What Is Digital Transformation?

Digital transformation is the practice of using digital technologies to create or enhance business processes, organizational culture, and customer experiences, allowing organizations to meet new business requirements and take advantage of new opportunities. Through modernization initiatives and change management processes, digital transformation enables organizations to radically restructure how things get done and how customers interact with the business. By integrating digital technologies into every area of the business, digital transformation initiatives increase operational efficiency and reinvent all facets of an organization — from workflows and supply chains to organizational hierarchies and the skill sets required from employees.

As IT environments continue to evolve and new technologies emerge, digital transformation is essential for every organization that wants to remain competitive, viable, and relevant. Because nearly every industry is affected by changes in digital technologies, organizations that excel at digital transformation initiatives will be able to outpace competitors by improving efficiency, reducing operational costs, and meeting the needs of customers more effectively. New business models that leverage digital innovations like cloud computing, artificial intelligence, and machine learning are enabling vast improvements in the way that the smallest start-ups and the largest enterprises interact with their customers, employees, and business partners. Any company that is not fully on board with the digital age will find it difficult to compete.

Several factors are driving the digital transformation.

• New technologies. From cloud computing and the Internet of Things (IoT) to social media and mobile devices, technological advances are fueling new business models that leverage the efficiency, intelligence, and scope of these revolutionary digital technologies.
• Cost pressures. As they face increasing cost pressures and rising threats, businesses around the world are constantly seeking and adopting new digital solutions to increase productivity, reduce expenses, and manage risk.
• Skill shortages. A growing shortage of workers has caused organizations to seek digital solutions to address the skills gap.
• Customer expectations. As they interact with companies online, customers today expect flawless, frictionless experiences and the ability to do business anytime they want, wherever they choose, and on any device.

Successful digital transformation efforts can address each of these factors to enhance business outcomes.

Digital transformation within an organization may occur at several levels:

• Process. At the process level, digital transformation focuses on driving greater operational efficiency, often by incorporating data analytics and AI. Business process changes may affect areas such as project management, accounting, customer relationship management (CRM), and marketing management.
• Business models. Digital transformation of business models is about fundamentally changing the way the organization operates and generates revenue.
• Domains. In domain transformation, organizations leverage their expertise in one area of business to branch out and compete in new areas or with new products.
• Culture. Cultural transformation is about changing the culture of the workplace and encouraging new ways of thinking about the company, the marketplace, and the customer. Digital transformation at the cultural level impacts an organization’s processes and capabilities, as well as employees’ mindsets and skills, to drive greater productivity and efficiency and increase revenue opportunities.

• Better real-time decision-making. New digital technologies enable businesses to gather real-time information that can dramatically improve the ability to make the most effective decision at any given moment.
• Increased efficiency. By accelerating processes, automating workflows, initiating predictive maintenance, and eliminating waste, digital transformation is a significant driver of operational efficiency.
• Superior customer experiences. Implementing digital transformation enables businesses to meet customer expectations for personalized experiences, omnichannel access, customized service plans, and real-time access to information.
• Improved profitability. Businesses that modernize operations with intelligent digital processes are able to generate more revenue and find new markets while reducing costs.
• Greater agility. Digital transformation provides companies with tools to adapt to business disruptions, market changes, and evolving requirements.
• Faster speed to market. With digital processes driving greater efficiency, organizations can innovate faster and accelerate speed to market.
• Enhanced cyber resilience. With digital transformation, organizations are better equipped to ensure business continuity by effectively withstanding cyberattacks, natural disasters, and other challenges.

Some of the most common technologies driving digital transformation include:

• Cloud computing. By providing on-demand, centralized access to computing services and infrastructure, cloud computing is often the foundation for digital transformation initiatives.
• Mobile platforms. Mobile technologies are fueling the trend toward hybrid workforces and work-from-anywhere employees.
• Machine learning and artificial intelligence. These technologies deliver deeper insights for faster, more accurate decision-making in every area of business.
• Edge computing. By moving data processing and storage functions closer to the users and devices that need them, edge networks and cloud edge computing accelerates decision-making and improves user experiences.
• The Internet of Things. IoT systems provide vast amounts of information about systems and conditions to enable greater visibility and awareness.
• Blockchain. Blockchain technology provides a distributed, permanent, and immutable record of electronic transactions, adding transparency and trust to digital markets, financial services, and supply chains.
• Digitization. The ongoing conversion of paper-based information into digital data is a cornerstone of digital transformation in many industries.
• Robotics and robotic process automation (RPA). Businesses use robotic devices to execute specific, physical tasks with greater speed and precision, while RPA software executes digital administrative processes automatically and accurately.

Some of the most prominent examples of digital transformation include:

• Smart cities. Municipal governments are using digital transformation to make their cities better places to live, work, and play. From smart traffic systems that reduce congestion to smart energy initiatives that manage lighting, heating, and cooling of government buildings, smart cities projects are making great strides in safety, environmental sustainability, citizen engagement, and cost reduction.
• Healthcare. Digital capabilities are enabling patient-centric processes and value-based outcomes that improve patient care while reducing costs for providers and payers.
• Supply chain. Digital transformation is disrupting supply chain operating models by delivering greater visibility and minimizing risk to provide organizations with a competitive advantage.
• Retail. Digital transformation is helping retailers deliver seamless customer experiences, provide personalized recommendations, and offer convenient customer service processes.
• Manufacturing. IoT networks are improving efficiency in manufacturing processes, enabling predictive maintenance and process improvements, and enhancing the quality of manufactured products.
• Automotive. Autonomous vehicles and driver interface applications are just a few of the ways that the automotive industry has embraced digital transformation.
• Finance. Digital transformation has enabled new forms of mobile banking, touchless payments, and a shift from cash to credit cards.