Navigating the Financial Implications of Digital Transformation Technologies

Introduction

Digital Transformation refers to the integration of digital technologies into all areas of a busi- ness, resulting in fundamental changes to how businesses operate and how they deliver value to your organization’s employees, customers, suppliers, partners and stakeholders.

Beyond this, it also involves a change in leadership and thinking, the encouragement of in- novation and new business models. Although this paper does not attempt to get into the cultural aspects of Digital Transformation, it is important to bear in mind that organizations need to be open to adapting to new ways of working to fully leverage what emerging digital technologies have to offer.

The adoption of technology by organizations to automate functions, tasks, processes has been undertaken for the last few decades and is not something new. The recent emergence of innovative technologies that allow businesses to deeply embed technology into how they operate is new, thereby opening up new business models or revenue streams previously un- thinkable. This is what fundamentally makes Digital Transformation distinct from the earlier wave of selective application of technology to specific areas.

Earlier technological innovations resulted in large fixed costs that were unaccommodating to the demands of many businesses. The recent financial crisis of 2008 demonstrated that the main lever for cost reduction adopted by organizations was a reduction in headcount.

Digital Transformation from a financial perspective may not always result in the reduction of costs, but if done right will result in a significant change in the composition of costs – specif- ically, reducing the fixed element in favour of a variable component. This is mainly because the underlying technologies and associated commercial models provide for this flexibility.

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