Digital transformation

Digital Transformation (DT or DX[1]) is the adoption of digital technology to transform services or businesses, through replacing non-digital or manual processes with digital processes or replacing older digital technology with newer digital technology. Digital solutions may enable – in addition to efficiency via automation – new types of innovation and creativity, rather than simply enhancing and supporting traditional methods.[2]

History of technology
By technological eras
Pre-modern history
Modern history
By historical regions
By type of technology
Technology timelines
Article indices

One aspect of digital transformation is the concept of 'going paperless' or reaching a 'digital business maturity'[3] affecting both individual businesses[4] and whole segments of society, such as government,[5] mass communications,[6] art,[7][8] health care,[9][10] and science.[11]

Digital transformation is not proceeding at the same pace everywhere. According to the McKinsey Global Institute's 2016 Industry Digitization Index,[12] Europe is currently operating at 12% of its digital potential, while the United States is operating at 18%. Within Europe, Germany operates at 10% of its digital potential, while the United Kingdom is almost on par with the United States at 17%.

One example of digital transformation is the use of cloud computing. This reduces reliance on user-owned hardware and increases reliance on subscription-based cloud services. Some of these digital solutions enhance capabilities of traditional software products (e.g. Microsoft Office compared to Office 365) while others are entirely cloud based (e.g. Google Docs). As the companies providing the services are guaranteed of regular (usually monthly) recurring revenue from subscriptions, they are able to finance ongoing development with reduced risk (historically most software companies derived the majority of their revenue from users upgrading, and had to invest upfront in developing sufficient new features and benefits to encourage users to upgrade), and delivering more frequent updates often using forms of agile software development internally.[13] This subscription model also reduces software piracy, which is a major benefit to the vendor.[14]

Historic development

With the introduction of the World Wide Web, the scope, dimension, scale, speed and effects of digitization fundamentally changed, resulting in increased pressure on the societal transformation process.[15] Companies including Dell were quick to take advantage of the World Wide Web around 1996–1997, disrupting traditional PC manufacturing companies like IBM by selling direct to consumers rather than through dealer networks or hobby shops, and gaining valuable insights into consumer behaviour as they navigated the website.

In 2000, digitization began to be used more widely as a concept and argument for an overall governmental introduction of IT, increased usage of internet and IT on all levels. A similar development began in the general business climate in order to raise awareness regarding the issue and opportunity. In the EU, for instance, an initiative called the Digital Single Market was developed, with recommendations for national digital agendas in the EU, which gradually and positively should contribute to the future societal transformation, with more modern development of communities, structures and to create a basis for e-governance and information society.

Thus the debate surrounding digitization gained increased practical importance for politics, business and social issues, and is linked to political work issues for community development, new changes in practical business approaches, effective opportunities for organizations in operational and business process development, with effect on internal and external efficiency of IT to name a few. In 2018, digital transformation in manufacturing was slated to generate over $370 billion in global value during the next four years.[16]

Development

Digitization (of information)
Main article: Digitizing

In political, business, trade, industry and media discourses, digitization is defined as the 'technical process' of "converting analog information into digital form" (i.e., numeric, binary format, as zeros and ones). In electrical engineering, the older term digitalization still occurs in this sense, which is the original meaning of that term. Most often an electrical device called an analog-to-digital converter is utilized, for example in scanning of images, or in sampling of sounds (e.g. music sampling) and of measurement data. The term may also refer to manual information digitization, for example of illustrations using a digitizer tablet. Digitizing is technically explained as the representation of signals, images, sounds and objects by generating a series of numbers, expressed as a discrete value, and represented by binary numbers.[15] For example, digitization was introduced in telecommunication networks from the 1970s, in view to improve the phone call sound quality, response time, network capacity, cost-effectiveness and sustainability.

