What exactly is Digital Transformation, really??? - PART 1

In this new series, I'd like to provide my take on Digital Transformation. What that term means, and what it takes for a company to embark on a Digital Transformation.

It's been more than a year since COVID-19 arrived in this world. The virus not only impacted the way we do business, but also changed the way we go about our daily lives. It has been touted as one of the key factors driving companies to embark on digital transformations. A report from McKinsey estimates that companies "accelerated the digitization of their customer and supply-chain interactions and of their internal operations by three to four years."

Companies have accelerated the digitization of their customer and supply-chain interactions and of their internal operations by three to four years. And the share of digital or digitally enabled products in their portfolios has accelerated by a shocking seven years.

The way the term "digital transformation" is used in recent times also indicates a gap in understanding between what can be truly defined as such. Other terms that pop up frequently in discussions includes "digitization" and "digitalization", which sounds similar but holds very different meanings and should not be used interchangeably.

Digital Transformation - According to Google search

Doing a simple search of the term "digital transformation" on your typical search engine would reveal a vast range of results... 485 million hits to be precise! (see below)

Before we can truly discuss what is Digital Transformation, let's start with the basics of understanding what Digital, Digitization and Digitalization mean.

What is Digital?

The word "digital" as defined in the dictionary as "using a system of receiving and sending information as a series of the numbers one and zero, showing that an electronic signal is there or is not there". As an adjective, this means that one could describe something as "digital" if it can be "relating to digital signals and computer technology".

A simple example would be a instrument panel like the dashboard on your car.

As a user, you see the same information, data point or metric, just that it is now displayed with the use of technology (i.e. your binary 1s and 0s to visualize this data). In the car example, the digital speedometer will show you the speed that you are driving at, similar to how an analogue dial would have been.

How a digital format is visually presented to the user is NOT the focus (in the picture above you may notice that the speed could be shown to using a digital representation of a speedometer, or just simply showing the speed as a number)

What is Digitization?

Digitization refers to the process in which something is converted into a digital format. Most businesses may consider digitization as taking that first step towards a digital transformation, by taking various artefacts, items and converting that into a digital data point.

The process of digitization is not new: The facsimile (fax) machine was probably one of the early steps towards digitization. Even today, scanning of paper documents into a digital format like PDF files or other electronic file formats is probably something that most people can relate to.

What is important to note however, is that digitization is NOT digital transformation. Having electronic records, e-invoices or a information database, does not make an organization a digitally transformed one.

To go further, we need to look at moving towards digitalization of processes.

Having electronic records, e-invoices or a information database, does not make an organization a digitally transformed one.

What is Digitalization?

The word "digitalization" is often used interchangeably with "digitization". Even searching for the definition of digitalization would often bring you similar definition results as you would with digitization. However, there is a need to distinct between the two as I will explain below.

A good definition that I found online would be here. Digitalization refers to a change process in which we look at ways to convert our process or interactions into a digital equivalent. The emphasis here is on change and creating a digital equivalent of that process.

A good example of digitalization would be how companies run an inventory stock-count or stock-take. The objective of this process is to account for all the products that are physically present and to ensure accurate inventory.

A typical stock-count process is a manual and laborious affair: Company staff need to be physically present on-site, walk around the isles of the storeroom or warehouse and count the inventory of all products, often recording this information in hard-copy form using a pen and paper.

Most companies that hold inventory would also likely have a database containing the information stored in some Warehouse Management System (WMS) or Enterprise Resource Planning (ERP) software. The stock-count process would inevitably mean that staff would have to transfer the information from the hard-copies into the system, often spending time performing data entry duties to capture this information.

A digital equivalent of this process can be shaped with technology, seeing how we can eliminate the manual elements of the process. This could be done by creating a digital inventory footprint, with an aim to eliminate the need to transfer information from paper to a system's database. A first step in this case might be to use scanning technologies like bar-code, QR or RFID to help capture the inventory information, then transmitting that data into the system. This is still digitalization in that part of your process is now moving towards a digital platform, i.e. the process of capturing inventory data is now done in real-time using technology.

To further digitalize the process, we could consider the elimination of the need for physical presence of staff in the stock-count process. Building on the earlier case, one may consider to expand into real-time monitoring, actively scanning for changes in inventory using sensors, IoT or fixed reader technologies on-site.

Advancements in scanning and drone technology offers an alternative, with warehousing staff being re-trained to operate drones remotely, and capturing the information without having to move around.

Digital >> Digitization >> Digitalization >>> ???

Knowing the differences in the terms used, we can now return to understanding Digital Transformation.

In my next article, I will be helping you to better frame and define the use of the term, highlighting the key elements that a digital transformation should have.