Digital transformation

Last updated

Digital transformation (DT) is the process of adoption and implementation of digital technology [1] [2] [3] by an organization in order to create new or modify existing products, services and operations by the means of translating business processes into a digital format.

Contents

The goal for its implementation is to increase value through innovation, [4] [5] invention, improved customer experience and efficiency. [1] Focussing on efficiency and costs, the Chartered Institute of Procurement & Supply (CIPS) defines digitalisation as

the practice of redefining models, functions, operations, processes and activities by leveraging technological advancements to build an efficient digital business environment – one where gains (operational and financial) are maximised, and costs and risks are minimised. [6]

CIPS has also observed that "digital capability" can be used to support supply chain transparency and remote working. [6]

However, since there are no comprehensive data sets on the digital transformation at the macro level, the overall effect of digital transformation is still too early to comment. [7]

A useful incremental approach to transformation called discovery-driven planning (DDP) has been proven to help solve digital challenges, especially for traditional firms. This approach focuses on step-by-step transformation instead of the all-or-nothing approach. A few benefits of DDP are risk mitigation, quick response to changing market conditions, and increased success rate to digital transformations. [8]

Barriers and enablers of digital transformation

Barriers

There are multiple common barriers that digital transformation initiatives, projects and strategies face. One of the main barriers is change management, because changes in processes may face active resistance from workers. Related to change management is the miscommunication between workers, which can lead to implementation delays or even complete project failure. Some companies are unable to develop a realistic cost projection due to a too optimistic view of the process. Companies may have legacy systems in place, which can lead to integration difficulties with new systems. Within organizations there may also be a lack of resources, top management support, workers’ skills, commitment, collaboration and vision. [9]

Enablers

In addition to the several barriers to digital transformation, there are also numerous enablers of digital transformation. The primary enablers are; organizations resources and capabilities, workers’ skills, technologies and culture. The aforementioned enabler “Organizations resources and capabilities” refers to the ability of an organization to adapt to contemporary issues arising in the business environment, as well as their capabilities in the field of data analytics. In regards to “Workers’ skills”, workers must be able to develop valuable insights with the use of data, have significant emotional intelligence and effectively part-take in the development of new products. Thirdly, technology is also a vital enabler of digital transformation. Companies can benefit from having access to artificial intelligence, data analytics softwares and effective usage of social media. Lastly, “Culture” pertains to the extent the organizational culture is data-driven and the quality of the top management support and engagement within the corporation.  [9]

History

Digitization is the process of converting analog information into digital form using an analog-to-digital converter, such as in an image scanner or for digital audio recordings. As usage of the internet has increased since the 1990s, the usage of digitization has also increased. Digital transformation, however, is broader than just the digitization of existing processes. Digital transformation entails considering how products, processes and organizations can be changed through the use of new digital technologies. [10] [11] A 2019 review proposes a definition of digital transformation as "a process that aims to improve an entity by triggering significant changes to its properties through combinations of information, computing, communication, and connectivity technologies". [2] Digital transformation can be seen as a socio-technical programme. [12] [13]

Adopting digital technology can bring benefits to a business, [14] [15] however, some company cultures can struggle with the changes required by digital transformation. [16]

A 2015 report stated that maturing digital companies were using cloud hosting, social media, mobile devices and data analytics, while other companies were using individual technologies for specific problems. [17] By 2017, one study found that less than 40% of industries had become digitized (although usage was high in the media, retail and technology industries). [18]

As of 2020, 37% of European companies and 27% of American companies had not embraced digital technology. [19] [20] Over the period of 2017-2020, 70% of European municipalities have increased their spending on digital technologies. [19] [21] By 2019, the Chartered Institute of Procurement & Supply found in a survey of 700 managers, representing over 20 different industries and 55 different countries, that over 90% of the businesses represented had adopted at least one new form of information technology, and 90% stated that their digitalisation strategies aimed to secure decreased operational costs and increased efficiency. [22]

