Digital Transformation of a Company: History, Definition, and Benefits

Milthon Lujan Monja

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Digital transformation of a company. Photo by Unsplash
Digital transformation of a company. Photo by Unsplash

The digital transformation has been generating changes in different areas of society and the economy, and surely you have heard more frequently about ‘Digital Transformation of a Company.’ Carrying out a strategic digital transformation of an organization is becoming one of the key elements of its business success (Lazić and Jović, 2019).

The Internet of Things, mobile technology, the cloud, big data, augmented reality, blockchain, and social networks are taking companies to the next level of interaction with their customers and bringing about changes in their business processes, products, and services (Auriga, 2016). This poses a challenge for company executives who must adapt to this new environment.

It is common to think that having an online store, engaging in digital marketing, having profiles on social networks, obtaining and processing data, etc., constitutes digitally transforming a business (Fournier, 2021). Or perhaps you are thinking that by implementing a CRM, an ERP, or other systems, you are on the path to the digital transformation of your company; I regret to disillusion you, but digital transformation is much more than just implementing systems—it is a new way of thinking and collaborating.

History of Digital Transformation

Digital transformation has become a trendy topic among entrepreneurs; however, Auriga (2016) reports that ideas about digital products and services were already being discussed in the 1990s.

From 2000 to 2015, the increase in smart devices and social media platforms led to a drastic shift in the methods customers used to communicate with companies (Schallmo and Williams, 2018).

Currently, all digital transformation initiatives are built on the so-called “Third Platform” Technologies and Solutions, including mobile technologies, cloud computing, big data/analytics, and social networks (Auriga, 2016).

Digitization and Digitalization

During the preparation of this article, many of the reviewed articles considered digitization and digitalization as interchangeable terms, and it is also common to consider digitalization and digital transformation as “synonyms.”

The i-SCOOP publication (2016) ‘Digitization, digitalization and digital transformation: the differences’ provides a clear idea of the meaning of the terms digitization and digitalization:

  • Digitization: Converting and/or representing something non-digital (health records, location data, identity cards, etc.) into a digital format that can then be used by a computer system.
  • Digitalization: Digitalization means turning interactions, communications, business functions, and business models into (more) digital ones, often reduced to a combination of digital and physical, such as customer service, integrated marketing, or smart manufacturing with a mix of autonomous, semi-autonomous, and manual operations.

In this context, the OECD (2018) highlights that the digital transformation of the company refers to: “The digital transformation refers to the economic and social effects of digitization and digitalization. Digitization is the conversion of analog data and processes into a machine-readable format. Digitalization is the use of digital technologies and data, as well as their interconnection, resulting in new or changed activities.”

What is the Digital Transformation of a Company?

New business opportunities are emerging due to the advent of technology; however, this change is not only technological but also leads to changes in the way all members of an organization think.

Digital transformation is not simply a technological change but a holistic metamorphosis that redefines how companies operate, interact with customers, and create value. Essentially, digital transformation is a strategic initiative that adopts technology to drive growth, improve efficiency, and foster innovation.

According to Fournier (2021), digital transformation is often understood to encompass everything related to digitization, with technology as a fundamental ingredient; however, implementing technology alone does not bring about any transformation.

The digital transformation of a company is the integration of new technologies across all areas of a business, enabling it to enhance its digital capabilities to change the way it operates. It forms the foundation for the implementation of deep tech. The goal is to optimize processes, improve competitiveness, manage risk, provide new added value to customers, and discover new opportunities.

Additionally, the digital transformation of the company involves a shift in the mindset of executives and employees within organizations. This might entail reworking products, processes, and strategies and an increased capacity for innovation.

Schallmo and Williams (2018) define the digital transformation of a company as a sustainable transformation at the enterprise level through updated or newly created business operations and business models implemented through digitization initiatives that add value and ultimately result in improved profitability.

