In the enterprise, no buzzword is as buzzy as the term “digital transformation”. If you spend any amount of time reading whitepapers, analyst research, or attending webinars you’ll see the term digital transformation used in conjunction with a wide range of enterprise-focused technologies ranging from data centers to application development, to enterprise architecture and AI and blockchain. But what does digital transformation even mean? And how does AI fit into the picture of how enterprises are thinking about AI and related cognitive technologies?
What is Digital Transformation?
Many industry pundits and authorities like to talk about the subject of digital transformation, but the concept boils down to the key idea that technology, and in particular digital technology (computers, networks, data, embedded systems, and the like), lead companies to transform the way they work to take advantage of the more efficient and advanced ways of working. You can think of digital transformation as the after effect of applying digital technology, perspectives, and methods to traditional problems.
Management consultancies, academic institutions, and other consultancies and advisories have even put in place quantitative methods to measure how far organizations and even entire countries have gone in terms of digitizing processes and activities. For example, the McKinsey Global Institute produces an Industry Digitization Index which compares how industries on average across entire sectors of the market in a particular country have digitized their efforts. The MIT Center for Digital Business and Capgemini Consulting conducted a joint study on corporate transformation practices. The report concludes that less than a third of surveyed companies have an effective digital transformation strategy. The World Economic Forum is also focusing on digital transformation as a way of understanding the impact of digital technologies on business and society. Indeed, digital transformation promises to help organizations continue the progress of productivity, increasing wage growth, global competitiveness, and increasing the ability for companies and countries to weather economic, environmental, and societal changes.
In essence, digital transformation is key for organizations who want to remain relevant as technology continues its relentless advance. Organizations who remain bound to old and outdated paper-based processes, human labor-intensive activities, who operate with low information visibility and usage, and with low-skilled labor forces face a future where they could be rendered obsolete by organizations that dominate with the power of a business transformed by the use of digital technology. So, corporations, organizations, and countries don’t have much choice: they must find ways to digitally transform their organizations at increasing levels or face disastrous consequences.
“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. “
Digital transformation is often also used conjunction with the concept of “Industry 4.0“. The Industry 4.0 concept is the idea that technology has enabled humanity to go through four big waves of technology adoption that has moved society forward:
- Industry 1.0 (The Industrial Revolution): The development and adoption of mechanization and automation, harnessing of steam and water power, and the creation of industries that replace manual labor.
- Industry 2.0 (The Assembly Line): The development and adoption of advanced approaches to enable the mass manufacturing of products and changes to the concept of factory labor, supply chains, and more.
- Industry 3.0 (The Information Revolution): The development and adoption of computers and information to change the way that products and services are delivered, and the creation of industries focused around information.
- Industry 4.0 (The Cyber Revolution): The development and adoption of the Internet, mobile, and interconnected systems that change the way people, organizations, systems, and societies interact.
From this perspective, digital transformation applies itself to the latter part of the Industry 3.0 revolution and right in the heart of the Industry 4.0 revolution. Some countries are even taking things a step further. Japan for example, faced with a unique combination of advanced technology and an aging population combined with a low birth rate, is using digital transformation as a blueprint for the entire society, coming up with something called the Society 5.0 initiative. Clearly digital transformation is more than just a buzzword; it’s a conceptual framework for considering how technology will fundamentally impact the way things are done.
Digital Transformation and the AI-Enhanced Organization
Since Industry 3.0 is at least 60 years old, and Industry 4.0 is now approaching three decades, many ask why companies haven’t already fully transformed their businesses to be digitally centric. Indeed, many of the above research institutions, consultancies, and think tanks are tackling that exact issue. The study conducted by McKinsey & Company said that “On average, industries are less than 40 percent digitized, despite the relatively deep penetration of these technologies in media, retail, and high tech”. Many studies point blame at the complexity of digitizing their businesses and difficulty working with their existing technology systems. It’s an odd paradox: these companies and organizations want to increasingly transform more of what they are doing, but their existing technology is getting in the way. The more technology an organization has, the harder it seems to transform them further. This sounds like a real problem.
However, artificial intelligence aims to break this log jam. First, there is the basic idea that AI is a primarily digital technology itself, and as such fits into the Industry 4.0 transformation paradigm. However there’s a greater idea: AI can help resolve some of the issues with regards to how non-cognitive technology is impeding the forward advancement of organizations’ digital transformation initiatives.
