The vast majority of industrialists, entrepreneurs, directors and business owners, and, to be honest, IT representatives, have a big question in their heads: “What is this...? What is the point? What is the difference and why are digitalization and digital transformation separated?”
We will try to explain this to you in simple language and with examples.
Automation is the digitization and acceleration of current processes, the initial establishment of process management. The key effect is speeding up processes and minimizing errors due to the human factor, reducing the share of manual labor.
Let's give some examples:
ERP implementation
robotization and automation of routine operations;
automation of report creation, for example, using 1C.
Digitalization is the introduction of digital technologies and systems, which allows you to rebuild business processes according to the principles of lean production and make them more efficient and flexible, starting to work with data and making decisions based on it. This process reduces internal costs and improves efficiency, allowing you to gain competitive advantage within your existing business model.
That is, the key effect here is reducing costs when executing processes, improving them and creating “flexibility”, improving the quality of management decisions.
Examples:
implementation of ERP , with complex integration with other IT systems, optimization of business processes and the use of end-to-end analytics and cross-functional indicators for decision making;
transition to cloud technologies in specific systems, use of SaaS, PaaS, IaaS and other cloud services to organize your work;
the use of blockchain-based contracts to eliminate legal disputes between counterparties on complex projects;
implementation of tools for remote work (Kanban boards, video communication services, common spaces for exchanging ideas and working on them); • analytical dashboards.
Digital transformation is a global restructuring of business and management systems using the results of digitalization. It is characterized by:
multiple reduction in information processing costs (receipt, transmission, processing, analytics)
changes in organizational structure, functions, culture
creation of new products and business models
active use of end-to-end cross-analytics for decision making
digital channels of communication with clients
development and testing based on these hypotheses and new products/technologies
changing business models.
Examples:
transition of emphasis on the competencies and qualities of employees, regardless of their place of residence;
exclusion of intermediate stages from the chain manufacturer - consumer. Direct communication and delivery directly to the buyer. For example, through the use of platforms: Yandex Taxi, Wildberries, etc.
launching a new product or service onto the market. For example, manufacturing parts to size according to individual orders. Without the need for complex approvals.
transition to a new business model, for example, instead of selling chemical fertilizers, transition to payment for the area processed and the results achieved, or a subscription model.
As a result, if we are talking about automation projects, the main goal is to speed up processes and reduce the share of manual labor to relieve people and reduce the likelihood of human errors.
If we are talking about digitalization projects, then the main goal is to increase flexibility, quality of management (decisions based on or taking into account data), and reduce the resource intensity of processes.
If we are talking about digital transformation, then the main goal is to search for new sources of profit, change / modernization (creating customized products or services for the user, as well as supplementing existing ones with new technologies) or creating completely new products and services, business models, changing the organizational structure . For example, Walmart already makes more money from analyzing big data about customers and advertising in stores than from selling goods.
Still difficult? With the permission of Oleg Skovorodnikov, we will repost his article with cases and a demonstration of the difference between these concepts.
Digitalization or digital transformation - which is more profitable for business?
The advent of the digital era leaves no opportunity for businesses to ignore new digital trends. Digital or die. That says it all. Then, options arise for introducing digital technology into traditional business, varying in speed, scale and depth. Currently, there are no clear, generally accepted definitions of the terms digitalization and digital transformation. But these are different phenomena and it is extremely important to understand their differences. Digitalization is any implementation of digital technologies. The depth and scale of implementation may vary, but in general, and this is the most important thing, digitalization will allow you to increase business efficiency by several percent. This can save a lot of money. But digitalization will not allow you to create a gap from your competitors. You will be left with a traditional product, a traditional production process and distribution. Everywhere there will be more numbers and more efficiency, but not radically more than competitors. Digital transformation is a very deep and large-scale introduction of digital into traditional business. The result is a gap from competitors. You are several times more effective. Your product cannot be compared with an ordinary one; it is much more interesting for the consumer. Your production and sales are several times more efficient. Typically, digital transformation is accompanied by the development of a digital platform that enables your interaction with the digital world.