On the other hand, PWC (2019) states that the digital transformation of the company is the combination of business strategy and operations with technological innovation, data analytics, and the design of new services (or redesigning existing ones) to rapidly increase productivity and growth in the value chain.

Digital transformation of a company. Source: IDF Spokesperson's Unit
Digital transformation of a company. Source: IDF Spokesperson’s Unit

Advantages of Digital Transformation in the Company

Digital transformation is a crucial task for businesses in the contemporary landscape, and its importance extends to various aspects of organizational functionality. These are the key reasons why digital transformation is vital for companies:

  1. Increased Efficiency and Productivity:
    Digital transformation streamlines processes through technology integration, automating repetitive tasks, and reducing the likelihood of errors. This leads to higher operational efficiency and productivity, allowing employees to focus on more strategic and value-added activities. Guo et al., (2023) report that corporate digital transformation significantly improves company performance and can be beneficial for breaking industrial and regional monopolies.
  2. Enhanced Customer Experience:
    Digital transformation enables businesses to better understand and interact with their customers. Through data analysis and Customer Relationship Management (CRM) systems, companies can personalize interactions, provide seamless services, and respond to customer needs in real-time, ultimately improving overall customer satisfaction.
  3. Agility and Adaptability:
    In a rapidly changing business environment, digital transformation allows organizations to adapt quickly to market dynamics. The ability to embrace new technologies and methodologies makes businesses more agile, helping them stay competitive and responsive to changing customer expectations.
  4. Innovation and Competitive Advantage:
    The adoption of digital technologies fosters a culture of innovation within an organization. Companies that innovate continuously are better positioned to develop new products and services, enter new markets, and gain a competitive advantage over their peers. Zhao et al., (2022) state that the digital transformation of manufacturing companies has effectively improved the innovation capability of businesses.
  5. Data-Driven Decision-Making:
    Digital transformation enables businesses to collect, analyze, and leverage data for informed decision-making. Insights derived from data analysis allow executives to make strategic decisions, optimize processes, and identify new growth opportunities.
  6. Cost Optimization:
    By automating processes, reducing manual intervention, and optimizing workflows, digital transformation can lead to cost savings. Cloud computing, for example, allows companies to scale resources as needed, minimizing upfront infrastructure costs.
  7. Global Reach and Market Expansion:
    Digital technologies break down geographical barriers, allowing businesses to reach a global audience. E-commerce, online marketing, and digital communication tools enable companies to expand their market presence and connect with customers worldwide.
  8. Adoption of Industry 4.0 Technologies:
    Industry 4.0 technologies, such as the Internet of Things (IoT), artificial intelligence (AI), and blockchain, play a pivotal role in digital transformation. These technologies enable predictive maintenance, smart manufacturing, and data-driven decision-making, revolutionizing traditional industries. Hodzic, A. (2021) reports that Industry 4.0 has an effect on the digital transformation of the company after its implementation.
  9. Risk Management and Security:
    Digital transformation includes measures to improve cybersecurity and data protection. With the increasing prevalence of cyber threats, businesses need to invest in robust security protocols to safeguard confidential information and maintain the trust of their customers.
  10. Compliance and Regulatory Alignment:
    Many industries face evolving regulatory requirements. Digital transformation helps businesses comply with these regulations by automating data privacy processes, financial reporting, and other areas, reducing the risk of legal issues.
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In summary, the digital transformation of the company is not just a technological change; it is a strategic imperative for businesses seeking to thrive in a dynamic and competitive landscape. It affects every aspect of an organization, from internal operations to customer interactions, enabling companies to navigate the complexities of the digital age with resilience and innovation.”

Areas of Digital Transformation

According to PwC, regardless of the maturity level at which companies find themselves, they are undergoing digital transformation in three key areas:

  1. Customer Experience:
    They evaluate how the customer is currently receiving the service, analyze distribution channels, and create new digital experiences that align with customer expectations to achieve loyalty.
  2. Business Processes:
    To fully deliver on the customer value proposition, companies optimize and digitize their process chains.
  3. Business Models:
    Digital transformation allows the introduction of new digital products and services, thus expanding the traditional portfolio. It is important to consider how the transformation affects the business environment (suppliers, regulators, competitors, customers, etc.).

