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Digital Transformation: A Fad or A Must

With the advent of the Internet and connected technology, as the 21st century progresses, the world is becoming inherently digital. The traumatic COVID-19 pandemic which has limited physical and social contact has further accelerated the ongoing trends and transition towards digital transformation and integration in a wide variety of industries (McKinsey & Company, 2020). It is difficult to find sectors of the economy or businesses where digital technology is not somehow integrated. Nevertheless, digital transformation is receiving pushback as being unreliable (or vulnerable), temporary, and eliminating the human element to many activities/interactions (Mansfield, n.d.). This paper investigates the concept of digital transformation and argues that it is a necessary aspect in the context of technological evolution that should be massively adopted by commercial and public organizations.

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Research Question

The primary research question centers around digital transformation. For the sake of clarity, as it can a broad discussion, the focus will center around commercial enterprises. The question can be posed as such, “does the digital transformation of products, services, and experiences in the commercial sector represent a natural permanent evolution of technology and the market or a temporary trend driven by short-lived popularity of the Internet culture?”

Background and Issues Observed

Digital transformation can be formally defined as “a process that aims to improve an entity by triggering significant changes to its properties through combinations of information, computing, communication, and connectivity technologies” (Vial, 2019, p. 118). A presented framework of digital transformation presents it as a process where digital technologies create disruptions which then trigger strategic responses from organizations that attempt to modify value creation paths while mitigating structural changes and organizational barriers that influence outcomes and consequences of the process. From a commercial perspective, digital transformation implies integrating digital technology into all areas of the business, most often replacing manual and non-digital processes and technologies, making fundamental changes to operations and value delivery to consumers (Vial, 2019).

In their book, Parker et al. (2016) suggest that the digital transformation has shifted the market towards a platform-based digital economy. If traditionally, businesses followed a pipeline model where a company is responsible for creating and transferring value from the producer at one end to the consumer at the other. However, the platform structure is a business that is enabling value-creating interactions between external producers and consumers, providing available infrastructure to do so with governing rules.

As a result, there are variable set of complex relationships between producers, consumers, and the platform as there is exchange of goods, services, or social currency, enabling value creation for all participants. Platforms are more efficient, eliminate gatekeepers, and offer greater flexibility and freedom for consumers (Parker et al., 2016). That is ultimately, the foundation of the digital economy based on the digital transformation and networking of commercial enterprise.

However, there are stakeholders that have been pushing back against digital transformation over the years, arguing that it is a trend or ‘fad.’ The primary reasoning to this is that the transformation element in the digital transformation is more about organizational and cultural change rather than some innovative technology. While technology has provided more opportunities for fostering digital culture, it is the culture that provides the guidelines in choices that advance an organization’s goals (Bloomberg, 2018).

Therefore, as often happens with organizational management and cultural trends, it may pass. For example, there was a period when virtually everyone wanted to adopt the Google model where employees could work on their own projects, make their own schedules, and other aspects of a very unorthodox office culture. Google’s innovation and success were attributed to this, but as soon became evident, it was not a fit for most types of businesses to adopt this model effectively (Katzenbach & Zhou, 2019.

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Digital technology is complex, and parts of it may be indeed a fad or overhyped technology that serves little use to either businesses or consumers. In recent years, the term has become a buzzword used in media to describe any new small innovation or digital offering ranging from a new way of ordering your food to gimmicky virtual reality apps that allow to identify items and purchase them online (Corominas & Darsch, 2018).

These have been extremely limiting with relatively small user bases and challenging ceilings of adoption due to infancy of technology and lack of digital literacy (Corominas & Darsch, 2018). Furthermore, there is an inherent difference between digitalization which consists of taking existing processes and systems and simply applying new technology, and digital transformation that entails deep and revolutionary changes to processes using modern technology to create strategic value that a business provides to the consumer (Goodwin, 2019). Even as of 2021, the majority of companies that have a digital presence or tools, have largely been applying digitalization to existing processes, which does pose the question of whether it is a simple trend (Rachinger et al., 2019).

