You can't open an IT news site these days without two words jumping out at you: digital transformation. What does the phrase actually mean?
di-gi-tal | trans-for-ma-tion
1. Something the CEO asked me about on the stairs.
2. Possible threat to job.
3. Doing cool stuff with technology maybe?
4. Vague industry term condensing complex ideas into a bite-sized phrase. Often used with no real understanding.
also: agile, AI, big data, cloud, digitalisation, edge computing, IoT, gamification.
Digital transformation continues a long-standing tradition in the IT business, where someone somewhere coins a phrase that goes viral. Vendors start using it to sell things, and analysts and journalists catch on. It becomes a corporate meme, commonly used and entirely misunderstood. What depresses us the most are the various reports that discuss it without bothering to define it.
We can't offer you an official dictionary definition here because there isn't one: everyone's interpretation differs. Even Gartner says that it "varies widely in its meaning depending on context". However, having listened patiently to dozens of executives talk about it, this is our best guess. Use it, and you'll at least show that you've thought about it, putting you ahead of most others in the room.
Let's start with what it isn't. It isn't using technology to turn paper-based processes into digital ones. That's digitization, and people have been doing that since in one form or another since at least the seventies. Is your business transformed because it sends invoices by email? No. still sending invoices for the same stuff, after all. You're just doing the same things electronically.
Neither is it digitalisation. For some, this is just another word for digitisation, but for others, the extra syllable makes all the difference. They argue that it's the next step on, doing the things that you've already digitised, but faster and better. Because you receive and process payments digitally rather than in the mail, you're able to pay suppliers more quickly. That gets you an early payment discount.
So that leaves digital transformation. All the steps so far have focused on doing the same things more efficiently. Digital transformation takes this one stage further by exploring how companies can use technology to do things differently, or do different things entirely.
There's another important distinction: the previous steps focused on what the company does internally, behind the scenes. Digital transformation focuses on how technology can change things for the customer.
These two characteristics complement each other. Changing the customer experience means interacting with them in different ways, with new kinds of technology-driven products and services.
So, what does this look like in real life? Examples include Caterpillar, which worked with data analytics startup Uptake to offer predictive diagnostics for customers. This helped them schedule preventative maintenance and avoid expensive equipment breakdowns.
Other examples change the way that companies sell products to clients. Instead of selling lights to large customers, Philips worked with energy company Cofely on a 'pay-per-lux' program where they install the lights for free and charge only for the lighting used.
Digital transformation is what helped Netflix to evolve from renting DVDs by mail to become a hugely successful video on demand company that uses algorithms to predict what viewers want.
This concept is also what will stop existing players in different fields from getting eaten alive by newcomers that never had to digitize or digitalize anything because they used technology from the beginning. These new companies are the Ubers and the AirBnBs, and of course the Amazons, who have frightened so many others by focusing on growth rather than profit, incurring debt to digest others' markets from the inside out.
So yes, digital transformation is indeed a thing, and it's worth understanding. It often relies on fast-moving concepts like AI, IoT, and big data, which are similarly meaningful but misused terms.
Does this mean that small businesses should be starting AI projects and installing sensors everywhere to collect oceans of data about their customers? That's clearly unrealistic for most, who tend to focus on shorter-term goals like margin preservation and increasing sales to stay afloat. But for strategic thinkers, it's worth working with a third party to see how far along the digital journey you are, and what steps are realistic to take next.