Your startup will shine if you know this about digital transformation [Part – II]

digital transformation for startup
Author : Utsav Patel   Posted :

In part – 1 of this blog, we saw how assessing digital technology, digital competition and digital consumer behavior helps every firm to realize the need for digital transformation. We have then covered the importance of digital transformation phases and why it is essential for the company-wide adoption of digital transformation. In part – 2 now, we will see the strategic imperatives of digital transformation.

Continuing with a statement made in the Part – 1, past performance is no indicator of future returns. The evidence is unmistakable. Take retail, for example. The rapid growth of online retailers, such as Alibaba and Amazon, is severely denting traditional retailers’ growth. The bankruptcies of several former retail behemoths like Toys “R” Us, Claire’s and RadioShack confirm that. A big war is on between ING and Amazon as the latter is attacking financial services from all sides – from payments, cash, lending to accounts check – without attempting to become a conventional bank. Spotify has changed the music industry unlike ever before. Netflix has disrupted the film industry, while Airbnb has altered the hotel industry. A common observation amongst all is that these new digital entrants have never limited the reach of traditional industries. In fact, they use digital resources to enter and capture markets in a relentless way.

Businesses get in trouble not when the technology changes, even if it changes drastically. They get in trouble when they don’t change. They don’t change because they keep doing things the way they have always done them. That’s precisely why you should read Part – 2. The second part unveils strategic imperatives of digital transformation. If you want to transform digitally, you should think about digital transformation strategy beyond procuring digital resources. Learn what role agile organizational structure plays, the importance of digital growth strategies and what KPIs to measure to assess digital transformation success. This blog will deepen your realization of digital resources, organizational structure, growth strategy, and metrics and goals.

Strategic imperatives of digital transformation

Digital resources

The term ‘resources’ refers to any company’s ownership and control over assets and capabilities. Assets are nothing but the company’s resource endowments in physical and intellectual form. On the other hand, capabilities are typically found in the company’s human, information, or organizational buildup. The effective coordination and deployment of assets and capabilities matter the most in any company’s success story.

To achieve digital transformation today, organizations should employ the following digital resources:

Digital assets: Data storage assets, information and communication infrastructure, big data (for example, customer journey data), AI, ML, IoT, robotics.

Digital agility: Tools to sense and seize market opportunities, respond to changing customer needs and implement a multidisciplinary approach. Readiness to reengineer existing digital assets and capabilities.

Digital networking capability: Methods to gauge a network-centric view, strengthen partners and related ecosystems to work with as well as co-create value for the company and their customers.

Big data analytics capability: Systems and strategies that empower analytics, data management and data visualization expertise as most digital transformation strategies rely on data.

Hence, to realize the full potential of digital transformation, every firm should look twice over their existing digital assets and capabilities.

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Organizational structure

Apart from the digital resources, the readiness of a company to adapt to the digital change, in terms of flexibility of the organizational structure, is a critical problem. For example, separate business units are competence-destroying to digital transformation. They tend to react slowly and many times in conflicting ways. It nullifies the window of experimentation and organization-wide quick learning.

The other layer of organizational structure is hierarchical organization schemes. Such a standard corporate structure with a solid top-down approach reduces response speed and innovativeness in extremely responsive digital environments. Every startup should call for agile working ways, which implies short cycles for rapidly testing and updating market assumptions through trial-and-error. Nowadays, more and more startups adopt an approach based on holacracy – a self-management practice for running responsive, purpose-driven companies.

Digital growth strategies

We can see several digital growth strategies available for digital firms, but the most prominent growth strategy involves the use of digital platforms. The impressive growth figures are an omnipresent characteristic of firms adopting digital platforms. For example, Google, Lyft and Facebook have increased their annual growth rate by 50%, 300% and 25% respectively in the last decade.

While a successful product launch initially drives the platform’s growth, the focus gradually shifts to a platform-based mindset from a product-based one. This shift entails a focus shift from new product creation to managing platform partners like suppliers and customers. With time, a platform-based business model enabled by digital transformation ensures market penetration, partners enhancement, market diversification and smooth customer journeys. Netflix, Amazon, Google, Apple, Airbnb and eBay’s ecosystems are the best examples of such strategies.

Metrics and goals

Digital transformation can work in its full-fledged way when you measure performance improvements on KPIs. That enables learning and business model fine-tuning.

Certain KPIs are adjusted and updated when a company goes through digitization and digitalization phases. This covers website clicks count, mobile downloads, video views after online channels are up and running and many other KPIs. However, such outcome-related metrics (ROI, profitability, revenue growth) are useful for companies that go through digitization and digitalization.

Digital transformation-enabled new business models also generate revenues, profits and improve investor value. However, process-based metrics measurement via intermediate results are counted heavily as it is helpful to assess new digital business model value. In a nutshell, while implementing digital transformation, intermediate digital metrics are of high importance. They measure online sentiment, engagement values, value sharing and more. When multiple intermediate metrics are collected and evaluated, it reveals how well business activities operate and perform. It also shows where changes are required to make the business more efficient.

While adopting digital transformation, the focus should undoubtedly be on achieving high sustainable growth but not by compromising with profitability.

Concluding thoughts

Undoubtedly, digital transformation is critical to every industry and every company, including yours. However, it proves a competitive advantage to those who don’t employ digital technologies just to transform their existing business processes but use them to shape their future strategies and business models. To do that, you need to evaluate your digital resources, organizational structure, growth strategy, and metrics and goals prudently.

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