What is Digital Transformation?

Digital transformation is the process of integrating digital technologies into all facets of a business, fundamentally changing how it operates and delivers value to customers. It goes beyond merely digitizing existing processes; it requires a comprehensive rethinking of business models, strategies, and organizational culture to fully leverage technological advancements.

There are three key components of digital transformation efforts:

• Business model transformation: Reevaluating and redesigning the foundational aspects of how value is delivered in a specific industry.
• Process transformation: Modifying internal processes to improve efficiency and effectiveness through automation and the adoption of advanced digital technology.
• Cultural transformation: Fostering a culture that embraces change, encourages innovation, and supports continuous learning to effectively implement and sustain digital initiatives.

Successful digital transformation requires a strategic approach that aligns technology adoption with business objectives. All levels of the organization have to be engaged and committed to the change process. It’s only through holistic integration that businesses can respond proactively to technological disruptions and evolving customer expectations.

Synonyms

• Digitalization
• Digitization
• Digital disruption
• Digital innovation
• Business transformation

Understanding Digital Transformation

Modern-day businesses can’t operate in the same way. The relationship between cloud-based software and the people who use it is a two-way street.

• On one hand, it’s enabled businesses to develop products and bring them to market far faster. And it’s given them the power to streamline just about every aspect of their business — sales, marketing, finance, customer success, and every other department have automation and analytics on their side in ways that just weren’t possible a few years ago.
• On the other, the unprecedented level of speed, accuracy, and convenience it enables has changed the way we buy and sell for good. 81% of customers openly say they prioritize companies that deliver personalized experiences. 35-50% of sales go to the vendor who responds first. And today, more than 4 in 5 businesses use SaaS products.

So, businesses have to use modern technologies because, in addition to being able to 10x their business and streamline everything, they don’t have a choice. The modern customer demands it, and they’re competing against companies that already are.

“Digital” vs. “technological”

When we talk about “digital transformation,” we’re referring to something far greater than any piece of technology. To quote George Westerman, principal research scientist at MIT Sloan School of Management:

“When digital transformation is done right, it’s like a caterpillar turning into a butterfly, but when done wrong, all you have is a really fast caterpillar.”

Without a comprehensive transformation — including changes to processes, strategies, and organizational culture — adding technology won’t do much. It’ll enhance efficiency, but it won’t lead to the profound metamorphosis that true digital transformation can achieve.

The “technological” aspect will only serve to improve processes that, themselves, are obsolete. And according to Westerman, “It’s hard to keep up with your competitors if you’re crawling ahead while they can fly.”

To become the “butterfly,” you have to embrace a holistic change that integrates technology with a new way of thinking and operating, rather than simply becoming a “faster caterpillar” by digitizing existing processes without cultural adaptation and business process reengineering.

Key enablers of digital transformation

What started with Salesforce, the world’s first major SaaS platform, has evolved into XaaS, or “Everything as a Service,” and birthed the modern age of business. Now, there’s a platform that takes the place of practically every business process, to the point where it’s actually created new ones.

Cloud computing

The cloud delivery model itself has opened up an entirely new world of product innovation. Instead of spending months or years on R&D and shipping out a product with no guarantee of ever recouping costs, software vendors can roll out new features in weeks or days via the cloud.

On top of SaaS solutions, which serve business functions (e.g., CRM), the cloud has also given birth to PaaS (Platform as a Service), IaaS (Infrastructure as a Service), and DaaS (Desktop as a Service), among several others. These tools facilitate the development and deployment of applications, meaning creating one of your own is faster, easier, and cheaper than ever.

It’s also scalable. Since they’re hosted on servers in remote data centers, cloud-based applications can handle spikes in usage and traffic without breaking a sweat. Critically, they free companies from needing to invest heavily in hardware capacity that may go unused for months or years.

Artificial intelligence and machine learning

AI is built into software to run processes and tasks automatically. It’s a natural extension of the cloud — it learns from user behavior and data, then adapts to handle work automatically. In addition to process automation, it can personalize experiences, deliver insights from massive data sets, and replicate human decision-making (where it has the data to, that is).

