It would be easy to dismiss the term "digital transformation" as just the latest in a long line of buzzwords seemingly conceived to cause stomach ulcers in the world's CIOs.
That, however, would be a mistake. Though the concept has been floating around for several years already, 2015 was when it dug its heels into the business world and made it clear it's here to stay.
"This feels different from a hype wave for a few reasons," said Bob Parker, a group vice president with IDC.
Most notably, digital-transformation efforts tend to be led by CEOs -- a group not generally known for its tolerance of efforts with uncertain impact.
"The desire for investment is pulled by the CEO," Parker said. "They see that that's where the growth is."
In fact, a full two-thirds of CEOs will be focusing on digital-transformation strategies in 2016, according to a recent IDC report that points to the trend as a key shaping force for the upcoming year.
Software as a core driver
So what, exactly, is digital transformation?
The term is sometimes applied to the process of simply converting an organization’s products and services into digital form, noted Frank Scavo, president of IT consultancy Strativa.
That, of course, has been going on for years.
In its deeper form -- the one now causing pangs of anxiety in more than a few executive hearts -- digital transformation in much more.
"To me, digital transformation at a fundamental level means using using digital technology and in particular software as a source of new business growth and innovation," said Otto Berkes, chief technology officer at CA Technologies.
No longer just an enabler or a part of the back office, software becomes a core driver of the business as a whole, Berkes added. It's a shift in software's focus from operations to creating new value, enabling companies to do things like create new apps on the fly to respond to evolving customer needs.
"At the heart of it is business-model transformation," said Chakib Bouhdary, chief transformation officer at SAP. "Any company that thinks that isn't true is smoking dope."
Five converging technology trends are fueling the shift, Bouhdary added: hyperconnectivity, supercomputing, cloud computing, cybersecurity, and the Internet of Things.
"This is more than bolting on a few new websites or apps to your existing business," agreed Martin Gill, a vice president with Forrester Research. "Think of it as a reboot of your company's operating model."
That reboot is happening at companies of virtually every shape and size. "I have not seen a single company that is not changing dramatically," SAP's Bouhdary said.
'The last few months have been a tipping point'
CVS Health is surely a shining example.
Over the past few years, the pharmacy provider has tripled its investments in digital technologies with an eye toward transforming not just CVS itself but how healthcare is delivered, said Brian Tilzer, the company's senior vice president and chief digital officer.
"We are driven by one purpose: to improve customer health," Tilzer said. "Our vision is to create a connected health experience that makes it radically easier for people to save time and money and stay healthy."
Earlier this year, CVS Health opened a lab in Boston focused on developing new digital health tools. It's also partnered with digital health venture fund Rock Health and startup accelerator MassChallenge.
Last month, the company introduced the first suite of tools to emerge from its new lab. One allows customers to jump-start the prescription-filling process by capturing a photo of a written prescription through the CVS Health mobile app, for instance.
Other examples focus on helping customers keep their insurance data up to date across store systems and stay on track with their medicines. The CVS Health mobile app is now compatible with the Apple Watch as well.
"Although digital has been a strategic focus for several years, the last few months have really been a tipping point," Tilzer said.
There's already tangible evidence of the benefits, too: According to a recent CVS Health study, customers who enroll online are more likely to fill their prescriptions and adhere to their medications. They can also save more than $20 each per year in unnecessary medical expenses, the report suggested.
Looking ahead, "digital will continue to be an imperative piece of how we move forward as a company, and how we better serve our customers," Tilzer said.
The ability to build software to connect directly to customers is transformative because it removes any barriers that might otherwise exist, CA's Berkes said.
"It provides not just a friction-free way to communicate with customers, but also gives a business an incredible amount of intelligence about what's going on with customers," he explained.
'More about managing change'
A lot of business executives in traditional industries "get nervous thinking about digital transformation," noted Scavo. "They think they need to discover or invent something that no one has thought of before."
In most cases, though, the systems and technologies needed for digital transformation are already available, Scavo said. The bigger problem is a lack of time to think strategically and to overcome organizational inertia.
In many ways, building a digital business from scratch is no problem given today's technology, he suggested. Much more difficult is transforming an organization that has been successful in the past and finding new ways to deliver value to its customers.
"Ultimately, digital transformation is a lot less about technology and a lot more about managing change," Scavo said.
