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What is digital transformation? Everything you need to know about how technology is changing business

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Close Home Business Digital Transformation What is digital transformation? Everything you need to know about how technology is changing business Digital transformation: Here's why it matters, what the big trends are, how it impacts you - and why it will never end. marksamuels.jpg Written by Mark Samuels, Senior ContributorSenior Contributor May 13, 2026 at 6:41 a.m. PT
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What is digital transformation?

Digital transformation involves using technology to improve business effectiveness or efficiency. The idea is to use technology not just to replicate an existing service digitally, but to transform that service into something significantly better.

While the concept sounds simple, digital transformation can be a long, expensive, and complicated process that doesn't always go to plan.

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What are the key areas of digital transformation?

Definitions of digital transformation vary with industry and project. What everyone can agree on is that beneath the hype, the fluff, and the confusion, digital transformation involves significant changes. The main components might include rethinking business models, changing the underlying technology stack, embracing emerging technologies such as AI, innovating with customer experiences, and potentially changing organizational culture.

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What does digital transformation involve?

Digital transformation might be one of the most used phrases in the IT industry, but its elements can vary. The scope and scale of a transformation range from a public-sector organization digitalizing its paper records to a blue-chip enterprise using a host of emerging technologies to support a wide-scale business transformation.

Also: Forget productivity: Here are 5 strategic shifts that drive real AI value

Digital transformation can draw on many different technologies. The hottest areas are cloud computing, the Internet of Things, and artificial intelligence, particularly exploiting large language models (LLMs), generative AI (gen AI), and agentic AI. During the next few years, expect increased attention on other hyped-up tech topics, including physical AI, robotics, the blockchain, and quantum computing.

However, digital transformation is more than changing an organization using technology. All the evidence suggests that alterations to business processes and corporate culture are just as vital to the success of these initiatives. Digital transformation projects offer large and established organizations a way to compete with nimbler, online-only rivals. These transformation projects, which might involve launching new business models, are large in scope and ambition but come with risks.

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What is included in a digital transformation project?

Digitalization is not, as is commonly perceived, simply about implementing more technology systems and services. A genuine digital transformation project involves fundamentally rethinking business models and processes, rather than tinkering with or enhancing traditional methods. 

This creative requirement to rethink existing models remains a tough ask for business leaders. According to PwC's 29th Global CEO Survey, bosses today increasingly see reinvention as essential to growth. More than four in ten (42%) CEOs in the 2026 survey said their company has begun competing in new sectors over the past five years.

This reinvention could prove a critical step. PWC reported that CEO confidence in their company's revenue prospects has fallen to its lowest level in five years, as business leaders grapple with challenges such as uneven returns from AI, rising geopolitical risks, and intensifying cyber threats. Only 30% CEOs said they are confident about revenue growth over the next 12 months, down from 38% in 2025 and 56% in 2022.

Also: I asked 5 data leaders about how they use AI to automate - and end integration nightmares

In short, many CEOs fear their organizations are unable to exploit digital and data as part of a wider business model change. This gap between innovation and execution helps explain why digitalization and disruption have traditionally been seen as the preserve of nimble startups.

Jem Walters, CTO at banking group Vanquis, co-founded the successful money-saving app startup Snoop in 2019, which Vanquis acquired in July 2023. He explained to ZDNET how the nimble team at Vanquis was able to move quickly and decisively, embracing digitalization in a manner that might have been more complicated in the governance-heavy environment of a traditional bank.

Walters said the key to embracing digitalization is delivering enterprise-grade features as quickly as possible. "Everything works brilliantly on PowerPoint," he said, recognizing that startups have an inherent advantage in being able to test, learn, and transform. But digitalization and disruption don't have to be the preserve of startups -- there are great examples of digital transformation in the enterprise sector, too. 

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What are some examples of digital transformation?

As cited above, digital transformation can involve a large-scale shift to a new business model in a traditional firm. Examples of successful new business models include Microsoft moving from packaged off-the-shelf software to cloud-based subscription services and Netflix transitioning from posting mail-order DVDs to an online streaming platform.

