For companies to create value, Digital Transformation that uses digital technology and transforms the business is essential. Digital Transformation is growing in the manufacturing sector, but many companies are falling behind due to the time and cost required to introduce digital technology. Some of you may also be wondering what Digital Transformation is in the first place and how it differs from digitalization.
In this article, we will define the need for Digital Transformation and explain the basics, benefits, and challenges of moving forward with Digital Transformation, including examples and specific examples.
What is Digital Transformation?
First of all, I will introduce the meaning and definition of Digital Transformation.
What does Digital Transformation mean
Digital Transformation is an acronym and its official name is “Digital Transformation”. “Change” is a word that means change, transformation. If you take the first letter as it is, it is “DT”, but in English-speaking countries, “Trans” is usually called “X” and is usually called “Digital Transformation “.
Definition of Digital Transformation
Digital Transformation was first proposed in 2004 by Professor Erik Stolterman from Umeå University in Sweden. He defines DT as “ICT access that changes all aspects of people’s lives for the better”.
Since then, DT has spread all over the world, but it is used in different ways depending on the person and situation, and there is no clear definition.
In Japan, the Ministry of Economy, Trade and Industry’s definition of DT is included in the “Digital Transformation Promotion Guidelines (Digital Transformation Promotion Guidelines)” published in December 2018.
Digital Transformation Definition by the Ministry of Economy, Trade and Industry
In response to rapid changes in the business environment, companies are using data and digital technologies to transform their products, services and business models based on the needs of consumers and society, as well as their operations, organizations, processes and changing corporate culture. ・Changing culture and creating competitive advantage
This definition is widely used in Japan.
To summarize the above definition, DT can be said to be “a company’s attempt to change its business model and increase its competitiveness by using data and digital technology.”
What is the difference between Digital Transformation and Digitization/IT?
Words that are often confused with Digital Transformation include digitalization and IT. Although these are the terms they use digital technology, Digital Transformation is a concept that goes beyond mere digitalization and IT.
In general, the use of digital technology can be divided into three stages:
- Digitalization
Conversion of analog information into digital data - Digitalization
Digitalization of individual workflows and processes - Digital transformation
Digitalizes the workflow and processes of the entire company and transforms the business model itself.
Among them, digitalization and digitization are equivalent to digitalization and IT.
These initiatives aim to increase operational efficiency by introducing systems and using digital data, but their impact is limited because they are limited to specific operations and processes.
Digital Transformation, on the other hand, refers to changing the business model using digital technology. As a result, you can not only improve your business performance, but also create products and services that did not exist before and have the potential to have a great impact on society.
Examples of Digital Transformation metrics.
Forward-thinking companies are the first to address DT and have already achieved great results. Let’s take a look at examples of DT initiatives to understand more deeply what Digital Transformation is.
Trusco Nakayama Co., Ltd.
Trusco Nakayama Co., Ltd., a specialized wholesale trading company dealing in a wide range of tools and equipment for outdoor work sites and support production sites, was selected as a “DT Brand 2021” company.
Artificial intelligence is used to automate time-consuming processes such as responding to estimates and delivery dates, and an “instant response specialist” responds instantly to retailers’ quotation requests. Coexistence not only increases and speeds up efficiency, but also takes into account the convenience of partner companies, such as automated product adoption, which analyzes sales performance data and determines whether we need Sales on a regular basis. By creating a mutually beneficial system, Digital Transformation.
KOMATSU LIMITED
Construction machinery manufacturer Komatsu Ltd. is a pioneer of digitalization in Japan’s manufacturing industry. Since 2001, we have established the KOMTRAX system, which provides construction machinery information, quality equipment remote controls, and services that support customers’ operations management and maintenance management.
We have recently been promoting “Smart Construction”, which fully utilizes digital technology to realize safe, high-efficiency, smart, and clean workplaces of the future.
Hitachi Ltd.
Electrical appliance manufacturer Hitachi, Ltd. has received the “Digital Transformation Stock 2021” Grand Prize, jointly selected by the Ministry of Economy, Trade and Industry and the Tokyo Stock Exchange.
The company provides an IoT platform called “Lumada” that combines OT (Control and Operation Technology) and IT and creates new value from customer company data. We are also working to accelerate social Digital Transformation by engaging with multiple partners, building an ecosystem based on Lumada, and providing packaged solutions.
Reasons and benefits for companies to join Digital Transformation
In recent years, advances in DT have led to the creation of a number of new products, services and business models, and international competition has intensified.
The manufacturing industry is particularly globalized and highly competitive. So far, the quality of Japanese manufacturing has been widely praised, but in the future, it will not be possible to maintain competitiveness on this basis. However, if you start working on DT at an early stage, you can benefit from the advantages that I will outline below and increase your competitiveness.
Better productivity
A common benefit of Digital Transformation is the increased efficiency through the use of DT . For example, it is possible to reduce human labor by introducing IT tools to automate tasks.
In addition, analyzing and optimizing the data collected through IoT will increase operational efficiency. Increased productivity also leads to lower costs and higher profit margins.
Stable business continuity
Many companies still have legacy systems that are outdated, complex or black boxes. If you continue to use the system in the same way, it will be difficult to increase efficiency, and it may stop due to problems and become impossible to ensure stable business continuity. However, if you update your system while working on Digital Transformation, the problem will be solved.
Digital Transformation is also extremely important in terms of BCP (Business Continuity Plan). If you digitize your business, it will be easier to switch to remote working and continue working even in cases where employees cannot come to work, such as in the event of a disaster or infectious disease.
Creation of new products and services
If you can create new products and services using digital technology, you can expect an increase in sales. For example, by establishing a system that will collect customer information using IoT, it will be possible to use it in product development and provide proper after-sales service.
