What is digital transformation?

Digital Transformation in Vietnam

Globally, the conversation surrounding digital transformation began around 2015 and gained significant momentum by 2017. In Vietnam, this discussion gained traction around 2018, culminating in the Prime Minister’s approval of the National Digital Transformation Program on June 3, 2020.

Digital transformation represents the next evolutionary stage of informatization, fueled by the remarkable progress of groundbreaking technologies, particularly digital technologies. It signifies a holistic and comprehensive shift in how individuals and organizations live, work, and produce, all driven by the adoption of digital technologies.

The subsequent questions and answers will delve deeper into the concept of digital transformation.

What is Informatization?

Informatization, also known as Information Technology (IT) application, involves digitizing existing business processes. Typically, informatization doesn’t drastically alter these processes or their operating models. When informatization reaches a sophisticated level that leads to modifications in processes or operating models, it’s then termed as digital transformation.

Example: Passenger Transportation

Informatization in traditional passenger transportation focuses on digitizing processes without significant changes to the model itself. For taxi services, passengers previously hailed cabs on the street or called dispatch centers. However, with the entry of companies like Be, Uber, and Grab, both passengers and drivers now utilize smartphone apps. This facilitates seamless connections between those seeking and providing transportation services. Notably, Uber and Grab don’t own taxis or employ drivers directly; instead, digital transformation has revolutionized the operational model of taxi services.

What does a Holistic and Comprehensive Transformation Entail?

“Holistic” signifies encompassing every component, while “comprehensive” implies covering all aspects. This equates to disruptive innovation.

Disruptive Innovation

A prime example of digital transformation is the metamorphosis of a caterpillar into a butterfly. The caterpillar undergoes a self-driven process, breaking free from its cocoon to emerge as a butterfly. Innovation drives change, which can be gradual and linear or rapid, comprehensive, and replacing the old—disruptive innovation. The introduction of the iPhone in 2007 and the Android operating system in 2008 are instances of disruptive innovation, significantly impacting Nokia’s global market share, which plummeted from 50% to under 2%.

What is the Fundamental Difference Between Digital Transformation and Informatization?

Informatization, or IT application, digitizes existing processes within existing operational models to deliver existing services. Digital transformation, however, encompasses the complete digitization of an organization, leading to new processes, organizational structures, and service delivery methods, or even entirely new services.

Transformation While Preserving Core Values

Britannica, a company renowned for its high-quality encyclopedias serving educational purposes, thrived for nearly 250 years by selling 32-volume leather-bound book sets. Initially, Britannica embraced informatization by digitizing its content and releasing it on CDs. However, their digital transformation involved ceasing print publication and transitioning from a product-based to a service-based model, offering online access to their content repository. Throughout this process, Britannica retained its core mission of providing high-quality educational content.

What is the Fundamental Difference Between Digital Transformation and Science, Technology, and Innovation?

Digital transformation revolves around transforming operational models through digital technologies and data. Science, technology, and innovation, on the other hand, focus on creating new value through scientific breakthroughs and technological applications.

In the context of the Fourth Industrial Revolution, digital transformation and innovation are essentially synonymous.

What is Digital Technology?

In daily life, human communication relies on analog signals in the form of speech. Conversely, in the digital realm, computing devices communicate using digital signals, represented as binary digits (0 and 1). Broadly defined, digital technology encompasses technologies for processing digital signals, essentially information technology.

However, within the context of the Fourth Industrial Revolution, digital technology takes on a narrower definition, signifying a more advanced stage of information technology. This encompasses faster computation, larger data processing capabilities, higher transmission capacities, and lower costs. More broadly, digital technology represents one of the core technological groups driving the Fourth Industrial Revolution, including cloud computing, big data, artificial intelligence, blockchain, virtual reality, and more. This broader interpretation is more widely recognized.

Computing Power Doubles Every 18 Months

Today’s smartphones possess computational power exceeding that of the Apollo mission control computers by thousands of times. This remarkable progress in technology has paved the way for comprehensive and holistic digital transformation, previously unimaginable. As technology advances and costs decrease, widespread participation in digital transformation becomes increasingly feasible.

