Digital is a hot trend. But what does it really mean to “go digital”? What does “Digital Transformation” truly look like?
In some industries, the distinction is clear. In other industries there is confusion over the definition and characteristics of digital transformation.
Why does digital matter?
Digital disruption is a transformation that is caused by emerging digital technologies and business models. These innovative new technologies and models impact the value of existing products and services in a given industry.
Responding to digital disruption isn’t about creating a list of digitization priorities; it’s about identifying vulnerabilities and value-creation opportunities.
It requires a transformative response that has implications to the foundational components of a business: from its operating model to its infrastructure. How a business goes to market, what it sells, and to whom. It can touch every function of a business: from Supply Chain, Finance, Operations, HR, IT, Sales & Marketing.
What does it mean to undertake a digital transformation?
Does it mean migrating business applications to the cloud? Does it mean setting up digital channels for customers and partners to do business? Does it mean competing on analytics? Is it social media?
Organizations want the effect of Digital Transformation but struggle with the pathway to achieve the desired outcomes. Many are stuck on the first step of the journey: understanding the difference between technology modernization (digitization) and true, value-creating digital transformation.
Digitization is the action of converting analog information into digital data. Simply put, digitization is the process that converts everything into digits (ones and zeros). This includes: text to describe a thing, its attributes, its location, its usage. Since the outset of computer technology, organizations have been digitizing processes and information. With each wave of new digital capabilities has brought an opportunity to solve old problems with new technology.
For example, the banking industry digitized the loan application process. They turned paper processes into electronic. Digitized information about the loan became more accessible. This led to some cost reduction related to physical document management, labor for data entry.
If all the banks did was to digitize loans, then digital technology would have been just another means of IT based cost reduction rather than a transformative force.
Digitalization changes the performance, value, and cost of resources. It is application of digital capabilities to processes, products, and assets to improve efficiency, enhance customer value, manage risk, and uncover new monetization opportunities. It is the difference between adding value by transforming a business process versus simply digitizing.
Banks then transformed the digitized loan process by applying process management, search capabilities, and decision-support analytics. This resulted in operational efficiency – enabling the bank to scale by increasing loan volume without increased labor costs.
Digitalization became the digital transformation platform for banks to realize more value.
Digital Transformation is all about value-creation. To become truly digital, an organization needs to change its “way of thinking”- a fundamental re-design of the way we consume, work and play. It involves the alignment of investments in technology and business models to more effectively engage digital customers at every touchpoint in the customer experience lifecycle.
Banks embraced digital transformation by rethinking customer experience and how to maximize value-creation opportunities. Leveraging digitized loans and customer insights to optimize loan portfolios and customer product offerings.
Bring it all together:
- Digitization (the conversion)
- Digitalization (the act/process)
- Digital transformation (the effect)