However, not all digitalization programs are so grand. An oft-cited example of digital transformation is the transition of legacy systems to cloud platforms. Many companies began their transition to on-demand IT more than a decade ago. Even today, transitioning all older systems to the cloud remains a key ambition for many CIOs. It's easier for cloud-based organizations to update and change applications in response to new user demands. In this case, digital transformation supports nimbler IT operations, making existing processes much more efficient and effective.

Also: 5 ways to use AI when your budget is tight

Using technology to change or remove an inefficient working process is another example of digital transformation. Think, for example, of the digitization of paper records. Using technology to change how information is recorded and stored makes it easier to search digital records in a way that would have been unthinkable in an era of paper records.

Digitalization is also a prerequisite for the introduction of generative and agentic AI. Many business and digital leaders have told ZDNET that the foundation for emerging technology initiatives is a strong digital platform that provides a secure and trusted data source. Consultant Accenture also found that consistent data provides the foundation for AIs to operate in a trustworthy manner.

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How important is digital transformation?

For those who weren't convinced about the positive benefits of digital transformation, the power of digitalization won over many doubters during the COVID-19 pandemic. Digital transformation strategies were fast-forwarded at breakneck speed. Executive teams that might once have hesitated about a multi-year investment in video-conferencing and collaborative technologies tasked their IT departments with establishing remote-working strategies in days or even hours. 

CIOs and their IT teams stepped up and delivered, from supporting home working to providing online learning, establishing new online e-commerce channels, and even creating whole new business models. The expert consensus was that the rapid digital transformation led by CIOs and their teams helped change the perception of IT for good.

Also: 5 ways you can stop testing AI and start scaling it responsibly

Today, rather than being seen primarily as a service to other functions, such as sales and finance, technology is now recognized as a critical factor for long-term business growth. Smart IT executives and business professionals use that recognition to pursue new digital transformation opportunities and embrace data-led change. In short, every successful company is a technology business, regardless of sector. 

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What are the big digital transformation trends?

With digital transformation proving its worth, business and digital leaders must find new technology projects to get their teeth stuck into, and that's far from a challenging search in an age of data and AI.

Also: Worried AI agents will replace you? 5 ways you can turn anxiety into action at work

Gartner's analysis of key technology trends suggested that disruption is accelerating and AI is no longer optional. The technology analyst reported that organizations that act now will not only weather volatility but shape their industries for decades to come. Current digital transformation trends include: 

  • Cloud computing – On-demand IT has been at the core of digital transformation efforts for the past decade, but that focus doesn't mean the work is done. While many organizations aim for a cloud-first approach, few have moved their systems 100% to the cloud. Our evidence suggests that legacy tech remains a major hindrance to modernization.
  • AI and machine learning – Companies have spent the past decade collecting information. That effort looks prescient with the emergence and rapid rise of gen AI and agentic AI. Professionals must now bring data together and use AI to improve customer experiences and decision-making processes. Investments in AI and machine learning will continue to grow as companies explore new opportunities.
  • Automation – Executives who invested in robotic process automation to free up workers' time received a new boost from the rise of gen AI and agentic AI. Automation has moved from the fringes to the core of digital transformation efforts. Whether reducing software coding demands or introducing bots to automate service requests, companies are exploring how technology can cull repetitive tasks and allow staff to focus on creative and collaborative work that produces value.
  • Cybersecurity – Underlying all these digital transformation efforts is a continued requirement for investment in cyber-defense mechanisms. Research suggests that pre-emptive cybersecurity is a key investment area as organizations face an exponential rise in threats targeting networks, data, and connected systems. Gartner forecasts that pre-emptive solutions will account for half of all security spending by 2030, as CIOs shift from reactive defense to proactive protection.
  • Emerging technologies – AI might have hogged the limelight for the past few years, but other emerging technologies are bubbling up. These technologies will impact the business and its customers during the rest of the decade. Gartner's 2026 Hype Cycle for Emerging Technologies lists 29 disruptive technologies across four areas: autonomous business, hypermachinity, augmented humanity, and techno-societal fragility. Expect to see more investment in emerging areas, such as physical AI and vibe coding.
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How has AI affected digital transformation?