In a 2021 survey, 55% of European companies stated the COVID-19 pandemic has increased the demand for digital technology, and 46% of companies reported that they have grown more digital. [23] Half of these companies anticipate an increase in the usage of digital technologies in the future, with a greater proportion being companies that have previously used digital technology. [24] [25] A lack of digital infrastructure was viewed as a key barrier to investment by 16% of EU businesses, compared to 5% in the US. [19]

In a survey conducted in 2021, 89% of African banks polled claimed that the pandemic had hastened the digital transformation of their internal operations. [26]

In 2022, 53% of businesses in the EU reported taking action or making investments in becoming more digital. [27] [28] [29] 71% of companies in the US reported using at least one advanced digital technology, similar to the average usage of 69% across EU organizations. [27] [30] [31]

TOP Framework

Digital transformation plays a crucial role in alleviating the adverse effects of simultaneous and interconnected challenges, while also strengthening the resilience and adaptability of both organizations and supply chains. Represented by the TOP framework, digital transformation acts as a catalyst for generating and leveraging benefits. These benefits hold the potential to bolster resilience across not only individual organizations but also throughout the entire supply chain. [9]

Technology

It does so by leveraging cutting-edge technologies to enhance predictive power and responsiveness. Technologies include the Internet of Things, big data analytics, artificial intelligence, simulation, additive manufacturing, blockchain, and digital twins. [9]

Organization

Digital transformation embedded within the organizational culture empowers managers to take decisive actions, enables seamless collaboration among workers across diverse departments, and fortifies supply chains. Additionally, it empowers top management to respond swiftly and proactively, effectively reducing and mitigating adverse impacts. [9]

People

Effective communication within an organization is essential among departments and employees. Furthermore, possessing robust skills in communication, leadership, and strategy is imperative for overcoming any adverse effects of the challenges. [9]

The Role of Resources and Capabilities for DT

According to the resource-based view theory, successful firms' resources should be valuable, rare, non-imitable, and non-substitutable [32] in order for capabilities such as responsiveness, flexibility, or even agility to be developed. “A capability is a concept that refers to an organization’s use of a set of resources to carry out its routine and strategic activities”. [33]

The digital transformation capability (DTC) framework is a direct application of this theory, stating that resources can be either tangible, intangible or human. The tangible side of the DTC framework gathers physical assets like the organization's IT infrastructure, whereas the intangible side focuses on its digital transformation strategy, knowledge, and reputational capital. Human resources are broader and include technical skills, continuous training, leadership, and social skills. [9]

Sustainability and Digital Transformation

Digital Transformation (DT) is often perceived as a reactive measure to address customer demands, competition, and regulatory compliance. However, DT can be a proactive opportunity for organizations to achieve sustainable business practices and facilitate a circular economy. By building sensing, smart, sustainable, and social capabilities, enterprises can capture valuable information, make faster and smarter decisions, and adapt to changing environments. [34]

Aligning digital transformation with sustainability can enhance performance by engaging stakeholders, optimizing resource allocation, and reducing risks. A comprehensive business case that prioritizes sustainability benefits and multidimensional returns can secure the necessary resources for successful implementation. To achieve sustainability goals, effective governance, integration, change management, and stakeholder involvement are critical factors. [35]

See also

Related Research Articles

<span class="mw-page-title-main">Supply chain management</span> Management of the flow of goods and services

In commerce, supply chain management (SCM) deals with a system of procurement, operations management, logistics and marketing channels, through which raw materials can be developed into finished products and delivered to their end customers. A more narrow definition of supply chain management is the "design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronising supply with demand and measuring performance globally". This can include the movement and storage of raw materials, work-in-process inventory, finished goods, and end to end order fulfilment from the point of origin to the point of consumption. Interconnected, interrelated or interlinked networks, channels and node businesses combine in the provision of products and services required by end customers in a supply chain.

<span class="mw-page-title-main">European Investment Bank</span> Investment bank of the European Union

The European Investment Bank (EIB) is the European Union's investment bank and is owned by the 27 member states. It is the largest multilateral financial institution in the world. The EIB finances and invests both through equity and debt solutions companies and projects that achieve the policy aims of the European Union through loans, equity and guarantees.