ML is a subset of AI. It’s a technology that enables software to automatically improve its performance through experience and data. As AI trains itself on more and more information, it gets smarter and more accurate. It’s the key to automating personalized, intelligent communication scaled to thousands or millions of users.

Data analytics and big data

When you use software platforms, every interaction — a purchase, a click, a form submission — generates data. Big data is the collection of these massive sets of information that can be analyzed to reveal patterns and trends in customer behavior, internal processes, sales and marketing performance, and market trends.

When you integrate your software tools with data platforms and analytics software, you can track and analyze data across all your platforms. At that point, you can use it to make decisions — for example, how much to allocate to your sales budget next year or which new market shows the most promise.

The Internet of Things (IoT)

IoT devices connect the digital world to the physical. Think of your phone, fitness tracker, smart home thermostat, or Amazon Alexa — these are all IoT devices. They collect data on us and our environment and send it to software platforms for processing and analysis.

So, why does this matter for digital transformation? You can use that same technology for things like building security, maintenance planning, and supply chain management. Instead of having a human physically monitor and maintain everything, IoT devices can automatically collect data and alert you when something needs your attention.

Cybersecurity

Because everything happens on the cloud, there are new kinds of threats, which will be a huge consideration on your digital transformation journey.

• Sensitive customer data can be breached.
• Hackers can disrupt your operations or steal your intellectual property.

Digital transformation introduces new technologies and increases the number of connected devices, making you more vulnerable to cyberattacks. You have to have robust cybersecurity measures in place to protect your sensitive data and technological infrastructure.

The Benefits of Digital Transformation

The adoption of new digital technologies is something everyone can benefit from, both on an individual and a macro level.

Impact on customers

When you use modern tools and processes, you have all the data and insights you need to serve your customers better. And you have the resources to make life easier for them.

From a customer’s perspective, digital transformation means:

• More personalization
• 24/7 support
• Connected omnichannel experiences
• New product and service offerings, more frequently
• Better quality and faster delivery
• Higher levels of transparency

Since the customer experience is so critical to your success (86% of buyers will leave you after just two bad ones), being able to deliver an exceptional one means they’ll be much happier with and more loyal to your brand.

Impact on employees

Maybe you don’t realize it, but employees leave companies for similar reasons as customers: poor experiences and lack of fulfillment. If you don’t give them the tools they need to do their jobs successfully, they’ll be burnt out, stressed, and unproductive.

When you modernize your business through digital initiatives, your employees will be:

• More productive and efficient
• Able to collaborate more effectively
• Happier and more engaged in their work
• Empowered to take on higher-level strategic tasks

That’s because a lot of the cloud-based tools you’ll implement as part of a digital transformation facilitate efficiency and alignment through automation, collaboration features, and system integration.

Impact on business operations

For your business, implementing modern digital solutions and reimagining your business model around their capabilities will mean:

• More insights into your operations and the customer journey
• Cost savings, better operational efficiency, and higher profitability
• The ability to quickly adapt to market changes and competition
• Streamlined processes that reduce your operational costs
• New revenue streams and business models (e.g., subscription models, servitization)

According to the KPMG Global Tech Report 2023, 63% of organizations reported an increase in profitability or performance over the past 24 months due to their digital transformation efforts. Most notably, investments in data and analytics yielded some of the most substantial benefits, with 64% of businesses experiencing a profitability or performance gain of at least 11% in this area.

Impact on the economy

Software as we know it has been building on itself for decades now. And from that, new sectors of the economy have emerged.

• AI/ML
• Data science
• Cybersecurity
• Tech consulting
• Cloud computing
• Software development
• Digital marketing and ecommerce

These are just a few examples of industries that have seen significant growth due to the advancements in digital technology.

In fact, between 2000 and 2022, the IT services sector (encompassing tech consulting and software development) grew twice as fast as the global economy and created jobs at 6x the rate of the overall economy.

