Understanding Digital Transformation
The rise of new digital technologies such as big data, social networks, and mobile are making firms conduct a variety of initiatives to explore their benefit. Digital transformation is one of the major trends that is causing a fast and radical change to society and businesses. It is perceived as a fundamental transition of society for the “digital” generations for which digital technologies are deeply rooted in their daily practices and culture. In this context, businesses are conducting a variety of initiatives to explore the benefits of the advent of digital technologies. Many digital transformation researchers and practitioners attempt to define the exact notion of digital transformation, but the concept currently lacks a clear definition. There are mismatches and conflicting views about what digital transformation is and what are its characteristics.
Digital transformation is defined by Stolterman and Fors in their book –Information Technology and the Good Life, as “the changes associated with the application of digital technology in all aspects of human society”. This means that society as a whole is going through a radical change due to the development of digital technologies. However, the business approach of digital transformation is usually defined as an organizational strategy, a business process, and a paradigm shift while its characteristics are described as radical, disruptive, and evolutionary.
Digital transformation is composed of the “digital” and “transformation” terms where the first one refers to the emerging technologies in today’s world while the latter describes the new types of innovation and creativity enabled by digital technologies. Hence, the concept of digital transformation in the study by MIT Sloan Management Review and Capgemini Consulting is defined as “the use of new digital technologies (social media, mobile, analytics or embedded devices) to enable major business improvements (such as enhancing customer experience, streamlining operations or creating new business models)”. In other words, digital transformation goes beyond a mere technical process of converting analog data in a digital format. Furthermore, digital transformation is also considered an organizational strategy to leveraging digital resources to create differential value. This definition expands the traditional views of IT strategy to include the resource-based view of strategy by recognizing digital resources and to link business strategy to business value. Therefore, in my view, digital transformation is best defined when we take into account the application of emerging technologies to enable business improvements that added value.
Digital transformation is an ongoing process that leverages digital technologies and capabilities to enhance customer experience, improve operations, and develop innovative business models in order to create value.
The impact of digital transformation will be major for an organization and is often compared with the industrial revolution. As the transformative conversations and activities are happening in every business, executives are facing pressure to go digital before other companies do in order to survive and remain competitive. According to the study by MIT Sloan Management Review and Deloitte with more than 4800 business executives and managers, 60% of respondents strongly believed that digital technologies have the potential to transform the way people work in their organization and 76% mentioned that digital technologies are disrupting their industry in a great or moderate extent. Therefore, in today’s digital era, the concept of digital transformation has gained a lot of attention and has become an everyday agenda item for business leaders. The increase in the popularity of digital transformation terms is often seen as a management fashion that is used to rebrand the lost interest in the business process management term with a new buzzword to capture the interest of managers and consultants. However, enthusiasts of digital transformation argue that digital transformation includes novel elements as managers should adopt the business strategy to the new digital environment by integrating the emerging technologies in the business model.
The technological revolution can provide businesses with competitive advantages that can lead to many potential benefits. The initial benefit of digital transformation is the improvement of the relationship between the business and customers by enabling a higher level of connectivity. Businesses on one side can focus their digital initiatives to better understand consumer behavior and to meet the changing consumer needs while consumers on the other side can use the new technologies to be better informed about the product and services and to decide whom to trust and where to make the purchases. Furthermore, digital transformation can provide companies with strong benefits by optimizing processes internally. Organizations are conducting initiatives to increase productivity and efficiency, to improving the way of working via digital means, and to make better decisions and improve profitability through big data. Lastly, the digital transformation of the business environment can provide business with opportunities for innovation in the business model. Companies are using the emerging technologies to add new revenue streams by delivering services digitally or extending their traditional products and services to reshape their boundaries by developing new business models, and to transform their operations from multi-national companies to truly global.
Nevertheless, in practice, the process of digital transformation is accompanied by many obstacles. Some of the barriers that large companies usually face to digitally transforming include initiation challenges like regulatory concerns and execution challenges such as insufficient digital skills, culture, mindset issues to change, and lack of vision and purpose among others. The inability to keep pace with the recent digitalization and the new consumer expectations will result in bankruptcy for many companies like the example of the movie-rental company Blockbuster which was not able to develop and implement new business models in the digital age. On the other hand, Netflix was able to keep up with the emerging technologies and used the Internet and warehousing technology to first transform into an efficient DVD rental company and then later to transform into streaming and content production. Therefore, successful implementation of digital transformation goes beyond technology and requires creating a transformative vision, plugging the skills gap, engaging the organization, creating a nimble and agile organization structure, changing the organization culture, and developing a digital strategy.