better and more innovative products and services on the market.
The meaning of digital transformation
Digital transformation is a general concept that encompasses the changes caused by the increased availability and use of digital technologies in almost all types of human activities. For businesses, it implies that the existing or new digital technologies contribute to changing their business models, their products or services and the way they are produced and delivered, as well as the skills needed to remain competitive in rapidly changing competitive environments. The transformation process must be integrated into every aspect of the company. It should be supported by equally important changes in culture, leadership, skills and processes. SMEs need to proactively reconsider their core businesses, in order to adapt to the challenges.
The European Union specifically invests in digital technologies and skills, both in the industry itself and for research purposes. However, it is widely acknowledged that there is a “need for action” to encourage digital transformation, particularly in SMEs and traditional sectors. According to one of the EU’s goals for digital transformation, at least 90% of small and medium-sized enterprises (SMEs) in the EU should reach a basic level of digitization (intensity) by 2030. In 2020, three out of five SMEs (60%) in the EU have reached at least a basic level of digitalisation, compared to 89% of the large enterprises. Almost half of the medium (47%) and small (46%) enterprises showed a low level of digitization (Source Eurostat).
COVID-19 pandemic has paved the way for accelerated digital transformation of companies, since the companies had to urgently deal with office closures, restricted movement, production process disruptions, supply disruptions and sales channel collapses. Hence, digital transformation emerged as an alternative that was supposed to prevent a complete collapse of business operations. At the same time, the encouraging of digital transformation, especially in traditional economic sectors, is necessary to accelerate economic recovery and provide new opportunities for the growth of companies and businesses.
Digital transformation, myth or reality?
There are several myths in the public related to digital transformation in small and medium-sized enterprises. At the same time, those myths are neither scientifically proven, nor professionally confirmed. On the contrary, there is more verifiable evidence that refutes these myths.
The first myth that is present in the public is that the digital transformation is temporary. Actually, the reality is that digital transformation will be imminent in the coming decades. Roland Berger in its report Spain 4.0 indicates that the digital transformation in gross amount will mean new EUR 120 billion in the country’s economy by 2025. Hence, it can be concluded that the worldwide digital transformation will have a great impact in national, regional and continental economies, with companies spending a lot of money to implement it.
The second myth is that digital transformation is intended for the large enterprises. However, essentially the digitalization has nothing to do with the company’s financial status. Digital transformation is a change that leads to automation of processes in companies and introduction of new ways of doing business.
The third myth is that companies that are oriented towards the delivery of services and goods to consumers (B2C companies) benefit more from digitalization compared to companies that deliver goods and services to other companies (B2B companies). Digital transformation aims to bring transparency, optimization of processes and increase efficiency in companies. Hence, the process is beneficial for both B2B and B2C companies. Quite simply, a company can reap the benefits of digital transformation, regardless of the type of company and the type of business.
The fourth myth is that digital transformation should be carried out by a CTO who should be responsible for the process. Essentially, digital transformation is a cross-departmental process that should involve employees from every department of the company, as well as enthusiasts who want to help the process.
The fifth myth is that digital transformation solutions are expensive. The process of digital transformation is a kind of change from manual to digital operation of the company. However, that does not mean that such a change means bigger capital expenditures. Companies should perceive the process as an investment that will provide higher revenues in a certain period of time.
The sixth myth is that digital transformation is a one-time project. In essence, a company does not have to digitize all its processes and operations at once. They can draft an effective digital transformation strategy in line with their company goals by studying the market trends. In this way, they will provide the necessary data to identify the processes and operations for which digital transformation is necessary.
The seventh myth is that digital transformation has nothing to do with the business model used by the company. The digital transformation of all key processes requires modelling of all processes within the company with advanced tools. Digital transformation is an ongoing process and the use of special tools is not recommended for ensuring a successful implementation thereof. Hence, nowadays digital transformation is one of the most important projects for a company and should not be perceived as a separate process from the business model used by the company.
The eighth myth is that digital transformation is not about business metrics. The digital transformation of a company is a process by which processes and operations in the company are managed through digital tools. That way, with a few clicks, you can easily access data related to these processes and operations. Hence, companies obtain data about their operations in an easy and simple way through the digital transformation which allows them to make more efficient decisions.
Digital transformation benefits
Efficient provisioning of data. Most businesses tend to provide customer data in order to make decisions in a simpler and more efficient manner. However, the data optimizing and analysing of data is quite a challenge. Digital transformation creates a system for efficient data collection, their timely processing and analysis. This creates a way for different functional units in the company to translate raw data into daily, weekly, monthly and annual reports. By doing so, the company can get a clear display the customers, operations, services, production, finances and business opportunities.
