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Artificial Intelligence as the core technology for the Digital Transformation

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 R. Hajishirzi and C. J. Costa, "Artificial Intelligence as the core technology for the Digital Transformation process," 2021 16th
Iberian Conference on Information Systems and Technologies (CISTI), 2021, pp. 1-6, doi: 10.23919/CISTI52073.2021.9476607.
Artificial Intelligence as the core technology for the
Digital Transformation process
Reihaneh Hajishirzi
ISEG - Lisbon School of Economics & Management,
University of Lisbon
Lisbon, Portugal
reihaneh.hajishirzi@aln.iseg.ulisboa.pt
Abstract — Digital transformation (DT) is about change in every
aspect of the organization, but fundamental technologies are the
core of this conversion. In this paper, modern technologies, mostly
Artificial Intelligence (AI), is studied. Also, the impact of AI in
creating value for companies has been investigated. It also argues
that the firms which accept these changes as opportunities will
succeed in the digital age. In this research, by applying the
literature review methodology, it was found that AI can enhance
the customer experience. It expands the number of sales and
enables real-time decision making.
Keywords – artificial intelligence, digital transformation, digital
technology, value creation, organizational barriers.
I. INTRODUCTION
Nowadays, in the digital era, disruption is happening
everywhere, and for surviving, businesses must learn to see
things differently, do thing differently and deliver things
differently [1]. They need to use digital innovations in their
processes, structures, procedures, values, products, assets to
manage risk and threats and improve efficiency and customer
experience [2]. This process is called digital transformation. It
consists of many building blocks in an organization: digital
technologies, Disruptions, Strategic responses, Changes in value
creation paths, Structural changes, Organizational barriers,
challenges, and Positive impacts. Digital technology plays a
crucial role in digital transformation because it is the core of this
process [3].
Among several digital technologies, AI is playing an
essential role [4]. Consequently, it is required to analyze digital
technology in the context of the DT process. Specifically, we
analyzed the effects that AI has on value creation for customers.
Also, organizational barriers, and the positive and negative
factors of AI in companies has been reviewed. To accomplish
those objectives, it was used a literature review as the research
methodology to study almost the recent publications [5], [6].
Because the scope is wide and we could not cover all the
subjects, we tried to cover the most cited and relevant studies. It
should be noted that we tried to use articles published in very
reputable databases such as IEEE Explorer, Web of Science and
Scopus.
This study embodies two contributions. First, it provides a
review of previous studies about DT building blocks in an AI-
enabled organization. Second, it helps the C-Suite executives to
Carlos J. Costa
Advance/CSG, ISEG - Lisbon School of Economics &
Management, University of Lisbon
Lisbon, Portugal
cjcosta@iseg.ulisboa.pt
guide their companies in disruptive times and make it suitable
for a new digital age. Also, this research helps them to
understand how it can improve customer experiences through
AI.
This paper is structured as follows. In section II, the impact
of technology on the value chain and organizational
performance is presented. Then in section III, the building
blocks of DT is defined, and in section IV, trends in digital
technology and AI are presented. The effects of AI on value
creation for companies are then discussed. In the next section,
we describe the organizational barriers to adopting AI in the
organization and its positive and negative effect. Finally,
several case studies related to the topic are reviewed.
II. IMPACT OF TECHNOLOGY
A. Exponential Evolution of Technology
In recent years, digital technology has evolved fast and has
progressed exponentially. Three fundamental laws explain the
exponential growth in processing, communication and storage.
According to Moore's law, every 18 months, we can have twice
the data processing power. The second law is called Butter's law,
and it says every nine months, the amount of data communicated
doubles. The other law is Kryder's law which says the amount
of data stored in a hard drive will double every 13 months [7]–
[10]. Therefore, this growth makes digital innovations faster,
cheaper and better [11]. If companies cannot apply these
technologies as fast as it developed, they have failed in
presenting value [12]. Meanwhile, some innovative startups use
