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What is digital transformation?

As organizations look to integrate digital technology into every aspect of the business, a digital transformation strategy covering digitization, modernization, and change management is key.

Every organization wants to digitally transform. But identifying the right path to digital transformation can be difficult.

So, what is digital transformation? In what follows, we explore the benefits and challenges of digital transformation, the key drivers, and how organizations can ensure a successful digital transformation journey.

What is digital transformation?

Digital transformation is the integration of digital technology into all areas of a business. This process reinvents existing processes, operations, customer services, and organizational culture. As a result, digital transformation requires modernization and change management so employees can embrace digitization.

The COVID-19 pandemic accelerated the speed at which organizations digitally transform — especially in industries such as eCommerce and healthcare — as expectations for a great customer experience dramatically increased.

Organizations that digitally transformed pre-pandemic COVID-19 were more resilient in the face of unexpected challenges, such as supply chain disruption. These businesses could also capitalize on rare opportunities to instantly serve unmet market needs, significantly affecting their bottom lines. Through it all, best practices such as AIOps and DevSecOps have enabled IT teams to efficiently and securely transform.

Why is digital transformation critical for organizations?

In today’s landscape, nearly every organization must digitally transform. According to a survey from PwC, 60% of executives said digital transformation was their most critical growth driver in 2022. As the analyst firm noted, organizations increasingly realize that digital capability is at the heart of execution, whether that’s to offer new products and services, minimize risk, or improve operational efficiency.

Organizations are accelerating their rate of digital transformation. For the first time, IDC estimates global digital transformation spending will exceed $10 billion over a 10-year period. These investments will go to operational improvements, such as back-office support and core infrastructure enhancements for accounting and finance, human resources, legal, security and risk, and enterprise IT.

Many organizations — particularly those in the securities and investment services, banking, and retail sectors — have also targeted customer experience enhancements. All these transformation initiatives are crucial to an organization’s ability to maintain a strong presence in its market and make the most of emerging opportunities.

What drives digital transformation?

Typically, organizations digitally transform because they need to innovate and become more agile. They need to not only embrace new technologies, but also let go of legacy mindsets and processes that hinder change.

In some cases, digitally transforming can involve changes to the organizational culture. For example, an organization that prioritizes transformation often features more cross-functional collaboration. Additionally, the role of IT may transition from a cost center to a strategic business innovation partner.

Legacy technology is often a major barrier to digital transformation. Just as old mindsets and processes no longer serve an organization, older monitoring tools and services aren’t built for monitoring complex, distributed, and highly dynamic multicloud environments. Over time, legacy tools can introduce productivity costs. When organizations realize how much legacy technologies hold them back, they begin to pursue transformation.

A successful digital transformation increases productivity and employee satisfaction, which often translates into better customer service. Organizations that digitally transform have a richer understanding of their customers and their needs. Additionally, these organizations continually use this insight to develop and improve the customer experience.

What are the benefits of digital transformation?

Digital transformation enables organizations to succeed during uncertain times and as market conditions change. When organizations transform, they build the agility and creative capacity that enable innovation. The result is an improved customer experience that can boost customer loyalty and revenue.

Digital transformation can also reveal new business models that disrupt the competition and provide a powerful competitive advantage. Digitally transforming goes beyond organizations using technologies such as artificial intelligence and automation to become operationally efficient. It also cultivates the talent and creativity necessary to keep innovating on a regular basis.

What are the challenges of digital transformation?

While every organization wants to embark on a digital transformation journey, it’s easier said than done. According to research from Boston Consulting Group, 70% of these initiatives fail — sometimes with serious consequences, such as fostering security vulnerabilities that cause damaging data breaches.

Although technology is an essential element of project success or failure, organizational inertia — stemming from deeply rooted behaviors — is a major reason for transformation failure. Management may not buy in or foster success, employees may not embrace change, and teams may struggle to collaborate effectively.

If an organization lacks a mature digital culture, an ambitious transformation attempt may fail. Without the right blend of expertise and experience, successfully achieving a positive digital experience can be challenging. Failure is also likely if an organization is already navigating other serious difficulties or managing substantial changes.

Similarly, if a transformation strategy embraces digitization but processes remain manual, an organization will fail. Organizations need to embrace automation and AI-enabled processes for effective transformation. When software intelligence underpins processes, they enable operational efficiency, reduced cost, and product innovation. As teams focus on strategic efforts instead of manual tasks, they can generate revenue rather than fire-fighting existing problems. Finally, integrating intelligence into transformation efforts enables systems to become smarter and more automated as organizations mature.

Crafting a successful transformation strategy

A comprehensive digital transformation strategy can boost an organization’s chance of success. The first step is to clearly articulate how the organization will use technology to achieve its strategic objectives. When organizations implement technology without clearly linking it to desired business outcomes, efforts are more likely to fail. Therefore, it’s important to undertake a high-level business review as you would for any other major organizational initiative.

Next, an organization should consider its place in the market, where the market is headed, and how its transformation strategy will account for current and anticipated changes. It should create a vision for how to evolve in the future and a transformation roadmap that outlines how to get there.

Finally, as an organization crafts a transformation strategy, it should calculate the expected return on investment. As part of this assessment, it should specify metrics that demonstrate whether and how well an organization achieves its business objectives to compare the results with the investment in the project.

The importance of modern observability to digital transformation success

The Dynatrace modern observability platform helps organizations transform at scale and more securely. Unlike traditional monitoring services, modern observability with the Dynatrace platform automatically provides precise, real-time data about application performance issues, complete with the context required for rapid problem resolution. With software intelligence underpinning the platform, teams can automate formerly manual tasks. That enables teams to eliminate the finger-pointing in war rooms and start identifying and prioritizing issues in real time.

Dynatrace can help jumpstart your digital transformation and give your team the visibility it needs to deliver experiences customers will love.