AI is the latest, and perhaps greatest, technology to impact digital transformation. Since OpenAI first unleashed ChatGPT on the world in November 2022, the AI hype remains cacophonous. While attempting to temper revolutionary expectations, MIT researchers reported that capabilities are already substantial and poised to expand broadly. They suggested that most of the work tasks they studied could reach AI success rates of 80% to 95% by 2029.

The rapid rise of gen AI is such that it wasn't even mentioned the penultimate time we updated this article (in August 2022). Since the last update to this piece in September 2024, CIOs and their business peers have told ZDNET how their businesses are exploring how gen AI can boost productivity and help to transform workplace activities, such as content creation, customer service, and coding.

Also: 6 ways to stop cleaning up after AI - and keep your productivity gains

Gabriela Vogel, senior director analyst in the Executive Leadership of Digital Business (ELDB) practice at research firm Gartner, told ZDNET that gen AI is a rare technology, one whose potential influence has piqued the interest of chief executives as much as CIOs and IT professionals. All eyes on digital transformation are now turning to how the business can create a competitive advantage through AI. 

To this end, business and digital leaders have also started exploring agentic AI. Harvard Business Review researchers reported that agentic AI has significant potential to expand what organizations can do and how work gets done. They suggested the challenge is not whether businesses should adopt agents, but how to integrate them into workflows in ways that preserve accountability, maintain quality, and enable employees to work effectively alongside their agentic colleagues.

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What is the impact of AI on digital transformation?

No one likes a futurist who sits on the fence, but I'm afraid this prediction requires some splinters. While the rapid rise of gen AI has been remarkable, it's important to recognize that the rollout of high-profile services, such as ChatGPTMicrosoft CopilotAnthropic Claude, and Google Gemini, is the visible manifestation of many years of research. What we see today with gen AI is the tip of a much larger development iceberg beneath the surface -- and how that iceberg will change shape is up for debate.

After several years of hype, we're seeing the first signs of gen AI fatigue among business leaders. Most companies struggle to move gen AI projects from initial stages into production, and MIT research suggested that 95% of gen AI projects fail to deliver value. Deloitte found that over two-thirds of executives believed fewer than one-third of their gen AI experiments would be fully scaled.

Also: The 5 myths of the agentic coding apocalypse 

Those indicators point to some concern about the long-term impact of AI on digital transformation. ZDNET reported last year that several areas of AI have slipped into the Trough of Disillusionment, where interest wanes because explorations fail to deliver promised returns.

However, it's also important to recognize that those challenges aren't stopping companies from investing more cash into AI initiatives. Worldwide spending on AI is forecast to reach $2.52 trillion in 2026, a 44% year-over-year increase, according to tech analyst Gartner.  

John-David Lovelock, chief forecaster and distinguished VP analyst at Gartner, told ZDNET that digital leaders who make the most of these investments in AI work closely with colleagues across the organization. "Success is all about line-of-business functions as well," he said. "How well are you focused on defined business outcomes? How well can your partners help you with meeting these requirements? What level of investiture do they have?"

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What are the criticisms of digital transformation?

While most experts agree that digitalization involves using technology to make a process more efficient or effective, almost every project that uses technology gets badged as a digital transformation initiative.

Digital transformation has become the go-to marketing phrase for almost any technology initiative. The term is applied so broadly that some experts believe it is becoming meaningless. Its ubiquity is such that it's no surprise when an attention-craving organization calls its new app or even something as mundane as a laptop refresh program a "digital transformation initiative."

Tech workers also express cynicism about the grand talk of digitalization. IT professionals don't want to spend their working days digitally transforming rather than engineering and developing. For their part, CIOs will tell you the implementation of technology is simply the conduit to help the business meet its objectives, whether selling more widgets, making more money, or raising customer satisfaction.

Also: How to build better AI agents for your business - without creating trust issues

To critics, digital transformation offers tech vendors another opportunity to rebrand their offerings; it's not uncommon to see systems and services sold as a golden bullet for digital transformation. Such hype is just more fuel for detractors who feel that digital transformation is a solution seeking a problem.

None of this criticism should come as a shock. Even back in 2017, analyst Gartner warned that over-selling meant digital transformation was fast approaching the trough of disillusionment. Almost 10 years later, critics would say we're now at the bottom of that trough.

