Explaining Digital Transformation to Entrepreneurs

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The topic of "Digital Transformation" has been a hot buzzword in recent years, with many companies using it as the next big thing in business. However there is much confusion about its meaning and it seems that each individual or business has its own interpretation.

When googling the term "Digital Transformation" we can see several different explanations, adding to the confusinespecially in young entrepreneurs that really need to have this concept well defined before knowing what to do.

The Gartner definition of Digital Transformation is the most referred and frankly one of the worst explanations out there. It mixes several concents and buzzwords in the same bag (IT modernization, cloud computing, digital optimization, ...) and at the same time it excludes the most important key factor which is the "transformation of businesses". Surprisingly, their definition of "Digitalization", which includes the business transformation part, is also very messed up and vague, e.g. saying that "it is the process of moving to a digital business" which frankly doesn't mean anything. This type of communication does not help transmiting the real concepts to young people and business owners.

Before we explain a clear and helpful meaning of "Digital Transformation" we first need to clarify the concept of "Digitalization":

Digitalization is the activity of creating and improving processes by leveraging digital technologies and digitized data.

To have digitalization you don't need "business transformation", its just a matter of adding digital technology to improve your existant processes. Examples of Digitalization are:

  • Using an accounting software program or service
  • Using a CRM or a simple spresdsheet to track leads
  • Using zoom to make meetings
  • Use Collaborative tools to improve team communication
  • Create a database and a program to track inventory
  • Create a mobile "App" to sell your products

Creating a mobile app does not mean that you're "transforming your business", you're just using tecnology to create a new way to sell your products. In a certain way you can consider digitalization as a way to transform the way you work, which does not mean the transformation of your business.

Ok, now that we go that out of the way, let's dive into the the real meaning of "Digital Transformation".

Digital Transformation is the radical transformation of how your business operates and how it delivers value to customers, through the integration of digital technology.

Here are some examples of Digital Transformation:

  • Uber vs. Taxi
  • AirBnB vs. Hotels
  • Netflix vs. Blockbuster
  • Decentraland(1) vs. centralized gamming servers

(1) Virtual properties on a decentralized (blockchain) virtual reality environment.

Digital transformation also implies creating new innovative business models that can improve dramatically business efficiency. Digital Transformation is NOT digitalization, we’ve been doing digitalization for 50 years. Digital Transformation is about redesigning a company on how it operates and how it delivers value to its customers.

There is no question that digital technologies have been an enabler of these new innovative and efficient business models, and thus a driver of transformation. For example, Taxi companies did not change for 100 years, then along came Uber and Lyft. Digital Transformation took into account the new business models enabled by smart phones that allow drivers to use their own cars, digital dispatch, digital secure payment, and electronic payment. Without ALL of those things, nothing would changed.

Recent advances in new technologies such as Artificial Intelligence, Blockchain and others will also mean new business models will be created and perfected in the next years.

It is very important for everyone to understand well the meaning of these concepts before defining a strategy on how to transform their company. Digital Transformation involves restructuring every department in you company and needs to be very well communicated to your team, your partners and ultimatly, to your clients.

Miguel Cordeiro
Entrepreneur and Investor. Founder of Empreendedor.com a leading Portuguese Entrepreneurship Magazine and managing partner of Media Invest where is actively developing digital and ...