What is Digital Transformation?

Since this term is often used in business contexts without context, you may wonder: “What is digital transformation, exactly?”

Digital transformation is the modernization of an organization’s entire ecosystem by adopting digital technology. It encompasses the business’s processes, products, services, and customer experiences. When a company moves from analog to digital, it can better connect activities from across the business and drive better outcomes for employees and customers.

Digital transformation can also drive cost and time savings by making valuable resources, such as product data, customer feedback, and sales pipelines, available to stakeholders across the business. This companywide access to important assets and information enables teams to collaborate more effectively and facilitates data-driven decisions. This transformation involves adopting new digital technologies such as cloud computing, big data, and artificial intelligence, as well as making connections across your enterprise ecosystem to automate, streamline, and optimize business processes and products. It requires a shift in mindset and culture, focusing on agility, innovation, and continuous improvement.

What is Digital Transformation? A Brief History

Digital transformation began with the rise of computers and the Internet. Rather than operating in silos, businesses began to see how different departments, external stakeholders, and customers from across the globe could connect via the web. As such, access to business data shifted drastically. First, it went from a paper format to digital, then into an on-premise network approach and, finally, onto the cloud.

Another key aspect of digital transformation was the introduction of connected systems for managing data sharing and connectivity. Connected systems arose in four stages:

• Systems of Record (SOR): Many companies first adopted SOR such as databases, which facilitated data sharing between specific departments.
• Systems of Engagement: The rise of digital marketing platforms and social media channels, also contributed to further digital transformation by bringing businesses closer to their customers and enabling them to receive real-time feedback. This category also encompasses internal systems such as team chats, which helped further break down silos between business units through real-time communication.
• Systems of Productivity: The newest wave of connect systems focuses on interconnecting the two types of systems mentioned above, allowing the teams to pull valuable insights from every corner of the organization and use this data to drive better business outcomes.

Digitization vs. Digitalization

Digital transformation is often mentioned alongside two neighboring concepts: digitization and digitalization. These two terms refer to specific elements of digital transformation but are not interchangeable terms for it.

Digitization means transferring existing data into a digital format. An example of digitization is creating documents using a word processing program rather than using a notebook or typewriter. Today, many businesses must turn their analog resources (e.g., physical files or papers) into digital ones as part of their digitization efforts.

Digitalization focuses on moving ongoing processes from analog to digital, such as updating a bill of materials (BOM) using a digital program rather than paperwork. By moving all ongoing processes to digital channels, organizations can promote collaboration and more effective data-sharing, as well as reduce duplicative efforts.

Three Key Elements of Digital Transformation

Successful digital transformation initiatives require changes in the following key areas:

• People: Staff members adopt new technologies, defaulting to digital channels whenever possible rather than analog processes. For example, a cultural transformation would involve sending a resource to a coworker via team chat rather than printing and delivering it to the colleague’s desk.
• Process: This is when tasks previously performed by people using their brains or pen and paper are transferred to computers to handle. For example, new technologies such as AI can automate data processing and synthesizing activities. This element enables businesses to build a fast-paced and data-driven digital environment.
• Data: All or almost all activities are transitioning from paper-based to computerized. Adopting digital technology to manage physical activities (e.g., operational technology in a factory) is an important aspect of this element.

Digital Transformation Benefits

When a business undergoes digital transformation, there are several benefits, including:

• Better management of product and process complexities, as less human intervention is required to process and share data.
• Reduced costs, as businesses increase productivity, decrease manual effort, and speed up processes using technology.
• Improved quality of products and services, as businesses can combine insights from internal and external resources and incorporate this data into ongoing processes. Quality is also improved by providing end users with simplified and streamlined access to products and services.
• Better collaboration between business units, as teams can more easily share information and ideas across departments using digital technology.

Digital Transformation Technologies

There are a few key technologies that facilitate digital transformation today, including:

• Cloud computing is when companies use cloud-based systems and applications to host workflows and processes. It lays the groundwork for more interconnected systems across the organization and enables people to access, store, transfer, and otherwise manipulate assets without needing to be in a corporate office or on a company network.
• Emerging ML/AI, in which businesses rely on tools that can intelligently process data in context and use massive databases to assess situations, make decisions, build new products and services, and much more.
• Internet of Things (IoT), in which companies leverage sensors and other cloud-connected machinery to carry out, manage, or monitor various processes. They can then correlate the data from physical processes (like manufacturing) with other digitized information, such as customer feedback, inventory, etc.
• Automation, in which a business streamlines processes by automating many of the rote steps within workflows. For example, a business could save time and reduce errors by automatically updating a BOM if changes are made to the associated product’s CAD model.

The Future of Digital Transformation

Digital transformation strategies will likely evolve in several ways over the next few years.

Here are a few ongoing trends that will only continue to shift business processes in the future:

• No-code/low-code applications, which enable non-technical people to customize their own digital programs and platforms and leverage data in new, innovative ways. These more accessible options for customizing cloud-based applications will serve as invaluable digital transformation solutions.
• Continued developments in AI/ML, which drive new possibilities for making sense of data and building new physical and digital products and services. For example, many organizations rely on AI/ML tools to process complex compliance documents and distill them into actionable guardrails for their products, freeing people from continually reviewing and analyzing new regulations.
• Complex cloud ecosystems, in which teams use many cloud-based tools to meet specific business needs and must find ways to connect these siloed solutions. This encompasses hybrid cloud (cloud plus on-prem), multi-cloud (multiple cloud providers), containers, edge computing, and more.
• Increasing cybersecurity requirements, along with expanding compliance regulations and data privacy laws. Teams must evolve their security and compliance controls when these changes happen as part of their overall digital transformation strategy.

Digital Transformation Examples

Aras Innovator is a digital thread platform that enables organizations to adapt applications and create new ones customized to fit your unique business requirements now and as they evolve over time. We help customers facilitate better data connectivity across their entire ecosystem with digital transformation solutions for your product lifecycle, driving stronger collaboration and innovation.

Examples of digital transformation in the manufacturing sector include:

• EIZO Corporation, an electronics manufacturing company, struggled to integrate its Product Data Management (PDM) and Enterprise Resource Planning System (ERP), creating a disconnect in digital data. It underwent digital transformation by adopting Aras Innovator, a product lifecycle management solution that enabled EIZO to streamline product change requests and seamlessly integrate product data across several systems. As a result, EIZO can now use product data more flexibly, driving better, more data-informed decisions.
• Seaspan Shipyards, a shipbuilding company, lacked digital connectivity, making change management and collaboration between its geographically dispersed teams a challenge. Aras Innovator enabled the team to see a single source of truth and view data from across the product lifecycle. Seaspan’s product data is now digitized and connected in a single digital thread, making it far easier for its global teams to communicate and innovate on the products.