Digital Transformation is the use of new, fast and frequently changing digital technology to solve problems. It is about transforming processes that were non digital or manual to digital processes.
One of the examples of digital transformation is cloud computing. It 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 whilst others are entirely cloud based.
As the companies providing the services are guaranteed of regular recurring revenue from subscriptions, they are able to finance ongoing development with reduced risk, and delivering more frequent updates often using forms of agile software development internally. This subscription model also reduces software piracy, which is a major benefit to the vendor.
Some of these digital solutions enable - in addition to efficiency via automation - new types of innovation and creativity, rather than simply enhance and support traditional methods.
One aspect of digital transformation is the concept of 'going paperless' or reaching a 'digital business maturity' affecting both individual businesses and whole segments of society, such as government, mass communications, art, medicine, and science.
Digital transformation is already underway, but is not proceeding at the same pace everywhere. According to the McKinsey Global Institute's 2016 Industry Digitization Index, 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%.
BinaryIn 1703 Gottfried Wilhelm von Leibniz explained and envisioned the concept that would be known as "digitalization" in his publication Explication de l'Arithmétique Binaire. Initially developed as a base-2 numerical system, using only two values, 0 and 1, the system was further developed and complemented by scholars such as George Boole, Claude Shannon and George Stibitz during the 1940s.
TransistorsThe first practical transistor was the point-contact transistor, invented by the engineers William Shockley, Walter Houser Brattain and John Bardeen in 1947. Shockley's research team later invented the bipolar junction transistor in 1948.
The MOSFET, also known as the MOS transistor, was invented by Mohamed Atalla and Dawon Kahng in 1959. With its high scalability, and much lower power consumption and higher density than bipolar junction transistors, the MOSFET made it possible to build high-density integrated circuit, allowing the integration of more than 10,000 transistors in a single IC, and later millions and then billions of transistors in a single device.
The widespread adoption of MOS transistors revolutionized the electronics industry. As of 2013, billions of MOS transistors are manufactured every day. The MOS transistor has been the fundamental building block of digital electronics since the late 20th century, paving the way for the digital age. The MOS transistor is credited with transforming society around the world, and is the building block of every microprocessor, memory chip and telecommunication circuit in use as of 2016.
Early digital computersToday, Stibitz is considered one of many pioneers of the digital computer, through the development of the first electromechanical computer from his discovery of the automatic computing relays as well as the term 'digital'. The first electronic computer was introduced by John Atanasoff in 1939. The process of digitalization thereafter accelerated, with the development of personal computers such as the Simon in 1950, Apple II in 1977 and IBM PC in 1981.
Accelerated changeWith the introduction of the World Wide Web, the scope, dimension, scale, speed as well as effects of digitalization fundamentally changed, resulting in the increased pressure on the societal transformation process.
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, digitalization 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.
ImpactThe debate surrounding digitalization has therefore gained increased practical importance for politics, business and social issues, and is linked to political work issues for community development, new changes in the 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. The digital transformation is slated to generate over $370 billion in global value during the next four years.
Digitization (of information)In political, business, trade, industry and media discourses, digitization is defined as the 'technical process' of "converting analog information into digital form". 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 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. 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, 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, 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.
The academic discussion surrounding digitalization has been described as problematic as no clear definition of the phenomena has been previously developed. 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.
Digital transformation (of societies)Finally, digital transformation is described as "the total and overall societal effect of digitalization". 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, etc.
Digitization, digitalization and the digital transformation therefore accelerate and illuminate the already existing and ongoing horizontal and global processes of change in society.
Opportunities and challengesDigital transformation is a major challenge and opportunity. 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. Digital transformation has created unique marketplace challenges and opportunities, as organizations must contend with nimble competitors who take advantage of the low barrier to entry that technology provides. 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. We can understand digital transformation through some real-world examples.
Hospitality managementIt focuses on ambitious digital transformation, aiming to put the customer back at the center of its 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. Latest advancement in this respect are Online Travel Agencies, service aggregators like Expedia, Booking.com. We have another competitor in market which is not only digitally transforming the hospitality industry but actually bringing disruption with the help of technology, AirBnb.
E-commerceDigital experience has become inevitable without e-commerce interaction. Big players 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.
BankingIt focuses on digital transformation of banking sector in seeking regional growth amidst a new digital era. Banks have already invested heavily in technology and infrastructure. From online banking, 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.
TrainingWith 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.
HealthcareIt 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, inter-professional communication, computer-based support, patient-provider interaction and service delivery, and education. Most studies implicitly report on cases from primary care, secondary care, 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 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.
Other studiesIn 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.
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.
In 2015, the World Economic Forum and Accenture launched the digital transformation initiative 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".
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."
In February 2017, a study by McKinsey & Company argued that "On average, industries are less than 40 percent 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.
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".
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.