What Is Digital Transformation and Why Do You Need It?

by | Jul 4, 2022

Digital transformation — you hear about it everywhere. 

For some, it entails hiring an ERP advisory service so they can implement an enterprise resource planning system. For others, it means creating digital versions of paper documents, replacing manual data intake processes with computerized ones, or using electronic means in materials measurements.

However, it is none of these things. Digitization initiatives include scanning files to convert them into portable digital documents and using electronic means to measure and weigh materials. Implementing an ERP system is typically part of digital transformation, but ERP implementation is digitalization.

So, what is digital transformation?

Digital Transformation: Meaning

Before we talk about what digital transformation is, let’s talk about what it is not.

Digital transformation is not digitization, which is simply converting analog data to digital data. Digitization is converting paper forms into digital forms and paper documents into digital documents. It is also using digital equipment in lieu of manual or mechanical tools to measure data.

If digitization is converting analog data to digital data, digitalization is making use of such digitized and digital data, with the aid of software and technology, to automate business processes.

ERP implementation is an example of a digitalization initiative. ERP systems consolidate data from distinct business departments into one central location, ensuring that actionable information is readily available to decision-makers in real-time. They automate the collection, synthesis, and even processing of such data and streamline the interaction among departments.

Digital transformation, meanwhile, is a business model or business strategy transformation made possible by digitized and digital data, and digital technologies. Put another way, an organization’s digital transformation roadmap involves building on digitization and relying on digitalization to bring about meaningful changes to how a business operates.

Thus, a digital transformation strategy often includes deploying ERP. It also usually involves artificial intelligence, machine learning, robotic process automation, industrial internet of things, big data analytics, cloud computing, edge computing, blockchain technology, and other related technologies. 

However, these are mere tools or technologies for digital transformation.

Digital transformation involves reimagining a business’s products and services, how a company creates and extracts value, and the experiences and expectations of the organization’s existing customers. Only after clarifying the vision does a business pick out the technologies to make it happen.

The following are simple examples of how digital transformation can manifest in different industries.

  • Digital transformation in finance can mean faster loan approvals using artificial intelligence.
  • Digital transformation in healthcare can mean timely diagnosis using big data.
  • Digital transformation in oil and gas can mean fewer incidents because of virtual reality.
  • Digital transformation in education can mean meta verse classrooms.
  • Digital transformation in retail can mean omnichannel sales and fulfillment.

The goal is to make everything — products, processes, workflows, people, experiences, and, of course, revenues — better. People are at its core, not technology, and you evaluate its success according to its impact on people’s lives.

After learning what digital transformation is, you must now be curious to know why it is important.

Digital Transformation Benefits to Businesses

You’ve heard it said before. Using digital technologies will improve the efficiency of your operations, help you extract maximum value from your value chain, and improve customer experience, which has the benefit of strengthening your customers’ loyalty and thus increasing your revenues.

For instance, an ERP system can remove the back-and-forth and the many days of delay it usually takes to make procurement decisions. When raw materials are about to run out, your system can immediately request quotes from approved suppliers — all without human intervention.

If your retail outlet data shows you’re running out of your bestselling items, the system can automatically put in stocking requests to warehouses or, if necessary, a manufacturing request from your factory — again, no human intervention required. 

In the above example, the following are just a few advantages of digital transformation:

  • Removal of duplication and redundant processes
  • Faster decision-making
  • Reduced out-of-stock opportunity costs
  • Better customer experience (because there are no out-of-stock issues)
  • Reduced overstocking problems
  • Greater employee productivity; they can focus on critical activities because the system takes care of routine tasks

The benefits of digital transformation go beyond these, however.

A digitally transformed business has the following characteristics:

  • A pervasive digital-first thinking
  • A functional data architecture
  • A systematic approach to developing new capabilities
  • A willingness and readiness to adopt technology and new ways of doing things
  • A culture of innovation

As you can see, digital transformation realigns a business’ culture, strategy, and workforce. Deloitte and MIT Sloan Management Review’s research on digital maturity highlighted the following organizational benefits of digital transformation.

1. Faster Innovation

After successful digital transformation, companies typically innovate faster than digitally immature organizations. They invest in innovations more, have cross-functional teams, and continuously move toward digital improvement.

2. Innovative Employees

Digitally mature organizations provide their employees with the resources and freedom to innovate.

3. Collaborative Outlook

Digital transformation makes companies more willing to collaborate with external partners. Eighty percent of digitally mature companies cultivate partnerships with other organizations, while only one-third of digitally immature organizations do the same.

4. Confidence in the Strength of a Company

Digital transformation also makes employees confident that the company can adapt to changes caused by digital disruptions and trends. In contrast, the employees of digitally immature companies view disruptions as forces beyond their control.

To sum up, digital transformation fosters a digital culture and companies and people who are collaborative, innovative, and confident in their power to adapt to digital trends. Thus, digital transformation strengthens an organization and empowers it to thrive in Digital Age.

Starting Your Digital Transformation Journey

Less than 30% of companies that attempt digital transformation succeed. Remember this before you start your digital transformation journey.

If you want a higher chance of success, get guidance from a digital transformation consultant who can help create a digital transformation roadmap and flesh out an effective digital transformation strategy. 

You also need a detailed IT audit and guidance on seamlessly implementing and integrating digital technologies, such as an ERP system.

Affility Consulting is an ERP advisory and IT audit firm. 

We can help you as you embark on your digital transformation journey. 

Contact us now.