Digital transformation involves adopting digital technologies and processes to fundamentally change how abusiness operates and engages with its customers. Technology solutions, including artificial intelligence, theInternet of Things (IoT), and cloud-based automation systems, often serve as the foundational elements of digitaltransformation initiatives. While these technologies are key to replacing manual processes and legacy applicationsand infrastructure, digital transformation encompasses a broader set of methods and objectives, includingimproving business planning, customer care, and more. For example, some initiatives look to change company cultureby asking all employees—from senior executives to production line workers—to think more innovatively and adapt tonew ways of doing things.
Goals of digital transformation initiatives include carving out new business opportunities, increasingproductivity, streamlining operations, reducing errors, improving the customer experience, and ultimately boostingrevenue and profit. It's important to remember that every company starts this process at a different point andwith their own desired outcomes, so every digital transformation journey is unique.
What Is Digital Transformation?
Digital transformation is a set of initiatives that shift enterprises away from manual and analog processes todigital ones in almost every aspect of the business, including supply chain, finance, payroll, HR, customerservice, sales, and marketing. Often, an initial step in these projects is digitization, which is the process ofconverting information into a digital format—for example, scanning a paper contract or invoice into a digitalfile. Once data is readable by computers, companies can start the process of digitalization, which involvesreplacing legacy systems and processes to automate workflows, enhance efficiencies, boost employee productivity,and deliver sought-after business outcomes.
Some companies are motivated to digitize and digitalize to capture growth opportunities or respond to increasedcompetitive pressure, while others are driven by the need to keep up with changing regulatory standards. In thepublic sector, projects are often spurred by the desire to conserve resources while delivering better services toconstituents. Whatever the underlying motivation, business and IT leaders planning these projects should try toimagine new ways their company can employ technology, people, and processes to anticipate and adapt to evolvingmarket conditions.
Key Takeaways
- Digital transformation involves adopting cutting-edge technologies to transform how a business operates andengages its customers.
It should be thought of as an ongoing process that lets an organization flexibly adapt to changing marketconditions and business imperatives.
- AI, IoT, automation, and advanced data analytics are among the technologies associated with digitaltransformation, but the concept encompasses much more than technology.
- Most digital transformations aim to shift company culture in a way that encourages employees at all levels toperform their duties with greater agility and willingness to share information.
- By making cutting-edge services available on a flexible, pay-as-you-go basis, the cloud facilitates digitaltransformation by giving companies greater freedom to experiment, scale, and continually adapt to changingmarket conditions.
Digital Transformation Explained
Because digital transformation refers to the process of integrating digital technology into all aspects of thebusiness, by definition it requires two things: a solid understanding of the costs and capabilities of currenttechnologies and a cultural commitment to changing how the business runs. With those in place, you can reimagineoperating models, departmental processes, and business strategies.
Certain technologies are often associated with digital transformation because they enable companies to automateprocesses, forecast trends, streamline workflows, and improve product safety and quality. These techs includecloud services, AI and machine learning, IoT devices and sensors, augmented/virtual reality, and advanced dataanalytics applied to real-time streaming sources, including video feeds. Generative AI, which is artificialintelligence that generates text and images, is the latest frontier.
Cloud services in particular make it easier for companies to experiment with new technologies, scale theircomputing resources up or down as needed, and generate and analyze large data sets without prohibitiveinfrastructure integration and data center costs. Cloud providers deliver the flexibility many companies requireto accelerate their transformations while staying within budget.
Then there’s the task of establishing a culture of digital transformation. Companies often realize the time hascome to take on digital transformation initiatives when their legacy systems and processes put them at acompetitive disadvantage in adapting to changing customer expectations and market conditions. They look to digitaltransformations to help them anticipate and respond faster to market disruptions, competitor moves, and businessimperatives.
Digital transformation initiatives should encourage employees at all levels to embrace new ways of doing theirjobs, continually hone their skills, and seek closer collaboration with other business units.
3 Foundational Elements of Digital Transformation
Digital transformations require companies to do more than simply plug in new technologies. Successful initiativesstrategically address three foundational elements.
