What is digital transformation?

Digital transformation is a pivotal strategic shift where businesses still relying on legacy technology turn to digital to maintain their competitive edge. Although most businesses have long been undertaking the process of digital transformation to improve business operations, the COVID-19 pandemic is estimated to have sped this process up by an average of three to seven years. And some businesses are much further along the path to digital transformation than others.

Depending on the business type and the market in which it exists, the challenges faced when adapting and changing processes to move toward digitalization can present a myriad of challenges. While the outcomes are almost always entirely positive, new processes can be complex. Digital transformation requires a change not only to the status quo of a business's operational day-to-day, but a cultural shift in how business is approached, as teams learn to continually challenge the status quo and experiment. 

“More than half of businesses reporting more than $1 billion revenue have already completed, or are in the process of completing their digital transformation.” - PTC

But what exactly does digital transformation look like in practice? 

This blog post presents an overview of digital transformation and explains the benefits different aspects of digital transformation can offer businesses.

Digital transformation will look different for every company, but from small businesses through to enterprise level organisations, the process is built on the same pillars. By integrating digital technology into all levels of a business's function to provide more value to customers. Perhaps the most difficult step for businesses to take is walking away, or departing from long-standing processes and systems that worked in an era bygone, or that prevent a business from finding new customers or functioning successfully in a digital world. 

Technology facilitates innovation by allowing you to better understand your customers’ needs, and find new ways to serve these needs. It also helps streamline all sorts of processes, saving time and money, increasing efficiency, and driving growth.

The purpose of digital transformation is essential in understanding its value: by removing friction and improving customer experiences you are taking steps towards increased profitability. While positive effects can be felt immediately after implementation, the real value of digital transformation lies in the long term benefits and future proofing. If you set your business up to be agile, it’s easier to adapt and scale. 

There are three mindsets firms can take when approaching the digital transformation topic, each ushering the company towards a particular framework:

Retail and banking are perhaps two of the most obvious sectors when we think about digital transformation. While the age of ecommerce was ushered in by this move, the in-store experience has also been transformed as a side effect. The retail experience has been improved significantly for customers and business owners, as automated inventory and analytics systems allow for highly optimized sales processes, and convenience, alongside promotions, loyalty programs and e-coupons have transformed the experience for shoppers. 

It was only a few decades ago that clipping coupons out of newspapers and magazines were standard practice for shoppers looking for deals that could access in-store. Now, purchases are tracked by digital systems that provide businesses with personalized information on specific users that can be utilized in favor of the customers in providing advertising, coupons and discounts that suit their specific needs.

By triggering an individualized customer journey via desktop, mobile, email and even push notifications, consumers can be met on whichever platforms and at whichever moments suit them. Digital transformation of the in-store experience can also be seen here, as coupons and offers can be pushed to users via mobile when they are near a particular store, and phones can even be leveraged as personal concierges to enhance the ‘real-world’ retail experience. 

Digital technologies have also radically transformed the way banking works for huge swathes of the world. The not-so-long-ago shoppers referenced above likely also managed most of their transactions either in a bank itself, or at an ATM. In fact, ATMs were the first step in automating the banking process, as hours were extended and waiting times were reduced. The true digital transformation of banking, however, first took place with internet banking, which paved the way for mobile banking and cashless payment systems.

In the world of superapps, which have provided banking and payment opportunities to huge swathes of the ‘unbanked’ in markets like India, South America and Africa, fintech has emerged as a major global industry. At this stage, brick-and-mortar banks are scrambling to keep up, undergoing lightening-speed digital transformation processes to keep up with mobile-first models and neo banks.

The COVID-19 pandemic sped up this process in markets that have been slower to adapt, like famously cash-loving Germany, where card payments have clawed up to the preferred payment option for the first time — although 45% of people still prefer to make cash payments. 