those technologies and bring innovative customer experiences
[13]. A case study of Kodak and Nokia reveals what irreparable
shocks corporations have suffered because they have not been
able to keep up with trends [14], [15].
B. Transformation in the Value Chain
Now, the question is how organizations are transforming
their business to deliver value to their clients. This
transformation should occur through the entire value chain from
suppliers, producers, distributors and other actors [16]. It is
essential to understand how and why they interact together. As
a result, the entire organizational structure is involved. It has
been years that companies have been using information systems
 R. Hajishirzi and C. J. Costa, "Artificial Intelligence as the core technology for the Digital Transformation process," 2021 16th
Iberian Conference on Information Systems and Technologies (CISTI), 2021, pp. 1-6, doi: 10.23919/CISTI52073.2021.9476607.
and ERP systems to manage their business processes [17]. They
usually generate a significant volume of data with different
variety, high velocity and practical value [18]. In the previous
session, we discussed that organizations' transactional cost
reduced because of the changes in processing power,
communication speed, and storage capacity [19], and it causes
disruption in value chains by new entrants [20]. This disruption
leads to changing customer demands [21]. The incumbent firms
that want to survive should respond to the changing customer
needs [22].
C. Impact of Technology on Organizational Performance
How does the evolving technology make a difference in the
companies? Technology affects the culture, efficiency and
relationships of a company [23]. Also, it facilitates the sale of
products and services and the distance and time is not an
obstacle. On the other hand, its effects on marketing and HR
functions [24]. Information technology positively impacts firms'
growth [25], but it depends on the right technology investment.
Several uncertainties impact most on technology investment
decision-making. These uncertainties are regulatory concerns,
customer responses, digital changes, competitors and future
market growth [26].
III. BUILDING BLOCKS OF DIGITAL TRANSFORMATION
Digital transformation can make disruption from multiple
points of view [27]. As Rogers [20] expressed in his book, there
are five digital transformation domains: data, innovation,
competition, value, and customer. Organizations should
consider the enormous amounts of data and apply it to their
business growth. Also, in a digital world, companies can test
innovation solutions very quickly with lower expenses. As a
result, different players can enter the market, so the level of
competition increase. So, the customers have better experiences
because of the different value created for them will increase
customer expectations.
Ross [28] represents five fundamental building blocks for
digital transformation in her book: operational backbone,
digital platform, external developer platform, shared customer
insights, and accountability framework. The operational
backbone identifies the firm's core activities, while the digital
platform is about segments for digital contributions. The
accountability framework portrays the dispersion of obligations
between people. The external developer platform relates to the
ecosystem and external partners and their components. Shared
customer insights are organizational understanding about
customer experiences throughout all the aspects of the buyer's
new journey.
In other research, Vial [3] present a framework with eight
building blocks of the DT process: digital technologies,
Disruptions, Strategic responses, Changes in value creation
paths, Structural changes, Organizational barriers, and
challenges and positive impacts. In this framework, digital
technologies are a core for making disruptions in different
industries. These disruptions lead to adopting strategies in
organizations to respond to invest and apply digital
technologies. By using digital technologies, the value
propositions and value networks are changed. Therefore,
organizations need to overcome the barriers and change their
structures. As a result, all of these changes have perceived
benefits and challenges.
IV. DIGITAL TECHNOLOGY TRENDS
A. Digital Technology
New digital technologies refer to the SMACIT (Social,
Mobile, Analytics, Cloud, Internet of Things) [22], Artificial
Intelligence, Robotics, Drones, Blockchain, Additive
Manufacturing (3D Printing), Cyber Security, Augmented
Reality, Virtual Reality [29], [30]. These cutting-edge
technologies just keep coming with exponential growth. Each of
these digital trends can create value for businesses. But in this
