When people think of digital transformation too often they only think of websites and database and social network profiles. Digital transformation, however, is way more than just that and affects businesses and organizations in deep ways that ideally lead to the discovery of new business models. These transformations and business models ultimately shape our society and lives. In this post, I share a collection of definitions of digital transformation, go through the changes that have led us where we are today, and present some examples of successful digital transformations of well-known organizations you can use as inspiration on your own digital transformation.
Digitization, digital businesses, and digital transformation
Digitization is related to information. It is the process of moving from analog data, mostly on paper, to digital data. Digitization was possible due to the advances in computing sciences: Cheaper computers, so that most companies and individuals could afford them, better databases, faster internet connections…
With more efficient infrastructures and digital data, businesses went through digitalization over the last few years. They started using applications and databases and started using data for decision making. Having data on digital format allows us to mix it and operate with it, to run functions and to use statistical models for decision making.
At the same time, new business models start to develop around these new technologies and the needs of the organizations that now have data and are ready to drive action from it.
For existing businesses, as a consequence of their digitalizations not only their customers experience and internal processes are transformed, but also their business models. This is what we call digital transformation. Often having as a consequence the creation of new digital businesses or the discovery of untapped revenue streams, the digital transformation of organizations affects them – and the societies around them – in deep ways.
Think of digital maps, GPS navigators, and self-driving cars. Which one would you say has the most direct impact in the world? It is self-driving cars and their consequences for ownership, regulation and the environment that matters.
How deep can digital transformations be?
One of the key aspects of digital transformation is that it often goes way deeper than we can ever imagine or expect when we first look at the technologies that lie behind them. When I started teaching digital transformation, I often faced skepticism from the audience. Back then my audience consisted of law, communications or business students at Loyola University. They were highly digitalized and what some call digital natives. However, it was surprising to learn that they were skeptical about the real impact of VR, Blockchain or Conversational Interfaces. As I gained insight into my audience I changed my presentation to address this lack of faith in the first place. The second version of my deck started by showing this image from 1900 that depicted their vision of the year 2000.
This kind of image always makes us laugh. They are often naive and show us in funny clothes using steampunk-like machines. In this particular one, there are a number of different models of flying machines and people. It has been over 100 years and flying machines are still not a thing. But we have Ryanair airplanes. We can’t fly with our own machines, but we can seat on a plane for under 50€ and reach another country in hours, have lunch there, and fly back. I don’t know how fast these flying machines were, but I doubt they were made for this kind of travel, or how much one would spend in fuel.
We have invented a lot of other interesting things during this past century, things that have changed our lives in different ways. All of the below are inventions or discoveries made between 1900 and 2000. Some of these things, like the air conditioning, were impacts on their own. Some others, like the gyroscope, contributed to later developments.
In the year 2000 something big happened. The Nokia 3310 was released. This small phone, made in Finland and Hungary, was a durable phone that put GSM technology in a lot of people’s pockets. And when I say a lot I mean 126 million people. This phone is so popular that it was relaunched in 2017 with new features and a color screen.
Nokia 3310 was popular because of its durability, introduced features like longer and threaded SMSs (hello, chatting), voice dialing (voice interfaces) and introduced mobile gaming in our lives through Snake II. I don’t think anyone in 1900 imagined we would spend so many hours playing snake II or sending SMSs.
Back in the times of 3310 we were crazy about changing the background of our home screen or having our custom ringtones. We started craving a device that was truly personal. PCs claimed to be personal computers but were mostly home shared devices with 3 or 4 users competing for screen time. The first mobile phones let us have fun or communicate whenever we wanted and wherever we wanted. Moreover, they could be whatever we wanted.
The smartphone was a huge leap. It allowed us for more connection, more personalization, and practically put all the power of a personal computer in our pockets. Smartphones brought true technology that required a lot more processing power than a snake game would in some early user’s pockets, and soon the consequences started. This is a timeline of some of the startups developed from the year 2000:
Definition of digital transformation
The people at Salesforce define digital transformation as “the process of using digital technologies to create new — or modify existing — business processes, culture, and customer experiences to meet changing business and market requirements. This reimagining of business in the digital age is digital transformation.” What I like the most about Salesforce’s definition is their holistic view of digital transformation, and how they go even beyond the generation of business models to talk about changes in culture and customer experience.
McKinsey: The technologies that enable digital transformation and the areas where it has an impact
McKinsey has identified technologies that are popular across all businesses and others that are more likely to be implemented in organizations that are already successfully doing digital transformation. These include traditional web technologies, cloud based services, mobile internet technologies, big data, internet of things, design thinking, AI tools, robotics and RPA, machine learning, AR and 3D printing.
If you look back up at my timeline of tech companies you will see that most if not all of them rely on at least one of the technologies above. These technologies have facilitate the creation of new business models that have changed society and continue to do so.
In McKinsey’s studies these technologies were found to be used in different areas of digital transformation: mostly marketing and distribution, followed by products and services, processes, ecosystems, and a small proportion of supply chain digital transformations (surprisingly, if you ask me).
Let’s look at some of the companies that got digital transformation right and how they achieved it. There’s perhaps something for us to learn for our own digital transformations.
Netflix: from tapes to content creation
Netflix used to work as an online blockbuster. When the Internet came they first started to use the power of digital to speed up and scale their orders, but soon they realised they could be a lot more successful changing their business model to online video streaming.
Today Netflix’s business is based on a good content recommendation algorithm but most of all on content creation. They have over 100 million users all around the world who watch 125 million hours of content every day. They make money by giving us the best content we can watch and letting us watch it in any device we want all at once, so that we can binge and keep coming back for more.
Light as a service with Philips
Philips is offering light as a service. To help large spaces like airports save costs in adaptation to new light technologies, Philips handles the infrastructure and charges its clients by their usage. One of their projects in Amsterdam, The Edge, is equipped with a connected lighting system that has contributed to an annual reduction of €100,000 in energy costs and €3.6 million savings in space utilisation.