<span class="mw-page-title-main">Business model</span> Rationale of how an organization operates

A business model describes how an organization creates, delivers, and captures value, in economic, social, cultural or other contexts. For a business, it describes the specific way in which it conducts itself, spends, and earns money in a way that generates profit. The process of business model construction and modification is also called business model innovation and forms a part of business strategy.

<span class="mw-page-title-main">Supply chain</span> System involved in supplying a product or service to a consumer

A supply chain, sometimes expressed as a "supply-chain", is a complex logistics system that consists of facilities that convert raw materials into finished products and distribute them to end consumers or end customers. Meanwhile, supply chain management deals with the flow of goods within the supply chain in the most efficient manner.

<span class="mw-page-title-main">Research and development</span> General term for activities in connection with corporate or governmental innovation

Research and development is the set of innovative activities undertaken by corporations or governments in developing new services or products, and improving existing ones. Research and development constitutes the first stage of development of a potential new service or the production process.

A green economy is an economy that aims at reducing environmental risks and ecological scarcities, and that aims for sustainable development without degrading the environment. It is closely related with ecological economics, but has a more politically applied focus. The 2011 UNEP Green Economy Report argues "that to be green, an economy must not only be efficient, but also fair. Fairness implies recognizing global and country level equity dimensions, particularly in assuring a Just Transition to an economy that is low-carbon, resource efficient, and socially inclusive."

Green computing, green IT, or ICT sustainability, is the study and practice of environmentally sustainable computing or IT.

A sustainable business, or a green business, is an enterprise that has a minimal negative impact or potentially a positive effect on the global or local environment, community, society, or economy—a business that strives to meet the triple bottom line. They cluster under different groupings and the whole is sometimes referred to as "green capitalism". Often, sustainable businesses have progressive environmental and human rights policies. In general, a business is described as green if it matches the following four criteria:

  1. It incorporates principles of sustainability into each of its business decisions.
  2. It supplies environmentally friendly products or services that replace demand for nongreen products and/or services.
  3. It is greener than traditional competition.
  4. It has made an enduring commitment to environmental principles in its business operations.
<span class="mw-page-title-main">Clean technology</span> Any process, product, or service that reduces negative environmental impacts

Clean technology, in short cleantech or climatetech, is any process, product, or service that reduces negative environmental impacts through significant energy efficiency improvements, the sustainable use of resources, or environmental protection activities. Clean technology includes a broad range of technology related to recycling, renewable energy, information technology, green transportation, electric motors, green chemistry, lighting, grey water, and more. Environmental finance is a method by which new clean technology projects can obtain financing through the generation of carbon credits. A project that is developed with concern for climate change mitigation is also known as a carbon project.

The digital economy is a portmanteau of digital computing and economy, and is an umbrella term that describes how traditional brick-and-mortar economic activities are being transformed by the Internet and World Wide Web technologies.

In organizational theory, dynamic capability is the capability of an organization to purposefully adapt an organization's resource base. The concept was defined by David Teece, Gary Pisano and Amy Shuen, in their 1997 paper Dynamic Capabilities and Strategic Management, as the firm’s ability to engage in adapting, integrating, and reconfiguring internal and external organizational skills, resources, and functional competences to match the requirements of a changing environment.

<span class="mw-page-title-main">Smart city</span> City using integrated information and communication technology

A smart city is a technologically modern urban area that uses different types of electronic methods and sensors to collect specific data. Information gained from that data is used to manage assets, resources and services efficiently; in return, that data is used to improve operations across the city. This includes data collected from citizens, devices, buildings and assets that is processed and analyzed to monitor and manage traffic and transportation systems, power plants, utilities, urban forestry, water supply networks, waste, criminal investigations, information systems, schools, libraries, hospitals, and other community services. Smart cities are defined as smart both in the ways in which their governments harness technology as well as in how they monitor, analyze, plan, and govern the city. In smart cities, the sharing of data is not limited to the city itself but also includes businesses, citizens and other third parties that can benefit from various uses of that data. Sharing data from different systems and sectors creates opportunities for increased understanding and economic benefits.