paper, we focus on the importance of AI and its impact on
companies.
B. Artificial Intelligence
AI has great potential to increase companies' productivity
because it helps them efficiently use their assets. That's why,
nowadays, most of the technology players invest more and more
in AI [31]. AI's capability is extensive, so that not all business
opportunities have been explored [32].
AI relates to computing power, learning algorithms and
training data [33]. These fundamental functions are described in
Automation, Machine Learning, Deep Learning, Machine
Vision and Natural Language Processing (NLP) [34]. These
concepts will be discussed below:
In general, automation means using technology to increase
productivity [34]. Automation has different types: Numerical
Control, Computer-aided Manufacturing (CAM), Flexible
Manufacturing Systems (FMS) and Industrial Robot [35].
Companies use automation to perform repetitive tasks and
processes [34].
In Machine Learning, you can feed computers a vast
amount of data and the algorithms to train themselves [34]. It is
related to the computational process. For example, Neural
Networks is a Machine Learning technique and is somehow the
commercial research topic in AI [36]. Neural Networks are
worked in the same way as the human brain [34].
Deep Learning is a type of Machine Learning, and it is based
on Neural Networks with many layers for processing data.
Nowadays, deep learning is a prevalent method for data
scientists [37].
Computer vision is a subset of automation, and it helps to
make better decisions about physical objects based on the
 R. Hajishirzi and C. J. Costa, "Artificial Intelligence as the core technology for the Digital Transformation process," 2021 16th
Iberian Conference on Information Systems and Technologies (CISTI), 2021, pp. 1-6, doi: 10.23919/CISTI52073.2021.9476607.
captured images [38]. It applies in signature identification and
medical image analysis [34].
NLP refers to the application of computational processing to
capture meaning from text and speech [39]. Apple Siri, Amazon
Alexa, Microsoft's Cortana and Google Assistant are examples
of the commercial version of NLP, which are very popular in
recent years [34].
Moravec’s Paradox claims that things like identifying
objects and inferring things that are easy for humans to do are
very difficult for computers, and conversely, things that are easy
for computers to do, such as proving complex theories for
humans, are very difficult, if not impossible [40].
V. VALUE CREATION
A. Design Thinking and Customer Journey
Design thinking is an approach to sketch an innovative
prototype with customer-centred techniques [41]. It is an
iterative process and helps develop new products or services
based on the user's need [42]. The design thinking process has
five main steps: Empathize, Define, Ideate, Prototype and Test.
The first phase is about the empathetic understanding of
designers about the problems they are going to solve. In the next
step, the designer should define the problem in a human-centric
way. In the third stage, the designers could think out of the box
and explore innovative ideas. The fourth phase is about
developing an inexpensive version of a product or service, and
it is about the philosophy of "Fail fast, fail safe". Finally, the
fifth step is about testing the prototype in real-life condition to
check whether this solution improves customer experience or
not, and if it fails, it goes to the first stage [43]. This process is
shown in "Fig. 1". As a result, design thinking could play an
essential role in digital transformation because it helps
businesses change their best solutions to their customers [44].
Empathize
Define
Ideate
Prototype
Test
Figure 1. Steps of Design Thinking. [43]
B. Business Transformation
AI, as one of the digital technology trends, has a significant
impact on the customer experience. By gathering and analyzing
data help businesses to a better understanding of their clients.
AI continuously learn from data analysis and help to predict
customer behaviour in different processes. Therefore, this leads
to expand the number of sales and also improve the sales
experience. Also, machine learning enables real-time decision-
making, a more efficient way of decisions in the business
processes [42].
On the other hand, chatbots and virtual assistants, which are
artificial intelligence achievements, have contributed
significantly to the customer journey. Besides, recommendation
systems are AI algorithms that aim to guide users to have the
best purchasing process choices [42].
According to Milkau [45], the AI-enabled data platform will
be presented as another sort of significant value creation. These
platforms are developed to use and analyze external data for
value creation in the firm.
