Organizations shift from transformation to digital optimization
EVERYONE has been chasing digital transformation for the past 12 to 24 months — but slowly, the conversation in the boardroom is moving towards digital optimization.
According to Gartner, digital optimization is simply the process of using digital technology to improve existing operating processes and business models.
As organizations slowly climb the digital maturity curve, they realize they can’t throw out the legacy systems and can’t compromise “business as usual” for the sake of new technologies.
Leaders are waking up to the reality that artificial intelligence (AI), analytics, the internet of things (IoT), and other emerging technologies — although very exciting on the surface, aren’t very helpful when it comes to climbing the digital maturity curve.
Here is a more robust discussion on the two fundamental truths that have caused the shift towards digital optimization:
# 1 | Legacy systems aren’t going away anytime soon
Technology isn’t new to organizations. Since the 1960s, companies have been collecting and storing data, building databases, evolving those systems to provide ‘back-end’ solutions to teams working across geographies.
Whether it is a manufacturer, a retailer, or a bank, everyone has legacy systems in place. Each of these has been built in isolation, most of them don’t talk to each other, and none of them can be upgraded.
And yet, they serve the organizations today — and do quite an effective job. True, new technologies could improve everything but that leaving the safety of tested systems and moving into unfamiliar territory where implementation and scaling is the biggest challenge.
# 2 | Customers care most about reliability and security
When things break down, organizations chasing digital transformation goals realize what customers really want — reliability and stability.
Organizations that dive into a completely new technology only to realize that things are falling apart often suffer significantly and wish they hadn’t taken the plunge after all.
In the case of Brit bank TSB, for example, migrating to a new system cost the CEO his job and caused the institution to lose hundreds of clients — and finally attracted the attention of regulators keen on penalizing the leadership for the troubles they caused citizens.
What does digital optimization actually involve?
The thing about digital transformation is that you don’t really get much out of it unless you’re able to scale up your projects and drive enterprise-wide changes that run as deep as they do wide.
Therefore, most businesses realize that they’re only scratching the surface of the possibilities that digital brings to them.
In order to get the most out of the company’s digital investments, leaders need to take stock of the systems they have in place, understand what works, what doesn’t, and what needs change.
Then, they must carefully craft a strategy to decide what technology solutions remain and what must be thrown out — because not everything that is old or part of the company’s “legacy infrastructure” must be thrown out.
Digital optimization in the health insurance industry
One industry that most people feel needs to immediately switch to digital optimization is the insurance industry, especially health insurers, so let’s take that as an example and understand how digital optimization actually works.
With the growth of wearables, experts and customers are beginning to demand that insurers charge them a premium that is based on how much (or little) they take care of their health.
However, this is easier said than done. In order to actually make this switch, insurers will need to do more than just start accessing data from customer’s wearable devices.
To begin, they’ll need to re-work the actuarial model that supports the healthcare premiums that the company actually charges.
Then they’ll need to work it into their legacy systems, which might not need much change — and then create front-end systems that allow for regular updates to the policy premium based on data sent from the customer’s health tracker.
Although this might seem a little oversimplified, the idea is to show that digital optimization is about changing products and service offerings to suit customers’ needs and wants — irrespective of how little or how much of a change it requires within a company.
To adapt to the new business model, the insurance company doesn’t need to get rid of all old systems. It only needs to create a plan that uses a mix of old and new systems to optimize the organization’s digital portfolio.
To be very honest, digital optimization is the logical next step for organizations looking to really grow into a digital-first business. Those that succeed will be able to unleash new opportunities and truly transform the work they do.