What is the essence of digital transformation?

The technological and social developments of the current Digital Revolution affect businesses and how they’re managed in many ways. Key business functions and business strategies as a whole will be tested by this new industrial Revolution.

To illustrate the huge impact digital transformation is having on life I like to refer to the book ‘Dematerialisierung – Die Neuverteilung der Welt in Zeiten des digitalen Darwinismus’ by Karl-Heinz Land and Prof. Ralf T. Kreutzer.

In a nutshell Digital transformation can be summed up as the dematerialisation of goods. More and more products, services, and processes that were formerly produced physically are being dematerialized, meaning that they are replaced by software and intelligent machines.

Karl-Heinz and Prof. Kreutzer illustrate the dynamics at force very appropriately: If a key becomes an app, the physical key won’t be produced anymore, which implies that also the machines that produce the keys are not needed anymore. The same applies to the machines that were manufacturing spare parts for the production machines. And finally the keys do not need to be shipped and distributed anymore. At the end of that process many of the attached jobs might disappear. That is dematerialization. And keys are certainly not the only product that are currently prone to dematerialization.

On my commute to work this morning I picked up my smartphone to read the news while I listened to music. My meeting was scheduled a bit outside the public transport route so I ordered a boda boda via Taxify and within a few minutes I was seated at the table discussing business.

Today we can take selfies and scan documents using our portable hand-held devices, we can switch between thousands of languages using a myriad of translation apps available, transfer money to our partners in less than a minute while on the move and control our phones via voice. These are but a few activities that happen during a typical day.

A few years ago, all these activities were largely physical. Speed up to 2018 and while I’m enjoying all these digitalized services, whole industries have been disrupted, the entertainment industry, the banking industry, the travel and hospitality industries. Large parts of these industries’ value chains have been dematerialized through digitization.

On top of the convenience and optimisation happening, production costs of affected services tilts towards zero, as additional units can be produced at almost no cost. This basically creates an infinite possibility of production.

As more and more services get translated from the material into datasets, becoming more and more intelligent, their management soon transforms towards automation where software and machines can take over cognitive activities from human beings.

Today we have manufacturing robots that can learn new tasks just by observing humans, software that composes music or paints new Masterpieces from dead legends, recognizes faces, voices, translates languages, chatbots for customer support, smart devices that automate our homes to name but a few.

Digital Transformation connects different business players and automates many of their underlying operational processes, on top the already existing value chain integration.

Adding up new technologies like the Big Data, Machine Learning and Artificial Intelligence, combined with new production techniques like 3D printing and nanotechnology, new ways of doing business which were impossible until recently are emerging. A completely new economic system arises.

To participate in that value creation, there’s no question about the essence of digital transformation. Digital Transformation is not a choice. It is the only way.

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