Over the past three decades, we’ve witnessed three technological waves, each spanning roughly 15 years:

• First Wave (1985-1999): Characterized by the proliferation of personal computers, this era focused on digitizing information, transitioning from paper-based to electronic documents.

• Second Wave (2000-2015): Driven by the widespread adoption of the internet, mobile phones, and mobile networks, this phase concentrated on digitizing business processes, enhancing productivity and efficiency through informatization.

• Third Wave (2015-2030): Fueled by breakthroughs in digital technology, this current wave focuses on digital transformation, migrating activities from the physical to the digital realm and from traditional to digital environments.

Four key digital technologies—artificial intelligence, the Internet of Things, big data, and cloud computing—are propelling digital transformation. Additionally, blockchain technology plays a crucial role in this transformation.

What is the Fourth Industrial Revolution?

Industrial revolutions occur when major technological breakthroughs trigger profound changes in production and society. The Fourth Industrial Revolution, believed to have commenced in this decade, is characterized by the convergence and synergy of multiple technologies, including digital technologies, leading to the rise of smart manufacturing.

• First Industrial Revolution: Marked by the invention of the steam engine in the late 18th century, ushering in mechanical production.

• Second Industrial Revolution: Sparked by the emergence of electricity in the early 20th century, leading to mass production.

• Third Industrial Revolution: Triggered by electronics, computers, and the internet in the 1970s, giving rise to automated production.

What Distinguishes the Fourth Industrial Revolution?

Each industrial revolution centers around specific technologies and the transformations they bring. In the Fourth Industrial Revolution, digital technology takes center stage, with digital transformation as the primary shift, altering operational models in organizations and businesses.

The previous three revolutions focused on mechanization, electrification, and automation, with machines replacing manual labor. The Fourth Industrial Revolution emphasizes intelligence, where machines augment human cognitive abilities.

Digital technology becomes more affordable as usage increases, with per capita costs approaching zero. Moreover, as data volume grows, digital technology’s intelligence increases, with users, rather than the original technology, becoming crucial in shaping this intelligence. Unlike previous revolutions, the role of the original technology creator becomes less critical.

The Fourth Industrial Revolution embraces the willingness to discard outdated practices and create experimental spaces for novel concepts not yet fully defined or regulated. Therefore, it’s more a revolution in institutions and mindsets than solely in technology.

Example: Banking Services

The transformation in banking services goes beyond ATMs and branches, offering anytime, anywhere accessibility. Traditional banks typically operate from towering headquarters and numerous branches. However, digital banks deviate from this model, with smartphones replacing both ATMs and branches, becoming the most successful deposit mobilization channel globally. Visa processes an average of 9,000 transactions per second, while Alipay handles 87,000 transactions per second, with 84% occurring on mobile devices. Despite lacking physical branches for deposits, Alipay manages deposits approaching $200 billion.

What is Artificial Intelligence?

Artificial Intelligence (AI) aims to imbue machines with human-like cognitive abilities. While achieving this goal remains a long-term endeavor, significant strides have been made in augmenting human intelligence through AI over the past two decades.

China’s “Sputnik Moment” in Artificial Intelligence

In 1957, the Soviet Union’s successful launch of Sputnik 1 shocked the United States. The term “Sputnik moment” describes when a nation recognizes a threat or challenge from another, prompting them to double down on efforts to catch up and surpass.

A similar event, though less publicized, occurred in the AI world. In March 2016, Google’s AlphaGo, leveraging deep learning and big data, defeated the reigning world champion in Go, a complex game originating in China over 2,500 years ago. This event, witnessed by over 280 million viewers in China, ignited a passion for AI, propelling China to the forefront of AI development.

Machine learning, a branch of AI, aims to enable machines to learn like humans, acquiring new knowledge independently. This relies heavily on data, and with increasing data availability and computational power, machine learning has witnessed significant breakthroughs.

Deep learning, a crucial advancement in machine learning, simulates the neural networks and functions of the human brain to process and analyze massive structured and unstructured datasets.

