What is Digital Transformation? Digital Transformation Defined

“Change before you have to.” — Jack Welch

What is digital transformation?   You need a simple digital transformation definition if you want to win the future.

Digital transformation can be elusive if you can’t define it.

Lucky for us, there is no shortage of definitions for digital transformation.

If you are a leader in today’s world, you need to know what digital transformation is.

You can’t get everybody’s head in the game if you don’t have a solid grasp on what is digital transformation.

I’m going to walk you through multiple definitions of digital transformation from multiple sources, so you have a wide-angle lens of the range of definitions.

But don’t worry, I will give you a useful definition of digital transformation so you can impress your friends.

What is Digital Transformation?

Lets’ start with a simple but useful definition of digital transformation before we dive into nuances and variations:

Digital Transformation is the adoption of digital technologies to fundamentally change how you operate and create value for customers in a mobile-first, cloud-first world.

It’s also a culture change.  The essence of this culture change is to adapt to a mobile-first, cloud-first world, embrace customer-obsession, and adopt a growth mindset.

This shift creates an agile organization that works horizontally to focus on business outcomes, architectures, and speed-to-market delivery, while learning and improving.

Executive Summary

• Digital Transformation is adopting new technologies to change experiences and the way things are performed through digital technologies.
• Digital Optimization is improving efficiencies and effectiveness with digital technologies.  It often means digitizing your operating model.
• Digital Transformation is changing the experiences and how things are performed for users and employees in significant ways through software.
• Digital Transformation is a big deal because it’s the backbone of the digital era.
• If you don’t speed up your innovation, you’re going to get disrupted.
• Digital Business Transformation is innovating in your business models through digital technologies.
• Digital Business transformation as a rethink of how you create and capture value in the digital era.
• The key to Digital Business Transformation is to reimagine your Future Business with clarity around answering the question future customers will pay you for.
• The secret of winning digital transformation is to validate your future business models with small business experiments today.
• If the term “digital” confuses you, or loses you, just think “software” (but the context here is software in the Cloud)
• If the idea of digital “business” transformation confuses you, just think of it as rethinking how you create and capture value in the digital economy

Let’s Take a Multi-Perspective View to Define Digital Transformation

I find that rather than use one single definition for digital transformation, it’s actually more helpful to look at a range of definitions to really internalize what digital transformation means from multiple angles.

After that, by all means, then you can choose or create your single, one-sentence definition of digital transformation.  And I recommend you do.  Your test will be how easily you can define and explain what digital transformation is to others.

After you walkthrough the definitions of digital transformation, I also recommend that you review Satya Nadella on pillars for Digital Transformation so you have a simple mental model to work with.   I find that they go hand in hand.

How I Define Digital Transformation

I get asked, “What is digital transformation?” all the time, so I focus on a simple, but effective definition of digital transformation:

“Digital Transformation is adopting new technologies to change experiences and the way things are performed in significant ways through software.”

Or, if I’m feeling pithy, I might just say:

“Digital Transformation is dramatic changes through software.”

That works in hallways, over email, lunch conversations, and more.

If I’m feeling fancy, I might add in “end-to-end” and say, “end-to-end”, as in Digital Transformation is adopting new technologies to change end-to-end experiences and the way things are performed through software.

I do that to plant the seed to get people thinking with a wide-angle lens about the full spectrum of changes and opportunities ahead.

I also find it helpful to compare and contrast an Analog World with a Digital World to better understand what digital transformation truly means.

For a quick comparison of an Analog World vs. a Digital World, see Leading Culture Change—How To Create and Cultivate a Digital Culture.

Digital Transformation Definition vs. Digital Optimization Definition

The debate and distinction between digital transformation vs. digital optimization comes up all the time.

The theoretical distinction is tough because you can just water it down to the difference between transformation vs. optimization:

Optimization improves the efficiency and effectiveness of your current stuff.

Transformation is changing your stuff or reinventing how you make your stuff or how people experience your stuff, in significant ways.

In other words, optimization is doing things better, while transformation is changing what you do, or reinventing how you do it.

In practice, I think of digital optimization as digitizing your stuff to make it better and efficient through software.

It often means sticking your stuff in the Cloud.  It often means digitizing your operating model.

I think of digital transformation as using software to significantly changing the experiences for your users, your employees, your operations, and your products.

This often means using the Cloud to change how you work and how your customers consume your stuff, and how you automate your operations.

