What Does “Digital Transformation” Really Mean?

By Mark Roberti

Like "Internet of Things," the term is often undefined, or is defined very differently by various so-called experts. Here's what digital transformation is all about.

There are a lot of articles being written and a lot of presentations being given at conferences about the need for companies to undergo a digital transformation to remain competitive. What exactly does "digital transformation" mean? Many articles and speakers fail to define the term. They seem to assume there is a common agreement, which there isn't. Some articles define it simply as the use of technology in all areas of a business to improve performance. Um… companies have been doing that for years. So, what's new here?

To me, digital transformation means breaking down the wall between computer systems and the real world. This enables companies to apply computing power, and eventually artificial intelligence, to every aspect of their operations, not just the existing digital aspects of their business.

Let me provide some examples. A retailer sells goods via a website. It gathers digital information regarding customer preferences, how customers navigate the site, sales volumes, sales velocity and many other factors. It can apply computer applications and AI to predict sales, and therefore ensure items are in the warehouse to be shipped, as well as suggest items that particular customers might like, based on what other customers clicking on similar items bought.

The same retailer has 60 percent inventory accuracy at its stores, has almost no insight into what customers are looking at or are trying on, and does a poor job of replenishing items that are lost, stolen or sold. Digital transformation would give a company the ability to collect data on all aspects of store operations, inventory levels and customer preferences, and apply the same or similar computer programs to in-store activity that it applies to online activity. When true digital transformation is achieved, the distinction between online and in-store sales disappears.

Manufacturers have been applying computer technologies to the factory floor for years. Most large manufacturers have some kind of manufacturing execution software, but so far, most of the data that goes into these systems is input by workers. Information regarding demand, for example, might come from other systems, but sales data was probably input manually or aggregated from data input by salespeople.

The systems used these days lack the ability to automatically be updated when raw materials arrive, or if they don't arrive on time. They don't know where in the factory a particular part or bin might be located, so computer systems cannot be applied to better manage the movements of parts or raw material bins.

Airbus has spent years digitizing its factories. Carlo Nizam, the company's former head of value chain visibility and RFID, has shown me a digital version of actual Airbus factories. I witnessed digital representations of bins, parts, jigs and other items, and watched them move across the factory floor in real time. I could also click on any item highlighted in red to view what it was and why an alert was attached to it (because it had arrived late or was in the wrong position, for example).

Airbus's factory managers can not only look at the floor and see, in real time, any issues that need to be addressed, but they can also receive reports on all aspects of factory operations without intense manual data-collection efforts. Moreover, they can obtain a report indicating which jigs are in the right place, which workers deliver items to the wrong location more frequently than others, which suppliers deliver parts late and so on.

Breaking down the wall between digital systems and the real world (analog systems, if you like) creates opportunities to improve the way in which a company does business in new and exciting ways. It provides a genuine competitive advantage, and that's why a lot of analysts and consultants believe that companies that don't undertake these efforts—or that do so in an ineffective way—will not be around in five or 10 years.

Next week, I will explain why I believe adopting RFID technology is key to a successful digital transformation for most companies.

Mark Roberti is the founder and editor of RFID Journal. If you would like to comment on this article, click on the link below. To read more of Mark's opinions, visit the RFID Journal Blog or the Editor's Note archive.