What is “Digital Transformation”? – Definition and explanation
Digitization and digital transformation is often used as a synonym - but there are significant differences
What is “Digital Transformation” and why is it important? Here, some basic aspects are pointed out, an explanation of the areas is given and also what the most important factor in the change is.
For many older and established companies the world has changed a lot in the last few years. Many thought that they would change their online presence a little bit and with that they have already done “Digital Transformation”. However, the market has changed rapidly, new business models, new competition from other sectors, new geographical coverage and digital advantages are turning many industries into a battlefield. This is exactly why there are now only a few companies that do not feel this and do not know how to deal with the “always-on”, mobile customers and the digital transformation, because it was not what they originally meant.
Additional article: Digitalization vs. Digital Transformation – What is the Difference?
The Definition of “Digital Transformation
Everyone understands it differently, so I take the Oxford Duden and stick to its definition of transformation.
A marked change in form, nature, or appearance’. Essentially, it is a fundamental change that, when applied to a business, means wide-scale change to the foundations of that business, and it is usually driven by a previous inability to evolve to the marketplace’s requirements. A digital transformation is one provoked by the failure to evolve with digital technologies, resulting in a complete re-alignment of the business’s technology and business models in order to effectively engage with digital customers. – Oxford Dictionary
In short, the market is changing fundamentally. Digital transformation is caused by the need to grow with digital technologies, which results in the need to adapt technologies and business models to effectively address the digital consumer.
Why is Digital Transformation not a bad thing?
There are different “degrees” of adaptation of digitization and not all need to be pursued simultaneously. Nor does it have to be that the company fails in the market before it can take advantage of the benefits, because digital transformation is to be understood both as a danger and an opportunity. Digital transformation can increase reach, increase revenue, create new products, and it is even possible that there are new opportunities that have never existed before.
There are three important areas that can be addressed and should help to focus the company on the exciting world of digitalization:
- Customer Experience
- Operational Processes
- Business Models
That customers are the lifeline of companies should not be new, but behavior, digital and mobile technologies, information channels and customer preferences have changed drastically – Has the company changed in the same way?
Understanding the customer is the most important task. Social media can help with this and it may be that there are already discussions about the brand or that there are already opinions on the Internet. Digital technologies serve all areas of a company, from sales and marketing to new technologies and their revenues. The preferences of the customers as well as the customer data can be used to communicate with them like never before. It is possible to create a personalized shopping experience that is specifically tailored to the customer and gives an advantage over the competition.
Of course there is no store without the product. Digital technologies also change the daily business. It does not necessarily mean that jobs are lost. Automation can also create new jobs for specialized workers and for strategic tasks, the technology helps to free up time for the work that drives the growth and expansion of the company.
But digital transformation also helps in the daily work. How we deal with information, how we work together, how communication works and how knowledge is shared. Everything depends on a common global view of the company. For example, a common process for strategic planning using online tools can ensure that questions are collected more effectively and inputs are better received, leading in the long term to more participation, better commitment and a more efficient process.
However, digital transformation is not just about how to use technology, it is also fundamentally changing the way companies operate. Digital platforms, products and services complement or substitute existing products. This makes it possible to open up new business areas and to enable completely new business models. Through the internet it is even possible to expand your business worldwide, which might have been possible only with great effort before.
Digital Transformation accross different industries
We learned before that digital transformation is having a far-reaching impact on a wide range of industries. Here are some more detailed examples:
- Retail: Everyone knows Amazon and online shops. The retail industry has undergone significant change as a result of “digital transformation”. With internet and online shopping platforms, retail has reached a new dimension and removed boundaries between countries or cities. Together with (hyper)-personalization and data-driven marketing strategies this lead to an intensifying competition but also new opportunities for companies who knew how to leverage digital experiences.
- Healthcare: In healthcare, digital transformation has led to significant improvements across different fields. Telemedicine, electronic health records, wearable technologies on your wrist, and AI-driven diagnostics are just a few examples of how digital technologies are revolutionizing healthcare and also leading to a transformation of the industry and its services.
- Financial services: From online banking and investing to mobile payments and fintech solutions, digital transformation has changed the face of financial services and opened up a host of new opportunities. Now challenger Banks like Revolut, Wise etc. are having millions of users on the premise of “ease of use” and fast banking with great customer experiences leveraging different technologies to their advantage.
- Manufacturing: Industry 4.0 is one of the most used concepts in manufacturing. It contains a number of new technologies, such as networked production lines, digital twin technology, and smart factories. This leads to more efficient production, improved quality control mechanisms and increased flexibility but also enabled smaller batch sizes, more coptetivie customization and much more.
- Education: With the advent of e-learning, digital classrooms, and AI-powered teaching methods, the education industry is currently in the midst of a tremendous transformation. Digital transformation has improved access to education and offers new opportunities for personalized and interactive learning. With new online degrees and e-learning platforms the access to education became more flexible and enabling more people access to eduation at almost zero costs compared to universities and offline education centers.
Challenges of digital transformation
Honestly – Digital transformation is not an easy journey for any organization and presents many obstacles and challenges. Here are some of the most common issues you will encounter in any business:
- Technological challenges: Not all technologies are created equal, and choosing the right one for your business can be challenging and also overwhelming. It can be difficult to decide which platforms, tools or applications are best suited for a company’s specific needs and goals. Always keep in mind that most of the time you will only need 5-10% of a solution, so rather focus on the core and not the “shiny features”. And also think about “Open Source”.
- Security concerns: One of the first things you hear when companies are moving to digital platforms: “Data Protection”. Sure, the risk of data breaches and cyber attacks also increases but it can be managed with a few proactive steps and ensuring a good governance around data handling. It’s important to implement robust security measures (Security by Design) and stay constantly updated to ensure data security.
- Skills and training: Most companies will soon discover that, not all employees have the necessary digital skills to effectively use new technologies. Providing training and resources to employees is critical, and should be always started as early as possible and best before a project.
- Resistance to change: Humans hate changing. So it’s also not suprising that change due to new technologies is often difficult, and there can be resistance from employees, especially if they feel unsure or don’t clearly see the benefits of the changes. Be ready to upskill them early, involved them in the process, have a clear communication and support them also on a personal level. But this also means that top management and c-level needs to be “ready”.
- Corporate culture: A good company culture is hard to build but it pays off. When you manage to change your culture to supports innovation and change it becomes easier to adapt to new technologies. So a good corporate culture is essential for successful digital transformation.
All of these challenges can be overcome by having a clear vision and strategy for digital transformation and this involves a good planning. Don’t forget that the whole organization incl. management and employees need to evolve. It can also be helpful to consult digital transformation experts or use external service providers to get support and advice.
The key to successful digital transformation
Digital transformation enables new ways of analyzing data, increasing productivity, addressing and dealing with customers, even in non-digital industries. From experience, the most important factor for a successful digital transformation is leadership. Most companies do digital transformation on a small scale, leaving only the CMO to make decisions at his level for his area. Successful digital transformation starts from the top, and it takes a united front to bring about the change between “now” and “where we want to go” to take advantage of the opportunities of technology and online markets.
Always work digitally!