1. Physical
Digital transformations implement cutting-edge technologies to move businesses away from cumbersome anderror-prone manual processes toward digitalized ones. This physical element of a transformation can boostproductivity and enhance efficiency across almost every part of a business. Examples include offices shifting frompaper-based recordkeeping to computerized data collection and sharing, and production lines being automated withrobotics and remote sensors that feed data to AI-powered applications.
2. Cognitive
Digital transformations enable businesses to take advantage of their data in powerful new ways using AI/machinelearning—technologies that make it possible for computers to conduct cognitive processes resembling how humansthink and reason. Companies are increasingly relying on these kinds of cognitive systems to do things such asforecast their financials, anticipate changing market behaviors, and derive better insights into the effectivenessof business processes. To successfully implement the cognitive element of a transformation, companies arerecruiting data scientists and analysts and/or adopting cloud applications with built-in AI capabilities.
3. Cultural
Digital transformations can be successful only when employees, especially those set in their ways of doing theirjobs, welcome the changes brought about by automation and working alongside “smart” machines. That usuallyrequires a cultural shift that goes beyond training employees to operate new systems. Companies must instill intheir workforce an appreciation for the goals of digital transformation and the value of new technology-enabledprocesses and capabilities.
The Role of the Cloud in Digital Transformation
The cloud plays a crucial role in digital transformation by providing a huge range of services that can belaunched quickly and shut down if a company finds the technology doesn’t quite match changing business needs. Thecloud isn’t just a way to modernize core IT infrastructure. It enables companies to add advanced technologiesquickly and affordably—think artificial intelligence, advanced automation, Internet of Things, enterprise resourceplanning (ERP), and other business systems.
Software-as-a-service (SaaS) offerings providebusinesses with the tools and infrastructure needed to go digital, improve efficiency, enhance productivity, andbetter serve customers. SaaS-based ERP cloud solutions, for example, can help automate accounting, billing,procurement, reporting, and other functions, while digital marketing solutions support B2B and B2C marketers’efforts to drive sales and boost brand and customer loyalty.
Benefits of Digital Transformation
- Digital transformations can empower almost any business, in any industry, to create greater value forcustomers, employees, and partners. Among the many benefits are deeper, analytics-based, more actionableinsights; easier-to-use and more efficient processes; increased IT capacity; lower costs; and improved safety,product quality, and productivity.
- Manufacturers have automated their factories and optimized their supply chains. Retailers have reinvented howthey market and sell to customers and manage returns. Healthcare providers have given patients easy access totheir medical information and enabled them to consult with clinicians from their homes. Construction companieshave automated and improved project scheduling. Hotels have used the data they gather from guest stays to boostcustomer loyalty and improve their upselling capabilities. Utilities are analyzing data from smart meters,weather sensors, and other sources to predict power demand patterns and help modernize their grids. The benefitsacross industries are almost endless.
Challenges of Digital Transformation
Many digital transformation initiatives fall short of meeting the desired business outcomes—and some prove to beentirely unsuccessful. While every company starts its transformation journey from a different place and looks toachieve different results, there are some common challenges.
- Technological and Implementation Barrier
Enterprises may find it difficult to choose the digital technologies, products, and vendors that will bestserve their needs. A cutting-edge solution that seems exciting and attractive might not be a great fit for anorganization and could limit its ability to invest in more-transformative technologies.
Once carefully selected, new digital technologies need to be integrated with the legacy systems and processesthe enterprise chooses to maintain. That challenge is heightened by the fact that digital transformationinitiatives often involve working with multiple cloud vendors and architectures. Some companies end upstruggling to connect disparate cloud systems and break down the resulting data silos.
The implementation of digital technologies poses another challenge: testing new systems, migrating data, andswitching over to the new environments without completely disrupting existing operations.
- Cultural and Skill-Related Challenges
New digital technologies and processes are effective only to the extent that employees use them to maximumeffect. For that reason, digital transformation projects typically require a company culture in whichemployees embrace new ways of doing things, are willing to collaborate, want to develop new digital skills,and regard digital systems as strategic assets.
