What is digital transformation?
Since digital transformation is such an overloaded term, we need to define what it means before learning about it. Digital equals technology. But what types of technologies are used? Well, that depends on the need. And that is usually related to the maturity of the company.
Early-stage companies generally digitally transform their systems. Mid-stage companies will digitally transform to automate. And mature companies will digitally transform their products and their internal operations. This is called a smart digital transformation. Tech can be sorted into the system, automation and smart layers. The systems layer, this includes IT and business systems, such as BI, CRM, PLM, and CAD. We’d consider this low technology. The automation layer consists of automation, such as robots, RPA, which is robotic process automation, digital marketing, and e-commerce. The smart layer consists of the Internet of Things, data analytics, the digital twin, blockchain, and augmented reality. This is what we’d consider high technologies. The layers are generally implemented in order with the maturity of the company, but they are independent of each other. A misconception is sequencing, that you cannot do, for example, the smart layer, before you finish all the layers before it. They’re completely different and they can be done independently.
Transformation equals change. But what can be changed? We can make external changes and internal changes. External changes refer to changing physical products or the customers, both in a B2B or a B2C environment. And when we mentioned products, we really mean products and services. Now once these products are changed or digitally transformed they are commonly referred to as smart products. For example, a smartwatch or a smart lock. Internal changes refer to the changes in the operations of a company. And it’s a process commonly referred to as IIoT or the Industry Internet of Things and Industry 4.0. And when it is changed or digitally transformed, they are commonly referred to as smart operations. Examples of smart operations include a smart factory line or smart support.
Digitally transforming something results in a thing that is data-driven and software-defined. An example of data-driven software is Netflix. When they make recommendations is based on your previous viewing history. Data-driven and software-defined products or operations are called smart products or smart operations. And this is a type of change being taught in this course. So bringing it together, digital transformation equals change from technology. And it’s important to note that we’re talking here about the smart layer, the high technology layer. We can make internal digital transformations for the operations or external digital transformations for our products. And it always results in something that is software-defined and data-driven. Practically speaking, a digital transformation is a sum of a series of digital initiatives using high technology. Each digital initiative is being implemented to realize a feature.
Why digitally transform?
The right and the only reason to perform a digital transformation are to create value. Business value or consumer value. 75% of digital transformations fail to reach commercialization or internal use because they don’t get the why right, resulting in a product or a service or a process or an environment that’s simply not valuable enough to be launched commercially or used internally. This leads us to value creation.
The value that is created by digitally transforming a traditional product into a smart product, or a value that is created by digitally transforming traditional business operations into smart business operations. Let’s start with smart products. Smart products are used to create value for both businesses and consumers. Being software-defined and data-driven enables physical products to have the same advantages as big tech software. Antitrust and competitive issues for big tech companies, such as Facebook, Google, and Microsoft originate from these companies using customer data as a proprietary source of innovation and invention, resulting in insurmountable competitiveness. So why digitally transform traditional products into smart products? Because more competitive products result in a better bottom line by increasing revenue. As an example, consider the Tesla Model S. It’s a smart product, and all its competitive advantages come from it being software-defined and data-driven. Smart operations are used to create value for businesses. Being software-defined and data-driven virtualizes operations, enabling operational procedures to be represented as equations that can be solved and reorganized to be optimized or minimized. Applying mathematics to these processes yields more effective and efficient company operations. Take, for example, machine utilization within a factory. If we take the machine utilization data and create a directed acyclic graph or a dag, we can solve that equation, or more precisely, maximize the utilization of the machines by solving the equation and then transfer the results to the physical machines themselves. So why digitally transform traditional operations into smart operations? Because operational improvements result in a better bottom line by improving margins.
We don’t digitally transform because it’s cool, although it is. The reason we digitally transform is to create value. Business value for smart products and smart operations, or consumer value for smart products. So knowing how to do this by incorporating smart into products and operations is the key.