Transformation - Change

Digital Transformation: How Does It Affect Your Company’s Growth?

Digital transformation brings together a comprehensive range of techniques that use rapidly developing digital technology to build, revamp, improve, optimize, and expand a business. Although the concept is still vague, it includes a whole host of smart digital initiatives like sales strategies, digital marketing, predictive models, process automation with artificial intelligence (AI) being the most common one.

How to Evaluate Opportunities?

Digital opportunities are straightforward to evaluate and exploit; the best for even the worst-case scenario is going back to the basics. Gauge opportunities against the cash flow that they are expected to generate and make sure to have alternatives ready to fall back on.

The catch here is that in the case of digital opportunities the alternative option might present itself in the form of keeping things running the way it is.

Let’s compare the evolution of banking sector and the communication sector for instance. As banks evolved from automated teller machines (ATM’s) in the 70’s to online banking and mobile banking apps in the 21st century, the innovations were long seen coming and therefore didn’t generate new revenue. They instead acted as a survival strategy to not lose a cash flow that could have been substantial otherwise. However, unexpected, rapid innovations of telephones to cell phones to smartphones generated a comparatively staggering amount of revenue.

Scope of Digital Changes

Digital transformation holds the potential to free your company from the clutches of non-virtual limitations. While its scope is far-reaching, it can broadly be classified into two major buckets of changes to analyse a company’s working infrastructure:

Disruption

Applying digital transformation to essentially disrupt an industry by giving it a virtual makeover with respect to its business models and strategic planning.

For instance, the digital transformation of the airline and travel industry is a classic form of disruption. The industry and conventional ways of researching and booking tickets and hotel rooms were practically overturned, thereby successfully paving the way for newer business models and channels.

These new emerging models of businesses are best evaluated with the standard discounted cash flow approach that remains unstirred by the initial slack in sales, stagnancy in profits, and bets on a fast-paced growth. The right time to crunch on the revenues of such companies arrives with market stability. The estimation of ROIC and subsequent assessment of cash flow can then be anchored based on the company’s profile maturity and fundamental economics.

Improvement

Using digital to bring efficient changes to what already exists, with the purpose of streamlining processes and intensifying growth.

 Digital Transformation can be employed to make things better in four primary ways:

a.    Cost Cutting or Re-purposing

Sounds simple but involves considerations of more factors than one to ultimately be fruitful. If success stories are to be believed, companies that invest in process automation save a lot of dollars because it enables cost reduction by helping managers to recognize scopes of adjustments and optimizing the business process.

However, as mentioned before, considering second-degree factors is of utmost importance. If similar initiatives are being used by your competitors, the existing cost curtailment strategies may serve close to no value. Ironically enough, considering the alternate scenario, of the absolute necessity to curtail costs to be in line with competitors, streamlines the value to positive again. It’s because analysing the economics of an alternative to digital transformation will give results indicating a decline in cash flow, a scenario you would rather steer clear of.

b.    Better Customer Support

Going digital benefits the customers more than it benefits the company. Suddenly, what they could have only with efforts and personal intervention is brought on their fingertips, saving them not only efforts but precious time. An instance of how digital transformation can drive better customer support and therefore boost a company’s value can be seen in the manufacturing industry. Simply incorporating the system of digital ordering, tracking, and helpline support has recorded an improved satisfaction score and throughput by around 20 % among the industry leaders.

Despite the clear advantages, secondary factors as in the cost cutting step need to be considered. Competitive effects based on competitors need to be considered, and strategies need to be analysed with regards to whether a higher market share can be achieved with a better customer support or is it a mere survival necessity amidst increasing competition in the segment.

c.     Branched Out Revenue Sources

Altogether new revenue sources can be generated to improve and optimize an already efficiently running business and this impact of digital transformation is slightly more dramatic than the previous ones. The basic idea is that it creates intermediaries that are more profitable to the company and more convenient to the customers.

d.    Smarter Decisions

There are several things technology can do better than humans, however, we are the ones that take decisions. Digital transformation involves using advanced data analytics and technical software to help make refined decisions with a smarter approach. Using automated solutions, for example, has become the latest trend to improve pricing for a vast array of product configurations in the many industries.

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