Currently, digital transformation is a hot buzzword, and it’s something that everyone wants to be a part of, even if they don't understand what it is or what it means. So, what is digital transformation really?
If this were a tweet, I would give the Google definition:
"Digital Transformation is the use of new, fast, and frequently changing digital technology to solve problems."
However, this definition can also be applied to the adoption of the PC in the 1980s, email in the 1990s, and the internet in the early 2000s.
I will be somewhat more specific concerning the current form of digital transformation.
Presently, digital transformation includes the convergence of several technologies such as:
- Artificial Intelligence (AI)
- Cloud Computing
- Internet of Things (IoT)
- Among others
These technologies are considered mainstream today, but just like other new technologies in the past, they were considered disruptive when first introduced and have since been used to change the way business is done.
Digital Transformation Is A Marketing Gamechanger
Just like at the beginning of the ‘90s when email was a gamechanger to the way we communicated and the internet made the emergence of a new channel for offering services and products (not to mention the rise of social media) possible, today we have several technologies that are being used for the same purpose.
An example of this is the use of data collection to personalize ads for consumers.
In the past, marketing was directed to so-called consumer groups which were divided into categories such as gender, age group, geographic location, etc. Advertisements, often static, were then targeted at these groups.
Nowadays with data collection (IoT), processing (Cloud), and behavior analysis (Artificial Intelligence), it is possible to have a much more detailed view of the individual consumer and thus create personalized ads for him or her, providing a greater increase in sales conversions.
The main characteristics of this transformation, in my opinion, are two-fold.
First, cloud computing removes the computational limitations that determined the efficiency of data analysis, both in the amount of data obtained (because your Data Center used to have a storage limit ) and the speed with which data is obtained (since your Data Center used to have a processing limit).
Consumption forecast reports, which used data from past sales to provide a forecasting model, were executed at the end of the month, took a few hours to prepare, and were usually already outdated from the moment they became available.
Today, they can be executed in real-time with a view of what is happening at that moment.
The second point I call hyperconnectivity.
We have primarily electronic devices generating information, which is used to process and obtain relevant information for whatever is needed.
Our smartphones generate data about our localization, our activity in social networks generates data on our behavior, and our wearables generate data on our actions. All of this is converted into information and returned to companies to refine the understanding of our behavior so that they can be more assertive in their marketing recommendations.
So, to finish off with a tweet, I will say:
“Digital Transformation is the coined term given to the compound of technologies which are available for adoption today and have the possibility of transforming the way business is conducted. That includes Cloud, IoT, Blockchain, Artificial Intelligence, among others.”
Digital Transformation Is Not…
While it is important to state what digital transformation is (the use of technologies for business transformation), it is also important to emphasize that digital transformation is not simply a technological endeavor, nor a mere replacement of a platform by one that is more efficient, faster, or cheaper.
That would be a normal technology replacement. Despite increasing efficiency, it doesn’t necessarily change the way a company may do business.
Any Digital Transformation initiative must take into account how the existing business processes will be transformed. Digital transformation must also consider the way its customers and suppliers interact and do business with your company, while also considering how it can impact their business as well.
When Did Digital Transformation Begin?
Like the waves of previous digital transformation, there is no one definite moment in time, or Big Bang, when the latest technologies were formed.
Technologies such as artificial intelligence, blockchain, cloud computing, IoT, and others, emerged over time and took their current form in mid-2010.
Since then, these technologies have been embraced and are in widespread use by early adopters.
How Has Digital Transformation Affected Cybersecurity?
A pillar of digital transformation today is the connectivity of equipment through IoT which allows devices to be connected to the network.
While the increase of this connectivity to the network helps generate the data for each device, it also presents a larger opportunity for cybersecurity attacks.
To combat this greater risk, there needs to be a superior, more diverse security performance in the network.
In addition, IoT equipment is manufactured by different suppliers with different features, speeds, and data delivery, which add additional layers and compromises to cybersecurity. So, cybersecurity efforts must increase as each new digital transformation technology is created and utilized.
Competitive Advantages Of Digital Transformation
Digital transformation can generate a competitive advantage for your business in three ways:
- Cost Reduction- When using on-demand cloud computing resources, the cost of processing and storage tends to be cheaper than on-premises resources.
- Increase in Value- By using machine learning to gain insights on data, a company can make better business decisions, either by identifying points that escape human analysis or through existing reports with greater data analysis.
- Creating New Markets - With new technologies there are new opportunities to explore the user experience and, thus, test business models that would otherwise take longer or cost more.
Digital Transformation Drives The Customer Experience
Another important point of digital transformation as mentioned before is the ability to modify the customer experience with respect to the services or products provided.
The best example we have of this is Amazon, which started as a website selling books and, today, is considered one of the giants of technology with regard not only to its marketplace (which uses AI and machine learning to suggest purchases for you), but also in terms of other digital transformation technologies and cloud computing offering various services through its AWS division.
To use the example of Amazon Marketplace, the strategy developed by them was to obtain as much data about the consumer as possible through the navigation profile, clicks on the screen, and text typed in the search bar - even if deleted later.
Then, Amazon uses a Machine Learning model that provides a specific profile for the consumer and offers targeted marketing to each specific user.
We have pretty much all received an advertisement about a product that was exactly what we were thinking of buying, right? That is digital transformation being used to gain greater marketing opportunities.
The Importance Of Digital Transformation
Digital transformation today is not actually any more important than other digital transformations that have occurred in the past. There are a greater number of technological solutions today, but the disruption in the existing business model that they created are similar to what prior digital transformations have done to businesses in the past.
What is significant today is that the adoption curve of the current technologies is much faster compared to previous ones.
While previous technologies have had a long adoption curve, it is now possible to implement any of the new technologies in a relatively simple way.
For example, you can visit https://aws.amazon.com/rekognition/ and implement an AI model for recognition of images in less than 5 minutes!
Why Do Some Digital Transformations Fail?
A McKinsey study shows that some 70% of digital transformation projects fail to deliver the expected value for several reasons, including:
- Lack of employee engagement
- Insufficient executive support
- Lack of clarity in defining the transformation itself
In addition, a significant cause for failure is due to a lack of understanding of what digital transformation effectively means.
When promoting a digital transformation program, companies must ensure that all of these points are addressed to secure a successful implementation.
The Impact Of Digital Transformation On Your Business
Bill Gates is quoted as saying,
"The first rule of any technology used in a business is that automation applied to an efficient operation will magnify the efficiency. The second is that automation applied to an inefficient operation will magnify the inefficiency."
Therefore, if you are considering digital transformation initiatives, you must ensure that your projects have not only the proper integration throughout the company (because digital transformation is not IT only), but also that the necessary set of capabilities are in place to support these new initiatives.
From the consulting perspective, companies can obtain support in implementing digital transformation in two main aspects:
- As an Advisor for Digital Transformation. An advisor can help delineate a strategy to help navigate through the maze of technologies and its main actors on the field.
- As Manpower Support. A company can provide manpower support to assess technical aspects of talent management, as well as understanding the service providers for the new technologies in order to give insight about each of them.
Finally, you must consider that your industry regulatory requirements still apply to the new technologies and must be addressed accordingly. In this sense, a consulting company can also support you by providing the latest info on the regulatory information.
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