“Digital transformation”, a real fashionable phrase these days. It is sometimes used as a buzzword and is placed as a must-have in every strategy. A survey by HBR showed that digital transformation was the number 1 risk CEO’s saw in 2019[1]. But what does digital transformation actually mean and how did this start? A short throwback into history and what digital transformation means.

 Where did digital transformation start?

A fascinating question. How did it all start? The actual basis lies in a mathematical paper (“A Mathematical Theory of Communication”) written by Dr. Claude Shannon, which is the founding theory behind our current internet. In the late 1950s the invention of the microchip and semiconductor transistor, which enabled analog computing to go digital, completed the basis for the current digital transformation[2].

Since then, as predicted by Moore’s law, computer power doubles once about every year. This is based on the observation that the numbers of transistors on an integrated circuit doubles about every two years. Moore’s law enabled the development of amongst others computers, internet and mobile phones. Working at ASML in the zero’s, I found it mind-blowing to see the actual planning of the innovation of semiconductor machines based on Moore’s law. Planning to innovate a new semiconductor machine without even knowing how it will be realised!

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Source: https://en.wikipedia.org/wiki/Moore%27s_law

This growth is proceeding exponentially, which results in even more wonderful technological inventions like 3D printing, Robotization, Virtual Reality, Artifical Intelligence, etc. Some reason that this exponential growth in computer power cannot be translated fast enough in the applications we as humans can design. Even if that is true, we can still use these growth to build ever more interesting applications to solve the most important challenges as described by the UN in the Sustainable Development Goals.  

Digitization, digitalisation and digital transformation

But what is then digitization, digitalisation and digital transformation and more importantly, what is the difference between these terms[3]?

Digitization is the conversion of analog or physical information to digital format. For example transferring paper invoices into digital invoices. Meaning, it is a direct move from analog to digital.

Digitalization is the use of digital technologies to enable or improve some business models or processes. This is done by means of digital products such as videos, podcast, online school, virtual reality. For example using Dropbox to save your files instead of orders and file cabinets to save paper files. 

Digital Transformation is the process of using digital technologies to create new — or accelerate existing — business processes, culture, competencies, business models and customer experiences to meet changing business and market requirements. It changes fundamentally how a business operates and delivers value to a customer[4] and it does so for the long run. This means a fundamental cultural shift in which all involved see data and technology as indispensable for the company.

Digitization is the most basic form of translating analog into digital, while digitalization takes the process further by also improving processes. A digital transformation could use technology to look at replace the processes altogether with a new, different and more efficient one using current technology to increase customer satisfaction or profitability.

Why is a digital transformation important?

As ever, it is important for businesses to stay ahead of competition and increase growth and market share. Personally, I would like to add the societal & environmental aspect of companies as well. Looking at current markets and how they are surprised by new entrants (hotel sector by AirBnB or banks by Bitcoin), it is an imperative to be ready for the digital age. This means being on top of your game and developing your next move in parallel. Innovation, agility and digital need to be ingrained into your company to stay in business. It is literally a survival issue.

[1] Source: HBR – https://hbr.org/2019/03/digital-transformation-is-not-about-technology

[2] Source: Technology Magazine – https://www.technologymagazine.com/ai/startup-spotlight-automation-anywhere  

[3] Source: based on Gartner’s IT Glossary – https://www.gartner.com/en/information-technology/glossary/ and SalesForce – https://www.salesforce.com/products/platform/what-is-digital-transformation/

[4] Source: based on https://enterprisersproject.com/what-is-digital-transformation

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