Digitalization (of industries and organizations)

Unlike digitization, digitalization is the 'organizational process' or 'business process' of the technologically-induced change within industries,[15] organizations, markets and branches. Digitalization of manufacturing industries has enabled new production processes and much of the phenomena today known as the Internet of Things, Industrial Internet, Industry 4.0, machine to machine communication, artificial intelligence and machine vision. Digitalization of business and organizations has induced new business models (such as freemium), new eGovernment services, electronic payment, office automation and paperless office processes, using technologies such as smart phones, web applications, cloud services, electronic identification, blockchain, smart contracts and cryptocurrencies, and also business intelligence using Big Data. Digitalization of education has induced e-learning and Mooc courses.

Digitization has become one of the most important economic themes of the future, affecting not only the economy, but society as a whole. Due to the ever-changing economic environment and changing digitization processes, organizations can face a major challenge. Digitization can be defined as the conversion of signals and media objects (eg documents, images or sounds) into digital form that are processed, stored and transmitted via digital devices and networks due to the adoption of digital technologies and the use of systems built on them. Regarding digitalization, there are different levels of intensity: mere presentation and information (website), sales channel functions (e-commerce) and integration of business processes (e-commerce) into new business models with virtual products or services. [17]

The academic discussion surrounding digitalization has been described as problematic as no clear definition of the phenomena has been previously developed.[18] A common misconception is that digitalization essentially means the usage of more IT, in order to enable and take advantage of digital technology and data. This early definition, however, has largely been replaced by the above definition, now linked to holistic views on business and social change, horizontal organizational and business development, as well as IT.

It should be noted, however, that the meaning of digitization is not exactly explained by one and the same concept in the professional literature.

Digital transformation (of societies)

Finally, digital transformation is described as "the total and overall societal effect of digitalization".[15] Digitization has enabled the process of digitalization, which resulted in opportunities to transform and change existing business models, consumption patterns, socio-economic structures, legal and policy measures, organizational patterns, cultural barriers,[19] and the digitality of society itself.[8]

Digitization (the technical conversion), digitalization (the business process) and the digital transformation (the effect) therefore accelerate and illuminate the already existing and ongoing horizontal and global processes of change in society.[15]


Digital technologies - social, mobile, analytical and cloud - affect organizations and most areas of human activity. Organizations need to incorporate these digital technologies and their capabilities to transform processes and promote new business models, thus establishing a place in the digital world. In developed ecosystems, the organization has different strategic roles that influence the business strategy of the organization. If the company is aware of this fact, after analyzing its situation, it can adjust its strategy for the development of the organization. The strategy is implemented within the set business model. Digital transformation management is the process of planning and implementing change in organizations by increasing employee participation and lowering organization costs, thereby striving for greater efficiency. The strategy defines the purpose of the organization, although there are different interpretations of the content and context. The strategy includes the design, but also the transformation of business models. The goal of any strategy is sustainable creation, which an organization can achieve by setting up its own business model. [20]
The digital transformation of people’s daily lives is advancing day by day. There are more and more users sharing information, thus building a network. This business model will lead to an active change in the role of the organization in the ecosystem and digitization offers opportunities for implementation. This development will also change the traditional manufacturing sector. Therefore, a change in industrial logic needs to be integrated into strategic decisions in order to be competitive in the future. The ecosystem model is being transferred to the manufacturing industry. Based on this transfer and analysis, a plan for consistent coordination of the company in the ecosystem is proposed.
The strategic position is characterized by three principles:

  • Creating a unique and valuable position
  • Focus on core competencies that are consistent with the position of the organization
  • Finding synergies between activities to avoid imitating others

[21]
While digitization is gaining in importance in terms of strategy definition, it needs to be considered when designing business models. A digital strategy should no longer be just a functional strategy, but also an organizational one, designed and implemented through the exploitation of digital resources.
The strategy must have a clear vision of the development of the organization, which must include them with the help of technologies related to the strategy. Successful digital transformation goes hand in hand with renovating and optimizing business processes in the most appropriate way for the strategy. The digital transformation of organizations is different, so it is not a strategy that could apply to everyone. Without the necessary strategy, most organizations focus too much on technology and forget about customers. Successful organizations need to harness strategy, culture, and leadership to harness the potential of a company’s digital transformation. The goal of an organization's digital strategy is to improve the user experience, increase efficiency, innovate, increase decision-making, and possibly transform (if necessary). A digital business transformation can only be successful if there is a well-founded strategy and leadership. The process of transforming the business model takes place by adding various digital content to existing products / services, and digital solutions are implemented. [22]

