Digital Transformation — Digitalization and Digital Diffusion

When we talk about Digital Transformation, we often confuse it with Digitalization. In reality, they are connected but are different phenomena.

Digitalization refers to the use of digital technologies to manage business processes in an innovative and increasingly automatic way in order to exploit the advantages of emerging digital technologies in making a company more efficient, and optimizing our business model.

On the other hand, the Digital Transformation is a much wider phenomenon that is radically changing our society, our economy, and our institutions by exploiting digitalization as an enabling phenomenon. All this is possible thanks to Digital Diffusion — the growing and pervasive presence of digital technologies in our daily life. So, Digitalization enables Digital Transformation through Digital Diffusion.

We cannot consider the role and impact of emerging digital technologies only on a local scale and for a single company. To take a holistic view we must consider the role they will play in the development of globalization, and therefore consider them disruptive factors for this process.

Emerging Digital Technologies

But what exactly do we refer to when we talk about emerging digital technologies that will play a role in globalization 4.0? To answer this question, we need to evaluate some of the technologies that are highly disruptive to corporate and institutional business processes.

Technologies are able to change an organization’s functions forever, introducing innovation elements that go far beyond simple digitalization and dematerialization. Technologies are able to contribute in a decisive way to the types of problem solving that are typical in a simple or complex organizational system.

For the sake of brevity we won’t analyze them all, but we will instead limit ourselves to those which, in order of impact, we consider the most disruptive: Artificial Intelligence, Internet of Things (IoT), Blockchain, and Robotic Process Automation.

Let’s briefly introduce each one:

Artificial Intelligence: We call it intelligence, but in fact it is far from our human intelligence. Rather, it is software that is programmed not to perform a specific and determined action, but instead to learn how to react to an occurring event through an experiential process. After coding and before it can work, this software needs to be trained; subsequently it will be able to respond to new requests through simple cognitive procedures.

For example, software that can recognize an invoice, not because it is programmed with the specific positions of the text in the document, but because it is able to understand what the document actually contains. In this way, we do not need to program the software to recognize all invoice models, but instead teach them how an invoice is made. Subsequently, the software will be able to recognize all types of invoices, regardless of the used model.

Internet of Things: The Internet of Things (IoT) refers to objects that connect to the internet in order to interact with other objects or with people. By objects, we mean complex objects, such as vehicles, domestic appliances, wearables (objects that are worn, such as watches, etc.), smartphones, medical devices, and more.

In concrete terms, the IoT adds the possibility of running software and connecting to the Internet to these commonly used objects, allowing the exchange of data and the consequent specific action / reaction.

Blockchain: Often confused with the Bitcoin currency, this wonderful technology actually conceals much richer treasures than simple cryptocurrency. Blockchain is the technology that allows Bitcoin to work, but it is not born just for this purpose. It is an ingenious system of concatenation (in otherwords, a chain) of information in consecutive blocks (blocks). It is no longer possible to modify a datum without invalidating all of the data subsequent to the modified one. This is the so-called immutability of information. This property is of considerable interest in all types of transactions, both commercial and institutional.

Blockchain also allows the decentralization of processes by favoring disintermediation by central bodies / organizations. It will play a very important role in the development of globalization 4.0.

Robotic Process Automation or RPA: RPA was born as a technology that mimics human-machine interaction for the execution of repetitive tasks. Today it is evolving, with the acquisition of cognitive abilities that allow the software to solve a decision-making process, even in presence of unexpected events. This is possible thanks to the convergence of Artificial Intelligence with this technology, which modifies the execution of problem solving from deterministic to probabilistic.

As mentioned above, the list of new technologies could include many more items. However, in this article we will focus only on the four listed topics.

Globalization is a phenomenon that represents the intensification of trade and the increasing interdependence among nations. The grafting of emerging digital technologies into the heart of the management processes is at the base of this phenomenon. It cannot help but create a disruptive innovation that, if not qualified through the grafting of sustainable and inclusive policies, can take us away from sustainable and inclusive innovation.

These new digital technologies do not just contribute to the efficiency of the management process, but also create new business models that were previously unthinkable. Industry 4.0, in fact, represents the very basis of a revolutionary model of production and business management.

