Understanding Digital Transformation: Have You Been Using The Term Correctly?

From Developing a Unified Definition of Digital Transformation by Gong, Cheng and Ribière, Vincent at Technovation (2021).

With the rise of technology and modernization, it’s common nowadays to hear new jargons that pop up here and there. Although some professionals and academics take time to understand what these new terms mean, some would carelessly throw these techy words in their sentences just to sound smart or progressive. An example of this is Digital Transformation.

Cheng Gong and Vincent Ribière observed that the term digital transformation has recently gained a lot of hype and is being widely used in the academic and practitioner side. However, there is a lack of effort in trying to understand the core elements and attributes of what constitutes digital technology.

To address this issue, the researchers decided to come up with a unified definition of digital transformation in their article entitled “Developing a Unified Definition of Digital Transformation.” They hoped that it would set the foundation for future research and help practitioners to differentiate different business practices in relation to digital transformation and what outcomes to expect from it.

Watch our video on Digital Transformation by Reese Lim

Creating a unified definition for digital transformation

After conducting extensive research, Gong and Ribière settled with a definition of digital transformation. They defined it as a “fundamental change process, enabled by the innovative use of digital technologies accompanied by the strategic leverage of key resources and capabilities, aiming to radically improve an entity and redefine its value proposition for its stakeholders.”

This means that for a process to be considered as digital transformation, there must be dramatic and radical change for an organization. The change must also be very beneficial to both the internal and external stakeholders. This can be observed through process optimizations or cost reduction for the employees and managers (more efficient ways of working). 

On the other hand, for customers and users, the process of digital transformation must be able to add much value to their overall experience. Because this type of change is so exceptional, it will force people to change the way they live their lives—for the better, of course.

Aside from the scale of its impacts, what sets digital transformation apart is that the change it aims to create is lasting and sustainable. It cannot merely be a project that a firm implements for a period of time and then discontinue doing it. Rather, it must be something long-term and sustainable. The effects of digital technology must keep building up until one day we realize that life is not the same anymore.

Essentially, digital transformation is all about being able to most efficiently and effectively leverage not only the financial resources of the firm, but also its human capabilities to create sustainable and radical improvements to all the stakeholders of an organization, whether in business (private) or society (public).

Importance of a Unified Definition and Using the Term Correctly

The question arises why is there even a need to use this term correctly? The researchers attribute the importance of the study in two ways: the academic and practitioner side. 

On the researcher’s side, they hoped that this paper would set the foundation for succeeding research material on surrounding the topic of Digital Transformation. 

Secondly, on the practitioner’s side, without a proper understanding of the term “creates difficulties for executives…to claim authority and responsibility for the strategy and implementation of the digital transformation of their organization.”  Furthermore, the differences in understanding among executives could “make it more difficult to benchmark and benchlearn against other companies and industries.” 

With that, by understanding the term, C-suite executives can apply the principles of digital transformation to gain competitive advantage through the integration of its concepts to enable better decision-making when it comes to strategy planning and implementation. 

There lies many potential dangers of misusing and misunderstanding the concept of digital transformation. This includes investing many resources in the wrong initiatives, misunderstanding executives when it comes to talking about strategies, and creating “innovation theatre”—putting up the illusion that innovation is happening in the company, when in fact, no significant progress or improvement is achieved.

With that, before being able to use this term properly, it is crucial for everyone to understand it well first. Because the impacts and effects of digital transformation are encompassing, it will affect different departments within the organization. Therefore, it may be beneficial if even low and mid-level managers can also take time to learn about this, so they may adapt to the changes and implement the necessary improvements within their units. At the end of the day, there must be an open mindset that fosters learning within the organization, especially when it comes to new concepts such as this.

Digital Transformation as Seen in the World

More importantly than knowing what digital transformation is, is being able to see practical examples of this phenomenon in society. To name a few industries that were transformed are the movie and music industries. Netflix and Spotify both changed the way entertainment is consumed by the public. From originally physically going to the cinemas or renting out a DVD from Blockbuster to streaming any show that you want on the go. From buying cassette tapes and carrying bulky walkmans and discmans, now we only simply need to download an app and enjoy music hassle-free! What more will the future hold for us? 

Moreover, in the Philippines, we can see how digital transformation impacted our way of living. With the restrictions that the pandemic brought about, people had to rely on online infrastructure to do day to day activities. An example of this is the rise of the use of online payments for purchases, such as bank transfer and fintech apps. Nikkei Asia reports that in a span of only a few months from mid-March 2020 to July 2020, GCash, the Philippines’ largest provider of mobile money services, grew by 150%. Furthermore, in order to adapt to the “new normal”, many businesses offered their products online through e-commerce apps like Shopee and Lazada. This provides a lot of convenience for the customers because they can shop for their needs and wants, pay for it, then and have these products delivered right at their doorsteps—all at the comforts of their homes. This whole online experience is able to fulfill the needs of the customers, at the same time it helps businesses survive amidst the lockdown restrictions of the pandemic—a testament on how digital transformation can be so powerful and value-adding for both internal and external stakeholders.

Technology is changing at such a rapid rate and it is important for every organization to keep up. In this VUCA world, constant improvements in the business model and value chains are needed, else failure is inevitable. This is why it is of utmost importance for C-suite executives to invest and prioritize digital transformation.

Discussion Questions (Based on Figure 4: Digital transformation conceptual diagram of Gong and Ribière)

Digital transformation flowchart
  1. What is my firm/organization/company’s understanding of Digital Transformation? 
  2. Is my firm/organization/company’s definition of Digital Transformation in line with the unified definition of Gong and Ribière?
    1. [Nature of Digital Transformation] Do I understand that it means a fundamental change process and transformation which is enabled by the innovative  use of digital technologies and strategic leverage of resources and capabilities?
    2. [Means of Digital Transformation] Do I understand that by innovatively using digital technologies (AI, blockchain, data analytics) and strategically leveraging resources (human, financial, and knowledge) and capabilities (digital and dynamic), I expect to have economic-driven and capability-driven outcomes?
    3. [Expected Outcomes of Digital Transformation] Do I understand that by allowing economic-driven outcomes, I am reinforcing an existing value proposition as a result?
    4. [Impact of Digital Transformation] Do I understand that by allowing capability-driven outcomes, I am redefining the value proposition?
    5. [Impact of Digital Transformation] Do I understand that all these are for the benefit of the stakeholders? 
  3. Do I see the importance of applying “Digital Transformation” in my organization, business network, industry, or society? 
    1. How can I apply it? 
    2. How can my organization, business network, industry, or society benefit from it?
  4. As a manager, what can I do to promote the importance of “Digital Transformation” in my organization, especially to my co-workers and those working for me?