What exactly is digital transformation?
The term ‘digital transformation’ is in danger of becoming meaningless through overuse and abuse. It’s time to bring some clarity to the term and what it actually means.
You can’t get far these days without hearing someone banging on about digital transformation.
Partially as a result of such overuse, it can be a confusing term – especially since digital things have been around for a long, long time.
In fact, the first time I remember hearing the term ‘digital’ was way back in the late 70’s when I put a digital watch at the top of my Christmas list! And then there’s all the other everyday terms that are far from new – digital camera, digital marketing, digital radio. The list is endless.
It’s therefore little wonder so many people are confused by the term digital transformation.
Let’s take a few minutes to clear up all the confusion once and for all.
Digital transformation defined.
Of course, there is no shortage of definitions of the term ‘digital transformation’ so let’s start by taking a quick look.
Gartner defines digital transformation as “anything from IT modernization (for example, cloud computing), to digital optimization, to the invention of new digital business models. The term is widely used in public-sector organizations to refer to modest initiatives such as putting services online or legacy modernization.”
Personally, I find the above definition unhelpful because it’s far too broad - being a catch-all for pretty much any type of initiative that has a technology-bias.
Let’s keep looking.
Sticking with Gartner, they define digital business transformation as “the process of exploiting digital technologies and supporting capabilities to create a robust new digital business model.”
Ok - I’m a bit happier with that but it still feels a bit fluffy to me. For example, “supporting capabilities” - that could mean pretty much anything, right?
But how about this from Mark Darbyshire, CTO Product and Data Management at SAP…
“At its most simple, digital transformation is the adoption of new/emerging technologies to extract value out of data, processes and people.”
Now I’m much happier with this because, in a single sentence, Mr. Darbyshire pretty much nails it.
Using technology to create value? Sure.
But using that technology to extract value out of data, processes and people? Hell yeah - absolutely!
To me, this talks to true digital transformation – as opposed to any type of technology-based initiative that organisations have been doing for decades. I also love the explicit reference to ‘data’ because, as I’m about to explain, data is really the cornerstone of true digital business transformation.
Digital transformation examples.
Ask those in the know to list a few well-known examples of true digital transformation and you’re likely to hear names like Uber, Amazon and Netflix.
Consider Uber’s hijacking of the private transportation sector, Amazon’s disruption of traditional retail, and Netflix’s destruction of the once-sacred video store.
To me the above examples all fit nicely within Mr. Darbyshire’s definition – with data being at the heart of their success.
Take Uber for example.
Put simply, Uber connects a person needing a ride with a person able to give them a ride. And because it knows where each person is, it can coordinate the bringing of the two people together, predict how long the wait will be and how long the overall journey will take. And then, when the journey is over, it automatically sorts out the payment.
Or, in summary, we could try on Mr. Darbyshire’s definition and say that Uber uses technology to generate value from a combination of data (both public and private), people and processes.
The difference between digitization, digitalization and digital transformation.
Now that things are starting to make a bit more sense, let’s carry on and clear up another common question that catches a lot of people out – the difference between digitization, digitalization and digital transformation.
And no, this isn’t just petty semantics – it really matters (and something best explained through example).
Here’s my favourite example because both my teenage kids and octogenarian parents get this – a good test of relevance I’d say!
Many of us can remember back to the mid-80’s when music CD’s arrived on the scene and became the next big thing for music aficionados. This was a good example of digitization – being the switching from analogue records to the digital format of CD’s.
But if you think about it, the only thing that really changed was that we all went out and bought CD players. It didn’t fundamentally change the process or the buyer experience – we still ran down to Tower Records to hand over our cash; it was just that most of us were now choosing CD’s over records.
Certainly as far as the consumer and retailer were concerned, digitization didn’t fundamentally change the business model or process – it just freshened things up; for example, the media was smaller, more robust and easier to transport. (Note I didn’t mention sound quality – that debate is still raging on.)
So whilst the arrival of CDs was significant, it didn’t result in true digital transformation of the process.
Now let’s fast-forward 20 years to when (legitimate) music streaming services like Spotify arrived. Here, rather than a download, the audio file is delivered to the user’s device in a steady stream of small data packets which are buffered and played pretty much straight away.
This was digitalization of the process.
And different to the arrival of CDs, it had a much more profound effect on the industry – and particularly on the consumer. Importantly however, on its own, even streaming wasn’t powerful enough to transform the industry. But when combined with things like faster internet and e-commerce platforms, EVERYTHING changed.
To me, this was one of the first examples of digital transformation completely disrupting an industry that had remained largely unchanged for decades. It created new businesses and new business models and was a major contributor to the destruction of hugely popular bricks and mortar businesses (like my beloved Tower Records). And not because they weren’t popular, or fun places to go, but because they became largely irrelevant as most people decided they wanted to buy and consume music in a completely different way.
So whilst insufficient on its own, digitalization was at least the catalyst for digital transformation of the entire music industry.
Most so-called ‘digital transformation’ initiatives really aren’t anything of the sort. Rather, they’re run-of-the-mill technology projects but with a greater focus on data. And whilst that doesn’t mean they’re not important, to brand them as ‘digital transformation’ is dangerous.
It’s dangerous because anyone who believes there’s nothing more to digital transformation than executing a handful of IT projects, seriously undervaluing the power and strategic importance of true digital transformation.
And in terms of those definitions, perhaps think of it this way:
We digitize information
We digitalize processes.
We digitally transform businesses and business models.