For example, until just a few years ago, the Supply Chain benefited from Information Technology as a fluidizing factor leading to organizational efficiency. Today is evolving towards the Orchestration of Ecosystems with a preponderant need for data analysis.

The Impact of the Fourth Industrial Revolution on the Supply Chain

The term “supply chain” refers to a set of organizations, people, activities, information, and resources necessary to transfer a product or service from the supplier to the final customer.

The advent of digital technologies has imposed a new way for companies to relate to those both outside and within their organization. To produce goods or services, a company uses a set of technical resources to service the needs of human resources. These resources relate to each other thanks to the supply chain, making use of the means of communication and transmission.

The various WIP are transferred among the various departments of the factory for due processing. The workers, following the procurement of raw materials, build or assemble WIP to create the finished product. All of this is part of the physical flow of the products, which starts with the supplier and reaches the end customer. However, we must not overlook the information flow during this process, which moves in the opposite direction to the physical flow and includes any exchange of data necessary for the execution of the order.

In the past, the information flow generated by these activities was mainly managed by people who wrote or read the data that would then be aggregated for statistics. Today, the Internet of Things (IoT) allows us to obtain a wholly creative flow: information is exchanged directly by objects without human intermediation. A workpiece communicates directly with the machine, which then transmits the data to the computer.

Here comes the importance of grafting new emerging digital technologies into the processes that drive the supply chain. Supply chain processes are strongly affected by digital transformation. The ultimate goal of digital transformation in this field is to create largely autonomous supply chains, with the ability to regulate themselves and decide how to react to events and changes.

A key factor in this perspective is the systematic implementation of Artificial Intelligence in the supply chain. This is due to its wide applicability, and its ability to proactively deal with complex business problems along the entire chain.

In fact, this technology makes it possible to exploit the value of data, and at the same time highlights any critical issues present along the chain before they occur. It will also recommend prescriptive actions for a smarter and more agile supply chain.

Going deep into an analysis of the impact of Artificial Intelligence in business production processes, we can include: the ability to optimize stocks by increasing the accuracy of reordering policies; the predictive distribution to improve demand production planning; the automation of daily operations decisions; and (last but not least) cost reduction.

Amongst the other technologies that play a fundamental role in supply chain innovation (and consequently in its optimization) there are also cognitive analyses. They will have a disruptive impact on problem solving in the coming years. Furthermore, there are the so called digital twins — the digital representations of physical products that allow increasingly more advanced product customization, and blockchain technology, whose potential seems to present a growing enthusiasm in supply chain managers.

As can be seen, the advantages of supply chain processes grafted with emerging technologies are manifold. Therefore, in a world that is advancing rapidly towards the new progress of Digital Transformation and in a market where the end customer has more and more choices, it is essential for companies to invest in supply chain innovation to stay competitive.

At the same time, an essential aspect of futuristic evolution must not be overlooked: sustainability. In the traditional economy, production can be represented as a linear process: raw materials, components, finished product, use of the product, disposal. In the future, wasting resources will be considered increasingly unacceptable. Consequently, it will have to be minimized as much as possible. So here we introduce the concept of a “circular economy,” which involves the design of a circular life cycle supply chain. This means that as many components as possible can be recycled, recovered, and reused.

In this perspective, the goal is to give value to the customer by minimizing waste. In order to pursue this goal in the most efficient way, there is a need for the supply chain to be automated. Here the technologies we discussed come into play again. In fact, the use of technologies (such as Artificial Intelligence and/or the Internet of Things) in an automated scenario can allow the supply chain to realize the principles of the circular economy. It works independently and becomes a self-sufficient ecosystem.

However, the unprecedented opportunities and benefits of Digital Transformation are associated with new questions. How can we build a sustainable and inclusive digital future?

Existing institutions and principles must necessarily be redesigned in order to effectively respond to the rapid digital transformation and its distributed nature. The decisions that are made today will shape the world for future generations; therefore, collaboration and innovation are the basis from which to draw together the overall destiny of today’s society. The future of the digital economy and society must be modeled through a global cooperation platform in order to erect a digital economy that is sustainable and inclusive.

To conclude, Globalization 4.0 should equalize some of the disparities that exist on a global level through the pervasive use of emerging digital technologies. We should favor sustainable and inclusive innovation that allows fair and defensible growth for the benefit of all people, even those who populate underdeveloped geographical areas.