“Digital” refers to using technology in various forms. But what specific types of technologies are used? It depends on what the company needs and how advanced it is.
Stages of Digital Transformation
- Early Stage: At this stage, companies focus on transforming their systems. This means upgrading and modernizing existing systems to make them more efficient and effective.
- Mid-Stage: As companies grow, they focus on automation. This involves implementing technologies like robots, robotic process automation (RPA), digital marketing, and e-commerce to streamline processes.
- Mature Stage: Companies aim to transform both their products and internal operations. This comprehensive transformation is known as a smart digital transformation.
Layers of Technology
Technologies used in digital transformation can be grouped into different layers:
- Systems Layer: Includes IT and business systems like Business Intelligence (BI), Customer Relationship Management (CRM), Product Lifecycle Management (PLM), and Computer-Aided Design (CAD). These are considered lower-level technologies.
- Automation Layer: Involves technologies that enable automation, such as robots, RPA, digital marketing, and e-commerce.
- Smart Layer: Encompasses advanced technologies like the Internet of Things (IoT), data analytics, digital twin, blockchain, and augmented reality. These are considered higher-level technologies.
While companies typically follow a sequence based on their maturity, these layers can be implemented independently. It’s a common misconception that you need to complete the lower layers before moving to the higher ones.
Types of Transformation
Transformation means making changes. In digital transformation, there are two types of changes: external and internal.
- External Changes: These involve modifying physical products or adapting to customer needs, whether in a business-to-business (B2B) or business-to-consumer (B2C) context. Digitally transformed products, like smartwatches or smart locks, are often called smart products.
- Internal Changes: These changes pertain to transforming a company’s operations, commonly known as the Industrial Internet of Things (IIoT) or Industry 4.0. Digitally transformed operations, like smart factory lines or smart support systems, are referred to as smart operations.
Digital transformation leads to products or operations that are data-driven and software-defined. For example, Netflix recommends shows based on users’ viewing history. When products or operations are data-driven and software-defined, they are called smart products or smart operations.
Practical Aspects of Digital Transformation
In practice, digital transformation involves various digital initiatives using advanced technologies. Each initiative is aimed at achieving a specific feature or goal.
Why Digitally Transform?
The main purpose of digital transformation is to generate value, either business benefits or consumer benefits. Unfortunately, about 75% of digital transformations fail because they don’t understand the underlying reasons for the transformation. As a result, the products, services, processes, or environments created aren’t valuable enough to be launched commercially or used effectively within the organization. This is where value creation comes in, achieved by turning traditional products into smart products or transforming traditional business operations into smart operations.
Creating Value with Smart Products and Operations
- Smart Products: Designed to create value for both businesses and consumers. By being software-defined and data-driven, physical products can have the same advantages as software developed by big tech companies like Meta, Google, and Microsoft. These advantages often result in a competitive edge. However, the use of customer data by these companies has raised concerns related to antitrust and competition. Transforming traditional products into smart products leads to more competitive products, increased revenues, and better financial outcomes. For example, the Tesla Model S is a smart product, and its competitive advantages come from its software-defined and data-driven nature.
- Smart Operations: Aim to create value for businesses. By being software-defined and data-driven, operations can be virtualized, allowing procedures to be represented as equations that can be optimized. Applying mathematical principles to these processes leads to more effective and efficient business operations. For example, analyzing machine utilization data in a factory and representing it as a directed acyclic graph (DAG) can help maximize machine utilization. Transforming traditional operations into smart operations leads to better financial outcomes by improving profit margins.
The Smart Macro Trends
Many of us use smart products like smartphones, smart cars, or work in places where operations have been digitized. This shift is part of a larger trend called the smart macrotrend, which is transforming physical things into digital entities driven by data and defined by software.
The smart macrotrend started with the smartphone, which evolved from a simple phone to a powerful computer with communication capabilities. Smartphones are great examples of devices that are both software-defined and data-driven. Since then, successful smart products like the Amazon Alexa smart speaker and Tesla smart cars have emerged.
However, not all smart products succeed. For example, the smart water bottle that tracked your water intake or the smart umbrella that predicted rain failed because they didn’t offer enough value. Despite these failures, the trend is clear: eventually, all products and operations will try to become smart.
This smart macrotrend offers huge opportunities for professionals. It allows for the transformation of products into smart versions, like smart doorbells for consumers or smart tractors for farmers. It also improves operations, such as smart manufacturing lines or equipping engineers with smart technology for tasks like maintaining oil rigs. Additionally, it leads to smart environments like smart factories, homes, and cities, and can even create new smart business models.
The Evolution of Smart Products
This digital transformation will impact various sectors, both tech and non-tech. Currently, tech sectors include software and telecom, while non-tech sectors include industries like industrial, energy, and infrastructure.
In the future, due to the smart macrotrend, every sector will become a tech sector. This means that every sector will release smart products or make their operations software-defined and data-driven. This shift is driven by the success of big tech companies like Facebook, Google, and Amazon, who have used their data-driven software to revolutionize industries like news, advertising, and e-commerce. By embracing smart digital transformation, companies can gain similar advantages, using data to create exceptional software products that transform their industries.
When a physical product or operation becomes software-defined and data-driven, it can disrupt its industry just like big tech companies have done. The smart macrotrend is significantly impacting both our personal and business lives. Those who seize the opportunities presented by this trend, including technologists, businesspeople, and investors, can achieve professional success. It is one of the most influential technological trends of our generation.