In our newsletter and research on the AI-Enabled Future, we talk about the idea of the AI Enhanced Organization. In this vision of the future, we see three primary ways in which organizations will enhance their operations with AI. Summarizing the major conclusions from that research:
- Cognitive technologies replace high labor and high cost systems and people – First, many jobs that are high-value but human intensive will be replaced by AI-enabled counterparts, whether outright human replacements in the form of Intelligent Assistants, or as Augmented Intelligence counterparts that won’t completely replace their human peers but greatly reduce the need for human labor. These AI-enabled workforce adjustments are not just automation capabilities. Many automation tools will themselves be pushed aside in favor of more intelligent process systems that can adapt and learn to an organizations’ changing business needs, automatically allocate resources as needed, and provide an intelligent console by which a business can truly manage and plan their enterprise.
- Enabling mass-customization and mass-personalization -Through the power of CRM and ERP and marketing automation tools, organizations over the past few decades have amassed significant information on their customers, prospects, audience, employees, and more. And, we’re only at the beginning. AI will enable organizations to put all that information to much more powerful use, providing a personalized, unique experience for every single one of its customers and audience. Instead of market segmentation as part of a marketing strategy, we’ll see 1:1 customer to company engagement models that will make every interaction with an enterprise personal, relevant, and timely. This will dramatically change advertising, marketing, customer support, and even human resources (HR) and other human to enterprise interactions.
- The “Always-On Corporation” – In the AI-Enabled Future there won’t really be such a thing as a closing time for businesses. Already, individuals have the expectation that they can interact with companies online any time they want, and the pervasiveness of mobile computing has put the power of that interaction in most everyone’s hands at any time. AI will kick this always-on interaction into high gear. It won’t be long before the concept of Autonomous Retail will become prevalent in the industry. Amazon is already in the midst of pioneering a new type of store with Amazon Go where stores can remain always open without the hassle of a check-out line. Will we soon see 24 hr autonomous Starbucks? Even for service companies that require human interaction, bots of all sorts will provide customer support, social media interaction, and many workforce capabilities in an autonomous way while their human counterparts are home sleeping. Prepare for the expectation that your business will need to be available around the clock, no excuses.
To achieve these outcomes, you can’t just use unintelligent systems and approaches to get there. You can’t just automate an existing business process, for example, and expect it will yield a cognitive outcome. And you can’t have the digital transformation you want without having increasing levels of cognitive capability. Indeed, that’s the whole idea of AI as applied to the enterprise – enabling more transformation by addressing the more difficult parts of the business to automate through the use of technology that emulates the ways that humans think, behave, and operate. If we can get closer to how humans are currently working in the enterprise, then we have a chance to transform those activities with digital technology. This is the concept of how AI helps break the log jam of digital transformation by side-stepping unintelligent systems with intelligent alternatives.
Furthermore, as we wrote in our research on Autonomous Business Process, the way that IT organizations implement business processes are simply an approximation of the limited set of business processes that can be automated. But the way that organizations are actually run and the full range of their actual business processes are much greater than simply those within the control, budget, and resources of the IT organization. Business processes aren’t about automation, they’re about process transformation. You can’t transform with straight automation.
Creating an “AI-First” Mentality
The main challenge is that companies are still approaching digital transformation from a non-cognitive perspective. Specifically, it’s hard to think about transforming the more difficult parts of the organization by considering the limited set of things that unintelligent technologies can address. If humans are still needed to massage information, manage systems, deal with process exceptions, handle routine tasks and communications, move bits or atoms around, or otherwise act without using the full potential of their human brains, then there is little way those organizations can maximize their digital transformation efforts.
In many ways, the digital transformation log jam is more about the way that people are thinking than the technologies they have already implemented. It’s a mental log jam. Companies are now realizing that the next big iterative step in digital transformation is about changing the way they think of their organizations and technology in the context of AI and cognitive technology. Just in the same way that smart organizations realized that the Internet would forever change the way they interact with their customers, partners, suppliers, and other stakeholders, and change the way they build and develop their products and services, and in the same way that the broad adoption of mobile technologies similarly had significant impact, so too will cognitive technologies have dramatic impact on every aspect of an organizations’ operations.
Smart organizations are becoming “AI First”. They are tackling every challenge in their business, every process, every system, and every interaction opportunity by asking the question: “How will AI change the way we do this?”. They ask how AI will represent opportunities to dramatically increase efficiency, reduce expenses, increase customer satisfaction, improve existing products and services, and create new business opportunities. This is what being “AI First” is really all about. It’s not a technology you implement. It’s a thing you do. It’s a mindset. And it’s the mindset companies need in order to break the digital transformation log jam.
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