Information technology has grown so much in recent years that it has a presence in just about every aspect of modern life.
Of course, technology is important in business, too.
Digital transformation is a broad or holistic term that refers to the process a business or organization undergoes to completely integrate information technology into its operations and to use that integration to significantly change and improve the way it performs.
Most businesses have already adopted some level of information technology into their operations. Digital transformation implies a next level of integration that fundamentally restructures operations with technology as an enabling framework for change.
Digital transformation can be applied to various aspects of a business.
Process Transformation
This entails the use of digital technology to alter the way processes are conducted within a business. Processes vary depending on the type of market activity a business engages in.
An automotive manufacturing business, for example, will have very different processes than a retail company.
In either case, digital transformation will enable these businesses to change the way they create or provide a product or service and interact with their vendors, suppliers, and customers.
The transformation will greatly improve these interactions and allow the business to meet its strategic objectives more effectively and efficiently.
Business Model Transformation
This implies that the business will use digital technology to alter the business's core functionalities. In today's business environment, market trends and consumer demands change rapidly.
Digital transformation allows a business to more effectively change its business model to keep up with the rapidly changing marketplace.
For example, a media company whose core service historically was delivering the news through a daily print newspaper may transform itself into a digital media outlet, delivering the news through online channels like a website, blogs, podcasts, and videos.
Domain Transformation
This refers to changes in a particular area of the business rather than just a specific function or process. For example, a credit card company can change the way customers submit applications for a new credit card.
At the same time, it can also change the intake process for these applications, as well as how they are reviewed, evaluated, and approved. This changes the entire experience for new customers.
In addition to making it easier for them to apply for a card, the approval process is also enhanced with reduced wait times, more efficient review of applications, and more reliable, data-driven approvals.
Cultural or Organizational Transformation
This implies a fundamental change in the value system and frame of mind embraced by the business.
These changes permeate the entire business from the top level down to the rank-and-file employees. It involves training, education, and commitment on the part of the entire team.
Digital transformation can be a cultural change in and of itself because it often requires the entire team to embrace a new approach and reliance on digital technology to meet strategic objectives.
Digital transformation can also empower a cultural change in other ways, such as how employees interact with customers or how they make decisions about the operations of the business.
Digital transformation affects accounting in many ways.
Accounting Automation
Accounting automation, also known as computerized accounting, refers to the use of software applications to perform the essential functions involved in the process of maintaining a business’s financial records.
Accounting software can execute fundamental tasks, such as capturing and entering data into the business ledger, reconciling discrepancies, updating records, and producing reports and financial statements.
Artificial Intelligence (AI)
Artificial Intelligence (AI) in accounting automation platforms can execute accounting tasks such as entering and matching data from receipts and invoices to purchase entries in accounts receivable and enforcing company policies in the expense reimbursement process.
Cloud computing in accounting involves the storage of information in a centralized database that can be accessed over the Internet (the cloud) from anywhere.
With cloud computing, accounting information is not stored primarily on one or more employees’ desktop computers. Instead, it is stored in a centralized place that everyone can access.
Data entry, which is the input of information into a centralized source, is dramatically altered by digital solutions. Traditional accounting systems involve data entry using paper ledgers.
Digital solutions can eliminate the need to manually enter this information. Instead, computer processes capture the data from different source materials and input it into a central information source.
Robotic process automation is a form of automation that performs repetitive assignments, including sorting, data insertion, form completion, and interpretation of text and data.
Unlike AI, RPA does not learn or develop logic, instead relying on structured data and rules. It can greatly reduce processing time and free up staff for other work by performing these time-consuming, repetitive tasks.