By using data and digital technology, you can increase your competitiveness while responding flexibly to changing customer needs.
Increase customer satisfaction
By combining the three advantages above, companies will be able to offer the products their customers want at consistently lower prices, thus increasing customer satisfaction.
If you can successfully acquire new customers and be consistently chosen by these customers, you can maintain a high level of competition.
Challenges faced in working on Digital Transformation
Companies can gain various advantages by working on Digital Transformation, but the truth is that most companies develop slowly.
Japan is faced with the problem of aging infrastructure and information systems, and the slow progress in adopting new digital technologies and managing and using large amounts of data.
The Ministry of Economy, Trade and Industry has estimated that if Japanese companies fail to promote Digital Transformation, the economic loss could be as high as 12 trillion yen per year, with the economic loss scenario being 12 trillion yen per year from 2025. 2025 is called rock.
It is predicted that companies with old systems that cannot manage and use data will not be able to survive in the future.
Here we will introduce the problems that Japanese companies face that may become obstacles when working on Digital Transformation and the appropriate countermeasures.
Aging IT systems
Many Japanese companies continue to use old, complex, and black-box systems that require a lot of effort and cost to maintain. As a result, the digital investments required for Digital Transformation may not progress as expected and may end in failure.
If a system is developed with a short-term perspective and prioritizes individual optimization, it will become complex and become a black box. To promote Digital Transformation, consider overall optimization rather than individual optimization and update existing systems as necessary.
IT human resource shortage
Japan is experiencing a shortage of IT human resources across industries and industries, and this shortage is expected to become more serious in the future. In order for companies to develop Digital Transformation, they need to secure human resources who are familiar with both their own operations and digital technology; therefore, the IT human resource shortage will be a major obstacle.
When working on Digital Transformation, it is important to create a system that will transform your company’s existing human resources into IT personnel, and at the same time, cooperate with external companies that support Digital Transformation.
Techniques and technologies that realize Digital Transformation.
Many people do not know what kind of digital technology will be used when working on DT . Here we will briefly introduce representative techniques and technologies that will help understand Digital Transformation.
artificial intelligence
Artificial intelligence means artificial intelligence, and advances in computer performance have made it possible for computers to learn from large amounts of data and perform intellectual tasks instead of humans.
When working on Digital Transformation, the big data collected by IoT can be used in various ways, such as analyzing it using artificial intelligence or having artificial intelligence perform tasks automatically instead of humans.
IOT
IoT (Internet of Things) is a technology called “Internet of Things”, where everything is connected to the Internet and exchanges information with each other.
In Digital Transformation, it can be used for purposes such as understanding the location and movement of objects, operating objects remotely, and communicating with each other. It can be said that IoT, which is useful in data collection, is an indispensable technology for DT, which actively uses digital data.
Big data
As the name suggests, big data refers to data collected in large amounts.
Digital Transformation collects a large amount of data from IoT and other sources, but this data needs to be managed properly and a foundation needs to be created to extract data quickly when needed.
No matter how much data you collect, it is meaningless if you can’t use it, so big data processing technology is critical.
cloud
The cloud is a system that allows you to use various services on the Internet and store data. Using the cloud allows you to work from anywhere as long as you have an Internet environment, which helps digitalization.
Another advantage is that it reduces the cost of system implementation by eliminating the need to install the system on-premises.
5 g
“5th Generation” is an acronym and refers to the 5th generation of mobile communication systems.
It has the characteristics of “high speed and large capacity”, “high reliability and low latency communication”, and “multiple simultaneous connections”. With the widespread use of 5G, everything will be connected to the network, and IoT will advance in all areas, including autonomous driving and telemedicine.
VR/AR
Both are technologies that bridge the gap between real space and virtual space.
VR stands for “virtual reality” and is also known as “virtual reality”. It is a technology that allows you to experience a virtual world created by a computer as if you were actually there.
AR stands for “Augmented Reality” and is also known as “Augmented Reality”. It is a technology that combines and displays information and content from a created virtual space into the real world.
Steps for developing DT for small and medium-sized companies
There are many concerns among companies considering developing Digital Transformation, such as “I don’t know how to proceed” and “I can’t suddenly make a large-scale digital investment because I’m a small and medium-sized company.” Here we will introduce three steps for developing Digital Transformation for small and medium-sized companies.
[Step 1] Clarify the purpose of working on Digital Transformation and establish a system.
Digital Transformation is closely related to the way a company works, so it cannot be introduced by a single responsible person. First, managers themselves must understand the importance of Digital Transformation and explain the purpose of why they are working on Digital Transformation and what they want to achieve through Digital Transformation.
Then, it is important for managers themselves to take the lead and establish a system, such as creating a small project team to handle DT .
[Step 2] Collect data through digitization.
Understanding DT requires the use of digital data. Let’s digitize your company’s analog operations to increase operational efficiency and collect digital data.
In the manufacturing sector, possible approaches include digitizing paper-based documents, introducing production management systems, and implementing IoT in production equipment.
[Step 3] Target change using data
Our goal is to transform current workflows and processes by analyzing and using the digital data collected.
For example, in the manufacturing industry, there are ways to increase efficiency or analyze the conditions under which defects occur and their impact on product design based on data collected from production equipment.
You can only make small improvements at the beginning, but if you continue to do them, they will transform your business model.
Summary
This time we introduced Digital Transformation. Digital Transformation is an important initiative for companies to survive in the coming era of rapid change. The manufacturing sector, where international competition is intense, will also need to work on Digital Transformation. Why not transform your company by working on Digital Transformation instead of just digitalization and IT?