What is digital transformation?

What are we talking about when we talk about digital transformation?

Everyone agrees that it’s important – fundamental, even – for businesses of all sizes, from small to enterprise. But when it comes to actually defining what we mean by digital transformation solutions, there’s a little more ambiguity than you might expect. Some definitions of digital transformation are so broad as to be unhelpful in any practical sense, while stricter definitions of digital transformation’s meaning don’t quite nail down the holistic nature of the process. After all, digital transformation isn’t just about creating new IT systems, and it certainly isn’t simply a more convoluted way of talking about moving to the cloud.

So, what is digital transformation? In this article, we’ll provide a quick explanation of the meaning of digital transformation, while also touching upon drivers of digital transformation and digital transformation examples across different areas of business, from marketing to payments.

Defining digital transformation

In essence, digital transformation refers to the process by which digital technologies are used to modify business processes, customer experience, and company culture to meet the changing demands of the market. In other words, digital transformation’s meaning centers around the reimagining of business and industry in the digital age. It’s not a one-time fix, but a continual adaptation to change within the business environment. Digital transformation solutions encompass automation, hybrid cloud, artificial intelligence (AI), and a whole host of other digital technologies that leverage data to drive smarter decision-making.

Digitalization vs. digital transformation

At this point, it’s worth discussing the difference between digitalization and digital transformation. These terms are sometimes used interchangeably, but they describe very different things.

Digitalization/digitization

Digitalization refers to the move from analogue to digital. Until the late 20^th century, businesses kept most of their records in paper. However, the advent of computers as common workplace tools led to businesses beginning the process of digitizing their records, leading to improvements in operational efficiency. Digitalization didn’t fundamentally change the way that business works, it simply enables organizations to boost the speed and efficiency of service delivery.

Digital transformation

By contrast, digital transformation – abetted by improvements in technology and faster internet speeds across the board – has given businesses the opportunity to re-evaluate, on a fundamental level, how they approach business, how they relate to customers, and how they understand the core tenets of their existing business models. In that sense, a digital transformation strategy is far more wide-ranging than digitalization; it represents a rudimentary, technology-focused shift in how companies operate and create value for customers.

Digital transformation examples

You should now have a broad, basic understanding of the meaning of digital transformation. Now, let’s take a look at some digital transformation examples in different areas of business:

Retail

We’ve seen digital technology impact retail stores in a number of fundamental ways. Devices connected to the Internet of Things (IoT) – such as sensors or RFID tags – can be used for real-time inventory tracking, while omnichannel and mobile commerce is becoming a nonnegotiable for any business looking to compete in the world of ecommerce.

Marketing

Technology has enabled organizations to reduce the cost of customer acquisition significantly. For example, emails are much more cost-effective to distribute than direct mail. In addition, data-driven insights can help businesses tailor their ads with greater precision, providing them with the opportunity to send automated messages via email, social, web, and text to the people that are most likely to respond.

Payments

Financial transformation is becoming the next frontier of digital transformation, and it’s important to consider how payments have been impacted by advances in digital technology. Think about GoCardless, for instance. GoCardless allows businesses to collect payments directly from the bank accounts of customers. This eliminates late payments entirely, and helps to improve the customer acquisition funnel. In combining bank debit and open banking technologies to optimize the payments process and reduce the costs associated with collecting on unpaid invoices and bills, GoCardless is a perfect example of digital transformation being used to boost operational efficiency.  

Final word

Hopefully, the meaning of digital transformation isn’t quite as nebulous as it might have been before you started reading. It’s important for everyone to get to grips with digital transformation trends, as the exponential acceleration in the evolution of technology means that the world of work is moving faster than ever before, and with every technological shift, there are countless new possibilities for organizations to capitalize on.

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.