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Digital Transformation Part I

What is digital transformation? It is often associated with many different terms or concepts such as digitization, automation, optimization, digital business, business transformation, industry 4.0, the Internet of Things and the list goes on.
Today, the topic is discussed everywhere, and everyone is somehow affected or involved in this shift towards a digital world which leads business to transform to remain competitive and relevant. However, do we really understand digital transformation? Are leaders aware of what it entails or is it just a way to say we have adopted cloud technology? This series of two articles aim to bring more clarity around the topic by specifying the main differences between digital transformation and other concepts mentioned above and what it really is. Note: This article presents many historical facts related to technology and the way it has changed business over the years. Some readers might experience a delightful trip down memory lane while reading this!

Digitization

Digitization is the process of converting something (e.g., text, sound, or images) from analogue to a digital form by expressing the information in binary digits. Digitization, or the introduction of digital technologies into corporate business models, started over 50 years ago. In 1964, IBM announced the System/360, the first family of computers designed to cover the entire spectrum of applications with varying degrees of performance, but with the same set of commands. Back then, programs were written for specific hardware, which meant that the program code had to be constantly updated when it was replaced. This was no longer necessary with the System/360. This feature allowed the customer to use an inexpensive model, and then upgrade to a more complex system with the growth of the company, without having to rewrite the software. This advanced technology led to the release of more powerful and smaller computers.
  • The cost of developing System/360 was about $5 billion. It was the second most expensive research and development project of the 1960s after the Apollo program.
  • In 1981, the IBM PC was introduced. In less than a decade, companies were using PCs to digitize their businesses (spreadsheets, various computing, and word processing). The IBM S / 360 and PC were designed to increase efficiency in addition to helping organizations become faster and more competitive. In 1983, Novell introduced NetWare — a network operating system with a set of network protocols to interact with client computers connected to a network. NetWare enabled PCs to share data within an organization at a low cost.
  • With the advent of more advanced technologies, business efficiency increased even more: automatic workflow systems, completely digitize business processes, etc. Here are some examples of such digitization:
    • Spreadsheets: VisiCalc (for Visible Calculator) was the first spreadsheet for Apple computers, it was released in 1979. VisiCalc turned computers into a business document management tools;
    • Production planning: Enterprise Resource Planning (ERP)is an organizational strategy for integrating production and operations, asset management, human resources, and financial management. It is focused on resource optimization;
    • Document Management: Enterprise Content Management (ECM) as the infrastructure and technical architecture to support a single lifecycle of unstructured information of various types and formats;
    • HR management software;
    • CRM, a customer relationship management system.
The ITIL4 framework defines digital transformation as “The use of digital technology to enable a significant improvement in the realization of an organization’s objectives that could not feasibly have been achieved by non-digital means”. According to Axelos’ ITIL Digital and IT Strategy, digital transformation is interpreted differently by various roles:
  • Chief Executive Officer: It’s hype, which is only relevant to the CIO and the IT division.
  • Chief Information Officer: It’s the emerging technology that provides innovative methods for performing business activities.
  • Chief Marketing Officer: It’s a method for better engaging with current and potential consumers. Chief Financial Officer: It’s an opportunity to significantly reduce costs with cloud technology.
  • Chief Operations Officer: It’s a method for optimizing and automating operations.
  • IT Managers: It describes the implementation of a new ERP (Enterprise Resource Planning) system.

What Does Industry 4.0 Have To Do With It?

The Fourth Industrial Revolution (Industry 4.0) is the German government’s high-tech strategy which has received worldwide recognition due to the clarity of the goal formation and has been adopted by many countries around the world. It describes the concept of “smart manufacturing” based on the industrial Internet of Things (IoT), combining physical production and operations with intelligent digital technologies, machine learning and big data. Digitization is one of the necessary elements to the Industry 4.0 model. The Fourth Industrial Revolution or the transition to Industry 4.0 is a relevant topic for business.

... Internet of Things

The Internet of Things (IoT)is a global network of Internet — connected devices that can communicate with each other using embedded data transfer technologies. They are all connected to the centers of management, analysis, and control of information. IoT combines real things into virtual systems that can solve completely different tasks. Depending on the type of device communication, IoT projects can be divided into two types: mass and critical. Everyone has their own tasks and requirements for the network. Examples of “mass” IoT projects include smart homes, meters, cargo tracking solutions, etc. The “critical” machine communication can be autonomous cars, traffic management or industrial equipment, remote surgery. 

The main idea behind this concept is to connect every possible device through the network and thereby get synergy.

... and Society 5.0

In 2016, Japan shared with the world a large plan for social transformation – the concept of “Society 5.0“. If the German Industry 4.0 is considered as a kind of “smart business”, then Society 5.0 is like a “super-smart society”.

The program aims to achieve digitization at all levels of the Japanese society and the digital transformation of society itself. Important roles in the development of the concept are played by the Internet of Things, artificial intelligence, VR/AR, Big Data (analytics), and others. However, it’s not just about technology in people’s lives. The concept addresses some problems faced by Japan which are also relevant for other countries such as population aging, natural disasters, and environmental pollution among others.

What is Digital Transformation?

Since digital transformation looks different to each organization, it’s difficult to give a clear definition that applies to everyone. In general, digital transformation is the introduction of modern technologies into the business processes of an enterprise. This approach involves not only the installation of modern hardware or software, but also fundamental changes in management approaches, corporate culture, and external communications. As a result, the productivity of each employee and the level of customer satisfaction increase, and the company gains a reputation for being progressive and modern.

Digital transformation can be defined as the strategic transformation of a business, where customer preferences and behaviors determine enterprise technology solutions. “Is it an end-to-end enterprise-wide transformation that affects all parts of the organization?” – says Alexander Bushek, Digital transformation Evangelist, Senior Director, Analyst at Gartner.

“Every digital transformation will start and end with the customer, and I see it in the head of every CEO I talk to,” explains Marc Benioff, the chairman and CEO of Salesforce.

Digital transformation is associated not only with the renewal of technologies and business processes within the company, but primarily with a change in business strategy. According to Marc Benioff, the transformation takes place at a time when the company can re-evaluate the changing market, the needs of its customers and find new directions for development, taking into account the ongoing changes.

“Digital transformation is primarily a change in current business practices in the field of decision-making, which are either made by a person based on the analysis of “hard” data, or are left to the systems, excluding a person from the process, he explains. — Another area of digital transformation is following the customer as they digitalize their lifestyle.”

For example, with the development of the Internet of Things and voice assistants, the role of the buyer will flow to the machines — “Siri” or the refrigerator will decide what to buy, considering the preferences of the owner. A person, in the future, will begin to give more and more authority to technology first on minor issues, and with the growth of trust, and on more significant ones: from choosing a specific brand of milk, to choosing an insurance medical plan for the whole family.

Digital transformation in this sense is also about understanding and responding to the needs of new customers — “digital algorithms”. Another significant trend in customer behavior is a request for personalization, product offers for specific needs, often not yet formed, based on data analytics enriched by different areas of consumption, integration into “ecosystems”, the search for synergy in areas that until recently were considered unrelated, for example, banking services and food delivery.

In summary, the world is changing rapidly due to total digitization. Many companies are aiming to move beyond traditional business and adopting new technologies. While this can be straightforward for big tech companies and startups that quickly occupy digital niches in the market, it’s impossible for most organizations to catch up without undergoing radical changes. The second part if this series of article will present cases of digital transformation and how it benefits business.

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