The digital supply chain is a new media term which encompasses the process of the delivery of digital media, be it music or video, by electronic means, from the point of origin to destination (consumer). In much the same manner a physical medium must go through a “supply chain” process in order to mature into a consumable product, digital media must pass through various stages in processing to get to a point in which the consumer can enjoy the music or video on a mobile device, computer, or television set.

Supply-chain sustainability is the management of environmental, social and economic impacts and the encouragement of good governance practices, throughout the lifecycles of goods and services. There is a growing need for integrating sustainable choices into supply-chain management. An increasing concern for sustainability is transforming how companies approach business. Whether motivated by their customers, corporate values or business opportunity, traditional priorities such as quality, efficiency and cost regularly compete for attention with concerns such as working conditions and environmental impact. A sustainable supply chain seizes value chain opportunities and offers significant competitive advantages for early adopters and process innovators.

<span class="mw-page-title-main">Technology and society</span> Overview of the relationship between technology and society

Technology, society and life or technology and culture refers to the inter-dependency, co-dependence, co-influence, and co-production of technology and society upon one another. Evidence for this synergy has been found since humanity first started using simple tools. The inter-relationship has continued as modern technologies such as the printing press and computers have helped shape society. The first scientific approach to this relationship occurred with the development of tektology, the "science of organization", in early twentieth century Imperial Russia. In modern academia, the interdisciplinary study of the mutual impacts of science, technology, and society, is called science and technology studies.

<span class="mw-page-title-main">Circular economy</span> Production model to minimise wastage and emissions

A circular economy is a model of resource production and consumption in any economy that involves sharing, leasing, reusing, repairing, refurbishing, and recycling existing materials and products for as long as possible. The concept aims to tackle global challenges such as climate change, biodiversity loss, waste, and pollution by emphasizing the design-based implementation of the three base principles of the model. The three principles required for the transformation to a circular economy are: designing out waste and pollution; keeping products and materials in use, and regenerating natural systems. CE is defined in contradistinction to the traditional linear economy. The idea and concepts of a circular economy have been studied extensively in academia, business, and government over the past ten years. It has been gaining popularity because it can help to minimize carbon emissions and the consumption of raw materials, open up new market prospects, and, principally, increase the sustainability of consumption.

Digital learning is learning that is supported by technology. It encompasses any type of learning that is accompanied by technology or by instructional practice that makes effective use of technology. It includes a wide array of practices, including blended and virtual learning.

The Digital Firm is a kind of organization that has enabled core business relationships through digital networks In these digital networks are supported by enterprise class technology platforms that have been leveraged within an organization to support critical business functions and services. Some examples of these technology platforms are Customer Relationship Management (CRM), Supply Chain Management (SCM), Enterprise Resource Planning (ERP), Knowledge Management System (KMS), Enterprise Content Management (ECM), and Warehouse Management System (WMS) among others. The purpose of these technology platforms is to digitally enable seamless integration and information exchange within the organization to employees and outside the organization to customers, suppliers, and other business partners.

<span class="mw-page-title-main">European Green Deal</span> Plan to transform the EU into a climate-neutral economy by 2050

The European Green Deal, approved in 2020, is a set of policy initiatives by the European Commission with the overarching aim of making the European Union (EU) climate neutral in 2050. The plan is to review each existing law on its climate merits, and also introduce new legislation on the circular economy, building renovation, biodiversity, farming and innovation.

<span class="mw-page-title-main">Impact of the COVID-19 pandemic on science and technology</span> Disruption to science, space and technology projects globally

The COVID-19 pandemic has affected innumerable scientific and technical institutions globally, resulting in lower productivity in a number of fields and programs. However, the impact of the pandemic has also led to the opening of several new research funding lines for government agencies around the world.

