Great companies need to keep up with the times, and digital transformation is undoubtedly a key step in doing so. Maintaining an emphasis on business intelligence, digitization and low carbonization in future development strategies will promote innovation and the upgrading of countries’ industry and core competitiveness.

But to be successful, business leaders need to take into account the unique context of their enterprises, formulate a clear vision and strategy, assess each link in the business chain and continuously improve management efficiency and scientific decision-making.

Entrepreneurs must be able to define where each decision, if made, would take the company. Without a clear answer, they could risk undertaking a digital transformation just because they think they should, rather than with a specific purpose in mind. This is where a business leader’s vision and strategic planning skills come in.

At its core, digital transformation is about utilizing key data to improve the efficiency and competitiveness of a business. This includes product demand forecasts, customer preferences, production management and financial monitoring. By understanding the data, organizations can make smarter decisions, ensure product quality and customer satisfaction and maintain financial health.

With traditional technologies, access to information is slow and insufficiently detailed. Digital transformation enables the rapid collection of highly detailed information by leveraging IT and the industrial internet, allowing companies to make timely and informed decisions through the use of artificial intelligence (AI) and algorithms.

But digital transformation is often not easy, and applying a digital mindset to traditional corporate culture is a process that requires helping employees adapt to new ways of working. They must understand how to use and integrate technology, update infrastructure, assess data security and meet new demands, as well as ensure system interoperability. It also requires dealing with the collection, storage, and analysis of large amounts of data, while addressing privacy protection, regulatory compliance and the complexity of multinational operations.

Leaders need to make difficult decisions regarding resource allocation and organizational structure when integrating digital transformation into their business strategies. Competent change management and decision-making are key to thinking clearly about the future and unifying the organizational mindset to face the possibility of failures and challenges.

A leader’s top priority

In terms of the changes required by business leadership to help adapt to the new environment, vision and strategy come first as they provide a clear direction for the business. Vision defines what the business wants to be, and strategy determines how to achieve that goal.

For example, Wal-Mart introduced the slogan “Everyday low price,” to provide customers with the lowest price alongside the best quality service. The company underwent a digital transformation, as a tool to achieve goals within this framework, and now uses technologies such as inventory management systems to increase efficiency and reduce waste.

Beyond vision and strategy, a business leader’s motivation is key to realizing digital transformation goals. The process requires a willingness to build complex systems to overcome challenges of internal culture, infrastructure and privacy risks.

Furthermore, leaders need to promote openness, flexibility, and innovation when driving cultural change to a point where failure can be tolerated and new ideas encouraged. They should be champions of change, actively supporting it by inspiring employees to engage in digital transformation, experimenting with new ideas and promoting cross-functional collaboration. They also need to decide where to invest and provide adequate resources for the process, including technology infrastructure, talent development and the adoption and innovation of new technologies.

Change should also be continuous, to improve management efficiency and decision-making, and allow the enterprise to run more efficiently. The key steps include building organizational culture, establishing infrastructure and practically applying data. At the same time, in the face of security threats and risks, we need to recognize that technological innovation has positive and negative effects, and therefore pay attention to defensive measures, such as safeguarding customer privacy and data security.

Optimized decision-making starts with a clear understanding of the logic of a business. While it is possible to optimize decision-making with AI, entrepreneurs must think deeply about the core mission and unique aspects of their organization, and base their use of AI on these principles.

Assessing each link

Each link in the chain of doing business has a specific purpose, and it is important to assess each part of the process to ensure a more fluid digital transformation.

• Real-time access to comprehensive information is critical for making decisions at each of the links in the chain.
   
  Information on sales, purchases and profitability allows for faster, more flexible decision-making than the quarterly reports of the past. In digital transformation, assessing the business’ current state and identifying opportunities are important steps, and can include analyzing business conditions, technology, infrastructure, the competitive environment, market demand, internal processes, technology systems, and employee skills. This comprehensive assessment helps identify opportunities and challenges and provides strong support for subsequent steps.

• Enterprises need to carefully assess the extent to which inputs and outputs match at each stage of digital transformation.
   
  A key issue is understanding the impact of digital transformation on the state of a business and its bottom line. Collecting real-time customer information and having a comprehensive understanding of the current situation is fundamental to developing an effective strategy. Organizations should tailor their digital transformation programs to focus on improving the quality and richness of data collection at every step to maximize their contribution.

• Ensure effective communication with stakeholders, including employees, customers, partners and investors.
   