Opportunities and challenges

Digital transformation presents organizations with both major challenge and opportunity. [3] When planning for digital transformation, organizations must factor the cultural changes they'll confront as workers and organizational leaders adjust to adopting and relying on unfamiliar technologies.[23] Digital transformation has created unique marketplace challenges and opportunities,[24] as organizations must contend with nimble competitors who take advantage of the low barrier to entry that technology provides.[25] Additionally, due to the high importance given today to technology and the widespread use of it, the implications of digitization for revenues, profits and opportunities have a dramatic upside potential.[26]

Sectors

Hospitality management

Many organizations within the hospitality sector focus on ambitious digital transformation, aiming to put the customer back at the center of their strategy and operations. We need to assess organizational structure to embrace digital transformation and identify how data from online content and reviews might play a role in increasing booking. The latest advancements in this respect are through online travel agency service aggregators like Expedia and Booking.com. There is another competitor in market which is not only digitally transforming the hospitality industry but actually bringing disruption with the help of technology, Airbnb.[27]

E-commerce

Digital experience has become inevitable without e-commerce interaction. Large companies like Amazon.com, Alibaba.com have already disrupted the shopping journey. But now we have more challenging tasks of avoiding security breaches like theft of debit and credit card numbers as well as the personal information of millions of customers. We need to improve over our infrastructure with minute details like safe transactional operations, improved customer satisfaction along with data security.[28]

Banking

Digital transformation has been, and remains, a key focus within the banking sector. Banks have already invested heavily in technology and infrastructure. From online banking (bank in your pocket), to ATM availability at every nook and corner has enriched the user experience. Major forces of the digital transformation strategy involve the overhaul of organization, and enhancements of highly scalable digital platforms.[29]

Training

With the increase of online learning tools and facilities organisations and individuals are looking for more flexible ways per personal development. Using video-driven lectures, online learning communities and learning management systems allows creating new business models which disrupt the traditional lecture driven training sessions.[30]

Health care

Digital transformation within healthcare concentrates on the application of IT-reliant services for facilitating the management and delivery of health services. It involves storage and exchange of clinical data (e.g. electronic medical records, electronic health records), inter-professional communication (e.g. secure e-mail and direct messaging), computer-based support (e.g. clinical decision support systems, computerized physician order entry), patient-provider interaction and service delivery (e.g. patient referral and handover systems), and education.[31] Most studies implicitly report on cases from primary care (e.g., family doctors, medical specialists), secondary care (e.g. hospitals, clinics), or medical research facilities. However, digital transformation in healthcare also takes place in areas other than clinics and research facilities, like for example community-based health promotion and outpatient care services.

Supply chain

Supply chain digitalization aims at integrating physical processes with digital data to optimize and solve problems. It involves areas such as predictive analysis for forecasting order fulfillment with intelligent processes, digitalizing operational processes, remote controlling and implementing digital twins to better manage the end to end logistics process.

Education

New types of AI, based on neural organizations, would be able to analyse how students perform and help teachers improve their technique.[32]

Government

Many governments across the world are also focusing on digital transformation. One example is the government of the United Kingdom who have established the Government Digital Service (GDS) to help drive digital transformation. The GDS service manages standards and best practices for other parts of the government as well as leading some successful digital transformation initiatives such as the development of Gov.uk, which hosts over half a million web pages whilst making the information accessible and consistent. Another example of governmental digital transformation is China, where New applications of the Internet could deliver growth of up to 22%.[33]

Studies of digital transformation

In November 2011, a three-year study conducted by the MIT Center for Digital Business and Capgemini Consulting concluded that only one-third of companies globally have an effective digital transformation program in place.[34]

The study defined an "effective digital transformation program" as one that addressed:

  • "The What": the intensity of digital initiatives within a corporation.
  • "The How": the ability of a company to master transformational change to deliver business results.[34]

A report published in 2013 by Booz & Company warns that the impact of digitization "is not uniform".[35] This points out that some sectors and countries have taken to digitization more readily than others. It concludes that "policymakers need to develop digitization plans across sectors that take into consideration the varying impact by level of economic development and sector".