It can be disruptive.

It can mean using technology to create competitive advantage in the new digital era.

Along these lines, I think about digital business transformation as a rethink of how you create and capture value in the digital economy.

Are You Doing Digital Transformation or Digital Optimization

Here’s a good test if it’s digital transformation or just digital optimization:

Do users “feel” or experience your “digital transformation” in the market?

In other words, do users experience a fundamentally different way to consume and interact with your stuff.

Can users subscribe to your business like a service now?… Is there an app for that?… Did you use automation to create self-service experiences for your users, etc.

Otherwise, you are probably just doing digital optimization.

Sticking your spreadsheets in the Cloud is digital optimization.

Changing your workflows because of new technology capabilities is digital transformation.

Think Blockbuster vs. Nextflix? (remember Blockbuster?)

Digital can be a weird word, so sometimes I just remind myself to think “software”, and how can software in the Cloud change my game?

And as Satya Nadella said it well, so long ago:

“Every company is a software company.”

Well, not yet

Does every company have to become a software company?

No, of course not.  Just the ones you want to keep.

What is Digital “Business” Transformation?

I think it’s worth pointing out the distinction between Digital Transformation and Digital “Business” Transformation.

Digital Transformation is a big space.   To be more precise and relevant with business leaders, I used to quality by saying, I am the director of digital “business” transformation, at Microsoft.

Digital Business Transformation is specifically about transforming the business with digital technologies.

There are many lenses to look at but in particular it helps to view it through the lens of business model innovation.

So you can think of it as innovating in your business models through digital technologies.

Your business model is simply the WHO (customers), the WHAT (value prop), the HOW (value chain), and your WHY (profit model.)

An exec from SAP at Davos said it well when he defined digital business transformation like so:

“Digital business transformation means new business models are driven by different interactions with companies and their customers.”

What Digital Business Transformation Means in Today’s World

In pragmatic terms, digital business transformation means evolving your business model and interaction patterns all along your value chain to meet the changing demands of your customers and employees.

For example, consider how millennials want to interact with a business in today’s world.

They want to learn about a company or brand through their friends and family on social networks and through real stories from authentic people, and they want access to services anytime, anywhere, from any device.

Another way to think about this as a business leader is:

How can you  wrap your engineering teams around your customer’s end-to-end journey to directly address the customer’s pains, needs, and desired outcomes?

That gets your head in the game.

But if you just try to solve that for today, you will find yourself solving yesterday’s problems while missing tomorrow’s opportunities.

You need to be working backwards from your Future Business.

Your Future Business is the one that a year from now, your future customers expect your business to be.

And if you are really ambitions, you are working backwards from what your customers expect your Future Business to be 3 years from now, or even 5.

Build a bigger and better business ambition that pulls you forward, inspires your employees, and is compelling for your customer base.

But to bridge the gap, do small business experiments today to validate your future business models.

Psssst… this is a check to see if you really caught that last point—The small business experiments you do today to learn and validate your future business models is a big deal.

It’s the secret of figuring out the future of your business and surviving and thriving the road ahead, whether that’s more pandemics, wars, or just change as usual.

John Chambers on Why Digital Transformation is Such a Big Deal

Long ago, there used to be a very famous catalog of stuff you could buy.

It was the Sear’s Catalog.

You could buy everything from the Sears Catalog.  You could even buy a house.

Then along came Amazon.

Disruption happens.  If you don’t transform, you get disrupted.   And if you don’t know what you’re looking for, you’re not going to see it.

You can be the disruptor or the disrupted, and business leaders (and their therapists) tell us being the disruptor is the better place to be

How significant is digital transformation?   Well, it’s the backbone of the digital era.

So how significant is the digital era?

According to Cisco’s executive chairman—It’s the biggest technology transition in history and requires a proportional response from companies.

In the Video – Cisco’s John Chambers on the Digital Era, here is Chambers had to say about the significance of digital transformation and the digital era:

“If you’re a leader in today’s world, whether you’re a government leader or a business leader, you have to focus on the fact that this is the biggest technology transition ever.

This digital era will dwarf what’s occurred in the information era and the value of the Internet today.

As leaders, if you don’t transform and use this technology differently—if you don’t reinvent yourself, change your organization structure; if you don’t talk about speed of innovation—you’re going to get disrupted.

And it’ll be a brutal disruption, where the majority of companies will not exist in a meaningful way 10 to 15 years from now.”

