Definition

The term digital transformation refers to significant changes in everyday life, the economy and society through the use of digital technologies and techniques and their effects.

Typically, the term is used in a narrower sense for the subset of corresponding changes in companies and industries, whereby a distinction can be made between the dimensions of service creation, service offering and customer interaction.

If the changes occur suddenly and in an upheaval-like manner, the term disruption is used for this.

Causes

Digital transformation is based on the indirect and direct impact of the use of digital technologies and techniques on organizational and economic conditions on the one hand and novel products and services on the other. In addition to the steadily increasing computing power and miniaturization of classic IT components, their ubiquitous integration in technology of all kinds is of importance, especially in connection with:

• Comprehensive use of sensors and actuators including audio and video recording
• Use of mobile electronic communication technologies for networking and automated communication with very low latency times
• Umfassender Erhebung, Archivierung und Verarbeitung sehr großer Datenmengen mittels Big-Data-Techniken
• Different machine learning techniques
• Advanced forms of human-computer interaction

In particular, the combination of these factors leads to new potentials for comprehensive automation in the cognitive and mixed mechanical-cognitive areas. A currently discussed example for the former is the automated comparison of contract texts, for the latter the autonomously driving vehicle or the autonomously flying drone.

While cyber-physical systems are at the center of development in the area of production (keyword: Industry 4.0), the central element of digital transformation in the end customer business is the smartphone. Thanks to its combination of ubiquity, context sensitivity, identification functions and telemetry functions (Turowski and Pousttchi 2003), it forms the interface between the real and virtual worlds for people and at the same time enables them and significant parts of their behavior to be integrated into (partially) automated business processes. This is due not only to the technical features, but above all to the specific usage paradigm for mobile services and applications (Pousttchi and Goeke 2011).

Also of importance for integration are techniques for simulating reality for humans (virtual reality) and for supplementing reality for humans with electronically generated information (augmented reality).

Effect in companies

Fig. 1: Dimensions of digital transformation

Value Creation Model

The first dimension of digital transformation encompasses the impact on the creation of products and services, including the necessary support processes and the organization of the company. It has been known since the early 1990s that increasing the productivity of companies through the use of IT is not primarily a technical problem but an organizational one (Scott Morton and Allen 1994) and that achieving efficiency and effectiveness benefits (Davenport 1993) requires the process-oriented transformation of the company so that the use of technology can lead to improvements at all corners of the "magic triangle" of cost-time-quality (Hammer 1990). Corresponding processes also require a changed form of management (Picot et al. 1996). These principles apply without restriction to the use of modern digital technologies and techniques (Habermann and Pousttchi 2009).

In addition to the use of new technologies, strategies for digital transformation therefore initially focus primarily on changes in service provision, structural changes and the associated financial aspects (Matt et al. 2015).

Large companies in particular face special challenges here, as in many cases dysfunctional organizational forms, which are also reflected in the IT organization and system landscape, stand in the way of a successful digital transformation.

Value Proposition Model (Value Proposition Model)

The second dimension of digital transformation encompasses the impact on the company's products, services and revenue models.

The focus here is on the indirect and direct impact of the use of digital technologies and techniques on the improvement of existing products and services, on the offering of new or even novel products and services, and on changes in the associated revenue models.

The use of new opportunities in the service offering model is often subject to significant limitations in traditional companies if the digital transformation of the service delivery model has not yet been completed, while emerging competitors can operate without this mortgage.

Customer Interaction Model (CIM)

The third dimension of digital transformation encompasses the influence on the nature and content of interaction with customers. Key characteristics are the cross-channel and holistic design of the customer relationship and the inclusion of automated communication and modern forms of data analysis.

For traditional companies with a branch network, the initial problem here is that when customers switch to electronic channels, the differentiation aspect of the branch network becomes less important, but costs cannot usually be reduced to the same extent. Banks are a typical example (Pousttchi et al. 2015).

A new type of problem also arises for a large number of traditional companies in the end-customer business as a result of the fact that market players who have very large and cross-sectional end-customer data and can apply Big Data techniques to it - in particular using automated inductive statistical models - are empowered to build new types of recommendation and marketing systems which would enable extensive monopolization of the end-customer interface ("the customer's first point of contact") and the customer can then be referred to the actual provider of the service by auction. Such market power arises from the control of market-leading smartphone operating systems (e.g., Apple, Google), dominant social networks (e.g., Facebook/WhatsApp, WeChat), and dominant electronic retailers (e.g., Amazon, AliBaba). (Pousttchi and Hufenbach 2014)

Impact in everyday life, economy and society

Digital transformation is having an impact not only in companies, but in all areas of social life.

For example, the dimensions shown in Fig. 1 can also be applied mutatis mutandis to the relationship between the state and its citizens, to the field of politics, education and medicine. A particularly impressive example of digital transformation is provided here by the significance of the use of big data technologies and social networks in the U.S. presidential election campaigns since 2012.

Literature

Davenport, T.H.: Process Innovation – Reengineering Work through Information Technology. Harvard Business Review Press. Boston 1993.

Habermann, K.; Pousttchi, K.: Requirements on IT business value measures for mobile-integrated business processes. In: Proceedings of the 17th European Conference on Information Systems (ECIS 2009). Verona 2009.

Hammer, M.: Reengineering Work: Don’t Automate, Obliterate. Harvard Business Review 69 (1990) 4, S. 104-113.

Matt, C.; Hess, T.; Benlian, A.: Digital Transformation Strategies, In: Business and Information Systems Engineering, 57 (2015) 5, S. 339-343.

Picot, A.; Reichwald, R.; Wigand, R.T.: Die grenzenlose Unternehmung. 1. Aufl., Gabler. Wiesbaden 1996.

Pousttchi, K.; Goeke L.: Determinants of customer acceptance for mobile data services: An empirical analysis with formative constructs. In: International Journal of Electronic Business 9 (2011) 1–2, S. 26-43.

Pousttchi, K.; Hufenbach, Y.: Engineering the value network of the customer interface and marketing in the data-rich retail environment. In: International Journal of Electronic Commerce 18 (2014) 4, S. 17-42.

Pousttchi, K.; Moormann, J.; Felten, J.: The impact of new media on bank processes – a Delphi study. In: International Journal of Electronic Business 12 (2015) 1, S. 1-45.

Scott Morton, M.S.; Allen, T.J. (Hrsg.): Information Technology and the Corporation of the 1990s. Oxford University Press. New York, 1994.

Turowski, K.; Pousttchi, K.: Mobile Commerce – Grundlagen und Techniken. Springer, Heidelberg 2003.