And since the digital economy is accessible via the cloud, barriers to entry around the world have been significantly reduced, making it easier for businesses of all sizes to participate and compete in the global market.

Digital Transformation Framework

Despite being completely unique to the organization from a strategic standpoint, every digital transformation process follows the same four steps.

1. Assessment

During the “assessment” stage, your first order of business is to audit the current state of your organization. In 2025, chances are good you’ve already digitized at least some of your operations. So, you aren’t starting from scratch.

Assessment is where you take the time to evaluate existing processes and procedures, find the gaps, determine what you can and can’t salvage, set tangible objectives, and define how exactly digital transformation can improve your business.

Let’s say you’re a marketing agency working on retainer-based contracts. You’re small right now, but you want to prioritize outbound sales and add a few contractors to your team. You use a basic CRM, but you’re currently using Excel spreadsheets, email, and physical copies of contracts to land and onboard clients, manage your projects, and track your performance.

It’s possible to run a business with these tools in the beginning. But they aren’t scalable.

You decide that you need to invest in a CPQ (configure, price, quote) system for sales, contracting, and recurring billing. And you have to use a project management software to track your work and keep each team member accountable.

2. Strategy development

After you’ve set your goals and figured out how digital transformation impacts your ability to achieve them, you have to strategize.

The most important things to consider:

• Which tools will you use? To share data and connect to each other’s workflows, they have to be able to integrate with one another. In the example above, the marketing agency couldn’t choose a CPQ or project management software that doesn’t integrate with their CRM (unless they were planning on replacing the CRM, too).
• How much can you invest in the transformation? You should be prepared to invest not only in the tools themselves, but also in training for your team and any consulting or customization services you might need.
• What might you lose in the process? You should have a disaster recovery plan for things like data loss and downtime from data migration. You also need to consider how the changes might impact your current processes and relationships with clients.
• Will your employees be receptive to the changes? To drive software adoption, we recommend involving your end users (employees) in the evaluation and selection process from day one. But, even if they’re fans of the tools you use, you’ll need a change management strategy to address the cultural and organizational challenges that come with that software implementation.
• What about your clients/customers? How will the digital transformation impact their experience and interactions with your company? What will you do to communicate the changes and alleviate concerns and disruptions?

You also have to consider how you will prioritize digital initiatives. While it might be tempting to tackle everything at once, it’s important to prioritize and phase out the implementation. Pilot new technologies and scale up so you don’t overwhelm your team, and you have a smoother transition.

3. Implementation

Implementation requires you to approach those three components we mentioned earlier.

Business model transformation entails changing how you work. This could be anything from how you create and deliver products or services, to how you communicate with clients or manage your supply chain, depending on which gaps you’ve identified and which systems you’ve committed to changing in the first step.

Process transformation encompasses everything that will change internally when you invest in modern systems. Implementation, creating new workflows, and training your employees are all part of this critical step.

Cultural transformation is the fundamental shift in attitudes, behaviors, and beliefs. Creating a digital culture requires you to lead by example by actively engaging with and endorsing digital tools and processes. You also have to encourage experimentation and break down silos by fostering cross-functional teams that collaborate on digital projects.

4. Monitoring and adaptation

Look at KPIs on a regular basis to track your progress, using your previous business results as a benchmark. Each department will have a different set of KPIs — for example, your sales team will be looking at revenue growth, conversion rates, and internal performance metrics like sales productivity.

Over time, you’ll need to adapt your system to make it more efficient, customer-friendly, and relevant with current technological innovations. Periodically, solicit feedback from your team members and customers, and use this information to make improvements.

Digital Transformation Examples

To help you fully grasp the concept of digital transformation, let’s look at a few real-world examples across different industries.

Sanmina Corporation: Digital transformation in manufacturing

Sanmina Corporation, a leading integrated manufacturing solutions provider, recently underwent a massive digital transformation to enhance operational efficiency and maintain its competitive edge.

Their challenges:

• Managing the production of over 250 million products annually across 50 global factories.
• Integrating and monitoring more than 35,000 pieces of manufacturing equipment.
• Achieving real-time visibility into operations without causing significant factory downtime during the transition.

