The Three Levels of Digital Transformation: Understanding Your Return on Investment
When considering a digital transformation investment, it's essential to understand the different returns possible. Three distinct opportunities typically present themselves, each representing a progressive level of transformation enabled by going digital. These opportunities range from improving current operations to completely reshaping your market position.
Level 1: Efficiency Enhancement
The first level of transformation focuses on optimising your existing operations. In this scenario, you continue to operate in your current marketplace, maintaining the same basic business model but with significantly enhanced efficiency.
What makes this level attractive is its straightforward approach to improvement:
Your cost base reduces substantially
Your capability to service customers increases
Your profit margins improve
You maintain your current market position while becoming more competitive
This level of transformation is about doing what you already do, just incredibly more efficiently. It's the foundation upon which further transformation opportunities can be built.
Level 2: Franchise Prototype
The second level builds upon your successful efficiency transformation, opening up an entirely new revenue stream. Once you've proven your digital solution within your own organisation, you have the opportunity to package and sell it to other businesses in your industry.
This level offers unique advantages:
Maintain your existing efficient business
Create an additional revenue stream
Help competitors transform their operations
Leverage your proven success as a model
The key here is that you keep your current business running efficiently and profitably while creating a new opportunity based on what you've already proven in your prototype business.
Level 3: Blue Ocean Strategy
The third and most transformative level involves moving away from your current competitive space entirely. This is where digital transformation enables you to reshape not just your operations, but your entire market position.
This level allows you to:
Offer something completely new to customers
Transform your internal operations
Reimagine supplier interactions
Develop new business and revenue models
Pivot away from highly commoditised markets
Create unique market differentiation
The power of this level lies in how technology removes traditional business constraints:
Time limitations disappear
Task volume restrictions vanish
Distance considerations become irrelevant
These changes enable you to do things differently at a drastically reduced cost, providing enhanced experiences that weren't previously possible.
Understanding the Impact
Each level of transformation is enabled by going digital, but they represent vastly different approaches to creating value. The key is understanding that digital transformation isn't just about making current processes faster - it's about choosing the level of transformation that best suits your organisation's goals.
When investing in digital transformation, consider which level aligns with your strategic objectives:
Do you want to optimise your current operations?
Could you create new revenue streams from your transformation?
Is it time to reshape your market position entirely?
The answer will guide your transformation journey and help determine the return on investment you can expect to achieve.
