In today’s global landscape, every enterprise is undergoing some form of digital transformation. Regardless of the industry, be it healthcare, banking, or manufacturing, organizations have recognized the imperative to adapt digitally. The concepts of digital and digital transformation have become essential aspects of our lives. Given the current trajectory, it is evident that digital is here to stay. Consequently, it is prudent to equip ourselves with the knowledge and skills to navigate this digital era.
From personal experience, I have found that grasping the concept of ‘digital’ can be challenging, especially when different definitions are used. It was not until I undertook a digital transformation course that many of my uncertainties were addressed. Inspired by this enlightening experience, I am motivated to share my insights with the world. With an increasing number of companies embracing digitalization in the future, my blog aims to serve as a valuable resource for those seeking to understand and adapt to this transformative process.
Therefore, let us embark on this learning journey by establishing a foundational understanding of the meanings behind these digital concepts. We will begin with an exploration of the term ‘digital.’
‘Digital’ is perhaps one of the most elusive words to define comprehensively. Nonetheless, I will make every effort to elucidate its terminology and provide references for your convenience. According to Gartner, digital refers to “the dominant use of the latest digital technologies to improve organizational processes, enhance interactions between people, organizations, and things, or enable new business models.” Rather than seeking a simplistic and concise definition, it is more apt to perceive digital as a ‘way of doing things’ rather than a singular, one-word definition.
McKinsey & Company outlines three areas in which organizations must adapt to embrace digital transformation. These areas include:
- “Creating value at the frontiers of the business world by reassessing established business practices, developing new ventures in adjacent categories, and pursuing new value pools in existing sectors.
- Generating value in core businesses by aligning with a vision of enhanced customer experiences through the integration of four core capabilities: proactive decision-making, contextual interactivity, real-time automation, and journey-focused innovation.
- Establishing technological and organizational processes to foster an agile and nimble organization. If we consider digital as an endeavor to create new value, enhance customer experiences, optimize core business operations, and encompass elements of people, culture, mindset, and technology, then digital transformation signifies the comprehensive transformation of an enterprise, with these principles serving as its foundation”.
Now, let us delve into the definition of digital transformation.
We are living in dynamic times where new technologies continuously enter the market. Technological advancements have led to dramatic shifts in various facets of society. For instance, consider the impact on customer behavior, with approximately 3.5 billion people worldwide owning smartphones in 2020. We now spend over three hours per day on our mobile devices. As a result, companies have adapted by catering to customer demands through mobile commerce activities, such as developing online sales channels and apps that facilitate virtual shopping experiences, providing visualizations of products and personalized recommendations. This is just one example of how technology has transformed customer interactions. Similarly, other dimensions of business, including competition, data, processes, and innovation, have also undergone significant changes.
Moreover, the pace of technological change has accelerated, forcing companies to adapt swiftly to remain competitive. As highlighted by the Harvard Business Review, the rates of new product introductions and adoption have intensified. Consider the example of smartphones once again. When purchasing a new phone, we often replace our older devices not because they are entirely obsolete, but rather to access upgraded features. To remain relevant in the market, organizations increasingly rely on technologically advanced solutions. George Westerman and his colleagues (2014) define digital transformation as “the use of digital technology to radically enhance a company’s performance and/or extend its reach.”
In more explicit terms, digital transformation involves adopting digital technology to revolutionize services or businesses, replacing non-digital or manual processes with digital ones, or upgrading outdated digital technologies with newer alternatives. Beyond enhancing efficiency through automation, digital solutions enable novel forms of innovation and creativity, augmenting and complementing traditional methods.
While some companies modernize their technology to maintain relevance, others view it as a competitive strategy to stay ahead of their counterparts. However, in many cases, digital transformation is a matter of survival. A study conducted by Deloitte reveals that between 1965 and 2012, nearly 40% of incumbent companies lost their leadership positions primarily due to the disruptive effects of digital technology. Consequently, businesses must clarify their strategies, develop new capabilities, and transform their cultures to become digital organizations. With the rise of new technologies, new entrants challenge market leaders and disrupt traditional markets. Incumbents must adapt to these challenges to remain active and relevant.
Yet, implementing digital transformation is easier said than done, as it entails the comprehensive transformation of an entire business.
Lastly, let us address the concept of digitization. Digitization is often mistakenly conflated with digital. However, there are fundamental distinctions to be made. Digitization revolves around standardizing business processes with the goals of operational excellence and cost reduction. As stated by Gartner, digitization refers to “the use of digital technologies to change a business model and provide new revenue and value-producing opportunities. It involves transitioning towards a digital business.” Digitization primarily focuses on internal optimization of processes, such as work automation and minimizing paper usage, resulting in cost reductions. In contrast, digitalization represents a broader strategy or process that goes beyond the implementation of technology, signifying a fundamental change to the entire business model and work evolution.
Thus, when companies have achieved complete digitization, with standardized processes, heightened efficiency, and operational excellence, they have not yet become digital businesses. To attain digital enterprise status, companies must prioritize customer-centricity, create new value propositions, leverage technology effectively, and foster a culture that embraces both digitalization and digital transformation.
This website aims to educate individuals on the meanings of digital, digital transformation, and digitization. By understanding these concepts, we can navigate the digital landscape with greater clarity and purpose.