Cloudogu Glossary

Digital Transformation

Digital transformation

The term digital transformation describes the process of using digital technologies and tools in a company to modernize offerings and internal processes. This process is triggered by the new opportunities and customer expectations of the digital age. This is evident in all industries and areas of life:

  • Publishers and newspapers have been trying for years to adapt to people's new reading habits and develop viable business models.
  • In the automotive industry, the digital transformation is already in full swing. In the future, digital components and products will probably be more important than the car itself. Today, it is already relevant with which mobile ecosystems a car is compatible and how well a navigation device works. In the future, autonomously driving cars will completely change the demands of customers.
  • Toothbrushes can already be adjusted to one's own preferences via apps and provide feedback on the quality of tooth brushing.

These are just a few examples of how digital add-ons to classic analog products are changing everyday life or will soon do so. Digital transformation does not have to relate exclusively to products. It also encompasses sales channels and internal processes. The COVID-19 pandemic impressively demonstrated that digital sales and online stores can be very important.

Challenges and opportunities of digital transformation

For many companies, the challenge is that they produce high-quality products but have very little or no experience in creating and integrating digital offerings. They are therefore under pressure to develop a completely new product line within a short period of time.

To be successful in the long term, it is important to take advantage of all the opportunities offered by digital transformation. At first glance, it is a matter of keeping one's existing products attractive in the future and standing out from the competition. However, there is also the potential to develop completely new products or business models. It is important to know exactly where one's own core competencies lie and to highlight them skilfully through offers.

A good example of this is the mail order company OTTO from Germany. As early as the mid-1990s, the company relied on online retailing and abolished its catalog in 2018 because it was only used by 3% of customers. The counter-example is the mail-order company Quelle, also from Germany, which neglected its online business for a long time and had to file for insolvency in 2009. OTTO eventually bought the "Quelle" brand name.

Measures for digital transformation

When it comes to developing specific products or additional offers, it is important to always focus on the customer. It is very easy for digital transformation to focus solely on technology. However, it should only be a means to an end in order to satisfy the needs of the customer. The right question is not "What can we do with AI (artificial intelligence), IoT (Internet of Things), or AR (augmented reality)?" Rather, the questions need to be "How can we use AI, IoT, or AR to make our products more personalized and relevant to our customers' needs? What haven't we considered yet?"

The fact that many companies are starting their digital transformation on a green field is both a curse and a blessing. On the one hand, plans can be made without regard to existing systems. On the other hand, the tasks ahead seem overwhelming. Therefore, it is important to focus on simple, efficient and scalable processes. In addition, in many cases the wheel does not have to be reinvented for the underlying infrastructure.

Concrete measures for digital transformation in the company are usually these:

  • Digitization of processes: Workflows within a company are significantly accelerated and simplified through the digitization of processes. As a result, work becomes more efficient and customer inquiries can be responded to more quickly, for example.
  • Collection of data: By collecting data, both products and processes can be improved. Only when resilient data is available can decisions be made.
  • Introduction of agility: Agile ways of working have the advantage over classic process models that it is possible to react more quickly to new findings. This requires, among other things, flat hierarchies and autonomous teams.

Success factors of the digital transformation

Digital transformation is a mammoth task for any company. To ensure that it is a success, there are a number of factors that should be given special consideration.

People

The most important thing is to have the right people in the company. This does not mean that all employees have to be on fire for the digital transformation from the very beginning. Rather, it is important to have at least a few employees who recognize the opportunities and are passionate about promoting and exemplifying the topic. It is not at all unlikely that many employees will initially be skeptical or even dismissive of digital transformation. Fears of change or even job loss are not uncommon. That is why it is important to draw in the people in the company and accompany them through the transformation.

However, taking employees along with you during the digital transformation is only the beginning. The goal must be to engage in an open and creative exchange in order to come up with new ideas for making the most of the many new digital opportunities and thus exploit the full potential of the transformation.

Time

As already mentioned, the digital transformation of a company is a major task because all areas of the company are affected by it. That is why another success factor is time. If not enough time is given to the transformation, often people do not have enough time to adapt. In addition, the new technologies and processes must be selected carefully to ensure that they meet the requirements. Beyond that, employees also need time to discover and exploit the new potential.

Data

Another success factor is data, which can be used to make decisions in order to move forward in the digital transformation. This means that data must first be collected to have a starting point. Then, based on changing data, it can be analyzed how successful changes have been.

Data should be collected in all areas of the company – both about internal processes and about how customers use products.

Digital transformation vs. digitalization

The terms digital transformation and digitization are often used synonymously, but strictly speaking digitization is part of digital transformation. In fact, digitization describes the switch from analog to digital technologies, for example, the switch from an analog to a digital telephone system. Digital transformation is the fundamental change of existing processes and business models. Taking the telephone system as an example, this means that the new requirements for workplaces stipulate that employees can also be reached from the home office via their office telephone number. This is much easier with a modern telephone system, which also offers many other options.