Many people use the terms Digital Transformation and Digitalization synonymously, but do they actually have the same meaning? Let me shed some light on the distinctions.
On April 7, 1964, three days after I took my first breath, IBM announced the System/360. On Wikipedia we can read the following:
“It was the first family of computers designed to cover the complete range of applications, from small to large, both commercial and scientific. The design made a clear distinction between architecture and implementation, allowing IBM to release a suite of compatible designs at different prices. All but the incompatible model 44 and the most expensive systems used microcode to implement the instruction set, which featured 8-bit byte addressing and binary, decimal and (hexadecimal) floating-point calculations.” Source: https://en.wikipedia.org/wiki/IBM_System/360
It is important to emphasize the fact that, with the S/360, compatibility became important. In the past, programs were written for dedicated hardware, which meant that the code had to be continually updated when hardware was replaced. Hence, Digitalization started more than 50 years ago. Using computers to help administration of businesses, analyze data, and support—at that time simple—tasks.
In 1981, the IBM PC was introduced. Less than ten years later, many businesses used the PC (in all its forms) to digitalize their businesses. Spreadsheets, calculations of all kinds, and word-processing were the first “Killer Apps.” The IBM S/360 and the PC were both meant to raise efficiency, while also helping us to become faster and more competitive. In 1983, a few years after the IBM PC entered the scene, Novell’s NetWare was introduced. NetWare now made it possible for PCs to share data within an organization at a low cost, allowing more SMBs to use this technology.
With the birth of more sophisticated technologies, efficiency rose even more: automatic workflow systems that digitalize business processes fully and avoid paper.
These days, Industry 4.0 is the next evolutionary step towards more efficiency and optimization of the production. We now use digital technologies to streamline our production and become faster and more cost-efficient.
Here are some examples of Digitalization, where efficiency and optimization were the driving force:
- Spreadsheets since 1979 (VisicCalc)
- Word Processing
- Production Planning (later: ERP)
- Document Management (ECM)
- HR Software
- Robots in Industry
- IoT – Internet of Things
Digitalization is an evolution over the time. Step by step, software became smarter, more capable, and easier to use, efficiency rose. By contrast, Digital Transformation is a massive paradigm shift. It goes way beyond the evolutionary character of Digitalization and optimization. However, Digitalization is a crucial part of Digital Transformation.
Digital Transformation is a paradigm shift requiring a massive change process in organizationsClick to tweet
Digital Transformation, in contrast, is a massive paradigm shift. It goes way beyond the evolutionary character of Digitalization, and optimization. However, Digitalization is a crucial part of Digital Transformation.
In Digital Transformation, we combine and use various new digital technologies to change the way we work, incorporating data that wasn’t even available before. New business models are grown from that. Cloud technology is an impetus for such a core shift. Because of the cloud, even small companies can process huge amounts of data and the power of hundreds of computers. Therefore, cloud technology is vital for any further development.
Let me give you an example. Thirty years ago, if you wanted to start a business you needed servers, software licenses, office space, maybe even a shop floor and machines to get started. Especially in Germany, venture capital was very difficult to acquire. Starting from zero provided a major challenge.
Startups today experience a totally different environment. They subscribe to software they need, like Office 365, Autodesk Fusion 360, ERP, etc. They pay a monthly fee and add more user subscriptions as they grow. When it comes to production, they use Alibaba or other platforms to connect with companies in China or elsewhere to get their products manufactured.
Advertising is not about spending huge amounts of money for TV, newspaper, or radio ads. If you are well connected on LinkedIn, Facebook, or other social platforms, you can start to grow a community of potential customers to accelerate your business.
This is a rather simple example of how digital technologies affect the way businesses can grow. Without Cloud, SaaS, international platforms like Alibaba or Amazon, and having everything connected, it would literally be impossible to start a business without a great investment.
Digital Transformation has brought another stunning result: entrepreneurs can allow themselves to fail! 30 years ago, if you started a business and it failed, you would lose a lot of money, not to mention the time and energy of the effort. Today, an entrepreneur can afford to fail. We see tremendous opportunities for those who want to bring their ideas to life.
What does that mean for existing businesses and their Digital Transformation?
We need to understand that competition may appear from somewhere we don’t expect. Having said that, it’s pretty likely that it is only a matter of time until a startup disrupts our market with fresh ideas. Huge investments aren’t preventing startups from doing so.
A traditional business—maybe a family owned SMB with long tradition—may suffer from inflexibility and, perhaps, complacency (which John P. Kotter identifies as one of the most important obstacles in any change process in his book “A Sense Of Urgency”). With an accelerating technological progress (Cloud, IoT, AI, Additive Manufacturing, to name a few), it is becoming more difficult for traditional businesses to keep up with or even understand what’s going on around them. Digital Transformation is a major change process where unprecedented technological progress clashes with cultural or social aspects. Anxiety, uncertainty, and the loss of stable footing makes it ever so difficult to accept the changes that are necessary for every business to survive. Highly successful businesses, especially, don’t feel a sense of urgency to embrace digital technologies and transform digitally.
Digital Transformation is all about:
- Questioning your (successful) products and services. Will they still be in demand five or ten years from now? How can digital technology improve or reinvent your products? How can your customers benefit from that?
- Questioning your corporate culture. Will employees from Generation Y + Z like to work in the highly hierarchical environment many businesses still provide? What does “Digital Leadership” mean?
- What does “Democratization of technology” mean in business? Wikipedia has a great article on that. Information becomes much more accessible than it was thirty years ago, before the internet was available.
Digital Transformation is a necessary process to change businesses to keep up with our old and new competitors, that leverages new digital technologies to perform more efficiently, and bring better services to our customers. The B2C industry already went through major changes in the last years. In the private sector, we are spoiled by the online stores, that give us full transparency in the entire shopping experience. B2B is still far behind. However, our customers use digital business in their private lives and expect superior digital services in B2B as well. It’s just a matter of time. And it will come much faster than many expect!
This is not a painless process. On the contrary. It is a highly demanding change process challenging entire industries. To put it in simple words, Digital Transformation is a way to identify and use innovative digital technologies, to bring our products, services, and the way we work to a new, more competitive level, with an even higher focus on the customers’ needs.
I am highly interested in your opinion. Do you agree, or disagree? Write a comment with your ideas on that.