What is Digital Transformation?

  It has been 6 years since I first encountered the term 'Digital Transformation'. In 2016, the terms ‘Smart Factory’, ‘Industry 4.0’, and ‘ the 4th industrial revolution’ were used interchangeably across the globe. So I was confused about the exact meaning of each term. However, now the term 'digital transformation' is widely used. 

 

  When I was the head of the Smart Factory Task Force Team in 2017, I  defined the terms related to 'Smart Factory' with my team members to communicate better at work. We listed all the terms used in each country, its definition, and the differences in meaning between the terms. Interestingly, there seemed to be no big differences between them. 

 

  So, what is the 'Digital Transformation'?

  Once you break down the word into two, you can get the gist. The word 'Digital Transformation' consists of 'Digital' and 'Transformation'. So let’s check the meaning of each word. 

 

First,  'Digital'

IT systems such as ERP, Sales systems, Customer Systems, and Billing Systems are the essential process in almost every business. If it is called the 'X system', it usually refers to an IT system. Before the development of IT, most work were done manually. Transforming this paperwork into a computer was called the ‘Digitization’, hence the term  'Digitization department' for an IT department.

Second, 'Transformation'

  The word 'Transformation' can be translated into 'Transition' or 'Change'; the existing thing is changing into something different. The most common example of 'Digital Transformation' is the 'aircraft engine data analyzing service of GE'. GE manufacturers have changed their traditional manufacturing business to a data analysis business. Owing to this, people called it  'Digital Transformation' when GE was running a new business by extending its aircraft engine manufacturing business to data analyzing service through 'aircraft engine optimization and saving fuel', 'predictive maintenance for the aircraft engine', and etc. 

 

   If we narrow down the definition of 'Digital Transformation', it means 'not only strengthening the existing business model but also changing the legacy business model with digital’. However, the market understands the meaning of digital transformation comprehensively as a digital-based innovation rather than the other meaning of it.

 

  I don't think there is one exact definition of the term, digital transformation. I have reviewed various books and researches but I agree with the following series of concepts the most: 'Digitization -> Digitalization -> Digital Transformation'. Please refer to the definitions from Gartner, the global research firm, if you need more help with understanding the terms. 

 

  Gartner defines digitization as 'the process of changing from analog to digital form'. I think it is very similar to the concept of digitalization I've explained above; There is no change or innovation in the process itself.

"Digitization is the process of changing from analog to digital form, also known as digital enablement. Said another way, digitization takes an analog process and changes it to a digital form without any different-in-kind changes to the process itself. "
https://www.gartner.com/en/information-technology/glossary/digitization

  According to Gartner, "Digitalization uses digital technologies in order to change a business model and provide new revenue and value-producing opportunities". It sounds similar to Digital Transformation, doesn’t it?

 

 In early 2000, there was the dot-com bubble and digitalization was a very popular topic to talk about. Hence, the terms 'e-commerce', and 'e-business’ were often used. At that time,  there was a boom in transit from an offline-based business to e-business. So many dot-com companies didn’t have offline stores. Amazon, eBay, auction, and Interpark are good examples of digitalization.

 

"Digitalization is the use of digital technologies to change a business model and provide new revenue and value-producing opportunities; it is the process of moving to a digital business."
https://www.gartner.com/en/information-technology/glossary/digitalization

  Digital transformation could be anything from IT modernization, and digital optimization, to the invention of new digital business models. In the market, the concept of digital transformation is understood as ‘IT-based innovation' or 'Digital Technology-based Innovation’.

"Digital transformation can refer to 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. Thus, the term is more like “digitization” than “digital business transformation.”
https://www.gartner.com/en/information-technology/glossary/digital-transformation

 

The differences between 'Digital Transformation' and IT, and their real applications will be dealt with in the next post. 

 

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