What Is Digital Transformation vs. Business Transformation?

Written By: Eric Kimberling
Date: January 23, 2023

Digital Transformation and Business Transformation are two of the hottest buzzwords in the industry today but how exactly are these two terms different and how does it apply to you? That's what I want to talk about in this article today.

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Digital Transformations and Business Transformations are two of the most frequently discussed topics in the business and technology space today. Each of these terms can be very vague and are oftentimes interchanged. So what we want to do today is talk about the differences between Digital Transformation and Business Transformation, so that you can have a clear vision of what exactly you're trying to accomplish with your overall change initiative.

Technology as a Driver

The first thing that distinguishes a Digital Transformation from a Business Transformation is the use of technology. Is technology being used as a driver of change or is it used as an enabler of change? It may sound like splitting hairs but this is a really important, subtle but important difference in the digital versus business transformation discussion.

Business Transformations generally will view technology as an enabler, they have a clear vision for what their business changes and their operational model and their organizational structure needs to be and they're simply using technology as a way to automate or enable those changes. A Digital Transformation on the other hand, is more focused on using the technology to define the future state of the business processes and really define how technology can change or disrupt the way business has been done by the organization in the past. 

Understanding which path you're going down and what your priorities are is really important because even though it doesn't really matter if you call it a digital transformation or business transformation, you need to know what technology's role in the overall change initiative is going to be and if you view technology as an enabler, then you want to focus early on defining your operating model, your organizational structure and any cultural changes you're looking to drive within the organization. Then, you'll figure out how technology will help support that.

If you're looking for technology to help you define how you might change your business or automate your business going forward, then you might do less of that work up front and focus more on finding the right technology to help drive some of those changes, so the use of technology and whether it's a driver or an enabler of change is one of the key differences between digital and business transformations.

Focus on People and Processes

Regardless of whether you're pursuing a Digital Transformation or a Business Transformation, there needs to be a heavy focus on people in the organizational change component of change. The reason for this is, whether it's digitally driven or business driven, the changes are likely going to change and affect your people, changing and affecting your people is going to be a key prerequisite to ensuring that you are successful in your transformation.

Generally speaking, Business Transformations are more focused on the people component or the human component of change, however, I'd say it's also very important in Digital Transformations as well and it's more likely to get overlooked in Digital Transformations. If we view technology as a driver of change and sort of the thing that leads change and drives change within the organization, it becomes easier and more tempting to ignore the human component, whereas with a business transformation, we already know we're focused on the business, the processes, the people and the strategy. We're focused on that first and foremost and then we're finding the right technology to support it.

While change management and the human component of change is critical in either scenario, it's more risky in the Digital Transformation scenario because you're more likely to overlook it, so regardless, it's important to really focus on defining a clear change strategy. 

For more information and best practices on change management strategies that might help your digital or business transformation, I encourage you to download our guide to organizational change management, it's a white paper, it's very comprehensive describes a number of tools methods and best practices you can use to drive the human side of change within your transformation. I've included links to that below so be sure to check that out as well.

Have a Clear Business Strategy and Goals

Having a clear business strategy and goals is again something that's important for both Digital Transformation and Business Transformation but again it's more likely that Business Transformations are going to have a more clearly articulated strategy and goals to work from. Digital Transformations are at risk of not having those clearly defined goals and objectives because it's tempting to let the technology lead the change and therefore it almost provides an excuse for organizations not to clearly define or articulate what their strategy and goals are as part of the digital transformation.

We want to make sure that in either case, whether we're pursuing a Digital Transformation or Business Transformation, we want to make sure that we have clearly defined business goals and objectives to help enable the changes that we're looking to pursue within our business.

Measurable Results and ROI

Both Digital Transformations and Business Transformations should focus on measurable results and a solid return on investment however most organizations that are pursuing the Digital Transformation route don't focus on measurable results in ROI. Too often they're focused on implementing technology simply because they're old technology is outdated and they have to replace the technology. That might be a great reason to pursue a Digital Transformation but it's not enough if you want to avoid the money pit, the cost overruns, the time on overruns and the overall failures that plague the industry, you want to make sure you have a clear set of measurable results in ROI and business benefits that you expect to get from the Digital Transformation.

The same is true for Business Transformations but it's more likely that if you're pursuing a Business Transformation, you're going to focus on measurable results in ROI, however I'd argue it's even more important for the Digital Transformation path because if you're investing heavily in technology. That can get very expensive, very quickly, in most cases a Digital Transformation is going to cost more than a Business Transformation.

It's even more imperative that you have clearly defined business results, business benefits and overall ROI analysis that you expect to get from the project and not only to find the ROI as a way to justify the investment but more importantly as a way to track the business benefits that you expect to get out of either the Business Transformation or the Digital Transformation. While it's important for both Business Transformations and Digital Transformations to focus on measurable results in ROI, we would argue that it's even more important for the Digital Transformation route, if you're investing heavily in technology because those projects are more likely to cost more and run over time and budget than expected so at the end of the day what I think is safe to say is the Digital Transformation, Business Transformation are very similar.

There's a lot of overlap, a lot of commonality and subtle differences but you really want to determine for yourself and for your organization what you are focused on. Are you focused on more of the Business Transformation route or are you focused more on the Digital Transformation route or maybe it's a combination of both which is what I would argue most organizations would likely be doing here in the 2020s. 

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If you are looking to strategize an upcoming transformation or are looking at selecting an ERP system, we would love to give you some insights. Please contact me for more information eric.kimberling@thirdstage-consulting.com

Be sure to download the newly released 2023 Digital Transformation Report to garner additional industry insight and project best practices.

Eric Kimberling
Eric is known globally as a thought leader in the ERP consulting space. He has helped hundreds of high-profile enterprises worldwide with their technology initiatives, including Nucor Steel, Fisher and Paykel Healthcare, Kodak, Coors, Boeing, and Duke Energy. He has helped manage ERP implementations and reengineer global supply chains across the world.
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