On the other hand, Verina and Titko (2019) identified three categories of digital transformation in companies: 1) Technologies, 2) Processes and Management, and 3) People.

Table 01. Categories of Digital Transformation in the Company.

TechnologiesManagement / ProcessesPeople
– Data
– Big data
– Cloud
– Mobile devices
– Social media
– Software
– Analytics
– Embedded devices
– Artificial intelligence
– The Internet of Things
– Cybersecurity
– App marketplaces
– Business models
– Operating models
– Operational processes
– Strategies
– Business activities
– Organizational structure
– Organizational culture
– Coordination mechanism
– Products
– New services
– Customers
– Employees / workforce / people
– Managers
– Executives
– Talents
– Owners
– Suppliers
– Partners
– Stakeholders
– Competencies
Source: Verina y Titko (2019).

Digital Maturity Level

A study conducted by Íncipy and Inesdi (2017) to determine the digital maturity index of Spanish companies found that only 1.2% of the surveyed companies were at Stage 5 – Innovative, representing a significant challenge.

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In the case of Chile, only 2% of companies reached the level of digital leader, according to a study conducted in 2019 by PMG. The same study concludes that half of Chilean companies are at a “Digital Beginner” level or below.

The levels of digitization are classified according to their nature, in line with their interaction, mechanization, and intelligence (Ramírez and Ordóñez, 2019). Table 02 presents the different levels:

Table 02. Levels of digitization in a company.

ClassificationInteractionMechanizationIntelligence
Digitization LevelRelationship with other people or agentsOperability and managementData generation
1.0Exclusively physical meansManual executionHuman analysis only
2.0Tools ReactiveDigitalized documents and data, without collaboration between areasData analytics and exploitation afterwards
3.0Tools ProactiveAutomated flow between areas, processes integrated within the companyReal-time data analytics and exploitation
4.0Tools enabling bidirectional interactive/ collaborative processesFlexible processes integrated between areas and with external customers/suppliersPredictive systems / Pattern identification
Source: Ramírez y Ordóñez (2019).

Keys to Digital Transformation

Research by Alasiri and AlKubaisy (2022) emphasizes, at a managerial level, the influence of leadership, the work environment, Information Technology processes, and the company’s performance in digital transformation. Meanwhile, Fournier (2021) presents the following key aspects for a company’s digital transformation:

  1. Funding: It is necessary to have financial resources to face it.
  2. Leadership: Digital transformation must be addressed from the pinnacle of the organization; it is a significant change that cannot be supported by mid-level leaders.
  3. Commitment: It is important to involve teams in the digital transformation process from the beginning.
  4. Training: Training is a fundamental element because it conveys the message to the organization that the effort is worthwhile and that people matter.
  5. Organizational Culture: Digital transformation brings about a change in how goals are achieved, thus causing a cultural shift in the organization.
  6. Incorporate Big Data: New technologies enable a world of data. Incorporating them into the organization brings about a change in work processes.
  7. Promote Remote Work: Digital transformation should bring about a change in the way of working.
  8. Eliminate Legacy Applications: It is necessary to ensure the availability and compatibility of legacy applications during digital transformation.”

Key Components of Company Digital Transformation

Digital transformation encompasses several key components, each playing a fundamental role in reshaping organizational dynamics. From disruptive technologies to cultural changes, we will delve into the elements guiding the transformational journey.

Technological Infrastructure

The foundation of any digital transformation is a robust technological infrastructure. We will explore the importance of cloud computing, IoT integration, and advanced analytics in shaping a resilient digital ecosystem.

People-Centric Approach

Beyond algorithms and code, the human element remains indispensable. Discover how fostering a culture of innovation and enhancing workforce skills are integral aspects of a successful digital transformation.

