Digital Transformation (DT or DX) is the adoption of digital technology to transform services or businesses, through replacing non-digital or manual processes with digital processes or replacing older digital technology with newer digital technology. Digital solutions may enable – in addition to efficiency via automation – new types of innovation and creativity, rather than simply enhancing and supporting traditional methods.
One aspect of digital transformation is the concept of ‘going paperless’ or reaching a ‘digital business maturity affecting both individual businesses and whole segments of society, such as government, mass communications, art, health care, and science.
Digital transformation is not proceeding at the same pace everywhere. According to the McKinsey Global Institute’s 2016 Industry Digitization Index, Europe is currently operating at 12% of its digital potential, while the United States is operating at 18%. Within Europe, Germany operates at 10% of its digital potential, while the United Kingdom is almost on par with the United States at 17%.
One example of digital transformation is the use of cloud computing. This reduces reliance on user-owned hardware and increases reliance on subscription-based cloud services. Some of these digital solutions enhance the capabilities of traditional software products (e.g. Microsoft Office compared to Office 365) while others are entirely cloud-based (e.g. Google Docs). As the companies providing the services are guaranteed regular (usually monthly) recurring revenue from subscriptions, they are able to finance ongoing development with reduced risk (historically most software companies derived the majority of their revenue from users upgrading, and had to invest upfront in developing sufficient new features and benefits to encourage users to upgrade), and delivering more frequent updates often using forms of agile software development internally. This subscription model also reduces software piracy, which is a major benefit to the vendor.