Failure to invest in training and developing a digital-savvy workforce can squander ambitious technologyinvestments. Training programs should not only teach employees how to use new applications and devices butalso instill a mindset that encourages them to take an agile approach to performing tasks and sharinginformation throughout the organization.
- Strategic Alignment and Sustainability
Digital transformations are more likely to fail when they don’t align with a company’s strategic goals. Whenselecting the technologies and vendors for an initiative, carefully consider long-term financial objectives,employee satisfaction levels with current processes and systems, the desired customer experience, and growthstrategies.
Tech for tech’s sake, in which an exciting new technology is adopted when it’s not really needed, sometimesjust to match what competitors are doing, is a common phenomenon that can misalign transformation initiativesand strategic goals. For example, if a company is struggling with its supply chain logistics, it shouldn’tprioritize investments in mobile customer loyalty applications.
New systems should be implemented with an eye toward sustainability—that is, how will IT and business leadersmaintain, adapt, and expand these new capabilities while maintaining required legacy systems over time?
- Data Privacy and Budgetary Constraints
The sensors, applications, and devices associated with digital transformation can generate exponentially moredata than legacy systems—data that’s then shared far more extensively than ever before across and outside theorganization. This proliferation and movement of data heightens privacy concerns, especially in highlyregulated industries.
Digital transformation can also represent a significant financial investment that isn’t feasible within anexisting budget. Most companies must prioritize and decide which projects to implement first, which to tacklelater on, and which to remove from the plan. They should also factor in how the shift from CapEx to OpExthat’s inherent in a cloud migration will impact their budgets.
Digital Transformation Strategy and Roadmap
Before any company embarks on a digital transformation journey, it needs to create a strategic plan that willguide it from ideation to implementation and beyond. The following steps are crucial.
1. Kick Off with Discovery
The discovery phase is foundational and should involve identifying existing processes that are holding thecompany back from achieving its goals, the reasons for digitalizing operations, and what the company hopes toachieve through the initiative. This exercise will inform all the work that follows.
2. Define Your Digital Vision
Whether a company seeks to automate its manufacturing operations or create a better experience for customers, itmust define how digitalization relates to its existing processes and where it will make a difference in achievingthe desired outcomes. This vision will help the company prioritize areas of investment.
3. Determine Your Digital Maturity
A digital maturity assessment will reveal how far along the business already is in using digital capabilities,where it could benefit from additional investments, and its potential to successfully incorporate newtechnologies. Use this assessment to help set a realistic pace and goals for the initiative.
4. Identify Capability Gaps
It’s important for companies to identify existing gaps in their digital infrastructure so they can choose thebest technologies to fill them. Where possible, develop a model where people, processes, tools, and data work onan integrated platform.
5. Build Your Transformation Roadmap
Create a strategic plan that looks forward to the completion of the initiative, outlining milestones to achievealong the way. This roadmap should be clearly defined but flexible enough to accommodate setbacks, thus minimizingrisk and cost. It should also anticipate the potential for changing priorities and the emergence of newtechnologies during the project and after it’s completed.
6. Consider Cloud Applications
While every organization has different digital transformation goals, constraints, and legacy systems to replaceor maintain, it’s prudent to prioritize the adoption of cloud applications because they’re relatively easy toscale up and down, are updated with new features regularly, are managed and secured by expert vendors, and make iteasier to share data, especially when they come as part of an integrated suite.
Insights from Digital Transformation Leaders
A common piece of advice from business and IT leaders who have led digital transformation initiatives is to payclose attention to customer and employee needs, not just business objectives.
- Solicit user feedback. An open dialog with the people involved the most with a company’slegacy systems and processes—namely, the employees who use them to do their jobs and the customers whoseexperience depends on them—is the best way to understand the shortcomings of existing systems and areas thatneed improvement.
- Define problems based on that feedback. With insights gained from customers and employees,assess what needs to be done differently and define the problems that can be solved with digital alternatives.