How to Begin the Path to Digital Transformation?

Schallmo and Williams (2018), in their book ‘Digital Transformation Now!,’ describe a five-phase roadmap for digital transformation in companies:

Digital Reality

In this phase, the company’s business model is described, along with an analysis of added value related to stakeholders and a survey of customer requirements. This provides an understanding of the digital reality for the company based on different parameters.

Digital Ambition

Building upon digital reality, objectives for digital transformation are defined. These objectives are related to time, finances, space, and quality. Digital ambition determines which objectives should be considered for the business model and its elements. Subsequently, objectives and dimensions of the business model are prioritized.

Digital Potential

In this phase, best practices and enablers for digital transformation are established. This serves as a starting point in terms of digital potential and designing a future digital business model. Different options for each element of the business model in the future emerge to reach digital potential, and these options are logically combined and connected.

Digital Adjustment

The digital adjustment phase allows analyzing options for designing the digital business model. Options are evaluated to determine the digital fit with the existing business model. During digital adjustment, the aim is to ensure that customer requirements are met, and business objectives are achieved. Evaluated options are then prioritized.

Digital Implementation

This phase involves the implementation of the new digital business model. Various options are sought within a framework of digital implementation. Digital implementation also includes designing a digital customer experience and a digital value creation network that describes the integration of a new business model with partners. Resources and capabilities are also identified in this phase.

Table 03. Roadmap for Digital Business Model Transformation.

PhasesActivities
1. Digital Reality1.1. Outline of the existing business model.
1.2. Analysis of the value chain and stakeholders.
1.3. Identification of customer requirements.
2. Digital Ambition2.1. Establish objectives and prioritize business model dimensions.
3. Digital Potential3.1. Identify best practices for digital transformation.
3.2. Collection of digital transformation enablers.
3.3. Design of future digital options for the business model.
4. Digital Adjustment4.1. Evaluation of adjustment options, customer requirements, objectives.
5. Digital Implementation5.1. Finalization and implementation of the business model.
5.2. Design of the digital customer experience.
5.3. Design of the value creation network and integration of partners.
Source: Schallmo y Williams (2018).

Challenges of Digital Transformation for Businesses

While digital transformation brings numerous benefits to a company, the journey is not without challenges. A successful implementation requires overcoming several obstacles. Below are the key challenges often faced during the digital transformation process:

  1. Resistance to Change:
    One of the most significant challenges is employee resistance at various levels within the organization. People may be comfortable with existing processes and resist adopting new technologies or changing established workflows.
  2. Lack of Leadership Support:
    For digital transformation to succeed, full commitment and support from leadership are essential. A lack of acceptance or understanding from top executives can hinder resource allocation and the necessary cultural change.
  3. Insufficient Skill Sets:
    The rapid evolution of technology means that new skills are constantly in demand. Organizations often face challenges in upgrading their workforce’s skills to meet the requirements of emerging technologies such as artificial intelligence, data analytics, and cybersecurity.
  4. Integration of Legacy Systems:
    Many companies operate with legacy systems that may not easily integrate with new digital solutions. Migrating data and processes from old to new systems can be complex, time-consuming, and costly.
  5. Privacy and Data Security Concerns:
    With the increasing digitization of processes and the collection of large amounts of data, ensuring robust cybersecurity and compliance with data protection standards becomes crucial. Security breaches can result in significant financial and reputational damage.
  6. Inadequate Budget and Resources:
    Digital transformation initiatives often require a substantial financial investment. Inadequate budget allocation and a lack of both human and technological resources can impede progress and lead to incomplete or failed transformations.
  7. Ineffective Change Management:
    Digital transformation is not just a technological change but a cultural one. Ineffective change management strategies can cause confusion, frustration, and a lack of enthusiasm among employees, hindering the success of the transformation.
  8. Complexity in Project Management:
    The scale and complexity of digital transformation projects can be overwhelming. Ensuring effective project management, with clear objectives, milestones, and communication, is crucial to keep the transformation on track.
  9. Lack of Clear Strategy and Vision:
    Without a well-defined strategy and vision for digital transformation, organizations may struggle to align their efforts and may end up implementing technologies without a clear understanding of how they contribute to overall business objectives.
  10. Vendor and Technology Selection:
    Choosing the right technologies and vendors is a critical decision in the digital transformation journey. Incompatibility between technologies, poor vendor support, or selecting solutions that do not meet the organization’s specific needs can lead to setbacks.
  11. Compliance Regulatory Challenges:
    In industries with strict regulatory requirements, ensuring compliance during digital transformation can be a challenge. Adapting to new technologies while simultaneously complying with industry regulations requires careful planning and execution.
  12. Measurement and Demonstration of Return on Investment (ROI):
    Demonstrating ROI for digital transformation initiatives can be challenging, especially in the short term. Quantifying the impact on key performance indicators and aligning them with business objectives is crucial to demonstrate the success of the transformation.
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Addressing these challenges requires a holistic and strategic approach, involving effective communication, continuous learning, and a willingness to adapt to changing circumstances. Successful digital transformation for a business is not just about technology; it involves people, processes, and a commitment to innovation and improvement.