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What else could we call digital transformation?

One way to help silence the critics would be to find another name for digital transformation. We should stop using the term blindly and instead focus on the outcomes we're trying to achieve with technology.

That approach resonates with the CIO community. Almost every IT chief will tell you that their organization is running business transformation, not technology transformation, projects. That's certainly the case for Richard Corbridge, CIO at property specialist Segro. "I like business transformation more," he told ZDNET.

"I think the word transformation has become a bit untrendy; a bit tried and tested. Transformations have been happening for such a long time. Transformation is a word that's been bandied around for so long, but I think it's just common now and is part of modern business practices."

Other industry commentators suggest culling the phrase digital transformation and creating a slightly modified alternative, such as digital landscape, underlying digital environment, or data-led plumbing. 

Also: I asked 5 data leaders about how they use AI to automate - and end integration nightmares

The big problem with all these alternative names is that they mean even less than the concept of digital transformation. For all its inherent faults, we all have a preconceived idea of what digital transformation means, whether it's implementing the cloud or using AI to automate manual tasks.

These kinds of digital transformations have shown how technology changes the business for the better. Proving the value of technology has been a tough battle for CIOs and other IT professionals. Yes, the concept of digital transformation has flaws. However, the IT industry should be pleased that the business recognizes the great work the technology team is undertaking, regardless of what it's called. 

Remember that the rest of the business tends to struggle with big IT concepts. Take the example of the phrase "cloud computing," which used to receive nonplussed expressions from non-IT execs 10-plus years ago. Now, the cloud is a broadly understood and accepted term. 

Cloud found its footing by proving its value -- and so it is with other digital transformation projects, such as exploring AI or implementing IoT and sensors. The business has seen the value of digital transformation in recent years and wants a lot more in the future.

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Is digital transformation now AI transformation?

That question is something we've considered at ZDNET. As we suggested, CEOs and their boardroom colleagues have heard about the potential power of emerging technology, and they want their IT teams to deliver a new type of data-led change program: AI transformation.

So, given this fixation on data-led change, is digital transformation now AI transformation? Huy Dao, director of data and machine learning platform at Booking.com, is charged with delivering value from AI, including agentic services. He said his experiences suggest AI-powered change is part of a larger entity.

"In my opinion, digital transformation is a bigger brand level that also includes data and AI," he said. "When I think about digital transformation, it's not like applying data and technology in a new field. It's mostly transforming existing business processes and technologies and making processes more data-driven and more digital."

Also: Building an agentic AI strategy that pays off - without risking business failure

Dao said it's important to recognize how quickly the field of AI is evolving. He said professionals now have access to tools and services they didn't have before, such as chatbots and coding assistants. The result is rapid AI-enabled digital transformation.

"I can tell you firsthand how AI has changed my ways of working, how we operate as a company, and then how we want to leverage more of that technology to benefit our end customers, and also give our internal employees, like me and my fellow developers, tools that make us way more productive than before," he said.

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Why does digital transformation matter?

Beneath the buzzwords, there is a crucial concept: digitalization is helping smart businesses change the established economic order -- and the effects are everywhere. 

From Amazon's influence over retailing to Facebook's impact on publishing to fleet-of-foot FinTechs that are destabilizing banking and insurance operations, traditional firms are being challenged by nimble, digital-savvy operators.  

Also: Want to build a startup that gets acquired? This founder shares 5 proven tips

As mentioned earlier in this article, PwC's 2026 Global CEO Survey reported that bosses today increasingly see reinvention as essential to growth. In a world beset by challenges, including macroeconomic volatility, cyber risk, and geopolitical conflict, CEOs are focused on multi-year opportunities, such as through AI and innovation, to reinvent the business.

It's also important to recognize that digital transformation is more than an IT concern. Line-of-business units are crucial for identifying where digitalization can create big benefits. As the Harvard Business Review suggests, digitalization is a road to nowhere without a fundamental business transformation.

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What are the stages of digital transformation?

