Digital Transformation Decoded

Digital transformation involves adopting digital technologies and processes to fundamentally change how a business operates and engages with its customers. Technology solutions, including artificial intelligence, the Internet of Things (IoT), and cloud-based automation systems, often serve as the foundational elements of digital transformation initiatives. While these technologies are key to replacing manual processes and legacy applications and infrastructure, digital transformation encompasses a broader set of methods and objectives, including improving business planning, customer care, and more. For example, some initiatives look to change company culture by asking all employees—from senior executives to production line workers—to think more innovatively and adapt to new ways of doing things.

Goals of digital transformation initiatives include carving out new business opportunities, increasing productivity, streamlining operations, reducing errors, improving the customer experience, and ultimately boosting revenue and profit. It's important to remember that every company starts this process at a different point and with their own desired outcomes, so every digital transformation journey is unique.

What Is Digital Transformation?

Digital transformation is a set of initiatives that shift enterprises away from manual and analog processes to digital ones in almost every aspect of the business, including supply chain, finance, payroll, HR, customer service, sales, and marketing. Often, an initial step in these projects is digitization, which is the process of converting information into a digital format—for example, scanning a paper contract or invoice into a digital file. Once data is readable by computers, companies can start the process of digitalization, which involves replacing legacy systems and processes to automate workflows, enhance efficiencies, boost employee productivity, and deliver sought-after business outcomes.

Some companies are motivated to digitize and digitalize to capture growth opportunities or respond to increased competitive pressure, while others are driven by the need to keep up with changing regulatory standards. In the public sector, projects are often spurred by the desire to conserve resources while delivering better services to constituents. Whatever the underlying motivation, business and IT leaders planning these projects should try to imagine new ways their company can employ technology, people, and processes to anticipate and adapt to evolving market conditions.

Key Takeaways

• Digital transformation involves adopting cutting-edge technologies to transform how a business operates and engages its customers.
  
  It should be thought of as an ongoing process that lets an organization flexibly adapt to changing market conditions and business imperatives.
• AI, IoT, automation, and advanced data analytics are among the technologies associated with digital transformation, but the concept encompasses much more than technology.
• Most digital transformations aim to shift company culture in a way that encourages employees at all levels to perform their duties with greater agility and willingness to share information.
• By making cutting-edge services available on a flexible, pay-as-you-go basis, the cloud facilitates digital transformation by giving companies greater freedom to experiment, scale, and continually adapt to changing market conditions.

Digital Transformation Explained

Because digital transformation refers to the process of integrating digital technology into all aspects of the business, by definition it requires two things: a solid understanding of the costs and capabilities of current technologies and a cultural commitment to changing how the business runs. With those in place, you can reimagine operating models, departmental processes, and business strategies.

Certain technologies are often associated with digital transformation because they enable companies to automate processes, forecast trends, streamline workflows, and improve product safety and quality. These techs include cloud services, AI and machine learning, IoT devices and sensors, augmented/virtual reality, and advanced data analytics applied to real-time streaming sources, including video feeds. Generative AI, which is artificial intelligence that generates text and images, is the latest frontier.

Cloud services in particular make it easier for companies to experiment with new technologies, scale their computing resources up or down as needed, and generate and analyze large data sets without prohibitive infrastructure integration and data center costs. Cloud providers deliver the flexibility many companies require to accelerate their transformations while staying within budget.

Then there’s the task of establishing a culture of digital transformation. Companies often realize the time has come to take on digital transformation initiatives when their legacy systems and processes put them at a competitive disadvantage in adapting to changing customer expectations and market conditions. They look to digital transformations to help them anticipate and respond faster to market disruptions, competitor moves, and business imperatives.

Digital transformation initiatives should encourage employees at all levels to embrace new ways of doing their jobs, continually hone their skills, and seek closer collaboration with other business units.

3 Foundational Elements of Digital Transformation

Digital transformations require companies to do more than simply plug in new technologies. Successful initiatives strategically address three foundational elements.