However, the ongoing COVID-19 pandemic was an unfortunate social circumstance that coincided with big breakthroughs in key technologies as well as general consumer trends. Essentially, the pandemic which limited physical and social contact, pushed commercial enterprises and activities into the digital realm in every possible circumstance. That ranged from ordering food and produce delivery to massive e-commerce growth to services such as digital education and entertainment. Due to the restrictions, everything was online, and a large portion of Western consumers that have been adopting digital smart hardware ranging from smartphones to televisions, cars, and fridges over the last few years, were both prepared and embraced the transition. Meanwhile, businesses responded quickly across all sectors to work with stakeholders to deploy and drive digital technology solutions at an accelerated pace to meet social demands (Yevtukhova, n.d.).

At the same time, various key technologies such as artificial intelligence, automation, and various intrinsic data links are seeing significant progress in shifting the industry and economy in meaningful ways (Corominas & Darsch, 2018). Overall, the last year has been a combination of factors which have strongly contributed to the rise of the digital transformation, including overwhelming public and business support as well as policy frameworks which promote digitization and secure digital infrastructure.

Frameworks

Technology Adoption Lifecycle

The Technology Adoption Lifecycle is a popular sociological framework proposed by Everett Rogers in 1962 which demonstrates the process of acceptance and adoption of a new technology, innovation, or disruptive idea (Lumen, n.d.). As seen in the figure below, there are stages of adoption, each associated with specific personality traits that allow to understand and categorize how new innovations are accepted by people. The consumer segments are:

  • Innovators – first individuals adopting the innovation, risk takers that are usually young and have financial liquidity and close contacts with industry insiders;
  • Early adopters – typically young in age with a high degree of opinion leadership, also with high social status, education, and financial lucidity, but more discrete in adoption;
  • Early majority – individuals who adopt an innovation after some degree of time is passed, making the technology more tested, available, and mainstream. Can be of average financial and social status, and usually do not hold positions of opinion leadership;
  • Late majority – these individuals adopt innovation after average members of society already have, usually being skeptical and lacking the educational or financial resources;
Technology Adoption Life Cycle
Figure 1: Technology Adoption Life Cycle (B2U, 2020). Laggards – the individuals that are last to adopt innovation, demonstrating no opinion leadership. These individuals have an aversion to change and are usually very advanced in age, with a focus on traditions. Potentially the lowest social or financial status out of everyone (Lumen, n.d.).

It can be argued that the digital transformation has undergone the Technology Adoption Life Cycle, leading to its gradual mass adoption. At first, it was just the innovators who embraced it with the rise of the Internet and early e-commerce in the late 1990s, when it was more of a gimmick. Early adopters began to appear towards the later 2000s, as digital adoption with the rise of social media began to increase and more activities could be done online. By the mid-2010s, it was an early majority adoption as more and more companies offered digital services or alternatives and it became mainstream (Desjardins, 2018). Currently, it can be argued that the late majority adoption stage is occurring, with even the most skeptical individuals and businesses embracing the digital transformation and economy, realizing its potential and prevalence.

Value Proposition Canvas

The Value Proposition Canvas is a business tool/framework developed by Dr. Alexander Osterwalder which aims to determine whether there is a fit between a product and the market. The tool aims to ensure whether the good or service is positioned to meet the consumer values and needs (Osterwalder et al., 2014). The framework (seen below) consists of two major blocks which are the customer profile and a company’s value proposition.

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The consumer profile includes gains (benefits that are expected and needed), pains (negative experiences of the process), and customer jobs (the functional tasks that consumers are attempting to perform or need they are attempting to satisfy). Meanwhile, the value map consists of gain creators (how product serves or creates consumer gains), pain relievers (how product alleviates consumer pains), and products/services (the actual good which is the foundation of value creation for consumer). It is the strategic goal to achieve an optimal fit between the value proposition and the customer profile in order to maximize value to for the consumer and validate what is important to them (Osterwalder et al., 2014).

An example of a completed Value Proposition Canvas based on a fictional mobile application
Figure 2: An example of a completed Value Proposition Canvas based on a fictional mobile application (Blah Blah Blogger, 2016).