As stated above, successful digital transformation is very much a case of picking the right tool for the right job. Whether an organization is looking to do something constrained, like digitizing paper records, or something more open-ended, such as exploring agentic AI, digital and business professionals must work together to ensure the project scope is limited, costs are controlled, and value is delivered.

Over the past year, Fausto Fleites, vice president of data intelligence at gardening specialist Scotts Miracle-Gro, has developed use cases for the exploitation of generative and agentic AI. He told ZDNET how his team's explorations have engendered interest in AI across the business. He suggested that digital transformation programs roughly cover three key stages: foundation, implementation, and realization. 

"The foundational stage is where companies try to understand the readiness in terms of data and digital assets, then try to come up with a vision and a strategy around digital transformation, and get the executive buy-in," he said.

Also: 90% of AI projects fail - here are 3 ways to ensure yours doesn't

Fleites said the second stage is about implementation: "That's where you go into digitalizing processes, deploying new technology, and focusing on data-driven decisions."

The third phase is the realization phase, which is the goal. "Digital transformation is a journey that never ends," he said. "But there's the realization phase, which is where you unlock the full potential of all this transformation. You gain significant efficiencies in your operations, and you're significantly enhancing your consumer experiences." 

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How much does digital transformation cost?

IDC predicted that total digital transformation investments will reach almost $4 trillion by 2028, accounting for about 70% of total IT spend. The researcher said organizations understand that digital maturity is directly tied to resilience, agility, and competitive advantage. Whether it's AI-powered analytics, supply chain automation, or cloud-based operations, IDC suggested the message is clear: pause now, fall behind later.

Also: 5 security tactics your business can't get wrong in the age of AI - and why they're critical

"Despite the economic uncertainty caused by global conflicts, inflation, and shifting market dynamics, one trend remains clear: companies are not pulling back from digital transformation," said Mariya Yahnyuk, research analyst at IDC.

"While spending patterns have become more cautious and strategic, investments in digital capabilities continue at a steady pace. Why? Because digital transformation is no longer optional -- it's a core part of how businesses stay competitive, resilient, and future-ready."

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How long does digital transformation take?

Digital transformation projects have traditionally been associated with multi-year strategies. Here, CIOs have worked with their peers to consider how technology might help their organizations react to the threat of digital disruption. They've then created a long-term business strategy that uses technology to help the organization meet its aims.

The problem with many of those long-term strategies is that they've taken too long to deliver results. IT teams are good at creating spot digitalization projects, such as moving systems to the cloud or creating new channels to market, but struggle to transform the whole business to support new operating models.

In an age where fleet-of-foot digital challengers can move into a new sector almost overnight, multi-year digital strategies are too slow. The multiple challenges associated with technological change, new geopolitical tensions, and macroeconomic pressures have shown that flexibility and agility are the watchwords for modern digital strategies. 

Also: 'Like handing out the blueprint to a bank vault': Why AI led one company to abandon open source

McKinsey suggested that most companies' adoption of digital technologies sped up from years to months during the pandemic. That increase in pace has had a lasting impact. The consultant said what was considered best-in-class speed for business change four or five years ago is now seen as slower than average. 

This need for speed has affected digital transformation strategies. Instead of talking about five-year plans, boards demand constant iteration. That increase in pace has required a new agile way of working in many organizations, with flexible plans the norm rather than multi-year strategies.

That's an approach that resonated with Segro's Corbridge, who is using a range of technologies to transform business operations. "We have a digital plan rather than a strategy, and the plan is to focus on priorities we can distil down to quite simple sentences," he told ZDNET. "What I want to try and do, though, is get to the end of 2026 and understand what our objective is that takes us into 2027 and as far as the middle of 2028."

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What's the relationship between agile and digital transformation?

Digital transformation is as much about establishing the right cultural change program as it is about introducing new tech. Digitalization requires IT organizations to quickly decide how to deliver the best solutions to business challenges. For many senior managers, the best way to find these answers is through an agile approach.

Agile management originated in software development, but has spread far beyond its product development and manufacturing roots. While agile won't always be applied the same way, the basic principles, including decentralized decision-making, cross-organizational teams, and cross-team empowerment, are likely to resonate with most business leaders.