Indeed, making it happen means moving away from many of the processes IT departments have long relied upon.
"It's a shift from the classic IT mindset, where IT is just a ticket-taker, to technology being really integral to the company," CA's Berkes said.
Digging down a step further, IT departments need to move away from the so-called "waterfall model" that has long guided development.
"Its focus has been on a high degree of predictability," Berkes explained. "It takes a really long time to get from point A to point B, but you know exactly what you're going to get."
That can work well for things that don't require rapid iteration or a rapid feedback loop, but when the point is to develop apps to engage customers as needs arise -- and in a time frame they consider acceptable -- it's less than ideal.
Agile development methodologies such as DevOps do better there, and that requires a massive cultural change.
"It's a team effort," Berkes said. "There's the notion that you can develop in a development organization and then throw it over the wall to operations, but it can work a lot better when you take down that wall and have a pipeline with deep collaboration and multidisciplinary teams with a focus on delivering customer value."
The chief digital officer
In fact, digital transformation is often something that transcends the CIO's role. Not only must such efforts be undertaken with full CEO support, but they can be done with varying levels of CIO involvement.
"Data is king in this world, and the world of data doesn't sit with the CIO anymore," SAP's Bouhdary said.
The CIO may lead the effort at some companies, but others will create the chief digital officer role.
"The CDO bridges that gap between the IT world and the business world," Bouhdary explained.
"The IT function is hugely important in digital transformation -- it's just not the head of the spear," IDC's Parker agreed.
As for what companies are affected, some say digital transformation affects every firm, regardless of industry and size; others aren't so sure.
In some ways, it's a matter of urgency -- for a media company like ESPN or the Guardian, for example, the pressure is much higher than it is for a petrochemical firm like Shell, Forrester's Gill pointed out.
"What's important here is that executives look at how to apply digital to their industry, product range, services and customer base," he said. "Some industries are more vulnerable than others."
"My favorite pizza parlor might develop an iPhone app, but I’m not going there unless they make really good pizza," Strativa's Scavo said. "Digital technology may touch every business, but I don’t think it is transforming every business."
In industries that are being transformed, however, the clock is ticking.
"For some, if you're not doing something now, it's too late -- the train left a while ago," SAP's Bouhdary said.
For those in industries such as utilities and automotive, on the other hand, "you'd better move, because it's happening," he added. "Car companies are now competing with Google and Apple -- people aren't going to be buying based on the size of the engine anymore."
'There are no silver bullets here'
Whenever a company ends up undertaking a digital transformation, classic mistakes include underestimating the magnitude of the challenge, CA's Berkes warned.
"It's going to take multiple years," he said. "It's not a quick thing you can pull off in a few months -- there are no silver bullets here."
Treating it as a technology-only problem is another common mistake, Forrester's Gill pointed out.
Talent is a common stumbling block as well, both in terms of hiring new talent and in terms of retraining existing staffers.
"Taking an existing workforce that's always worked in the classic waterfall method and asking them to move to this new paradigm of agile development requires retraining and new tools," Berkes said.
Hesitating can be another pitfall.
"Time is your enemy," SAP's Bouhdary said. "I don't think anybody will have a perfect strategy -- you have to start somewhere, learn, perfect and develop."
Whenever the time comes, embracing some key best practices can help.
"Think big, start small," Forrester's Gill suggested.
"If you're going to fail, fail fast and keep going," Bouhdary agreed.
Many companies start by focusing on reshaping one business unit or product line, Gill pointed out. That, in turn, can help with innovation and digital agility.
'APIs have played a huge role'
Rogers Communications amplified its digital initiatives two years ago when it won the rights to broadcast National Hockey League games, and it's found application programming interfaces (APIs) to be an area of particularly rich opportunity.
"APIs have played a huge role in our digital initiatives," said Mo Siddiqui, director of systems integration for the firm.
Not only have they helped Rogers provide consistent information at the presentation level, but they've also accelerated development time.
"They play an important part in shifting development to the left to bring products and services to market faster," Siddiqui said.
Whatever tools a company may choose, it's important to realize that digital transformation is not a one-time project but rather an ongoing journey -- you're never "finished" with the process.
"One of the beautiful things about digitally delivered services is that the feedback loop is instantaneous," said CA's Berkes. "All businesses have to continuously improve and refresh to remain viable, and this is a fantastic way to enable that."
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