In essence, AI can be likened to the human nervous system.

What is the Internet of Things?

The Internet of Things (IoT) is a foundational technology of the Fourth Industrial Revolution. While the internet connects devices like computers and smartphones, the IoT extends this connectivity to everyday objects. Through smart sensors and network connections, inanimate objects, from appliances to plants, can “communicate” with each other and humans. This technology bridges the gap between the physical and digital realms.

The IoT can be compared to human senses.

What is Big Data?

Big data encompasses the massive datasets generated by billions of smartphones, IoT sensors, and human online activities. The daily data volume now surpasses the storage capacity of a billion DVDs. While processing such vast amounts of data previously took considerable time, current digital technologies can analyze it rapidly to extract insights, generate knowledge, and facilitate timely decision-making. Unlike previous technologies that primarily handled structured data, current systems excel at processing unstructured data, which accounts for 70-80% of all data and holds richer information than structured data.

Big data can be compared to the human brain.

What is Cloud Computing?

Cloud computing enables access to computing power from remote data centers—the “cloud”—owned by service providers. Instead of relying solely on personal or office computers, individuals and organizations can utilize cloud services on demand, much like electricity from a power grid. This eliminates the need for individual server investments and management.

Cloud computing can be likened to human muscles.

What is Blockchain?

Blockchain, as the name suggests, is a decentralized, distributed ledger technology. It comprises blocks of information cryptographically linked and chronologically ordered, ensuring security, immutability, and transparency.

These characteristics allow blockchain transactions to occur automatically without third-party verification, potentially reducing or even eliminating intermediaries.

Blockchain Valley

Zug, a small Swiss town with a history dating back to the 13th century, faced economic challenges until 2013. However, in 2009, Zug embraced blockchain technology, becoming the first jurisdiction globally to accept cryptocurrency in 2013. This pioneering move attracted over 600 blockchain companies to Zug by 2016, transforming it into the “Crypto Valley.” Zug’s success highlights the benefits of early adoption and fostering innovation.

What are the Biggest Challenges of Digital Transformation?

The most significant hurdles in digital transformation are changing habits and fostering accurate perceptions.

Humans have been accustomed to the physical world for centuries, and transitioning to the digital realm requires behavioral adjustments, which can be challenging and time-consuming. Successfully changing habits within an organization largely depends on the commitment of its leadership.

Furthermore, given its unprecedented nature, grasping the true essence of digital transformation proves difficult. Understanding digital transformation within an organization’s context is crucial, as it hinges more on the leadership’s willingness to embrace change and innovation than just technological implementation.

Are There Any Negative Aspects to Digital Transformation?

Like any other advancement, digital transformation has two sides. While digital technology offers tremendous potential for good, it also harbors risks. We may not fully comprehend all its positive and negative ramifications at this stage.

Transitioning to the digital world requires individuals to equip themselves with essential digital skills. As in the physical world, vulnerable groups like the elderly, children, and others become potential targets for malicious actors in the digital realm.

Potential downsides include online scams, cyberbullying, hate groups, and terrorist organizations exploiting digital platforms.

Why is Digital Transformation Like Changing the Size of a Dining Table?

While digital transformation stems from technological advancements, it extends far beyond just technology. It entails embracing new approaches and fostering innovation. This makes it more a revolution in mindset, perception, institutions, and policies than a purely technological one.

The following example demonstrates how data-driven decision-making, a key aspect of digital transformation, can lead to innovative solutions.

Data Analysis for Optimal Decision-Making

A major US travel company, as part of its digital transformation initiative, installed public cameras and sensors in its cafeteria to collect data. Analysis revealed that employees who frequently dined in groups of four or eight exhibited higher productivity than those who ate alone or in larger groups. Based on this data-driven insight, the company redesigned its cafeteria, introducing tables specifically designed for four or eight people. This simple yet innovative approach highlights the power of data in informing decision-making.

This example illustrates that while digital transformation hinges on technology, its true essence lies in embracing change, fostering innovation, and making data-driven decisions.