Conclusion

The digital transformation of a company is not merely about digitizing the information generated by different processes within the organization but rather a new way of thinking and collaborating. In this sense, companies must undertake this task to digitize their various processes if they wish to remain competitive.

The current competitive environment has turned digital transformation into an urgent necessity for companies to innovate and face new challenges, but above all, to adapt to the Industry 4.0 landscape.

References

Alasiri, N., & AlKubaisy, Z. (2022). Exploring the role of leadership, work environment, it alignment and company performance on the digital transformation: a study on the private sector companies in western region, Saudi Arabia. International Journal of Professional Business Review: Int. J. Prof. Bus. Rev., 7(2), 5.

Auriga. 2016. Digital transformation: history, present, and future trends.

Fournier Guimbao, Joaquín. La transformación digital: un aliado estratégico en la era COVID. Documento de Opinión IEEE 27/2021. 16 p.

Guo, X., Song, X., Dou, B. et al. Can digital transformation of the enterprise break the monopoly?. Pers Ubiquit Comput 27, 1629–1642 (2023). https://doi.org/10.1007/s00779-022-01666-0

Hodzic, A. (2021). The transformation to digital: How industry 4.0 affects the digital transformation–a study of industry 4.0 and how it affects the digital transformation at a large Swedish manufacturing company.

Íncipy e Inesdi. 2017. Índice de madurez digital de las empresas – Primer Estudio en España. 40 p.

i-SCOOP. 2016. Digitization, digitalization and digital transformation: the differences.

Lazić, A., & Jović, M. (2019, December). Strategic digital transformation of organisations. In 5th IPMA SENET Project Management Conference (SENET 2019) (pp. 184-188). Atlantis Press.

PMG – CORFO. Índice de Transformación Digital de empresas 2019. 29 p.

PwC. 2019. 4RI – El camino a la transformación digital. 8 p.

Ramírez N. y L. Ordóñez. 2019. Modelo de Madurez para la Transformación Digital. Centros de Transformación Digital Empresarial. MinTIC- iNNpulsa Colombia. 69p.

Schallmo, D.R. and C. A. Williams. 2018. Digital Transformation Now!, SpringerBriefs in Business,

Verina, N., & Titko, J. (2019, May). Digital transformation: conceptual framework. In Proc. of the Int. Scientific Conference “Contemporary Issues in Business, Management and Economics Engineering (pp. 9-10).

Zhao, X., Sun, X., Zhao, L. and Xing, Y. (2022), “Can the digital transformation of manufacturing enterprises promote enterprise innovation?“, Business Process Management Journal, Vol. 28 No. 4, pp. 960-982. https://doi.org/10.1108/BPMJ-01-2022-0018

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