In 2015, the World Economic Forum and Accenture launched the digital transformation initiative (DTI) to study and research the impact of digitalization. The initiative offers unique insights into the impact of digital technologies on business and wider society over the next decade. DTI research supports collaboration between the public and private sectors focused on ensuring that digitalization unlocks new levels of prosperity for both industry and society. A 2017 interim report claims that digital transformation "could deliver $ 100 trillion in value to business and society over the next decade".[36]

A 2015 report by MIT Center for Digital Business and Deloitte found that "maturing digital businesses are focused on integrating digital technologies, such as social, mobile, analytics and cloud, in the service of transforming how their businesses work. Less-mature digital businesses are focused on solving discrete business problems with individual digital technologies."[37]

In February 2017, a study by McKinsey & Company argued that "On average, industries are less than 40% digitized, despite the relatively deep penetration of these technologies in media, retail, and high tech". This study also points out the inequality in the penetration of digital change across industries, arguing that while in some industries there were core changes due to digitization, in others the impact of this phenomenon was limited to minor or secondary changes.[38]

In July 2017, a survey of 1239 global IT and business professionals was released by the digital performance management company Dynatrace. While this study shows, that 48% of its participants "stated digital performance challenges were directly hindering the success of digital transformation strategies in their companies", the survey also refers to 75% of respondents, "who had low levels of confidence in their ability to resolve digital performance problems".[39]

In October 2017 a survey of 890 CIOs and IT Directors across 23 countries by Logicalis Group established that 44% of respondents felt complex legacy technology is the chief barrier to digital transformation, with 51% saying they planned to adapt or replace existing infrastructure as a means of accelerating digital transformation.[40]

See also

References
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  2. Lankshear, Colin; Knobel, Michele (2008). Digital literacies: concepts, policies and practices. p. 173. ISBN 978-1433101694 – via Google Books. The ultimate stage is that of digital transformation and is achieved when the digital usages which have been developed enable innovation and creativity and stimulate significant change within the professional or knowledge domain.
  3. Aleksej Heinze; Marie Griffiths; Alex Fenton; Gordon Fletcher (2018). "Knowledge exchange partnership leads to digital transformation at Hydro-X Water Treatment, Ltd". Global Business and Organizational Excellence. 37 (4): 6–13. doi:10.1002/JOE.21859. ISSN 1932-2054. Wikidata Q56622208.
  4. Patel, Keyur; McCarthy, Mary Pat (2000). Digital transformation: the essentials of e-Business leadership. New York: McGraw-Hill. ISBN 0-07-136408-0.
  5. Roy, Jeffrey (2006). E-government in Canada: Transformation for the Digital Age. Governance (ISSN 1487-3052), Volume 8. Ottawa, Canada: University of Ottawa Press. pp. 1–4. ISBN 0776606174.
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  12. https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/digital-europe-realizing-the-continents-potential
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  19. Cochoy, Hagberg, Peterson McIntyre, Sörum (2017) Digitalizing Consumption. How devices shape consumer culture. Routledge.
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  22. Schwertner, K. (2017). Digital transformation of business. Trakia Journal of Science, 15 (Suppl.1), 388–393.
  23. Jane McConnell. "The Company Cultures That Help (or Hinder) Digital Transformation". Hbr.org. Retrieved 2017-01-12.
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  30. Heinze, Aleksej; Griffiths, Marie; Fenton, Alex; Fletcher, Gordon (2018). "Knowledge exchange partnership leads to digital transformation at Hydro-X Water Treatment, Ltd" (PDF). Global Business and Organizational Excellence. 37 (4): 6–13. doi:10.1002/joe.21859.
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