1. Physical

Digital transformations implement cutting-edge technologies to move businesses away from cumbersome and error-prone manual processes toward digitalized ones. This physical element of a transformation can boost productivity and enhance efficiency across almost every part of a business. Examples include offices shifting from paper-based recordkeeping to computerized data collection and sharing, and production lines being automated with robotics and remote sensors that feed data to AI-powered applications.

2. Cognitive

Digital transformations enable businesses to take advantage of their data in powerful new ways using AI/machine learning—technologies that make it possible for computers to conduct cognitive processes resembling how humans think and reason. Companies are increasingly relying on these kinds of cognitive systems to do things such as forecast their financials, anticipate changing market behaviors, and derive better insights into the effectiveness of business processes. To successfully implement the cognitive element of a transformation, companies are recruiting data scientists and analysts and/or adopting cloud applications with built-in AI capabilities.

3. Cultural

Digital transformations can be successful only when employees, especially those set in their ways of doing their jobs, welcome the changes brought about by automation and working alongside “smart” machines. That usually requires a cultural shift that goes beyond training employees to operate new systems. Companies must instill in their workforce an appreciation for the goals of digital transformation and the value of new technology-enabled processes and capabilities.

The Role of the Cloud in Digital Transformation

The cloud plays a crucial role in digital transformation by providing a huge range of services that can be launched quickly and shut down if a company finds the technology doesn’t quite match changing business needs. The cloud isn’t just a way to modernize core IT infrastructure. It enables companies to add advanced technologies quickly and affordably—think artificial intelligence, advanced automation, Internet of Things, enterprise resource planning (ERP), and other business systems.

Software-as-a-service (SaaS) offerings provide businesses with the tools and infrastructure needed to go digital, improve efficiency, enhance productivity, and better serve customers. SaaS-based ERP cloud solutions, for example, can help automate accounting, billing, procurement, reporting, and other functions, while digital marketing solutions support B2B and B2C marketers’ efforts to drive sales and boost brand and customer loyalty.

Benefits of Digital Transformation

• Digital transformations can empower almost any business, in any industry, to create greater value for customers, employees, and partners. Among the many benefits are deeper, analytics-based, more actionable insights; easier-to-use and more efficient processes; increased IT capacity; lower costs; and improved safety, product quality, and productivity.
• Manufacturers have automated their factories and optimized their supply chains. Retailers have reinvented how they market and sell to customers and manage returns. Healthcare providers have given patients easy access to their medical information and enabled them to consult with clinicians from their homes. Construction companies have automated and improved project scheduling. Hotels have used the data they gather from guest stays to boost customer loyalty and improve their upselling capabilities. Utilities are analyzing data from smart meters, weather sensors, and other sources to predict power demand patterns and help modernize their grids. The benefits across industries are almost endless.

Challenges of Digital Transformation

Many digital transformation initiatives fall short of meeting the desired business outcomes—and some prove to be entirely unsuccessful. While every company starts its transformation journey from a different place and looks to achieve different results, there are some common challenges.

• Technological and Implementation Barrier
  

  Enterprises may find it difficult to choose the digital technologies, products, and vendors that will best serve their needs. A cutting-edge solution that seems exciting and attractive might not be a great fit for an organization and could limit its ability to invest in more-transformative technologies.

  Once carefully selected, new digital technologies need to be integrated with the legacy systems and processes the enterprise chooses to maintain. That challenge is heightened by the fact that digital transformation initiatives often involve working with multiple cloud vendors and architectures. Some companies end up struggling to connect disparate cloud systems and break down the resulting data silos.

  The implementation of digital technologies poses another challenge: testing new systems, migrating data, and switching over to the new environments without completely disrupting existing operations.

• Cultural and Skill-Related Challenges
  

  New digital technologies and processes are effective only to the extent that employees use them to maximum effect. For that reason, digital transformation projects typically require a company culture in which employees embrace new ways of doing things, are willing to collaborate, want to develop new digital skills, and regard digital systems as strategic assets.

