‘Digital transformation’ has gone from boardroom buzzword to critical strategic priority, but we’re still only witnessing the birth of the digital transformation industry. In this article, we look forward, identifying the ten key trends that are set to shape digital transformation’s future…
The Digital Transformation Industry: Past to Present
Before launching headfirst into the digital transformation industry’s future, let’s take a brief moment to explore its past. Because, although digital transformation is dominating the discussion right now (Google Trends shows a near-tenfold increase in search interest over the past five years), it’s hardly a new concept. The roots of digital transformation date back to 1948 and Claude E. Shannon’s seminal paper “A Mathematical Theory of Communication,” which paved the way for digitization as we know it.
The following decades saw a series of digital discoveries that have served as the foundations for today’s digital transformation industry: The dawn of the microchip in the 1950s; the transmission of the first message over ARPANET (an early version of the internet) in the 1960s; the rise of the home computer in the 1970s; the invention of the World Wide Web in the 1980s; and its subsequent public adoption in the 1990s.
By the 2000s, the paradigm shift towards digital transformation was well underway. In the retail industry, most major advertising campaigns incorporated digital elements, even though the majority of purchases were made inside brick-and-mortar stores, often with cash.
From 2000 to 2015, the rise of smart devices and social media platforms led to a drastic change in how consumers and businesses communicate with one another, and customer expectations grew dramatically as a result of improved eCommerce customer service.
From 2015 to the present day, the ubiquity of mobile devices and the rapid spread of digital technologies across the developing world have contributed to soaring digital transformation budgets. Companies are operating digital-first: exploiting technology and SaaS to create lean, agile operations that react instantly to changes in the competitive environment, freeing employees from the drudgery of manual admin to focus on strategic thinking.
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Ten Key Trends Driving the Future of the Digital Transformation Industry
1. Spending on Digital Transformation Will Continue to Grow
Global investment into digital transformation is set to grow at a compound rate of 17.1% per annum, according to the IDC, reaching a staggering $2.3 trillion (53% of all ICT spending) by 2023. The biggest spenders in the digital transformation space will be the United States, followed by Europe and then China (with China predicted to overtake Europe by 2023.)
Financial services (encompassing banking, insurance, security, and investment) will see the highest digital transformation outlay of any industry. Still, enormous investments will be made in robotic manufacturing: it’s forecast to double within the next three years.
2. We’ll See a Shift in Focus From B2B Towards B2B2C
An increasing number of B2B companies will transition towards B2B2C eCommerce (Business-to-Business-to-Consumer), providing their customers with highly bespoke experiences and customizable product offerings. B2B customers are starting to demand the same level of customer service and frictionless shopping they encounter in their B2C lives. B2B2C sales will allow B2B businesses to provide Amazon-level service to their enterprise customers.
3. There Will Be Significant Opportunities in the Internet of Things (IoT)
The number of IoT-connected devices is set to increase to 43 billion by 2023, according to McKinsey (an almost threefold increase from 2018). This surge in growth, fueled in large part by lower costs of sensor technology, represents a massive opportunity for the manufacturing industry, boosting production flows through enhanced visibility of shop floor and field operations, as well as the manufacturing supply chain, and remote and outsourced operations.
4. It Won’t Just Be About Technology; It Will Be About People
While you could be forgiven for assuming that the most critical enabler of digital transformation will be technology itself, you’d be wrong. It’s the people. And, therein lies a problem: not enough people have the skills (and mindset) required to leverage digital capabilities.
According to Gartner, 64% of managers think their employees will be unable to keep pace with future skill needs. Skills shortages will prove to be one of the main barriers to digital transformation within large organizations.
5. AI and Machine Learning Will Revolutionize Manufacturing
The stats paint a clear picture of just how central AI will become to the manufacturing industry. According to a recent Accenture report, AI-powered technologies will increase productivity in manufacturing by a staggering 40% by 2035. Yet, there’s a significant disparity between ambition and execution: 92% of senior manufacturing executives believe ‘Smart Factory’ digital technologies will enable them to increase productivity levels and empower staff to work smarter, but only 12% of manufacturers are currently making significant use of AI.
6. XaaS (Everything as a Service) Will Continue to Dominate In-House Solutions
Companies will increasingly look to cloud-based, third-party applications and services to do the work for them, rather than upskilling current employees or hiring from a shrinking (and increasingly expensive) labor pool. The XaaS approach promises financial efficiency, improved productivity, more robust cyber-security, greater agility, and flexibility without the burden of building and managing on-prem solutions.
7. The 5G Ramp-Up Will Supercharge Digital Transformation
It feels like we’ve been talking about 5G (the fifth-generation wireless network) for years, but the full force of this new cellular standard is still a couple of years out. Once 5G hits, however, the impact on the digital transformation industry will be immense, driving rapid advances in smart cities, smart vehicles, smart manufacturing, and IoT-intensive technologies hungry for 5G and its unprecedented data transfer capabilities.
8. Artificial Intelligence (AI) Will Fill the IT Skills Gap
40% of employers believe that AI will help fill the upcoming skills gap, according to a recent survey of 600 HR leaders. And, when you consider that it costs Starbucks $20,000 to hire a barista or just $25,000 to purchase a robotic barista arm (that operates 24/7 with no sick pay or annual leave), it’s easy to understand why companies will favor artificial over human intelligence.
Google Brain – an AI research team building software that can itself design machine learning software – is a more pertinent example of AI taking over the responsibilities of tech-savvy human actors. Such advances will allow companies to employ a smaller number of developers, who can focus on strategic, forward-thinking challenges instead of getting bogged down by endless, menial coding.
9. Privacy Concerns Will Threaten Reputations
Privacy represents an existential threat to every business that hopes to capitalize on digital transformation. IoT devices and 5G will only serve to fan the flames of data breach risk.
Businesses large and small will inevitably fall foul of public privacy expectations and reputations will be ruined as a result. Cybersecurity is set to become a key competitive advantage for those that are (a) willing to invest in the space and (b) able to communicate their security and privacy policies to customers.
10. There Will Be Less Novelty and More Pragmatism
All too often, companies that want to present themselves as ‘innovative’ will invest in the hottest new technologies without thinking through the implications (initiating digital change rather than digital transformation.) These companies rarely consider the impact such changes will have on their bottom line or if the money could be better spent elsewhere. After all, building a bot that automates a weak business process will only achieve poor results more quickly.
Forrester labeled 2019, “the year digital transformation went pragmatic,” and we see this trend continuing into 2020 and beyond. CIOs are reverting to first principles, building strategies on durable foundations that prioritize the achievement of business goals over bells and whistles.