References

  1. 1 2 Mirzagayeva, Shamiya; Aslanov, Heydar (2022-12-15). "The digitalization process: what has it led to, and what can we expect in the future?" (PDF). Metafizika . 5 (4): 10–21. eISSN   2617-751X. ISSN   2616-6879. OCLC   1117709579. Archived from the original (PDF) on 2022-11-12. Retrieved 2022-10-14.
  2. 1 2 Vial, Gregory (2019). "Understanding digital transformation: A review and a research agenda". The Journal of Strategic Information Systems. 28 (2): 118–144. doi: 10.1016/j.jsis.2019.01.003 . S2CID   115202292.
  3. ↑ Warner, Karl S. R.; Wäger, Maximilian (2019-06-01). "Building dynamic capabilities for digital transformation: An ongoing process of strategic renewal". Long Range Planning. 52 (3): 326–349. doi:10.1016/j.lrp.2018.12.001. ISSN   0024-6301. S2CID   158197061.
  4. ↑ Schmarzo, Bill (31 May 2017). "What is Digital Transformation?". Archived from the original on 2019-11-30. Retrieved 9 July 2021.
  5. ↑ Wren, Hannah (1 December 2020). "What is digital transformation? Definition, Examples, Main Areas". Archived from the original on 2020-12-02. Retrieved 9 October 2021.
  6. 1 2 Chartered Institute of Procurement & Supply, Digitalisation in procurement and supply 2020, accessed 13 August 2023
  7. ↑ Kretschmer, Tobias; Khashabi, Pooyan (August 2020). "Digital Transformation and Organization Design: An Integrated Approach". California Management Review. 62 (4): 86–104. doi:10.1177/0008125620940296. ISSN   0008-1256. S2CID   221042306.
  8. ↑ McGrath, Rita; McManus, Ryan (2020-05-01). "Discovery-Driven Digital Transformation". Harvard Business Review. ISSN   0017-8012 . Retrieved 2024-03-26.
  9. 1 2 3 4 5 6 7 Wamba, Maciel M. Queiroz, Samuel Fosso (2022-10-12). Managing the Digital Transformation: Aligning Technologies, Business Models, and Operations. Boca Raton: CRC Press. doi:10.1201/9781003226468. ISBN   978-1-003-22646-8.{{cite book}}: CS1 maint: multiple names: authors list (link)
  10. ↑ Matt, Christian; Hess, Thomas; Benlian, Alexander (2015). "Digital Transformation Strategies". Business & Information Systems Engineering . 57 (5): 339–343. doi:10.1007/s12599-015-0401-5. S2CID   30892786.
  11. ↑ Hess T, Matt C, Benlian A, Wiesböck F. Options for Formulating a Digital Transformation Strategy. MIS Quarterly Executive . 2016;15(2):123-139.
  12. ↑ Hartl, Eva and Hess, Thomas, (2019). "IT PROJECTS IN DIGITAL TRANSFORMATION: A SOCIO-TECHNICAL JOURNEY TOWARDS TECHNOCHANGE". In Proceedings of the 27th European Conference on Information Systems (ECIS), Stockholm & Uppsala, Sweden, June 8–14, 2019. ISBN 978-1-7336325-0-8 Research Papers. https://aisel.aisnet.org/ecis2019_rp/162
  13. ↑ Butt, Aurangzeab; Imran, Faisal; Kantola, Jussi; Helo, Petri (2021). "Cultural Preparation for Digital Transformation of Industrial Organizations: A Multi-case Exploration of Socio-technical Systems". Advances in Physical, Social & Occupational Ergonomics. Lecture Notes in Networks and Systems. Vol. 273. pp. 457–463. doi:10.1007/978-3-030-80713-9_58. ISBN   978-3-030-80712-2. S2CID   237298363.
  14. ↑ Aleksej Heinze; Marie Griffiths; Alex Fenton; Gordon Fletcher (2018). "Knowledge exchange partnership leads to digital transformation at Hydro-X Water Treatment, Ltd". Global Business and Organizational Excellence. 37 (4): 6–13. doi:10.1002/JOE.21859. ISSN   1932-2054. Wikidata   Q56622208.