Although digital transformation as a concept is not a direct good or service, obviously when integrating certain digital platforms, services, and other offerings to consumers, businesses have to consider the consumer profile. For example, does integrating an artificial intelligence assistant into the online shopping experience help to address consumer needs (McKinsey Digital, 2017). If the e-commerce platform itself is poorly developed, the AI assistant will likely slow down or confuse the shopping experience and not address the need of a consumer to find, as an example, a new monitor for the home office.

However, a well-integrated digital assistant can provide recommendations by asking the consumer which purposes they need a monitor for and what their budget is, similar to that of a human salesperson at a store, and comparing the data to other popular purchases and available stock to optimize the experience. Therefore, when considering these individual digital tools in the context of the digital transformation, companies should utilize the Value Proposition Canvas to ensure the best fit for its consumers and subsequent market adoption (McKinsey Digital, 2017).

Examples

It is viable to discuss examples of digital transformation in the commercial sector which provide support as to the widespread adoption and longevity of the concept. The first example is the range of retail warehouse stores which have undergone massive digital transformations. These include Wal-Mart, Target, Home Depot, and Best Buy among others. All these companies greatly improved their digital presence and embraced the digital economy and e-commerce (Deloitte, 2017).

The digital transformation included everything from online shopping for consumers to use of digital data in order to track consumer trends and significantly improving logistics and merchandizing in order to reduce costs – with the objective to enhance the online experience through a seamless process across all channels. As a result of multi-year digital transformations, the companies were prepared to operate in the pandemic and experienced rise in stock prices and revenues (Deloitte, 2017).

Apple Inc. which is one of the largest and most profitable companies in the world arguably was one of the first to undergo digital transformation, a process it continues to enhance to this day. Initially, Apple was a technology hardware and software company, selling its high-quality products that ran its operating system and some external programs. However, with the arrival of the iPhone and its mass market popularity, Apple established the App Store. Referring back to the discussion of platforms, the App Store is a prime example of a digital platform which connects app developers with consumers seeking applications for their specific needs (Juan, 2018).

As technology progressed, Apple continued to take more elements of the physical world into the digital realm, becoming popular with its digital iTunes store which was one of the most utilized universal digital music libraries (and eventually streaming service). Eventually, Apple took payments digital, device integration and connectivity is also digital requiring no cables. Currently, Apple no longer focuses on selling hardware, instead it aims to sell a digital ecosystem which offers virtual services for every consumer need (Juan, 2018). All this is in combination with progressive backend systems that Apple operates for its users and data collection to ensure a smooth, secure, and optimal experience at every step of the user experience for which it has established a reputation.

Potentially one of the most successful digital transformations in recent years came from Nike. As an athletic merchandize and shoes company, it traditionally operated in wholesale both through its own stores as well as multiple other retailers. Despite successful sales and no indication of slow-downs, Nike made a drastic change in its business model, shifting its focus on the digital e-commerce and services (Thomas, 2020).

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First, it enhanced its own direct-to-consumer e-commerce platform which now accounts for at least half its sales and has been effective during the pandemic. Furthermore, it pivoted to effective digital marketing campaigns and built a comprehensive one-of-a-kind data analytics system which allows it to efficiently track consumer trends and merchandize. Furthermore, it has expanded into services such as fitness applications to go along with its innovative athletic products, introducing consumers into an ecosystem and building brand loyalty (Thomas, 2020).

Discussion

In the words of a regional managing director at Cisco, “At its core, digital transformation is about adopting technology and harnessing its power to overcome business challenges and unlock growth opportunities. For any company to be successful with its digital transformation, it needs to fully understand the implications of technology, the impact it can deliver as well as the challenges with its adoption” (Bloomberg, 2018, par. 8).

Based on the examples provided above, these major companies from different economic sectors and consumer segments saw the value of digital transformation in the modern world and adopted it. For some companies, the transformation took nearly a decade, for others it is a long-term plan as new technology develops, while others such as Nike complete the major parts of the transformation in under 2 years (Juan, 2018). In all cases, the decision-makers made the risk-assessment and determined that the digital-first approach was the necessary step for the business and in virtually all known cases, it pays off (Wertz, 2020).