It’s both a chilling a compelling video for the case of change to win in the digital era.

(For my notes on this video, see How John Chambers Explains Digital Transformation.

These are the Most Useful Answers to What is Digital Transformation at a Glance

Now you have both a solid grounding in what digital transformation and my simple definition of digital transformation:

“Digital Transformation is adopting new technologies to change experiences and the way things are performed through software.”

I’m saying it again so you don’t lose the simple definition of digital transformation among the forest of definitions out in the wild.

That said, that now that we narrowed, down, I want you to step back and look through a wide-angle lens of how to define digital transformation.

I encourage you to find and explore multiple definitions of digital transformation.

Use one definition of digital transformation with people, but learn multiple definitions.

Your intelligence on a topic comes down to how many significant and meaningful distinctions you can make about that topic.

I simplified my definition of digital transformation because I synthesized a lot from a wide variety of experts who answer the question, “What is digital transformation?”

And I got to my simple definition of digital transformation by using it with real people, in real conversations to set the stage for real digital transformation.

With that in mind, here is a roundup of some of the best definitions or most useful definitions of digital transformation I found…

Wikipedia on What is Digital Transformation

I always check definitions with the diction and with Wikipedia.

I don’t check Wikipedia because it is wrong or right, but because it gives me a sense of how “the masses” might be thinking about it (and I remember the market doesn’t always drive the right thing).

Wikipedia has a simple explanation:

“Digital transformation refers to the changes associated with the application of digital technology in all aspects of human society.”

What I like about that definition is that it goes beyond pure business and includes all impact on society, whether it’s education, government, sports, arts, leisure, etc.

The Enterprise Project on What is Digital Transformation?

This definition by the Enterprisers Project is pretty simple and yet very useful:

“Digital transformation is the integration of digital technology into all areas of a business, fundamentally changing how you operate and deliver value to customers.

It’s also a cultural change that requires organizations to continually challenge the status quo, experiment, and get comfortable with failure.”

Citrix on What is Digital Transformation?

I find this definition of what is digital transformation by Citrix to be pretty precise and well-framed:

“Digital transformation is the strategic adoption of digital technologies.

It’s used to improve processes and productivity, deliver better customer and employee experiences, manage business risk, and control costs.

Digital transformation represents myriad tools, solutions, and processes. An effective strategy is one that’s customized for each unique organization.”

I love the fact they called out “adoption” because to me, it’s essential to transformation.

Altimeter on What is Digital Transformation

In their online report, The 2014 State of Digital Transformation, Altimeter defined digital transformation from a customer-focused lens :

“The realignment of, or new investment in, technology and business models to more effectively engage digital customers at every touchpoint in the customer experience lifecycle.”

What I like about Altimeter’s definition is that it’s outside in vs. inside out.

The big idea is to leverage technology to adapt to your customer’s changing preferences.

So if you “transform”, but there is no visible impact to your customers or to the market, then you didn’t really transform.

Emeritus on What is Digital Transformation

Here is how Emeritus.com defines Digital Transformation:

“While “digital transformation” is a broad term, in essence, it describes the process of integrating technology throughout and across an organization to fundamentally change the way it operates internally and presents its products or services externally.”

CIO.com on What is Digital Transformation

Here is how CIO.com defines Digital Transformation:

“Digital transformation marks a rethinking of how an organization uses technology, people, and processes in pursuit of new business models and new revenue streams, driven by changes in customer expectations around products and services.”

Capgemini and MIT Center for Digital Business on What is Digital Transformation

Capgemini and MIT Center for Digital Business define Digital Transformation in Digital Transformation: A Roadmap for Billion-Dollar Organizations like this:

“Digital transformation – the use of technology to radically improve performance or reach of enterprises.”

While their definition may look simplistic, the power is in the data behind the definition.

It’s a global study of how 157 executives in 50 large traditional companies are managing – and benefiting from – digital transformation.

Agile Elephant on What is Digital Transformation

Agile Elephant defines digital transformation like this:

“Digital transformation is the process of shifting your organization from a legacy approach to new ways of working and thinking using digital, social, mobile and emerging technologies. 

It involves a change in leadership, different thinking, the encouragement of innovation and new business models, incorporating digitalization of assets and an increased use of technology to improve the experience of your organization’s employees, customers, suppliers, partners and stakeholders.”

