Definition

digital transformation

Digital transformation is the reinvention of an organization through the use of digital technology to improve the way it performs and serves its constituents. Digital refers to the use of technology that generates, stores and processes data.

The term transformation refers to a fundamental change to an organization's day-to-day business from the types of products and services it produces to how it delivers them. An organization in need of a transformation -- whether a business, government agency, utility or service such as a healthcare provider -- typically responds to a change in the marketplace and consumer demand for a product or service.

Simply implementing technology alone doesn't bring about digital transformation but changing an organization to reap the potential of those technologies does.  A 2011 study by the MIT Center for Digital Business and Capgemini Consulting examined 157 executives in 50 companies with $1 billion or more in annual revenue. The study found that to transform, organizations need to retool their underlying business and operating models and resulting products and services.

One example of a company that has undergone successful digital transformation is Nespresso. The maker of specialty coffee machines, an operating unit of Switzerland-based Nestle Group, deployed a cloud-based customer relationship management system that offers customers omnichannel access to shopping and customer service: They can reach the company whether they use the website or a mobile device or visit a store. A single view of each of its customers (360-degree view) has allowed Nespresso to move into more markets and improve sales.

In another example, the Schindler Group tapped the Internet of Things and cloud computing for its digital transformation. The 141-year-old Swiss company partnered with Apple and put smart sensors onto the elevators and escalators it manufactures. Now when a component starts to fail or a machine stops working properly, data from the sensors alert a back-end system, which uses a smart rules engine and a custom iOS mobile app called FieldLink to assign work to a technician.

In spite of all the benefits, digital transformation is a struggle for many organizations and there is no one blueprint for success. The MIT and Capgemini research found that successful digital transformation does not happen from the bottom up; it must be driven from the top. To become a digital enterprise, which is the ultimate objective of any digital transformation,  CIOs need to move beyond their traditional role as manager of the IT cost center to become an enterprise leader who understands the potential of new technologies and has the ability to create new business models.

Dr. Didier Bonnet discusses the principles and practices that lead to successful digital transformation.

See also: IT transformation

This was last updated in October 2015

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