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Digital transformation (DT) is the process of adoption and implementation ofdigital 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.
The goal for its implementation is to increase value throughinnovation,[4][5] invention, improvedcustomer experience and efficiency.[1] Focusing on efficiency and costs, theChartered 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]
However, since there are no comprehensivedata sets on digital transformation at the macro level, the overall effect of digital transformation is still (as of 2020[update]), too early to comment.[7]
While there are approaches which see digital transformation as an opportunity to be seized quickly if the dangers of delay are to be avoided,[8] a useful incremental approach to transformation calleddiscovery-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.[9]
Adopting digital technology can bring various benefits to a business.[10][11] CIPS has also observed that digital capability can be used to supportsupply chain transparency andremote working.[6]
There are multiple common barriers that digital transformation initiatives, projects and strategies face. One of the main barriers ischange management, because changes in processes may face active resistance from workers. Related to change management is themiscommunication 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 havelegacy systems in place, which can lead to integration difficulties with new systems. Withinorganizations there may also be a lack of resources, top management support, workers' skills, commitment, collaboration and vision.[12]
Somecompany cultures can struggle with the changes required by digital transformation.[13]
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 toartificial 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.[12]
Digitization is the process of convertinganalog information into digital form using ananalog-to-digital converter, such as in an imagescanner or for digital audio recordings. As usage of theinternet 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.[14][15] 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.[16][17]
A 2015 report stated that maturing digital companies were usingcloud hosting, social media, mobile devices and data analytics, while other companies were using individual technologies for specific problems.[18] 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).[19]
As of 2020, 37% ofEuropean companies and 27% of American companies had not embraced digital technology.[20][21] Over the period of 2017 to 2020, 70% of European municipalities have increased their spending on digital technologies.[20][22] By 2019, the Chartered Institute of Procurement & Supply found in a survey of 700 managers, representing over 20 industries and 55 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.[23]
In a 2021 survey, 55% of European companies stated theCOVID-19 pandemic has increased the demand for digital technology, and 46% of companies reported that they have grown more digital.[24] 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.[25][26] A lack of digital infrastructure was viewed as a key barrier to investment by 16% of EU businesses, compared to 5% in the US.[20]
In a survey conducted in 2021, 89% of African banks polled claimed that the pandemic had hastened the digital transformation of their internal operations.[27]
In 2022, 53% of businesses in the EU reported taking action or making investments in becoming more digital.[28][29][30] 71% of companies in the US reported using at least one advanced digital technology, similar to the average usage of 69% across EU organizations.[28][31][32]
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.[12]
It does so by leveraging cutting-edge technologies to enhance predictive power and responsiveness. Technologies include theInternet of Things,big data analytics,artificial intelligence,simulation,additive manufacturing,blockchain, anddigital twins.[12]
Digital transformation embedded within theorganizational culture empowers managers to take decisive actions, enables seamless collaboration among workers across diverse departments, and fortifiessupply chains. Additionally, it empowers top management to respond swiftly and proactively, effectively reducing and mitigating adverse impacts.[12]
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.[12]
According to theresource-based view theory, successful firms' resources should be valuable, rare, non-imitable, and non-substitutable[33] 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".[34]
Thedigital 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.[12]
Digital transformation is often described as a reactive response to factors such as customer demands, competitive pressures, and regulatory requirements. However, it can be a proactive opportunity for organizations to achieve sustainable business practices and facilitate acircular economy. By building sensing, smart, sustainable, and social capabilities, enterprises can capture valuable information, make faster and smarter decisions, and adapt to changing environments.[35]
Aligning digital transformation withsustainability can enhance performance by engaging stakeholders, optimizingresource allocation, and reducing risks. A comprehensive business case that prioritizes sustainability benefits and multidimensional returns can secure the necessary resources for successful implementation. To achievesustainability goals, effective governance, integration, change management, and stakeholder involvement are critical factors.[36]
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