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A standard definition of digital transformation is a company’s fundamental change in how they do business and deliver customer value due to integrating digital technology throughout all of their business units. More efficient digital tools and processes replace antiquated legacy or analog processes.

At the bird’s-eye level, digital transformation is the acceptance that the global business environment has irrevocably evolved since the popularization of the computer and subsequent internet. In order for businesses to survive, let alone compete, they must adopt digital business technologies to keep pace with the technologically complex and growing economy.

On a strategic level, a company may choose to digitize some or all of their business processes. To some extent, this spectrum of choice opens up an almost endless set of paths to achieving digitization. However, the leading digital transformation principle espouses the leveraging of digital technology to eliminate mostly human errors, speed up business processes, and leverage technology to create value and business advantage. Once an area of a business has been digitized, such as the marketing unit, then that area’s data can be extended, integrated, visualized, or in other words put to use in ways previously unachievable without significant effort.

Some digital transformation practitioners have further nuanced terminology for digitization, digitalization, and digital transformation. Digitization precedes all others, and is the strategic choice to transform from a company that records analog data into one that records data digitally. Specifically, moving paper records to the computer.

It might be perceived that once analog files are made digital, then a company has fully transformed digitally, this is not true. In many cases, digitalization is a necessary next step for companies who have crossed over from analog. This data must be put to use in an effective and efficient manner in order to create any insightful value from the digitization process. The key is to use data effectively without disturbing the original business processes in place. For example, using digital customer relationship management software, sales teams and customer service teams can access important client information quickly and with reliability. The original business process remains but it has become more effective and efficient because it is supported by digital solutions.

Digital transformation evolves from digitalization but is a moving goal post. The ideology centers on enhancing value for customers at every interaction through the collective use of digital technology. Subsequently, the nature of technology is a rapidly evolving one, so implicitly, digital transformation also intends to create new modes of customer experience through technology that have yet to be dreamed up. For instance, Amazon as a model of a digitally native company constantly undergoes technology transformation, evolving their user experience in innovative ways. These innovations have been as groundbreaking as the original Amazon user product ratings system and as cutting edge as their latest drone delivery system.

What are the benefits of Digital Transformation?

When a company undergoes digital transformation, there will be a period of confusion, possibly disarray as teams learn to work within the new environment. However, many of the benefits that come with digital transformation lead to greater productivity and profitability.

  • Improved Efficiency — Because much of the human element has been removed from the data handling process, calculations, error rates and data entry show remarkable improvements in efficiency. As well, novel devices have changed the way data entry is carried out, like RFID tags and QR codes, which have made tracking packages and small objects tremendously efficient and convenient.
  • Cost Reduction — An immediate benefit from becoming more efficient is becoming leaner as a cost center. Added efficiencies reduce overall costs, and allow resources to be redistributed for more efficiency.
  • New Value Creation through Technology — Once a company has undergone digital transformation, they will begin to discover new ways to create value for their clients by combining technology and data. One simple technology is a mailing list. Already well in use today, originally this tech provided tremendous marketing value by keeping clients informed about company activity at exceptional cost and time savings. Even so, clients may prefer to interact with a company via their customer website chat, companies that have digitally transformed can easily implement technology like this.
  • New Value Creation through New Business Models — As technology has opened up ways to create new value for clients, so too does it open up ways to create new business models. In one instance, Philips Lighting leveraged IoT infrastructure to transform their one-time sale business model of lighting equipment into a “pay per lux” model. By adopting a digital approach, Philips Lighting was able to develop the lighting as a service model and double its market value in just 4 years.
  • Improved Insights and Decision Making — A great advantage of digital transformation is the ability to apply statistical data analysis on company data and uncover actionable insights. These insights provide the business intelligence to inform decision making at every level of the organization.
  • Improved Customer Satisfaction — Generations today are much more familiar with technology than even a generation ago, consider the advancements in web and mobile technology. They expect digital experiences, and balk when interacting with a company is not as easy as a few clicks on the computer. Fortunately, companies that undergo digital transformation are positioned to take advantage of an exceptional array of technologies that keep up with customer expectations as well as bridging the gap to the customers that are less technically savvy.

Related Terms

Data Analytics

Data analytics is a set of qualitative and quantitative techniques and processes used to enhance productivity and business gains by discovering insights hidden in company data.

Digital Platform

Digital platforms streamline business process operations and IT systems, a term synonymous with automation technology, and typically connects multiple participants to a business model. In some cases, this means connecting people socially (Facebook, Twitter), connecting markets (Amazon, eBay), providing data repositories (Github), even providing cloud resources (AWS, Azure). Digital platforms will continue to grow along with digital transformation.