  Failure to invest in training and developing a digital-savvy workforce can squander ambitious technology investments. Training programs should not only teach employees how to use new applications and devices but also instill a mindset that encourages them to take an agile approach to performing tasks and sharing information throughout the organization.

• Strategic Alignment and Sustainability
  

  Digital transformations are more likely to fail when they don’t align with a company’s strategic goals. When selecting the technologies and vendors for an initiative, carefully consider long-term financial objectives, employee satisfaction levels with current processes and systems, the desired customer experience, and growth strategies.

  Tech for tech’s sake, in which an exciting new technology is adopted when it’s not really needed, sometimes just to match what competitors are doing, is a common phenomenon that can misalign transformation initiatives and strategic goals. For example, if a company is struggling with its supply chain logistics, it shouldn’t prioritize investments in mobile customer loyalty applications.

  New systems should be implemented with an eye toward sustainability—that is, how will IT and business leaders maintain, adapt, and expand these new capabilities while maintaining required legacy systems over time?

• Data Privacy and Budgetary Constraints
  

  The sensors, applications, and devices associated with digital transformation can generate exponentially more data than legacy systems—data that’s then shared far more extensively than ever before across and outside the organization. This proliferation and movement of data heightens privacy concerns, especially in highly regulated industries.

  Digital transformation can also represent a significant financial investment that isn’t feasible within an existing budget. Most companies must prioritize and decide which projects to implement first, which to tackle later on, and which to remove from the plan. They should also factor in how the shift from CapEx to OpEx that’s inherent in a cloud migration will impact their budgets.

Digital Transformation Strategy and Roadmap

Before any company embarks on a digital transformation journey, it needs to create a strategic plan that will guide it from ideation to implementation and beyond. The following steps are crucial.

1. Kick Off with Discovery

The discovery phase is foundational and should involve identifying existing processes that are holding the company back from achieving its goals, the reasons for digitalizing operations, and what the company hopes to achieve through the initiative. This exercise will inform all the work that follows.

2. Define Your Digital Vision

Whether a company seeks to automate its manufacturing operations or create a better experience for customers, it must define how digitalization relates to its existing processes and where it will make a difference in achieving the desired outcomes. This vision will help the company prioritize areas of investment.

3. Determine Your Digital Maturity

A digital maturity assessment will reveal how far along the business already is in using digital capabilities, where it could benefit from additional investments, and its potential to successfully incorporate new technologies. Use this assessment to help set a realistic pace and goals for the initiative.

4. Identify Capability Gaps

It’s important for companies to identify existing gaps in their digital infrastructure so they can choose the best technologies to fill them. Where possible, develop a model where people, processes, tools, and data work on an integrated platform.

5. Build Your Transformation Roadmap

Create a strategic plan that looks forward to the completion of the initiative, outlining milestones to achieve along the way. This roadmap should be clearly defined but flexible enough to accommodate setbacks, thus minimizing risk and cost. It should also anticipate the potential for changing priorities and the emergence of new technologies during the project and after it’s completed.

6. Consider Cloud Applications

While every organization has different digital transformation goals, constraints, and legacy systems to replace or maintain, it’s prudent to prioritize the adoption of cloud applications because they’re relatively easy to scale up and down, are updated with new features regularly, are managed and secured by expert vendors, and make it easier to share data, especially when they come as part of an integrated suite.

Insights from Digital Transformation Leaders

A common piece of advice from business and IT leaders who have led digital transformation initiatives is to pay close attention to customer and employee needs, not just business objectives.

