First Published 2020, IEEE Digital Reality
Nestled in the mountains of northern Italy, the province of Trentino has been home to a revolution. Since 2013, Trentino has been creating a digital platform that aggregates, connects, analyzes, and applies information from over 120 databases. The data relates to life in Trentino: societal, economic, and operational. All stakeholders can access information about various aspects of life, including traffic patterns, agriculture, and health care.
This Open Data Initiative hopes to create fundamental organizational change in Trentino by encouraging participation, generating efficiency, and driving growth. To encourage businesses to get involved, the government instituted a protective regulatory framework. By involving all the main players—government, citizens, and business—the province came to change its mindset and embrace this culture of high data.
Digital transformation, also called DX, begins with using new technology in a strategic way. This means understanding, implementing, and maximizing the use of digital processes.
These processes involve the convergence of information technology and actual devices. Data, comprised of computer bits, can talk to physical entities. They talk back through sensors connected to cloud computing. This convergence challenges conventional manufacturing methods, but it also sparks digital innovation and promotes fundamental organizational change
Digital transformation may start with using technology, but it endures through societal response. Customer choices are sending a clear message to industry and to the research environment about the direction of the market: competitive advantage depends upon embracing digitalization.
Digital Transformation and the Value Chain
Physical commodities run out, eventually causing a scarcity in the supply chain. A digital economy, on the other hand, is an economy of abundance. Computer bits are ubiquitous and possess an unlimited possibility of duplication with absolute fidelity at a minuscule cost.
Effect on the Value Chain
Companies seek to deliver the desired product to market with maximum value and the lowest cost. The production and marketing of physical items cost money and resources. But digital transformation upends the traditional business model, especially in the manufacturing industry.
A digital economy functions with efficiency, minimizing ongoing expenses. A company passes these savings along to the consumer. But with consumers paying lower prices, total revenue decreases.
Disruption of Industry
Mature markets suffer. The music industry in 1995, based on sales of CDs, cassette tapes, and vinyl records, had a value of $21.5 billion, according to a 2019 IEEE Digital Reality white paper. Since then, the value of the industry as a whole has dropped more than 50 percent. Digital representations of music have transformed the industry into an economy of bits.
Similarly, the newspaper industry has suffered from digital transformation. Advertising revenue in print has dropped from $65 billion in 2000 to less than $15 billion, according to the white paper. A slight uptick in digital advertising has not been enough to offset painful losses in the print sector.
Perception of Value
Digital transformation has a profound effect not only on individual industries but also on value perception as a whole. An economy is driven by data no longer emphasizes specific features of a tangible product. Efficiency, convenience, and ease of use are the new currency.
For example, societal perception of the automobile industry has changed drastically in the last few decades. Car manufacturers used to focus on features that appealed to the driver, such as top speed and acceleration. With the proliferation of self-driving cars on the horizon and the popularity of ride-sharing services now, consumer perception of what’s important is changing. A rider’s amenities will supersede the driver’s needs.
Digital Transformation and Digital Disruption
The COVID 19 pandemic forced many companies to adopt new business models based on digital solutions. The in-person collaboration came to a sudden halt. Businesses that survived discovered new, efficient digital workflows.
Digital transformation simultaneously requires businesses to adapt and enables them to do so. By embracing change, a business can keep up with an evolving market and consumer expectations while addressing challenges specific to the pandemic.
Digital transformation disrupts established industry. Perhaps no other emerging technology has caused a more noticeable supply chain disruption than the over three billion smartphones in circulation worldwide. In effect, a smartphone is its own digital platform, having an impact on markets ranging from music to entertainment to transportation to photography.
For example, digital transformation has completely reworked every industry associated with photography. Embedded cameras nullify film manufacturing and camera sales. Smartphone cameras have a virtually unlimited “film roll” and no need to develop prints.
The rise of social media has occurred in lockstep. Users can upload photographs immediately to the internet, driving the popularity of apps that use digital photos. Instagram, for instance, started in 2010 and now features users who share more than 40 billion images every day, according to the IEEE Digital Reality white paper.
Smartphone use has infiltrated other industries as well. In manufacturing, smartphones have enabled real-time monitoring of productivity, sales, and supply chain performance.
Internet of ThingsAdvancements in Health Analytics
Beyond just monitoring, though, manufacturers have embraced digital transformation to predict and react. Retailers are learning to harness artificial intelligence to support data analytics. Smart devices can “talk” to the internet and connect with each other, a phenomenon known as the Internet of Things, or IoT. Complex sensors on these networked devices feed machine learning algorithms.
This modernization, part of what’s known as the fourth industrial revolution or Industry 4.0, involves a transformation of the entire production line: supply chain, distribution, and operations. Certain countries, such as Finland and Germany, have launched initiatives that encourage all stakeholders to rethink the entire manufacturing value chain.
These initiatives include friendly regulations, investment in infrastructure, support for research, IoT deployment and expansion, and fiscal support for participating industries. In short, Industry 4.0 uses digital technology to create a more sustainable, efficient business model.