  15. ↑ Westerman, George; et al. (2014). Leading Digital: Turning technology into business transformation. Harvard Business Press. ISBN   9781625272478.
  16. ↑ McConnell, Jane (28 August 2015). "The Company Cultures That Help (or Hinder) Digital Transformation". Harvard Business Review. Retrieved 12 January 2017.
  17. ↑ Kane, Gerald; et al. (14 July 2015). "Strategy, not Technology, Drives Digital Transformation". MIT Sloan Management Review. Archived from the original on 2015-07-17. Retrieved 9 October 2021.
  18. ↑ Bughin, Jacques; et al. (9 February 2017). "The case for digital reinvention". McKinsey Digital. Archived from the original on 2017-02-09. Retrieved 9 October 2021.
  19. 1 2 3 "EIB Investment Report 2020-2021". European Investment Bank. Retrieved 2021-11-15.
  20. ↑ "Unlocking Private Investment in Climate Adaptation and Resilience". World Bank. March 4, 2021. Retrieved 2021-11-15.
  21. ↑ "Smart Cities and Inclusive Growth" (PDF). OECD. Archived (PDF) from the original on 2020-05-30.
  22. ↑ Galea-Pace, S. (17 May 2020). "CIPS: Digitalisation in Procurement and Supply 2019". Supply Chain Digital. Retrieved 13 August 2023.
  23. ↑ European Investment Bank. (2022-01-12). EIB Investment Report 2021/2022: Recovery as a springboard for change. European Investment Bank. doi:10.2867/82061. ISBN   978-92-861-5155-2.
  24. ↑ "EIB Investment Report 2020-2021". European Investment Bank. Retrieved 2021-11-15.
  25. ↑ "EIB Corporate Digitalisation Index 2020/2021: Most EU countries are trailing the United States in digitalisation". European Investment Bank. 21 July 2021. Retrieved 2021-11-23.
  26. ↑ Finance in Africa: for green, smart and inclusive private sector development. European Investment Bank. 2021-11-18. ISBN   978-92-861-5063-0.
  27. 1 2 European Investment Bank.; Ipsos Public Affairs. (2022-11-08). EIB Investment Survey 2022 - EU overview. European Investment Bank. p. 14. doi:10.2867/488028. ISBN   978-92-861-5397-6.
  28. ↑ "Digital economy and society statistics - enterprises". ec.europa.eu. Retrieved 2022-11-28.
  29. ↑ "COVID-19 digital transformation & technology | McKinsey". www.mckinsey.com. Retrieved 2022-11-28.
  30. ↑ "Europe's migration to digital services during COVID-19 | McKinsey". www.mckinsey.com. Retrieved 2022-11-28.
  31. ↑ PricewaterhouseCoopers. "Business needs a tighter strategy for remote work". PwC. Retrieved 2022-11-28.
  32. ↑ Barney, Jay (March 1991). "Firm Resources and Sustained Competitive Advantage". Journal of Management. 17 (1): 99–120. doi:10.1177/014920639101700108. ISSN   0149-2063.
  33. ↑ Helfat, Constance E.; Peteraf, Margaret A. (October 2003). "The dynamic resource-based view: capability lifecycles". Strategic Management Journal. 24 (10): 997–1010. doi:10.1002/smj.332. ISSN   0143-2095.
  34. ↑ Bordeleau, Fanny-Ève; Santa-Eulalia, Luis Antonio; Mosconi, Elaine (2021-01-05). Digital Transformation Framework: Creating Sensing, Smart, Sustainable and Social (S^4) Organisations. hdl:10125/71176. ISBN   978-0-9981331-4-0.
  35. ↑ Alojail, Mohammed; Khan, Surbhi Bhatia (January 2023). "Impact of Digital Transformation toward Sustainable Development". Sustainability. 15 (20): 14697. doi: 10.3390/su152014697 . ISSN   2071-1050.
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.