• Solicit user feedback. An open dialog with the people involved the most with a company’s legacy systems and processes—namely, the employees who use them to do their jobs and the customers whose experience depends on them—is the best way to understand the shortcomings of existing systems and areas that need improvement.
• Define problems based on that feedback. With insights gained from customers and employees, assess what needs to be done differently and define the problems that can be solved with digital alternatives.
• Design a transformative strategy. After identifying problems and inefficiencies, design a digital transformation strategy that lays out the goals, such as improving the customer experience, boosting employee productivity, upgrading safety procedures, or streamlining and automating operations.
• Ensure top executives are active participants. Don’t just pay lip service to the importance of executive sponsorship and change management when embarking on digital transformation initiatives. At one large multinational, the CEO kicked off the initiative on a companywide videoconference, laying out why the digital transformation was critical to the company’s growth and prosperity and rallying employees to embrace changes. The CEO subsequently led steering-committee meetings and working sessions with project team members, and he took part in videos to update employees on progress. Regular pulse surveys gauged how employees were feeling about the implementation and whether the overall plan needed to be adjusted.

Digital Transformation: Examples and Use Cases

The opportunities created by digital technologies and digital transformation projects seem to be limited only by the imagination and creativity of IT and business leaders. Here are some innovative ways businesses in various industries are applying cutting-edge solutions to empower workers, please customers, automate processes, upgrade the quality of their goods and services, and reduce costs.

Manufacturing

Manufacturers are relying on data collected from applications and from sensors in various IoT-enabled machines and devices to improve their operations, drive efficiencies in their supply chains, make working conditions safer, reduce downtime, and assure consistent quality of the goods they produce.

For example, Alcar Ruote, a Swiss manufacturer of steel wheels for the automotive industry, migrated to an integrated suite of ERP and supply chain management applications to better manage its planning, procurement, manufacturing, and distribution while enhancing visibility across those operations. The company also implemented IoT systems with embedded AI to analyze sensor data, which has reduced lost production time. The transformation has allowed Alcar Ruote to maintain Swiss quality in the face of global competition.

Data collected from arrays of IoT remote sensors are making it possible for manufacturers to put AI to work to automate assembly lines, perform predictive maintenance, optimize logistics networks, and conduct real-time video monitoring and analytics. Another cutting-edge solution, augmented reality, has made it possible to train factory workers by effectively simulating real-world scenarios at far less cost.

Retail

Retailers are turning to digital devices, channels, and platforms to create seamless shopping experiences that are tailored to the unique preferences of individual customers. They’re deploying AI-based chatbots to automate customer service, and they’re using sophisticated data analytics to deliver personalized recommendations and improve product allocation decisions. For example, a sports apparel retailer might analyze the latest weather data and forecasts and determine that even a three-degree difference in temperature affects sales of thermal undershirts. Based on this information, the retailer can allocate more of those items to outlets in areas projected to have colder temperatures in a given winter. Digitalization is transforming the in-store experience as well, allowing retailers to create an interactive shopping environment. Retail clerks are using handheld devices to take contactless payments, products are being sold from smart vending machines, and shoppers are selecting items online that are made available to try on in the store.

Helzberg Diamonds, in business for more than a century, implemented AI to improve demand forecasting, replenishment management, assortment planning, and other advanced retail capabilities.

Learn how Helzberg Diamonds uses AI

Healthcare

Virtual doctor visits and networked electronic health records (EHRs) are just two modes of digitalization that are transforming how medical offices, hospitals, and clinics deliver and manage care, improve the patient experience, and reduce costs. The latest cloud applications can also help healthcare organizations provide billing at a more granular level so patients can understand how much treatments actually cost. Analysts at hospitals can use scenario planning applications to predict patient demand so they can anticipate the number of beds and the number and types of staff who’ll be needed. Profitability management software helps health organizations measure the profitability of individual business lines—for example, oncology or cardiology—to determine where to allocate resources.

One example is King’s College London in Dubai. The hospital cut the time it takes to access patient information in the EHR by 50% and saw a reported 25% overall reduction in time spent in the EHR due to faster screen loads and transaction response times.