Experienced digital leaders suggest the big benefit of an agile approach is cultural. By working in small, cross-organization groups to explore challenges and deliver solutions, IT staff and line-of-business professionals iterate around a problem and quickly create digital solutions.

Also: The best free AI for coding - only 3 make the cut now

Agile is also a good fit for companies that want to put AI at the core of their digital transformation strategies. Take Paul Neville, director of digital, data, and technology at The Pensions Regulator (TPR) in the UK, who told ZDNET that successful digital leaders establish a culture that ensures people in their team work iteratively, helping to spread the benefits of new ways of working beyond the confines of the IT department.

Neville said other professionals can benefit from an iterative approach to AI projects. "It's about having that learning culture, where you're agile, measuring, and improving along the way," he said.

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How does digital transformation support hybrid working?

Companies have invested heavily in cloud and collaboration technologies. These digital services are crucial as organizations attempt to support a hybrid mix of at-home and in-office knowledge workers. 

Evidence so far suggests that managing this shift is far from easy. While many professionals have now got used to working from home -- and research suggests they can be more productive, too -- their bosses are not always quite as keen to see them detached from the corporate HQ. Finding a successful middle ground between home and office work is crucial.

Also: Turn AI chaos into a career opportunity by preparing for these 4 scenarios

Managers will need to continue investing their digital transformation cash in technologies to help create the hybrid workplace of the future, including AI services. They'll need to accompany this investment in digitalization with an organizational transformation. Business leaders told ZDNET that a range of approaches, such as open communication and flexible guidelines, help companies to create an effective hybrid working strategy.

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Who oversees digital transformation?

As the traditional guardians of technology investment, CIOs tend to have a big say in digital change projects. Yet CIOs are far from the only executives involved in digital transformation management, and the pressure for change has led to the rise of other C-suite specialists, such as chief digital officers (CDOs).

Analyst firms fanned the flames by suggesting the appointment of CDOs could hasten the demise of the traditional IT leadership role. Gartner said that a quarter of businesses would have a digital chief by 2015, and IDC said that CDOs would replace 60% of CIOs by 2020. Today, those predictions look way off beam. CIOs remain the guardians of technology change.

What no one can deny, however, is the ever-increasing role of business professionals in IT purchasing decisions. Rather than the IT department going off and buying systems it thinks the company needs, modern business operations rely on professionals identifying their key challenges and then thinking about, or even going out and buying, the technological solutions to these problems.

Also: 5 ways to climb the IT career ladder in 2026, according to those who made it

Cloud computing makes it much easier for professionals across departments to buy IT services on demand. When requirements change, professionals can scale these services up or down depending on demand -- with or without the tech team.

In fact, Gartner has suggested that AI changes decision-making processes, including IT procurement. The analyst reported that 80% of CEOs expect AI to force change to their operational capabilities, shifting the focus from digital business to autonomous business, where self-learning software agents make decisions.

While humans still hold a significant role in traditional business models, Gartner's Vogel told ZDNET that agentic AI changes everything, as agents discover, negotiate, and transact autonomously: "We say the future of digital is autonomous business, and AI is the tool that's leading this business change." In short, your next colleague helping you pursue digital transformation could be an agent.

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When does digital transformation stop?

It doesn't. Many people mistake digital transformation for being a discrete project. As researcher Forrester suggests, true transformation is a journey, not a destination. Digital transformation remains a slippery concept of delivering value to the business and its customers in new and perhaps unexpected ways.

Just as definitions of digital transformation constantly change, so do its constituent elements. Most transformation activities today involve the innovative use of data, whether AI, machine learning, or IoT. As digital transformation has evolved, it has become more about data-led change than anything else.

Also: Dreading AI job cuts? 5 ways to future-proof your career - before it's too late

So, digital transformation continues to evolve, meaning the process of defining digitalization remains complex and contested. The one thing we can be sure of is that digital transformation, in whatever form it takes, is here to stay, which means IT professionals and their business peers must build an agile and sustainable strategy for change.

As Segro's Corbridge concluded to ZDNET, change is now very much the new normal: "Nobody's going to stand still anymore, and you're not having to answer the question, 'When will this transformation be done, either?' So, there's a bit of a good balance required in the digitalization space."

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