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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.
The goal for its implementation is to increase value through innovation,[4][5] invention, improved customer experience and efficiency.[1] Focusing 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]
However, since there are no comprehensive data 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 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.[9]
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Benefits
Adopting digital technology can bring various benefits to a business.[10][11] CIPS has also observed that digital capability can be used to support supply chain transparency and remote working.[6]
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.[12]
Some company cultures can struggle with the changes required by digital transformation.[13]
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.[12]
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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.[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 using cloud 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% of European 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 the COVID-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]
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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]
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.[12]
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.[12]
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.[12]
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According to the resource-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]
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.[12]
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Digital transformation is often perceived as a reactive measure to address customer demands, competition, and regulatory compliance. However, it 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.[35]
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.[36]
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