Advancements in Health Analytics
Digital transformation has permeated even the health care industry. Wearable devices, electronic health records, and other digital technology collect raw data and feed it back. Health care providers benefit from the analysis of this raw data, especially if their digital platform presents useful solutions. This patient-focused approach helps individualize health care, including medical diagnosis support.
Various industries benefit from the increasing use of digital twins: virtual replicas of real-world devices. Data scientists use digital twins to simulate real-world problems. The digital model collects data from its physical counterpart, allowing scientists to analyze its performance or predict potential problems.
Disruption as Opportunity
Digital transformation disrupts established industries. Nonetheless, understanding and implementing technology that best suits a given circumstance can help reverse negative impacts.
Companies that shift toward the user experience can update their business models. And industries can embrace innovation by linking products with information technology, thus streamlining operations and simplifying a company’s value chain.
Digital Transformation and Society
Whether a company sells directly to consumers or engages in a business-to-business (B2B) business model, individual end-users influence digital transformation. B2B digital transformation serves as a model for traditional companies struggling with navigating the digital age.
Societal Perception and Digital Transformation
Digital transformation rests upon four pillars, according to a paper published in IEEE Software. These four concepts serve as the underpinnings for a successful digital transformation strategy:
- Customer experience transformation: Understanding a customer’s needs and behaviors, upgrading the customer’s experience, and automating sales processes
- Business process transformation: Digitalization, supporting employees’ tasks, and integrating analytics into performance management
- Business model transformation: Incorporating organizational modifications, establishing new digital services, and planning digital international expansion
- Organizational transformation: Integrating a digital strategy, creating new organizational structures, and acquiring and developing talent to help implement the digital transformation journey
The successful digital strategy integrates many facets of society. For example, Singapore’s Ministry of Education has partnered with other government agencies and private businesses to train the workforce for the digital age. The SkillsFuture program reimburses Singapore students for taking courses in topics ranging from engineering to blockchain system planning to drone repair.
In short, societal value perception drives innovation. This demand for technologically advanced products and services affects not just expectations for everyday objects but also the components necessary to connect them to IoT. Consumers may not even realize how their demands for a personalized, immediate experience drive innovation in research and the laboratory.
Sensor Technology and Society’s Feedback
Ultimately, digital transformation rests upon the physical circuitry of computers and their associated electronic systems. As digital technology replaces manual processes, improving upon existing components will enhance the collection and analysis of raw data.
For example, consumer demand for technologically advanced products pushes innovation in semiconductor applications. Semiconductors drive the digitalization of everyday commodities like electronics, smartphones, and refrigerators.
Digital circuits today depend on a technology known as CMOS, or complementary metal-oxide semiconductor. Essentially, CMOS is a type of chip that stores information inside a computer.
Future digital logic technologies will move beyond CMOS to inform the improvement of sensors that gather information. Such personalized information includes the temperature of a room, voice recognition, even a person’s wake-up time.
Digital Transformation and Changing Perceptions of Value
A traditional manufacturing value chain focuses on vertical integration: a company designs and makes a product, distributes it to retailers, and sells it. But Industry 4.0 is flattening this model because innovation responds to direct and immediate consumer feedback.
Digital Transformation and Societal Perceptions of Value
Smart products—refrigerators, watches, even home gyms—collect data and share information with the parent company through IoT. The collection of this data is just the first step in the implementation of a digital transformation strategy.
Next, information moves upstream for analysis. All of these bits feedback into machine learning systems, which integrate and analyze data from all of a company’s smart products. These patterns not only predict maintenance or other potential problems with a customer’s product but also aid in prototype design.
Through IoT, the end-users and the manufacturer work together to customize the user experience. This provides value to the customer as well as a competitive advantage for businesses, inexorably connecting business and society.
Digital Transformation and the New Sales Model
A business leader understands consumer behaviors and expectations. Consumers expect an increasingly personal customer experience when interacting directly with businesses. A digital platform that addresses these needs upgrades the customer experience.
Businesses gain a competitive advantage from embracing this value proposition. For example, companies can provide end users a customized digital platform online, a specialized app, or automated kiosks at a physical location.
The digitalization of sales processes provides specialized reports concerning customer visits and a deeply personalized customer experience. At the same time, consumers expect privacy and protection of their personal information.
A comprehensive digital information strategy involves a company’s sales force as well as the consumer. A company’s digital transformation, thus, also involves the acquisition and training of talent.
Within a culture that embraces digital transformation, businesses can support their existing employees too. For example, a bank can familiarize its staff with new digital interfaces that improve the customer experience. In the manufacturing sector, workers can learn how to manage smart machines that communicate through IoT technology with the company’s data repository in the cloud.
A Culture of Collaboration
Digital transformation blurs traditional boundaries. Information moves up and down the value chain and is becoming accessible to all stakeholders. Ultimately, a successful digital transformation strategy depends on fundamental change: for governments, businesses, academia, and the population at large to embrace a culture of collaboration. An ecosystem of innovation awaits.
To learn more about digital transformation, take IEEE Learning Network’s course with Roberto Saracco, “Understanding Digital transformation: The Key Concepts.”
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