The pandemic crisis has shown that commercial organizations transitioning towards digital is the correct move. However, even if taking the pandemic out of the equation, consumer trends have been gradually pivoting towards digital prior to 2020 and will continue to do so even after the crisis ends. While yes, it is a digital ‘momentum’ undertaken by companies, it goes beyond of being a trend (going back to the research question at hand). Companies are embracing the “structural shift of consumer shopping habits” (Thomas, 2020).

What is notable is that the commercial sector is not only implementing digital on the consumer side (e-commerce, online shopping experience, customization and services), but also in the internal operating mechanisms. Using digital allows to collect data, identify gaps or inefficiencies in the backend processes, and introduce changes that ultimately save costs and, in turn, provide the best experiences and prices for consumers (Wertz, 2020). The value-added of going digital is tremendous for all stakeholders involved, and allows to address both gains and pains for businesses and consumers as discussed in the Value Proposition Canvas.

However, as mentioned earlier, digital transformation requires a cultural change from the company. Superficial implementations of technology are not likely to see success unless they are supported, upkept, and innovated to meet the market needs and demands. The only way to do so effectively is through a complete transformation of an organization’s culture and work processes (Bloomberg, 2018). Digital transformation is an inherently complex undertaking, and since a company choosing to do so has to essentially redefine how value is created, delivered, and captured through digital technologies, it has to align with the internal culture of employee values and behaviors. This is a critical step in the comprehensive effort to achieve progress in key areas of a company (Deloitte, 2019).

The cultural element of digital transformation is further support for the longevity and evolution of the concept becoming a long-term solution and approach for modern businesses. After all, digital transformation goes beyond the customer experience, but it requires an end-to-end transformation. The very fact that such in-depth change and significant investment are needed to achieve the digital transformation, not just superficial digitization of services, is an indicator that a new digital era has arrived (Deloitte, 2019). Furthermore, digital transformation is a process which uniquely does not have an end-state.

Unlike with previous business transformation fads, digital transformation requires continuous innovation, both in terms of technology and the consumer behaviors. Considering that digital transformation is focused on how people deal with change rather than the tools that are used, companies which are able to change for the better more rapidly are the ones that are most likely to survive in the digital era (Bloomberg, 2018).

Conclusion

The inquiry explored in this paper sought to determine whether the concept of digital transformation in commercial enterprises is a long-term evolution of technological adoption or a short-term ‘fad’ that could not replace traditional human interactions. As a evidence and discourse suggests, the digital transition has taken on a permanent role, being implemented by various businesses in a wide range of industries to enhance its performance and the customer experience among a range of other benefits, given the wide adoption of digital mobile technologies (i.e. smartphones) in the Western markets.

Frameworks of Technology Adoption Lifecycle and Value Proposition Canvas demonstrate the natural progression and adoption of digital technologies by the market, with multiple examples demonstrating the demand and long-term investment into digital services.

The primary limitation is that this is a purely exploratory inquiry, and no direct studies or observations were conducted. Potential future research could explore the digital transformation beyond the commercial sector as well as psychological attitudes toward digital transition in the context that many traditional interactions of businesses and consumers or among consumers themselves are being virtually eliminated by the virtual divide. While it has been established that this is not a simple trend but is the technological status quo of the future, it may be viable to explore potential long-term consequences of the transition on the economy and society.

References

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Parker, G. G., Van Alstyne, M., & Choudary, S. P. (2016). Platform revolution: How networked markets are transforming the economy – and how to make them work for you. W.W. Norton & Company.

Rachinger, M., Rauter, R., Müller, C., Vorraber, W., & Schirgi, E. (2018). Digitalization and its influence on business model innovation. Journal of Manufacturing Technology Management, 30(8). Web.

Thomas, L. (2020). Nike’s online business is booming — ‘digital is here to stay,’ CEO says. CNBC. Web.

Vial, G. (2019). Understanding digital transformation: A review and a research agenda. The Journal of Strategic Information Systems, 28(2), 118–144. Web.

Wertz, J. (2020). Creating value through digital transformation. Forbes. Web.

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