- Design a transformative strategy. After identifying problems and inefficiencies, design adigital transformation strategy that lays out the goals, such as improving the customer experience, boostingemployee productivity, upgrading safety procedures, or streamlining and automating operations.
- Ensure top executives are active participants. Don’t just pay lip service to the importanceof executive sponsorship and change management when embarking on digital transformation initiatives. At onelarge multinational, the CEO kicked off the initiative on a companywide videoconference, laying out why thedigital transformation was critical to the company’s growth and prosperity and rallying employees to embracechanges. The CEO subsequently led steering-committee meetings and working sessions with project team members,and he took part in videos to update employees on progress. Regular pulse surveys gauged how employees werefeeling about the implementation and whether the overall plan needed to be adjusted.
Digital Transformation: Examples and Use Cases
The opportunities created by digital technologies and digital transformation projects seem to be limited only bythe imagination and creativity of IT and business leaders. Here are some innovative ways businesses in variousindustries are applying cutting-edge solutions to empower workers, please customers, automate processes, upgradethe quality of their goods and services, and reduce costs.
Manufacturing
Manufacturers are relying on data collected from applications and from sensors in various IoT-enabled machinesand devices to improve their operations, drive efficiencies in their supply chains, make working conditions safer,reduce downtime, and assure consistent quality of the goods they produce.
For example, Alcar Ruote, a Swiss manufacturer of steel wheels for the automotive industry, migrated to anintegrated suite of ERP and supply chain management applications to better manage its planning, procurement,manufacturing, and distribution while enhancing visibility across those operations. The company also implementedIoT systems with embedded AI to analyze sensor data, which has reduced lost production time. The transformationhas allowed Alcar Ruote to maintain Swiss quality in the face of global competition.
Data collected from arrays of IoT remote sensors are making it possible for manufacturers to put AI to work toautomate assembly lines, perform predictive maintenance, optimize logistics networks, and conduct real-time videomonitoring and analytics. Another cutting-edge solution, augmented reality, has made it possible to train factoryworkers by effectively simulating real-world scenarios at far less cost.
Retail
Retailers are turning to digital devices, channels, and platforms to create seamless shopping experiences thatare tailored to the unique preferences of individual customers. They’re deploying AI-based chatbots to automatecustomer service, and they’re using sophisticated data analytics to deliver personalized recommendations andimprove product allocation decisions. For example, a sports apparel retailer might analyze the latest weather dataand forecasts and determine that even a three-degree difference in temperature affects sales of thermalundershirts. Based on this information, the retailer can allocate more of those items to outlets in areasprojected to have colder temperatures in a given winter. Digitalization is transforming the in-store experience aswell, allowing retailers to create an interactive shopping environment. Retail clerks are using handheld devicesto take contactless payments, products are being sold from smart vending machines, and shoppers are selectingitems online that are made available to try on in the store.
Helzberg Diamonds, in business for more than a century, implemented AI to improve demand forecasting,replenishment management, assortment planning, and other advanced retail capabilities.
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Healthcare
Virtual doctor visits and networked electronic health records (EHRs) are just two modes of digitalization thatare transforming how medical offices, hospitals, and clinics deliver and manage care, improve the patientexperience, and reduce costs. The latest cloud applications can also help healthcare organizations provide billingat a more granular level so patients can understand how much treatments actually cost. Analysts at hospitals canuse scenario planning applications to predict patient demand so they can anticipate the number of beds and thenumber and types of staff who’ll be needed. Profitability management software helps health organizations measurethe profitability of individual business lines—for example, oncology or cardiology—to determine where to allocateresources.
One example is King’s College London in Dubai. The hospital cut the time it takes to accesspatient information in the EHR by 50% and saw a reported 25% overall reduction in time spent in the EHR due tofaster screen loads and transaction response times.