  Stakeholders’ understanding and support are critical to the success of digital transformation. For internal stakeholders in particular, there needs to be effective communication and engagement. Digital transformation is not just about technology and system changes, it also needs to involve a balance of interests and an understanding of the ins and outs of an organization.

• Increased transparency may expose problems in areas such as sales.
   
  These issues require organizations to adopt flexible project management methods and increase agility. Through gradual experimentation and iteration, companies can implement changes on a small scale, identify any issues and make timely adjustments. This helps them cope with problems such as information leakage and partner changes. It is also better suited to digital transformation’s uncertainty and complexity, helps gain internal and external stakeholders’ consensus and increases the transformation’s chances of success.

• Trial, error and rapid iteration are very important practices in digital transformation.
   
  Each enterprise has unique situations and challenges where it needs to flexibly adjust its strategy accordingly. Through small-scale trials and rapid iterations, enterprises can identify problems and adjust promptly, avoiding the large-scale input of mistakes that may arise. Digital transformation is an iterative process, and as technologies and environments continue to change, organizations need to continually adjust and improve their digital strategies. This understanding is critical for organizations to maintain flexibility and agility in digital transformation.

What do successful companies do right?

As a leader in the e-commerce industry, Amazon has made significant progress in customer experience, logistics optimization and artificial intelligence application through continuous technological innovation and optimization. Its Amazon Cloud Technology (AWS) has also become a leader in the market.

Disney has demonstrated digital transformation success in the entertainment industry by utilizing digital technology to expand the distribution of their content, including a successful launch in streaming services.

Starbucks not only focuses on technology and architecture, but also strives to foster agile innovation for employees to bring change. It is now a strong digital innovation organization, with a mobile app for customers that supports remote ordering, a membership points program, payment systems and internal systems that utilize AI for labor allocation and inventory management.

Wal-Mart has invested heavily in digital transformation to improve supply chain efficiency, enable smart inventory management and provide a better online shopping experience.

Similarly, many Chinese companies have excelled in digitalization, especially some platforms that have directly adopted digital technology, such as Jitterbug. These platforms adopt digital strategies at the initial stage, enabling companies to understand real-time user preferences and feedback and quickly adjust their products and services. Chinese companies’ advantages in digitalization are mainly reflected in the context of the Internet. Through platforms such as Taobao, Tmall and JD.com, companies can understand the real-time market performance of their products and adjust quickly, which is not possible for traditional brick-and-mortar department stores.

Against the backdrop of a huge market, Chinese companies are motivated to digitally transform themselves, especially in the manufacturing sector. Industry 4.0 and the Industrial Internet of Things (IIoT) have been put forward to help drive digital transformation and improve productivity. Through IIoT digital management systems, enterprises have realized efficient supply chains and intelligent inventory management, improving production efficiency and product quality. This kind of digitalized production helps maintain international competitiveness and promotes the sustainable development of the economy.

From lights-out, unmanned factories to highly automated and intelligent production in areas such as new energy vehicles and photovoltaics, Chinese enterprises are moving toward an intelligent future, especially in the mid- and high-end sectors where increased digitization has already had a significant effect. The emphasis on intelligence, digitalization and decarbonization in China’s future development strategy will further drive innovation and upgrading in the manufacturing sector.

Companies need to keep up with the times

One of the biggest trends of the future will be a high degree of intelligence and automation in production. Robotics and artificial intelligence have already emerged as major players in the manufacturing industry. Tesla’s robotic image and Boston Dynamics’ robotics demonstrations show what the future of manufacturing could look like. As robots become more intelligent and automated, production will become less dependent on human labor, a core aspect of competition.

Future changes in society will bring great material abundance, but we may also face some problems in this process. I believe that entrepreneurs will face greater challenges in this era. It’s a tough task to create a great business and an even tougher one to keep it alive for a long time. Businesses must keep up with the times, as the environment, regulations, supervision, customer preferences, etc., constantly change. Digital transformation is key, but it is important to not adopt technology blindly.

Business leaders need to have a deep understanding of their goals and vision. If it’s just about making money, one may choose to give up. The difference between a great entrepreneur and an ordinary one lies in the size of their vision and dream. If one has a strong vision, one will be motivated to overcome difficulties, pursue the dream of 100 years of business, seize opportunities, and realize lasting success.

Translated into English from the article
“可选到必选，数字化转型如何掀起变革浪潮?” originially published by the Harvard Business Review Chinese Edition.