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Digital transformation

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Digital transformation is the process of adoption and implementation of digital technology[1][2][3] by an organization in order to create new or modify existing products, services and operations by the means of translating business processes into a digital format.

The goal for its implementation is to increase value through innovation,[4][5] invention, improved customer experience and efficiency.[1] Focussing on efficiency and costs, the Chartered Institute of Procurement & Supply (CIPS) defines digitalisation as

the practice of redefining models, functions, operations, processes and activities by leveraging technological advancements to build an efficient digital business environment – one where gains (operational and financial) are maximised, and costs and risks are minimised.[6]

CIPS has also observed that "digital capability" can be used to support supply chain transparency and remote working.[6]

However, since there are no comprehensive data sets on the digital transformation at the macro level, the overall effect of digital transformation is still too early to comment.[7]

A useful incremental approach to transformation called discovery-driven planning (DDP) has been proven to help solve digital challenges, especially for traditional firms. This approach focuses on step-by-step transformation instead of the all-or-nothing approach. A few benefits of DDP are risk mitigation, quick response to changing market conditions, and increased success rate to digital transformations.[8]

Ressources of the Digital Transformation Capability

Thus, an organization’s ability to undergo digital transformation (DTC) encompasses three different categories of resources: tangible, intangible and human.[9]

Tangible resources are the physical items that companies use to support and advance digital transformation. Informational and Communication Technologies systems encompass software and platforms essential for data management, while hardware refers to the physical devices that power and sustain these systems. The digital infrastructure acts as the backbone, connecting these technologies and facilitating seamless information flow. These elements are collectively pivotal, enabling organizations to adapt and innovate in the ever-evolving business sphere. This includes things like IT infrastructures, specialized equipement and software tools. For example, IT infrastructure is crucial for effectively using digital technologies like computing and big data. Equipements like servers, data centers and network devices provide the base for software and applications to run. Finally, software from database management systems to artificial intelligence solutions, is crucial for processing and analyzing data, helping companies to make decisions based on real information.

Intangible resources typically include an organization’s digital transformation strategy, its collective knowledge, and the reputation gained from using and achieving results with digital strategies. For instance, when implementing a digital transformation strategy, it is crucial to consider the organization’s digital culture. This means understanding that digital transformation isn’t just a one-time project, but a continuous effort that integrates technology, people, and processes. Everyone at all levels of the organization should be aware and involved in this process.

Human resources play a pivotal role in propelling digital transformation within corporations. As part of the digital transformation capability framework, human resources constitute the collective skills, knowledge, and competencies that the workforce wields. These elements are integral to the successful execution and maintenance of digital transformation endeavours.

To adeptly steer through the waters of digital transformation, organizations must hone various facets of human resources. This begins with digital technical skills. Employees are required to master advanced technologies such as artificial intelligence, big data analytics, machine learning, cloud computing, and the Internet of Things. Furthermore, digital leadership is paramount. Leaders with a profound understanding of technological trends and a clear strategic vision are critical for leading the charge in digital transformation.

Moreover, beyond the scope of technical acumen, employees must also excel in digital communication. The modern workplace values proficiency in teamwork, problem-solving, and adaptability as much as it does technical know-how.

Lastly, considering the swift pace at which technology evolves, digital continuous learning and development cannot be overstated. Organizations must place a premium on ongoing education and growth to keep abreast of the latest technological advancements and stay competitive.

Barriers and enablers of digital transformation

Barriers

There are multiple common barriers that digital transformation initiatives, projects and strategies face. One of the main barriers is change management, because changes in processes may face active resistance from workers. Related to change management is the miscommunication between workers, which can lead to implementation delays or even complete project failure. Some companies are unable to develop a realistic cost projection due to a too optimistic view of the process. Companies may have legacy systems in place, which can lead to integration difficulties with new systems. Within organizations there may also be a lack of resources, top management support, workers’ skills, commitment, collaboration and vision.[10]

Enablers

In addition to the several barriers to digital transformation, there are also numerous enablers of digital transformation. The primary enablers are; organizations resources and capabilities, workers’ skills, technologies and culture. The aforementioned enabler “Organizations resources and capabilities” refers to the ability of an organization to adapt to contemporary issues arising in the business environment, as well as their capabilities in the field of data analytics. In regards to “Workers’ skills”, workers must be able to develop valuable insights with the use of data, have significant emotional intelligence and effectively part-take in the development of new products. Thirdly, technology is also a vital enabler of digital transformation. Companies can benefit from having access to artificial intelligence, data analytics softwares and effective usage of social media. Lastly, “Culture” pertains to the extent the organizational culture is data-driven and the quality of the top management support and engagement within the corporation. [10]

History

Digitization is the process of converting analog information into digital form using an analog-to-digital converter, such as in an image scanner or for digital audio recordings. As usage of the internet has increased since the 1990s, the usage of digitization has also increased. Digital transformation, however, is broader than just the digitization of existing processes. Digital transformation entails considering how products, processes and organizations can be changed through the use of new digital technologies.[11][12] A 2019 review proposes a definition of digital transformation as "a process that aims to improve an entity by triggering significant changes to its properties through combinations of information, computing, communication, and connectivity technologies".[2] Digital transformation can be seen as a socio-technical programme.[13][14]

Adopting digital technology can bring benefits to a business,[15][16] however, some company cultures can struggle with the changes required by digital transformation.[17]

A 2015 report stated that maturing digital companies were using cloud hosting, social media, mobile devices and data analytics, while other companies were using individual technologies for specific problems.[18] By 2017, one study found that less than 40% of industries had become digitized (although usage was high in the media, retail and technology industries).[19]

As of 2020, 37% of European companies and 27% of American companies had not embraced digital technology.[20][21] Over the period of 2017-2020, 70% of European municipalities have increased their spending on digital technologies.[20][22] By 2019, the Chartered Institute of Procurement & Supply found in a survey of 700 managers, representing over 20 different industries and 55 different countries, that over 90% of the businesses represented had adopted at least one new form of information technology, and 90% stated that their digitalisation strategies aimed to secure decreased operational costs and increased efficiency.[23]

In a 2021 survey, 55% of European companies stated the COVID-19 pandemic has increased the demand for digital technology, and 46% of companies reported that they have grown more digital.[24] Half of these companies anticipate an increase in the usage of digital technologies in the future, with a greater proportion being companies that have previously used digital technology.[25][26] A lack of digital infrastructure was viewed as a key barrier to investment by 16% of EU businesses, compared to 5% in the US.[20]

In a survey conducted in 2021, 89% of African banks polled claimed that the pandemic had hastened the digital transformation of their internal operations.[27]

In 2022, 53% of businesses in the EU reported taking action or making investments in becoming more digital.[28][29][30] 71% of companies in the US reported using at least one advanced digital technology, similar to the average usage of 69% across EU organizations.[28][31][32]

See also

References

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