Smart Cities

Smart cities blend existing physical infrastructures with cutting-edge digital solutions. One example is traffic management, whereby cities place sensors along major highways to measure and reroute vehicle flows. One major US city is using cameras and automatic license plate readers installed on streetlights to produce videos and images that municipal police use to investigate and prevent crimes and present as evidence in court. Cloud-based services that integrate computer-aided dispatch systems, wearable devices, and record management systems are providing first responders with comprehensive situational awareness to help them make decisions quickly. On a more basic level, cities are now offering online portals to let citizens and/or businesses apply for building permits, occupational licenses, food assistance programs, and childcare and unemployment benefits, as well as pay for commuter parking, report regulatory compliance issues, seek counseling, renew car registrations, and access a host of other government services.

Find out how Albuquerque makes connections with residents using Oracle

The Future of Digital Transformation

Digital technologies have transformed almost every aspect of how enterprises and organizations operate, introducing efficiencies in the accounting office and on the assembly line, upgrading supply chain logistics, and optimizing customer engagement channels.

The pace of change is only accelerating as new innovations reveal additional opportunities for businesses to create value for customers while boosting their profitability and ability to adapt to unexpected market disruptions. As time goes on, solutions currently over the horizon will appear on the market, inspiring new transformation objectives.

Over the last year, we’ve seen an example of how a novel technology, generative AI, can take the world by storm and spur new transformation objectives. ChatGPT thrust large language model AI into the popular consciousness, but the technology is only in the nascent stage of being incorporated into business processes. Enterprises are now exploring how they can use GenAI to do things such as write business reports in plain language, improve chatbots, and even create custom software.

Augmented reality and virtual reality are other transformative technologies still in their nascent phases. Training employees to work with complex systems is one of the first use cases, but expect a time to come when people don headsets to remotely shop, interact with products, walk through properties, and participate in meetings.

It’s natural for companies to focus their digital transformation initiatives on addressing current business challenges and strategic objectives crucial to their immediate success. But digital transformation should be thought of as an ongoing process of identifying new use cases and securing the necessary funding, then choosing the technology, path, and partners that can deliver.

Jump-Start Your Digital Transformation with Oracle

Oracle delivers the cutting-edge cloud technologies that form the foundation of digital transformation initiatives. The starting point for many is Oracle Fusion Cloud Applications . The industry’s broadest and most integrated application suite infuses AI into the management of financials, supply chains, HR, customer service, and other core business processes.

Oracle Fusion Cloud Internet of Things Intelligent Applications extends the suite for organizations looking to automate processes. The IoT cloud service captures and analyzes data from sensors and connected devices installed across production lines, logistics networks, warehouses, and other industrial facilities.

Digital transformation depends on interconnectedness. The Oracle Digital Connect platform lets organizations easily assemble cloud applications and integrate Oracle and third-party services, data, and IoT systems.

Oracle Cloud Infrastructure serves as a lynchpin for these digital transformation initiatives, enabling all Oracle Cloud Applications (including more than a dozen suites of industry-specific applications), custom-built applications, and third-party applications to run on a common, highly performant, highly secure, and cost-effective infrastructure.

Digital Transformation FAQs

What is the definition of digital transformation?

Digital transformation is the process of adopting cutting-edge digital technologies to fundamentally change how a business operates and engages its customers. It should incorporate not only new systems but also corresponding process changes, and it should look to shift company culture to fully embrace those changes.

Why is digital transformation important?

Digital transformation is important because it allows companies to keep up with changing competitive demands, in part by replacing manual processes and inefficient, inflexible legacy systems. A successful digital transformation adds value by helping companies offer more innovative services to customers, boost employee productivity, streamline operations, reduce mistakes, and increase the precision of planning and forecasting.

What is included in digital transformation?

Digital transformation initiatives typically feature a core set of technologies, including cloud applications and infrastructure, AI, IoT, and real-time analytics. But the success of these initiatives depends on cultivating a company culture that encourages workers to embrace digital technologies to improve how they do their jobs and collaborate with others, with a focus on agility.

How to start digital transformation?

Business and IT leaders should start planning digital transformation projects by laying out goals and identifying use cases. Once these aims are established, they should start selecting the underlying technologies and strategic vendors and formulate an implementation roadmap.