Improved resource management. Digital transformation is the process of consolidating information and resources into a suite of business management tools. Instead of dispersed software and databases, it consolidates company resources and optimizes processes and procurement. Applications, databases and software can be integrated into a central management system thanks to the digital transformation.
Making data-driven customer decisions. Data can be the key to making customer-related decisions. Through the data, a clear picture of the customers and their needs can be obtained, thereby creating a customer-oriented business strategy. Using both structured data (personal customer information) and unstructured data (social media metrics), can help grow and develop a business, as well as market products or services to new markets.
Improved customer experience. Through digital transformation, companies can improve communication with their customers. Using the tools at their disposal, companies can be in constant communication with their customers and thus provide more information about the customer’s experiences with their products or services.
Encourages digital culture (enhanced collaboration). By providing team members with the right tools, tailored to their environment, digital transformation fosters a digital culture. While these tools provide an easier way to collaborate, they also help the company move forward digitally. This shift in digital culture is key to the sustainability of businesses.
Increased profit. Companies undergoing digital transformation improve efficiency and profitability. According to research by the SAP Centre for Business Insights and Oxford Economics, 80% of digitally transformed companies have reported increased profits, while 85% of them have increased their market share.
Increased agility. Digital transformation makes companies more agile. Digital transformation improves access to the market, enables faster innovation and adaptation, while ensuring continuous improvement of business operations.
Improved productivity. Having the right technology tools integrated into a shared system can streamline workflow and improve productivity. Employee productivity and efficiency increases by automating averages and integrating data across the entire company.
What is the simple way to digital transformation?
Assign roles and responsibilities to your employees.
Forming a team of dedicated employees within a small company that will lead the digital transformation process is a big challenge. The first step towards effective digitization is to choose a team leader who possesses the necessary competencies and knowledge for the process. If you do not have such person among your employees, then you should hire an expert. In this way, you will ensure a process in which all stakeholders are involved and add value to the digital transformation. In the team, in addition to an IT expert, include managers and people who are responsible for making decisions, as well as employees from all departments in the company, whether it is from accounting, production, marketing area, etc.
Set a budget and timeline
One of the biggest problems the companies face with in the process of digital transformation is limited resources, mostly money and time. Consider how you can optimize these resources in the short term to achieve maximum results. Turn to your partners or friends who have enough expertise and who will help you go through the digitization process more smoothly.
Identify the business operations you want to digitally transform
List your business operations that most urgently need to be digitally transformed. Make a list of priorities. Then divide them into short-term, medium-term and long-term priorities. Present them to the company’s management, make a digitalization plan and decide together where to start.
Inform your employees about your plans
Digital transformation is a major change in the way your company operates. Hence, your employees are key to the success of the process. Consultation with the employees should give you the key information, such as the work needs and challenges, where employees waste the most time in the day due to poor processes or technology, and how customer access can be improved. Not only will this help you to further define your priorities, but it will also help employees understand why digital transformation is necessary and how they will benefit from it.
Think and plan in the long run
Digital transformation is an ongoing process that leads to the improvement of your business operations through the introduction of new technology. Although it seems to be a short-term process, if you want to achieve the maximum you will have to make a long-term strategy. You may need to think about where you see your company in the next 3 to 5 years.
Seek professional help and support
Large companies can afford to hire digital transformation consultants, which is not the case for SMEs. However, nowadays many online resources can be found to help you go through the digital transformation process more smoothly. bizz4all.mk and skill4future.mk platforms are one of those resources. Here you can find very useful tips and by applying them you can also get mentoring support from qualified digital transformation experts.
Choose the right tools for digital transformation
Talk to your employees and choose together which digital tools you will implement and which will improve the processes in your company. Then, share your decision with your partners and customers and see what they tell you. Choosing the right digital tool can make your work a lot easier.
Digital transformation through seven steps
- Evaluate the existing practices
- Define a digital transformation goal
- Create a digital transformation strategy
- Choose the right digital tools for your company
- Select a qualified team and team leader to lead the process
- Set a budget and timeline
- Start the process
About the Author
Samoil Malcheski holds a Ph.D. degree in applied economy and economic statistics from Institute of Economics at Ss. Cyril and Methodious University in Skopje. He is associate professor at International Slavic University in Macedonia. Mr. Malcheski has extensive experience in supporting SMES and start-ups, more than 15 years he is working with SMEs and start-ups, training and mentoring. Lately, he is working on various EU funded projects as a trainer and consultant, and also he is UNDP consultant for supporting SMEs and business start-ups. Mr. Malcheski is consultant of the Agency for Promotion of Entrepreneurship in the field of business planning and strategic planning.