The company deployed 42Q’s cloud-based manufacturing execution system (MES) to connect and manage its extensive array of equipment across all facilities. The system allowed factories to self-deploy the MES without requiring extensive IT support, facilitating a smoother and faster implementation process.

In the end, it led to significant improvements in production processes, reducing downtime and increasing throughput while allowing them to scale across their global facilities.

PwC: Digital transformation in professional services

In 2016, PwC initiated a comprehensive overhaul of its back-office and shared services functions, primarily based in Tampa, Florida, to enhance efficiency and service delivery.

Their challenges:

• Identifying operational inefficiencies within human resources, learning and development, finance, IT, real estate, and administrative services.
• Reducing costs while improving the quality of internal services.

PwC applied its proprietary Fit for Growth methodology and BXT approach to pinpoint and implement operational improvements and reinvest the savings into transformative initiatives.

Emphasizing a “leave no one behind” philosophy, they launched a firm-wide program to accelerate adoption and upskill employees to align them with the new processes and technologies.

And by integrating Business strategy (B), eXperience design (X), and Technology (T), they collaboratively developed and implemented solutions that addressed pain points identified through extensive employee feedback.

Post-implementation, PwC attributed ~$100 million in cost savings, largely from automating manual and repetitive tasks.

DBS: Digital transformation in banking

Over the last decade, DBS Bank, headquartered in Singapore has transitioned from a traditional banking institution to a leading digital bank, earning recognition as the “World’s Best Digital Bank.”

Their challenges:

• Outdated infrastructure that hindered agility and innovation.
• A growing demand for seamless, digital-first banking experiences.
• The rise of fintech companies, which introduced new competition.

So, DBS integrated digital technologies into all aspects of its operations. They focused on process automation to drive efficiency. And they prioritized the customer experience by redesigning services to be intuitive and accessible.

They also cultivated a startup-like culture among their 22,000 employees, encouraging innovation, agility, and a willingness to embrace change. And they leveraged advanced technologies — cloud computing, artificial intelligence, and data analytics — to drive digital initiatives and improve service delivery.

In the end, DBS’s digital platforms gave customers seamless and efficient banking services. They saw sharp increases in loyalty and satisfaction rates, cost savings, operational agility, and were named the “World’s Best Digital Bank” by Euromoney in 2016 and 2018.

Walmart: Digital transformation in retail

Recognizing the shifting retail landscape and the growing importance of ecommerce, Walmart did a complete digital overhaul to enhance its operations, customer experience, and market position.

Their challenges:

• Intense competition from online retailers, particularly Amazon.
• Consumers who increasingly preferred online shopping and seamless omnichannel experiences.
• A supply chain and inventory management process that couldn’t meet the demands of both physical and online stores.

Walmart significantly invested in its online platform. They revamped the user experience, expanded their product catalog, and offered better delivery options. They also acquired several e-commerce companies, including Flipkart, Jet.com, Moosejaw, and Parcel.

They also integrated their physical and digital operations, allowing services like online ordering with in-store pickup, and leveraging their network of 10,600+ stores as distribution hubs. And they automated their supply chain operations and used data analytics to optimize their inventory and personalize customer experiences.

In response to Walmart’s massive sales growth in the ecom sector, seamless integration of online and offline channels, and increased resource efficiency, the company’s stock rallied in 2024. It rose ~50% over the past year, outpacing the S&P 500 and most large tech companies.

Challenges and Considerations for Digital Transformation

To recap, there are a few key situations to prepare for when you embark on your digital transformation journey:

• Skills gaps
• Cost and resource investment
• Resistance to change (from employees and customers)
• Integration of existing systems with new digital solutions
• Identifying the right technology partners and solutions that align with your business
• Data privacy and security (ensure you comply with regulations and protect customer data)

On top of that, you’ll have to stay ahead of the curve. Although the initial transformation is a one-time project, it’s really more of an ongoing process. It requires continuously adapting to changing consumer behaviors, emerging technologies, and new market trends.

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