Digitalization in most industries has been in process since at least the 90s, but the disruption of the pandemic has driven a renewed interest in the topic, and has sped up the process in major sectors that were otherwise lagging behind. Some 97% of executives say that the pandemic has sped up digital transformation. For businesses that were already highly digitalized, like retail/ecommerce and banking, growth was accelerated dramatically as customers who had previously resisted digital solutions moved online. 

Businesses searched for ways to adapt to worldwide lockdowns and shifting consumption patterns, which can be seen in the increased number of health and fitness apps and online programs countering gym clousures, companies like Zoom, Microsoft Teams and Slack exploding in prominence as teams moved to remote work, and the emergence of models like 10-minute-grocery-delivery services. Restaurants also started offering home meal kits and services, travel companies designed digital experiences, and friends and families turned to programs like House Party to socialize and stay connected. 

Even the public sector shifted gears as government and state bureaucracy systems were forced to digitalize processes. Forms and documents that may formerly have needed to be signed by a witness and posted, for example, were able to be completed online. Many governments around the world also created apps for contact tracing, where people can easily sign into restaurants, venues and locations (provided they are open) via QR codes. 

“The pandemic has renewed and anchored the role of digital government – both in its conventional delivery of digital services as well as new innovative efforts in managing the crisis,” said Mr. Liu Zhenmin, UN Under‑Secretary-General for Economic and Social Affairs.

This weaving of digital technology into every corner of a businesses operation requires a fundamental move away from outdated strategies, and in cases where a level of digital transformation has already occurred, a departure from legacy technology. To get it right, businesses need to ensure that each of these digitized products and services work together cohesively as part of one system. 

The technology behind digital transformation and all modern, tech-focused businesses can be split into two categories — hardware and software. Then there’s data, which is the lifeblood of these systems.

Hardware is an essential driving force for businesses that still rely largely on face-to-face interactions with their customers, like fast food restaurants. Take McDonald’s for example, which has installed self-service kiosks at thousands of its restaurants. This can also be seen in airports, where either the airport itself, or specific airlines, offer kiosks that allow check-in and even bag-drop services. 

This technology helps brands offer a more convenient service, and is also clever way to subtly upsell products. In fact, McDonald’s self service kiosks have been attributed to a 5-6% sales lift in the year following installation. These kiosks are part of the brand’s own MyMcDonald’s digital transformation strategy, and are mirrored on the software side by a loyalty rewards program.

The software component of digital transformation, and implementation of enterprise architecture/information, is fundamental to businesses as their tech stacks are built. At this stage, the implementation of cloud architectures and approaches is widely understood as the move forward.

The backbone of the software side of digital transformation is the headless software stack. ‘Headless’ is another term that’s garnered a lot of attention since the start of the pandemic. The headless software model offers more flexibility, scalability and adaptability, all of which are essential factors for business success.

“Investments in digital transformation are rising at more than three times the rate of overall IT spend” - Forrester

When you’re starting on your digital transformation journey, one of the key questions is: to buy or to build. Take the example of Hostelworld — one of the main drawbacks of in-house software systems is the need for constant maintenance to keep things running smoothly. And that's without taking into account what’s needed to improve them with new features.

Here’s how Talon.One added real value to Hostelworld’s operation, according to their Chief Product Officer Johnny Quatch: “We don’t need to innovate on the campaign manager, because Talon.One will continue to make that better. That saves us a huge amount of time, and frees up resources that we can use to make our product better for the customer.”

Johnny and his team are now equipped to be competitive in their space for the foreseeable future. They can roll out new promotional campaigns that make use of the latest promotional techniques as their strategy evolves.

Hostelworld’s decision to buy rather than build is being mirrored by businesses in all industries and sectors. SaaS and business microservices have now reached full maturity. And with the emergence of the MACH architecture as an industry standard, many separate systems can be integrated together within the same stack.

Ultimately, headless commerce allows you to:

To find out more about the specifics of Hostelworld's Talon.One integration, download our customer case study. Or, if you want to learn more about headless commerce and microservices in general, download our ebook – Headless Commerce and Microservices Explained.