Digital transformation is sweeping across all industries. According to McKinsey data from 2018, more than 80% of respondents said their organizations had undergone digital transformation in the past five years.
However, recent news suggests that the field of digital transformation may be facing some difficulties. Experience shows that companies that venture into large-scale, long-term technological upgrades often find it challenging to maintain a good balance in this significant project, while companies just beginning their transformation may be hampered by time and resource constraints, especially since digital transformation does not guarantee any quick returns.
Therefore, as an alternative to the "revolutionary" approach of digital transformation, digital optimization is more like an "evolutionary" path. Digital optimization is more moderate in scale, and the changes to business processes are gradual, making it seem less daunting and less budget-intensive. However, it is less attractive to companies hoping to create entirely new revenue streams through digital products.
Understandably, the pressure of choosing between digital transformation and optimization is perhaps more pressing for small and medium-sized enterprises than for large enterprises that can afford project failures.
I believe that the choice between these two should be based on an understanding of the fundamental difference between what goals transformation and optimization can achieve.
From what I've seen in practice, when transformation becomes a key factor in whether a company can survive in the market when facing major technological disruptions, the company will push for transformation.
“Transformation” means a radical change in how products and services are delivered. Transformation typically involves creating or improving an entire digital platform based on business operations, and this ambitious goal is often to create new value or competitive advantage based on a technology-driven, innovative business model.
On the other hand, digital optimization is a more subtle approach: compared to digital transformation, digital optimization appears more like adjustments than a complete overhaul. Businesses optimize by adjusting specific areas, such as improving productivity, collaboration, or enhancing existing digital infrastructure. In this process, technology acts as an enabling factor to optimize the organization's existing systems, processes, and human resources.
Furthermore, before embarking on a full-scale transformation, optimization projects can serve as a trial run. Typically, optimization projects can be used as an indicator of whether a company is prepared in terms of project governance, internal processes, and infrastructure. If optimization only exposes certain shortcomings, then the transformation may lead to a setback in the company's development.
Pointing out the right path for small and medium-sized enterprises
I suggest that small and medium-sized enterprises facing this dilemma should carefully assess their own situation, read this list carefully, and understand which option is more suitable for them:
Understanding the driving forces behind transformation
Sometimes organizations may transform simply out of fear of missing out. Amidst the hype, digital transformation seems to have become a new requirement for every ambitious company, but in reality, it may not be suitable for everyone. You should put aside vanity and soberly analyze your motivations for transformation (such as cost and timeline optimization, workplace automation, new market development, etc.) to find a reasonable reason for digitalization or optimization.
Observe the market competition landscape
Your choice also depends on the current market landscape. If competitors are fully committed to large-scale digital transformation, then optimization may not be the right strategy. If you fail to capitalize on this momentum, the gap in capabilities and value you offer to customers through optimization will be enormous compared to companies that are boldly transforming.
Set the right business goals
For example, besides the motivation of "moving to the cloud"—which may seem like a valid reason for digital transformation—you should have another motivation: improving efficiency. A deeper analysis of this goal reveals that what you need is a new web-based collaboration portal, and it doesn't require deploying hundreds of servers to achieve this.
Check data health status
If your company has been around for a while, it has likely generated a large amount of data. Choosing between transformation and optimization depends on the health of your data, your infrastructure, governance measures, and the amount of resources you need to clean up.
Final thoughts
Whether to start or continue with a digitalization project is not the question; for almost any business, I believe the answer is quite straightforward. What you need to consider is making a more careful choice between digital transformation and optimization.
No matter how enticing digital transformation may seem, it remains a buzzword for many small and medium-sized enterprises (SMEs). Achieving a massive, transformative leap isn't for everyone; digital optimization is a more readily achievable approach. For businesses that don't consider themselves digitally native, the latter option is relatively safer and serves as a test of their readiness for more transformative digital transformation projects.
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