While this definition may seem more elaborate, I find this elaboration can really help get somebody’s head into the digital transformation game.

MIT Sloan’s 9 Elements of Digital Transformation

In The Nine Elements of Digital Transformation, George Westerman, Didier Bonnet and Andrew McAfee identify the key attributes of digital transformation:

Transforming Customer Experience

1. Customer Understanding
2. Top-Line Growth
3. Customer Touch Points

Transforming Operational Processes

1. Process Digitization
2. Worker Enablement
3. Performance Management

Transforming Business Models

1. Digitally Modified Businesses
2. New Digital Businesses
3. Digital Globalization

The nine elements are excerpted from their digital report, Digital Transformation: A Roadmap for Billion-Dollar Organizations.  Here are quick summaries of each:

1. Customer Understanding – Customer Understanding is where “Companies are starting to take advantage of previous investments in systems to gain an in-depth understanding of specific geographies and market segments.”
2. To-Line Growth – Top-Line Growth is where “Companies are using technology to enhance in-person sales conversations.”
3. Customer Touch Points – Customer Touch Points are where “Customer service can be enhanced significantly by digital initiatives.”
4. Process Digitization – Process Digitization is where “Automation can enable companies to refocus their people on more strategic tasks.”
5. Worker Enablement – Worker Enablement is where “Individual-level work has, in essence, been virtualized — separating the work process from the location of the work.”
6. Performance Management – Performance Management is where “Transactional systems give executives deeper insights into products, regions and customers, allowing decisions to be made on real data and not on assumptions.”
7. Digitally Modified Businesses – Digitally Modified Businesses is “finding ways to augment physical with digital offerings and to use digital to share content across organizational silos.”
8. New Digital Businesses – New Digital businesses is where “companies are introducing digital products that complement traditional products.”
9. Digital Globalization – Digital Globalization is where “Companies are increasingly transforming from multinational to truly global operations.”

Side note – George, Didier, and Andrew sum up the power of digital transformation when they say, “”Whether it is in the way individuals work and collaborate, the way business processes are executed within and across organizational boundaries, or in the way a company understands and serves customers, digital technology provides a wealth of opportunity.”

Digital Transformation?  No Problem…You’ve Got This

The key to Digital Business Transformation is to reimagine your Future Business with clarity around answering the question future customers will pay you for.

We started with a simple definition of what digital transformation is, but we also covered a lot of ground.

By now, you should have a good enough understanding of what digital transformation is so you can get going with your digital transformation journey.

You also understand the distinction between digital transformation vs. digital optimization.

And you know the distinction between digital transformation vs. digital business transformation.

If nothing else, go back to the Altimeter Group’s definition of Digital Transformation:

“The realignment of, or new investment in, technology and business models to more effectively engage digital customers at every touchpoint in the customer experience lifecycle.”

And be sure to use Satya Nadella’s pillars for Digital Transformation as a guide to stay grounded.

Work backwards from your Future Business by creating clarity around the question:

“What will your future customers pay you for 1 year from now? 3 years from now? 5 years from now?”

Pave your path forward by doing small business experiments today to validate your assumptions around business value.

Don’t be afraid of paving your path forward and experimenting with how to digitally transform your business.

But be very afraid of getting left behind if you don’t.

Call to Action

1. Practice defining digital transformation out loud.  Can you now answer the question, “What is digital transformation?”, without looking it up?
2. Practice helping other people understand what digital transformation is so their business can stick around for the future (point them to this article, if you must).
3. Practice really stepping into the high fidelity mental model of what digital transformation means in end-to-end experiences for users and employees.

* Bonus – check out an Analog Culture vs. Digital Culture in my article, Leading Culture Change—How To Create and Cultivate a Digital Culture.

You Might Also Like

Best Digital Transformation Books
Amazon Leadership Principles for Innovation and Impact
Digital Transformation Explained
How John Chambers Explains Digital Transformation
Digital Transformation is the Single Most Important Thing
Leading Culture Change—How To Create and Cultivate a Digital Culture
How Leaders are Building Digital Skills
How Every Employee is a Digital Employee
How Satya Nadella Helped Microsoft Rediscover Its Soul
Satya Nadella on Pillars for Digital Transformation
Satya Nadella on a Mobile-First, Cloud-First World
Satya Nadella on the Future is Software
Satya Nadella on the Key to a Company’s Longevity
Satya Nadella’s Email of the Transformative Vision for Microsoft