Over the past several years, the term “digital transformation” has been bandied about within the enterprise. As with many terms and concepts that have entered the realm of enterprise IT, digital transformation is frequently misinterpreted and misunderstood.
What does “digital transformation” really mean? What essential components does it include, and how does it impact the enterprise? Read on for the answers to these questions, and learn how you will benefit from embracing the principles of digital transformation at your company.
What Does “Digital Transformation” Mean, Anyway?
The consulting firm CapGemini, in collaboration with the MIT Center for Digital Business, is credited with coining the term “digital transformation” in late 2011. Researchers from these organizations defined the phrase as “the use of technology to radically improve performance or the reach of businesses.”
That being said, the definition is rather broad. Does it mean that just because you implement technological solutions, you have radically improved your company’s performance or its reach? That may be what many people think it means, but if so, they are incorrect.
Digital transformation involves the use of technology to radically improve performance or the reach of businesses.
Just because your employees use mobile devices and the cloud to store their files does not mean you have undergone a digital transformation. Dion Hinchcliffe, a technology strategist, describes a digital transformation as "moving gracefully from one way of working to an entirely new one, replacing corporate body parts and ways of functioning completely in some cases to capture far more value than was possible using low-scale, low-leverage legacy business.”
While Hinchcliffe’s description provides a bit more insight, it might still prove confusing to some firms. “How do we know if we have undergone a digital transformation or if we are in the process of one?” they ask. There are three essential components of a digital transformation:
- the overhaul of processes
- the overhaul of operations, and
- the overhaul of relationships with customers.
What do your processes look like? At some businesses, employees still rely on pen, paper, and filing cabinets. In other firms, people communicate through email and cellphones. That does not mean that those companies have undergone a digital transformation, though.
A digital transformation means that you have implemented technology that will enable completely new processes. Sending a purchase order via email is not a new process; it is simply a more modern way of doing something you have always done.
“So, what does a new business process look like?” you ask. Consider EDI systems as an example. The latest EDI systems automatically send information between trading partners. An employee generates a purchase order in the system, and the PO travels instantly to the vendor’s EDI system.
A digital transformation means that you have implemented technology that will enable completely new processes.
This transaction qualifies as a completely new process, not just a new way of doing things. Employees no longer have to spend time drafting and submitting purchase orders (or other transactions). Thus, modern EDI systems make these tasks far less time-consuming and efficient.
Another component of a digital transformation is a deep and significant alteration in operations. As with processes, just because you use the latest and greatest technology to create your product does not mean that your business has experienced a digital transformation...unless it changes the way you carry out your operations, that is.
What do operations look like after a firm has undergone a digital transformation? Consider EDI systems as an example again. In addition to enabling new processes, they offer a totally different way of carrying out operations.
Suppose that your business manufactures computers, and you purchase circuit boards from a particular supplier. What happens when that supplier cannot fulfill your order? Normally, such a situation would bring your operations to a halt.
Just because you use the latest and greatest technology to create your product does not mean that your business has experienced a digital transformation.
However, the latest in EDI systems will actually notify you when your supplier cannot ship your order when you need it. They will suggest alternate suppliers and even submit the POs, so you remain competitive and agile.
With the newest EDI systems, your processes will be changed forever. There will be no more scrambling to find another supplier when a shipment is not going to go through, and there will be no more wasted time creating a purchase order for a new vendor. You keep running at the speed of business, no matter what happens. That is, indeed, transformative.
With the newest EDI systems, your processes will be changed forever.
Transforming the Customer Experience
It is relatively easy to see the impact of a digital transformation upon your processes and operations. You carry out processes every day, and your operations create your product or services. The customer experience is less visible, though.
Still, digital transformations have an indelible effect upon how customers interact with your firm and how they feel about those interactions. EDI systems illustrate this point very well.
Go back to the example of the EDI system in the section about digital transformation and processes. The example highlights how much easier it is to do business with partners with modern EDI systems as your EDI system automatically transmits POs, enabling your employees can spend more time on activities that create value for your company. Given the choice, wouldn’t you rather work with someone that has an EDI system than a supplier that does not?
Digital transformations have an indelible effect upon how customers interact with your firm and how they feel about those interactions.
How valuable is it when your EDI system notifies you that your regular supplier cannot deliver a shipment in time? The ability to find a new supplier and quickly submit a PO makes the customer experience much smoother, does it not? EDI systems are one instance of a technology that utterly transforms how customers deal with a company.
Digital transformation affects customers at every level, not just B2B clients. Consumers benefit from the radical changes technology has wrought in a number of industries. To wit, EDI systems increase traceability in the food manufacturing and pharmaceutical sectors; companies can quickly and easily check if components have been recalled and take appropriate measures to protect the public.
The Benefits of Digital Transformation for Your Business
Undergoing a digital transformation offers four benefits
- It lowers costs.
- It increases accuracy.
- It improves speed.
- It makes your business more efficient.
It is expensive to store, file, reproduce, print, mail, and retrieve paper files. When you use an EDI system, you significantly reduce those costs. Estimates put the cost reduction at a minimum of 35 percent.
EDI systems also lower the cost of performing transactions because they decrease errors. They do so in two ways. The first way is that they drastically reduce the reliance upon paperwork. There is less messy handwriting to decipher through fax or PDF files, so there are no longer disputes over what you or your customer ordered. The second way is that they cut down on the amount of data entry your employees have to perform. Manual data entry increases the risk of errors, which cost companies money.
The rise of accuracy levels due to the use of EDI systems is, in and of itself, a benefit to businesses. More accurate transactions lead to higher levels of customer satisfaction for you and your clients. Researchers estimate you will see at least a 30 to 40 percent decrease in errors. When the order is right, your business does not experience any disruptions, and neither does that of your clients.
Benefits of digital transformation for your business include lower costs, increased accuracy, and improved efficiency.
In addition, EDI systems speed up transactions. You can exchange transactions in a matter of minutes instead of waiting for an email or fax to go through. Industry experts estimate that EDI systems make business cycles 61 percent faster.
Lower costs, greater accuracy, and faster speeds contribute to another positive outcome, namely, increased efficiency. When employees do not have to spend time entering massive amounts of data or filling out and faxing copious forms, they can devote more of their time to revenue-earning activities, which ultimately translates into greater profits for the company. Moreover, orders are processed faster (both those you place with other firms and those you fill). When you fill orders faster, you have less inventory piling up and you lower the amount you are spending to produce your product or service.
The term “digital transformation” should not be intimidating or off-putting. Digital transformations, especially the implementation of EDI systems, offer a number of valuable benefits to your firm and your customers. Do not pass up the opportunity to leverage digital transformation for your company. To learn more about how EDI systems can usher in your digital transformation, contact us today.