Smart Cities
Smart cities blend existing physical infrastructures with cutting-edge digital solutions. One example is trafficmanagement, whereby cities place sensors along major highways to measure and reroute vehicle flows. One major UScity is using cameras and automatic license plate readers installed on streetlights to produce videos and imagesthat municipal police use to investigate and prevent crimes and present as evidence in court. Cloud-based servicesthat integrate computer-aided dispatch systems, wearable devices, and record management systems are providingfirst responders with comprehensive situational awareness to help them make decisions quickly. On a more basiclevel, cities are now offering online portals to let citizens and/or businesses apply for building permits,occupational licenses, food assistance programs, and childcare and unemployment benefits, as well as pay forcommuter parking, report regulatory compliance issues, seek counseling, renew car registrations, and access a hostof other government services.
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The Future of Digital Transformation
Digital technologies have transformed almost every aspect of how enterprises and organizations operate,introducing efficiencies in the accounting office and on the assembly line, upgrading supply chain logistics, andoptimizing customer engagement channels.
The pace of change is only accelerating as new innovations reveal additional opportunities for businesses tocreate value for customers while boosting their profitability and ability to adapt to unexpected marketdisruptions. As time goes on, solutions currently over the horizon will appear on the market, inspiring newtransformation objectives.
Over the last year, we’ve seen an example of how a novel technology, generative AI, can take the world by stormand spur new transformation objectives. ChatGPT thrust large language model AI into the popular consciousness, butthe technology is only in the nascent stage of being incorporated into business processes. Enterprises are nowexploring how they can use GenAI to do things such as write business reports in plain language, improve chatbots,and even create custom software.
Augmented reality and virtual reality are other transformative technologies still in their nascent phases.Training employees to work with complex systems is one of the first use cases, but expect a time to come whenpeople don headsets to remotely shop, interact with products, walk through properties, and participate inmeetings.
It’s natural for companies to focus their digital transformation initiatives on addressing current businesschallenges and strategic objectives crucial to their immediate success. But digital transformation should bethought of as an ongoing process of identifying new use cases and securing the necessary funding, then choosingthe technology, path, and partners that can deliver.
Jump-Start Your Digital Transformation with Oracle
Oracle delivers the cutting-edge cloud technologies that form the foundation of digital transformationinitiatives. The starting point for many is Oracle Fusion Cloud Applications . The industry’s broadest andmost integrated application suite infuses AI into the management of financials, supply chains, HR, customerservice, and other core business processes.
Oracle Fusion Cloud Internetof Things Intelligent Applications extends the suite for organizations looking to automate processes. TheIoT cloud service captures and analyzes data from sensors and connected devices installed across production lines,logistics networks, warehouses, and other industrial facilities.
Digital transformation depends on interconnectedness. The Oracle Digital Connect platform lets organizations easily assemble cloudapplications and integrate Oracle and third-party services, data, and IoT systems.
Oracle Cloud Infrastructure serves as a lynchpin forthese digital transformation initiatives, enabling all Oracle Cloud Applications (including more than a dozensuites of industry-specific applications), custom-built applications, and third-party applications to run on acommon, highly performant, highly secure, and cost-effective infrastructure.
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Digital Transformation FAQs
What is the definition of digital transformation?
Digital transformation is the process of adopting cutting-edge digital technologies to fundamentally change how abusiness operates and engages its customers. It should incorporate not only new systems but also correspondingprocess changes, and it should look to shift company culture to fully embrace those changes.
Why is digital transformation important?
Digital transformation is important because it allows companies to keep up with changing competitive demands, inpart by replacing manual processes and inefficient, inflexible legacy systems. A successful digital transformationadds value by helping companies offer more innovative services to customers, boost employee productivity,streamline operations, reduce mistakes, and increase the precision of planning and forecasting.
What is included in digital transformation?
Digital transformation initiatives typically feature a core set of technologies, including cloud applications andinfrastructure, AI, IoT, and real-time analytics. But the success of these initiatives depends on cultivating acompany culture that encourages workers to embrace digital technologies to improve how they do their jobs andcollaborate with others, with a focus on agility.
How to start digital transformation?
Business and IT leaders should start planning digital transformation projects by laying out goals and identifyinguse cases. Once these aims are established, they should start selecting the underlying technologies and strategicvendors and formulate an implementation roadmap.