Case No. 1 CONSTRUCTION
Digital enters the construction industry most actively through design. The new format for a house project is a BIM model (building information model). The model is three-dimensional, all communications are marked on it. The project can be seen conveniently, in all sections and scales: on a computer in the office, on a tablet at a construction site, in a virtual reality helmet at a presentation, in augmented reality glasses, comparing real walls with a drawing. Very convenient and efficient. Construction companies are actively introducing this technology. For them, this is digitalization - by abandoning flat drawings, they build faster and make fewer mistakes. Less by 5%, maybe 10%, but not 50%. For BIM model designers, on the contrary, it is digital transformation. Because a three-dimensional model as a product is radically better than a flat drawing and creating a model with all communications and calculations is much faster than traditional flat design. A good option for the digital transformation of the construction industry could be construction printers, when a house is printed by a robot. Competition between ordinary builders and a robot makes no sense. The robot is faster. On the assembly lines of automakers, this has long been a fait accompli. Not under construction yet. We wait.
Case No. 2 PRODUCTION OF FERTILIZERS
Today, without nitrogen fertilizers, it is impossible to get a good harvest. But fertilizers must be properly applied to the soil. The number allows you to mark the field, collect data on its acidity directly from the soil through Internet of Things sensors, calculate the optimal amount of fertilizer and, most importantly, spray it using an agrodrone. A fertilizer manufacturer that adds a digital mechanism for soil application to its product (fertilizers) will provide itself with a huge advantage over its competitors and will also earn additional money from the very process of monitoring and applying fertilizers to the soil (exact farming). This is digital transformation. A new product with a radical lead over competitors. But this is not the only way into the digital world. You can act less revolutionary. Diagnose the digital maturity of the fertilizer production process, find processes where digitalization can be introduced and efficiency increased. For example, reduce energy consumption by 10%. Excellent result. But achievable for competitors.
Case No. 3 AUTOMOTIVE ENGINEERING
All automakers are required to conduct crash tests of their vehicles. Sometimes, to obtain the necessary body design parameters, it is necessary to crash dozens of real cars. Using a digital twin can significantly reduce the number of full-scale tests. You can beat not a real car, but its digital copy, and only do the final test on a car from the assembly line. Obviously, this saves money, and most importantly, testing time. For the automaker, this is digitalization. For a company that specializes in crash testing, this is digital transformation. A competitor without digital twins will spend much more money and time on testing. Digital transformation for the automotive industry is, of course, self-driving cars. There is a big battle going on for this prize. Someone will win.
Case No. 4 BANKS
Any large bank has a call center. You don’t have to guess for long to predict the widespread use of speech recognition and artificial intelligence in bank communications with clients. For the bank this is digitalization. He will cut half of the operators, replacing communication on simple issues with robots. But this is not enough to win over other banks. For a call center service provider, a product based on artificial intelligence is a digital transformation; a regular call center will not be able to compete with it. Blockchain held great promise for the digital transformation of the entire financial industry. The decentralization revolution has not yet occurred. But the first banks on the blockchain already exist. Let's see how they develop.
Case No. 5 MEDICINE
Radical digitalization of the hospital is the use of robotic surgeons. They have already performed more than 200,000 operations, but not in autonomous mode, but under the control of a remote real surgeon who controls the robot's arms. Hospitals with robotic surgeons are certainly impressive. They are more successful than traditional competitors, but not dramatically. The robot is not yet able to perform all operations and not all patients. When the robot itself performs most of the medical procedures, this can be called the digital transformation of the clinic. There will be more programmers than doctors.
As a result:
In order to understand which digital transformation strategy is optimal for your business, you need to carefully monitor digital trends, the actions of competitors, and organize scouting for startups and technological solutions in your industry. Digital must be introduced, there is no alternative. But the plan for this work must be based on an understanding of the digital environment and a willingness to constantly adjust this plan as information becomes available about new, increasingly impressive digital technologies.
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