What is digital transformation?

Find out how digital transformation can power a business towards greater teamwork, lower costs, and happier customers.

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February 2024 | Published by Xero

What is digital transformation?

Digital transformation is the adoption of digital technologies into all areas of a business to improve processes and achieve goals more effectively.

It’s more than just using one or two apps in the workplace; digital transformation is a full overhaul of a business – or at least a whole function within a business.

A digital transformation requires careful planning to ensure a smooth transition and full return on investment.

The purpose of digital transformation

Digital transformation aims to replace manual systems and processes with digital solutions that help improve efficiency.

Digital tools often help to automate unloved or repetitive tasks, declutter workflows, support collaboration, speed up data analysis, and personalise customer communications.

Benefits of digital transformation

  • Automation: Technology can do the heavy-lifting of daily admin, helping you track resources through the business, identify and minimise waste, and improve productivity.
  • Centralised information: Operational data, employee information, and communication all flow through one place so everyone is in the loop. Shared planning and project management tools also make it easy to see where projects and budgets are at.
  • Collaboration: Sharing information online means workmates and clients can access and collaborate on documents, brainstorm remotely, and stay connected while working to their own schedules.
  • Data integrity: Data flows from one system to another without the need for double handling or manual entry, reducing the chance of human error.

Challenges of digital transformation

  • Planning: You’ll need to spend time identifying the issues your business is currently experiencing, researching possible solutions, running cost-benefit analyses and then implementing the technology, plus planning for the training and cultural changes that will come with it.
  • Costs: A digitisation overhaul requires an investment in hardware (sometimes), software (most times) and training people (always). Make sure you carefully account for the costs and confirm the investment will be repaid.
  • Training: You, your staff and maybe even clients or suppliers will need to be introduced to new systems and ways of working.
  • Teething problems: Big change isn’t always a smooth transition, and you might experience some hiccups while the business adjusts.
  • Incompatibility: New systems may not fit with old systems – or even with each other. Make sure to find solutions that will integrate, to avoid disruption.

Digital transformation examples

Accounting software

Online accounting software automatically captures transaction data from bank accounts, POS systems, ecommerce, or invoicing systems to cut back data entry.

Websites and ecommerce

Websites can be your shopfront, a sales tool, and can process online transactions 24 hours a day – offering greater access and availability to customers. Online advertising can direct people to your site with a few clicks, making it a powerful digital tool for business.

Digital marketing

Lots of popular advertising channels are digital, and often come with built-in analytical tools that help you track your return on investment for each campaign. Digital communications channels also give your customers multiple opportunities to connect with the business.

Client relationship management (CRM)

A CRM tool gives you the gift of understanding your customers better and personalising your communications to suit their preferences. With CRM, you can centralise customer information and interactions across the business, and set up reminders such as when to follow up with prospects.

Getting paid

Automated billing processes take away the pain of manually creating and sending invoices. Invoicing software can also improve your customers’ experience by offering multiple convenient ways to pay.

Making payments

Automated accounts payable processes make it easier to capture bills, track what’s owed when, and plan and make payments from one place. Accounts payable software gives you greater visibility over your expenses and supports cash flow management.

Tax tools

Online accounting software can automatically record transactions, keep an up-to-date ledger, and create push-button EOFY financial reports to speed up tax time.

Employee management

Employee management tools allow you to manage staff rosters online, review timesheets and manage payroll. This software can also improve employee engagement, by allowing them to update timesheets and their personal information in a centralised database.

Collaboration tools (for workers and clients)

Businesses can choose from a range of handy tools to support workflow management, internal messaging, document sharing and collaboration, and video conferencing or recording. Employees can work on different schedules, using these tools to keep each other up to date, and teams can avoid saving multiple versions of documents.

Project management

Project management software offers digital ticketing and task management functions to allocate and resolve tasks, provide a visualised workflow and set clear timelines. Teams can also communicate on projects within the software, allowing them to keep a record of key decision-making and updates.

Data analytics

Using data analytics software and automating key functions in the business enables you to capture and process a large amount of data about how your business works. This helps you identify patterns and trends, track ROI, and optimise areas like inventory management, marketing spend, or cash flow.

Forecasting and modelling

When plugged into transactional data, forecasting and modelling software can help you make informed financial decisions, manage resources, and predict cash flow. These tools can estimate your financial performance ahead of time, and offer insight into other key performance indicators for the business.

Managing inventory

Inventory management technology gives time back to the business by reducing the burden of manual inventory count activities. This software helps you identify what’s flying off the shelves, when to order more inventory, and which inventory lines are most profitable.

How to develop a digital transformation strategy

Digital transformation is exactly that; a full transformation of the way your business works. With any change this significant, it’s important to have a plan.

When developing your digital transformation strategy, make sure to include:

  • clear business goals and an outline of what successful transformation looks like
  • decisions on which technologies to invest in, and a clear financial plan to help you manage the upfront and ongoing investment
  • a change management roadmap, including trial projects, expectations for the cultural change to a digital office, and feedback rounds from the team


Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.

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