Demystifying Digital Transformation
More often than not, articles on digital transformation will start with painfully obvious statements like 'technology has greatly transformed the way we do business.' Of course, it has. This is not news; some forms of digital technology are so common that the average company is likely to have more digital devices than pencils.
When it comes to creating business value, it is necessary to distinguish between different levels of technology. At the most basic level, we have computers, email and mobile phones. While it is nearly impossible for a company to survive without them, they are so widespread that no one can boast that they provide a digital advantage over competitors.
Digital transformation is a whole new level of how technology is used in business. It fits at the top of the digital maturity food chain. This series will explain what digital transformation really is and why all companies, SMEs in particular, need it. It will describe the concrete benefits you can hope to achieve. Finally, it will help you identify where you need to place your focus and help you develop your own digital transformation roadmap.
Let's start by looking at the four levels of business technology to understand what digital transformation is, and what it is not.
According to SME Corp, there are about 200,000 SMEs in Malaysia still clinging stubbornly to the lowest rungs of the technological ladder. The term used for this is 'computerisation', which basically means using a computer to do what used to be done by hand or more basic office machines.
This would include such things as typing out letters to clients on a computer rather than on a typewriter. No one would argue for the return of the typewriter, but, again, using a computer to perform the task is too prevalent among businesses to be a differentiator. Having an internet connection or a mobile phone also falls under computerisation.
Digitisation is the process of changing formats from physical to digital. For example, when you enter information from a paper filing system into a computer database, you are digitising your records.
So if computerisation is using a computer to write a letter to customers, digitisation could mean having customer details and letter templates saved to your hard drive to be accessed as needed.
As with computerisation, the business value of digitisation is clear. Not only do you save physical space, but you also speed up the process of finding specific information. However, this is still pretty low in the digital hierarchy. It's only on the next step up that we start to pull ahead of the competition.
Digitalising an existing process, such as picking items in a warehouse, can greatly increase productivity, while reducing mistakes and costs.
Digitalisation is a little more complicated to explain because of the problems that arise from the term itself. First of all, at first glance, it is very similar to the term 'digitisation' just described above. However, the step between digit- and digital-isation is enormous.
Second of all, the term is sometimes used interchangeably with 'digital transformation' – the highest level of digital maturity. While digitalisation nearly always forms part of your digital transformation plan, there are significant differences between the two.
Over the past ten years, what we mean by 'digital' has changed several times. For decades, it referred to a language consisting of ones and zeros. Then, less than a decade ago, we started using it to refer to having an online presence. A few years later, you also had to have a social media presence to qualify. Today, a digital company is one that, at the very least, has mobile employees, incorporates social media activities, collects and analyses customer data, and operates largely on the cloud.
Similar to what Gartner calls 'digital optimisation', digitalisation uses technology to modernise existing business processes, often by fully or partially automating them. To continue the example of the letter above, once you have the letters and customer information in your database, software personalises and sends out the right emails to the right recipients for you.
Digitalisation is a relatively quick, safe, and easy way to save costs and raise efficiency, so why go further? Well, because digitalisation has a limited shelf life. Benefits tend to be for the short term and far fewer in number than you get with real digital transformation.
Digital transformation is a pretty simple concept, but once again, many are confused by how the term is used. You may have heard it referred to by other names: IT transformation, DX, DT, IT modernisation, digital business transformation and, as we saw above, digitalisation. For clarity's sake, in this series, we will only use digital transformation.
Digital transformation is at the top of the digital change hierarchy. Where the lower levels ease the struggles companies face today, digital transformation prepares you for the challenges of tomorrow. It enables you to unlock new value in everything like how your employees work, how you build relationships with customers, and how well you prepare yourself for the future's inevitable technological and social fluctuations.
While the perceived enormity of this task tends to discourage SMEs from exploring their options, leaders have to face two undeniable facts:
- SMEs can't afford NOT to transform
- Digital transformation is easier, more cost-effective and valuable to your business than you'd imagine
Covering the 'whys' of the first point and 'hows' of the second, this series empowers SME leadership to make informed decisions for their company's digital transformation journey. Our next article addresses the specific challenges faced by all businesses, including micro, small and medium-sized enterprises.