Digital transformation may be thought of as the third stage of embracing digital technologies:
with usage and transformative ability informing digital literacy. The transformation stage means that digital usages inherently enable new types of innovation and creativity in a particular domain, rather than simply enhance and support the traditional methods. In a narrower sense, "digital transformation" may refer to the concept of "going paperless" and affects both individual businesses and whole segments of the society, such as government, mass communications, art, medicine, and science.
In 1703 Gottfried Wilhelm von Leibniz explained and envisioned the concept that would be known as "digitalization" in his publication Explication de l'Arithmétique Binaire. Initially developed as a base-2 numerical system, representing two values: either a 1 or 0, the system was further developed and complemented by scholars such as Boole (1854), Shannon (1938) and George Stibitz during the 1940s.
Early digital computers
Today, Stibitz is considered one of many pioneers of the digital computer, through the development of the first electromechanical computer from his discovery of the automatic computing relays as well as the term 'digital'. The first electronic computer was introduced by John Atanasoff in 1939. The process of digitalization thereafter accelerated, with the development of personal computers such as the Simon in 1950, Apple II in 1977 and IBM PC in 1981.
With the introduction of the World Wide Web, the scope, dimension, scale, speed as well as effects of digitalization fundamentally changed, resulting in the increased pressure on the societal transformation process.
In 2000, digitalization began to be used more widely as a concept and argument for an overall governmental introduction of IT, increased usage of internet and IT on all levels. A similar development began in the general business climate in order to raise awareness regarding the issue and opportunity. In the EU for instance, an initiative called the Digital Single Market was developed, with recommendations for national digital agendas in the EU, which gradually and positively should contribute to the future societal transformation, with more modern development of communities, structures and to create a basis for e-governance and information society.
The debate surrounding digitalization has therefore gained increased practical importance for politics, business and social issues, and is linked to political work issues for community development, new changes in the practical business approaches, effective opportunities for organizations in operational and business process development, with effect on internal and external efficiency of IT to name a few.
Digitization is a sub-process of a much larger technological progress (see below): digitization (the conversion), digitalization (the process) and the digital transformation (the effect) that are collectively accelerating the global and societal transformation process.
In political, business, trade, industry and media discourses, digitization is defined as "the conversion of analog information into digital form" (i.e. numeric, binary format). Digitizing is technically explained as the representation of signals, images, sounds and objects by generating a series of numbers, expressed as a discrete value. The majority of sectors and industries in media, banking and finance, telecoms, medtech and health care have been strongly affected by this conversion of information.
Unlike digitization, digitalization is the actual 'process' of the technologically-induced change within these industries. This process has enabled much of the phenomena today known as the Internet of Things, Industrial Internet, Industry 4.0, Big data, machine to machine communication, blockchain, cryptocurrencies etc.
The academic discussion surrounding digitalization has been described as problematic as no clear definition of the phenomena has been previously developed. A common misconception is that digitalization essentially means the usage of more IT, in order to enable and take advantage of digital technology and data. This early definition however, has largely been replaced by the above definition, now linked to holistic views on business and social change, horizontal organizational and business development, as well as IT.
Finally, digital transformation is described as "the total and overall societal effect of digitalization". Digitization has enabled the process of digitalization, which resulted in stronger opportunities to transform and change existing business models, socio-economic structures, legal and policy measures, organizational patterns, cultural barriers, etc.
Digitization (the conversion), digitalization (the process) and the digital transformation (the effect) therefore accelerate and illuminate the already existing and ongoing horizontal and global processes of change in society.
Opportunities and challenges
When planning for digital transformation, organizations must factor the cultural changes they'll confront as workers and organizational leaders adjust to adopting and relying on unfamiliar technologies. Digital transformation has created unique marketplace challenges and opportunities, as organizations must contend with nimble competitors who take advantage of the low barrier to entry that technology provides. Additionally, due to the high importance given today to technology and the widespread use of it, the implications of digitalization for revenues, profits and opportunities have a dramatic upside potential.
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In November 2011, a three-year study conducted by the MIT Center for Digital Business and Capgemini Consulting concluded that only one-third of companies globally have an effective digital transformation program in place.
The study defined an "effective digital transformation program" as one that addressed
- "The What": the intensity of digital initiatives within a corporation
- "The How": the ability of a company to master transformational change to deliver business results.
A report published in 2013 by Booz & Company warns that the impact of digitization "is not uniform". This points out that some sectors and countries have taken to digitization more readily than others. It concludes that "policymakers need to develop digitization plans across sectors that take into consideration the varying impact by level of economic development and sector".
A 2015 report by MIT Center for Digital Business and Deloitte found that "maturing digital businesses are focused on integrating digital technologies, such as social, mobile, analytics and cloud, in the service of transforming how their businesses work. Less-mature digital businesses are focused on solving discrete business problems with individual digital technologies."
In February 2017, a study by McKinsey & Company argued that "On average, industries are less than 40 percent digitized, despite the relatively deep penetration of these technologies in media, retail, and high tech". This study also points out the inequality in the penetration of digital change across industries, arguing that while in some industries there were core changes due to digitization, in others the impact of this phenomenon was limited to minor or secondary changes.
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