What is digital transformation? Chances are high that if you ask five people this question, you will get five distinct answers. Digital transformation is one term that means various things to different people.
The disparity and confusion probably arise from the many ways digital transformation can come about. People have unique digital transformation experiences, so when they talk about it, they naturally dwell and draw on what they have personally experienced.
As such, someone in supply chain management may talk about obtaining ERP project advisory for ERP implementation, robotic process automation, asset tracking, and route optimization. An upstream oil and gas company may discuss digital twins, artificial intelligence, virtual and augmented reality, and the industrial Internet of Things (IIoT). Telecommunications companies may talk of 5G, eSIM, big data, and cloud computing.
In other words, when people talk about digital transformation, they focus on the technology and digital tools that make the transformation possible. This is how the discussion gets muddled and complicated.
Let’s avoid the confusion by tackling the concept of digital transformation. First, let’s define what it is before we proceed to how it can look like in practice.
What Is Digital Transformation?
McKinsey & Company says digital transformation is a “rewiring” of the way an organization operates. It is “continuously deploying tech at scale” to create value.
According to CIO, digital transformation means integrating digital technologies into all aspects of business operations. It is a foundational shift in the way an organization delivers value to customers.
The same CIO feature quotes Tim Smith of Deloitte saying that digital transformation is an organization’s ability to adopt and apply tech to evolve and reinvent itself for growth and competitive advantage. Deloitte Insights says it is the “essential bridge between the business of today and the business of tomorrow.”
Let us put everything together but a lot more simply. Digital transformation is applying and using technology at scale, continuously and as a long-term strategy, to “transform” or change the way your organization operates. This usually means using technology to change your business model. It is for this reason that digital transformation is associated with words like rewiring, evolution and reinvention.
Why Is Digital Transformation Important?
Digital transformation, when done right, can enhance a company’s profitability, efficiency, productivity, and competitive advantage. Specifically, it can help your business:
- Deliver better experiences to customers
- Maximize value
- Lower its costs
- Realize efficiency and productivity gains
- Become more competitive
- Unlock enterprise value (e.g., lead to additional market capitalization)
Note that gaining any of the above without using technology is not digital transformation. To reiterate, the large-scale and sustained application of digital technologies is a necessary condition of digital transformation.
Examples of Digital Transformation in Business
Any long-term strategy that entails the large-scale and continuous application of technology can be digitally transformative for an organization. The best way to understand what it is in business (as opposed to what it’s not) is to use digital transformation examples.
The Car Sharing Transformation
A discussion by software developer Samuel Villegas highlights the transformative power of technology for businesses.
This is what the business model for a taxi company looks like. To get a taxi, a customer waits at a street corner somewhere, hoping one will pass them by. They may also dial a dispatcher to request a cab sent to their location. For their part, the taxis (and their drivers) must wait at stations, airports or their parking lots until they are dispatched for a pickup. Taxi rides are expensive because of the inefficiencies (e.g., the waiting, the need for dispatch) built into this business model.
Using technology like mobile applications, the internet, electronic payment systems, and the Internet of Things, a taxi company can transform itself into a self-service car-sharing company. It can leave its cars in designated sites across the city, and commuters can use the company’s app to locate the nearest car, use their credentials to unlock it, drive it to their destination, park the car, stop the metering, and pay for the ride.
Technology leads to a change in business model – the very essence of digital transformation – delivering these benefits:
- Better prices for customers and better customer experiences
- Lower costs for the company (no need for cars driving around, unoccupied, and wasting gas; no need for drivers to be available on demand)
The Streaming Transformation
We all know the story of Netflix and how it disrupted the world of media entertainment. In the past, we had to watch TV on designated days and times to catch our favorite shows. To watch movies, we had to go to the cinema or rent titles from Blockbuster.
Yes, we could record TV shows and watch them later. There were appliances for that.
However, Netflix blew all other business models out of the water with its on-demand internet-enabled streaming service. Netflix uses the internet, cloud computing and many other technologies to deliver TV shows, movies, and other content as and when their customers want them.
The result was a better service proposition for customers who loved the idea of watching their favorite TV shows and movies as and when they wanted it from the comfort of their living rooms. On its part, Netflix – the company that Blockbuster rejected when it offered itself for sale for $50,000,000 – is now worth more than $150,000,000,000.
Today, Netflix continues to innovate. For instance, it has already successfully transformed itself from a streaming platform to a content creator and provider.
Digital Transformation in Business
Digital transformation is the use of technology to transform the way an organization operates. In the process, it delivers a better value proposition for customers and enables it to create greater value from its operations.
Digital transformation doesn’t always involve AI, machine learning, quantum computing, and emerging technologies. It may, but it’s not a requirement.
Any technology, software or system, whether complex or simple, groundbreaking or not, can be part of your digital transformation strategy. The only requirement is that it must be able to transform your operations, give you a competitive edge and enable you to deliver better value to customers.
One final note. You cannot take digital transformation success as a given. A McKinsey & Company survey indicates companies that initiated digital transformation projects generally captured only 31% of the full value they expected. This suggests a need for better project management of digital transformation initiatives.
Affility Consulting is a business consulting company that offers ERP and IT project advisory.
We can help you with ERP implementation or lend you our project management expertise when you’re ready to start your digital transformation journey. Contact us to learn how we can help.