Also, AI generates value on all business stakeholders like
employees, suppliers and shareholders, and society [46].
Companies can continually improve their business processes by
using AI technologies. This process drives the creation of a new
business model, and this business transformation helps the
organizations to become top player in the digital economy [47].
VI. ORGANIZATION BARRIERS
Becoming digital usually brings many changes to the
organization related to the way of thinking and also in its
processes. According to Vial [3], there are two critical barriers
for digital transformation companies: Inertia and Resistance.
Inertia is about structural or organizational persistence to adopt
new technologies [48]. In this case, the current communication
process with customers, the structure of order to the suppliers
or the organizational culture and legacy are the barriers to
adopting new technologies [3]. Resistance to change is another
barrier that is related to people's attitude toward change. The
organization's employees usually resist technological changes
because they need to learn new skills to move things forward.
Every organization with digital strategies should have a digital
evangelist who can successfully inspire people and get them
enthusiastic about digital topics. Therefore, a crucial part of the
digital evangelist's job is to convince the workforce across all
departments and hierarchy levels to pull together [49]. If there
is a lack of top management support or even a lack of
managerial skills for C-Suite leaders, the firm's adaptation to AI
will be accompanied by many problems [50].
With the collaboration of The Boston Consulting Group [51],
MIT Sloan Management Review conducted research in which
the barriers to AI adoption are introduced. These barriers are
studied in four types of organizations which are Pioneers,
 R. Hajishirzi and C. J. Costa, "Artificial Intelligence as the core technology for the Digital Transformation process," 2021 16th
Iberian Conference on Information Systems and Technologies (CISTI), 2021, pp. 1-6, doi: 10.23919/CISTI52073.2021.9476607.
Investigators, Experimenters and Passives. Pioneers are
companies that understand and adopt AI. Investigators Financial Fraud detection Lack of credibility of
Services Disappearance of cryptocurrencies
understand AI, but they don't adopt it. Experimenters are those passwords for facial or
firms that are piloting an AI technology without understanding. digital print recognition
Finally, the Passives not even understand the AI nor adopt it.
The barriers are (1) Attracting, acquiring, and developing the Retail Physical stores will still Replacement of jobs
exist in the future for
right AI talent, (2) Competing investment priorities, (3) customer care.
Security concerns resulting from AI adoption, (4) Cultural
resistance to AI approaches, (5) Limited or no general
technology capabilities, (6) Lack of leadership support for AI
initiatives, (7) Unclear or no business case for AI applications. Also, Wamba et al. [31] present the benefits of AI-enabled
In "Fig. 2", you can see how barriers to AI different in these transformation in different industries. They believe that trough
types of organization. automation with AI, the organizational processes will become
very smart, optimized, efficient and automatic.

VIII. REVIEWING THE REAL CASES ABOUT DIGITAL

TRANSFORMATION WITH AI

Several publications study the digital transformation of AI-

enabled companies. In this section, some of them are
mentioned.

Lee et al. [53], Examined two companies that had innovated

their business model by using AI. The first company, the large
manufacturing, used AI and Analytics to innovate their business
Figure 2. Barriers to AI Adoption [51] model, which led to workforce and organizational skills
management changes. They created value for the company by
VII. POSITIVE IMPACTS AND CHALLENGES OF APPLYING AI using deep learning algorithms. The second company used
advanced technology in its tracks but had an ancient system for
Transforming business through AI will have several managing its internal processes. On the other hand, without
impacts on both organizations and also on society. Because AI skilled labour, the trucks were rendered, and as a result, the
can facilitate process automation, it plays an influential role in company sought to attract skills from abroad. What can be
improving organizational operations [31]. Ferreira et al. [52], understood from these studies is that organizational culture
studies the positive impacts and challenges of AI on Services, plays a crucial role in shaping innovation in the business model.
shown in table 1. Senior managers have an influential role in creating a culture
and must continuously learn and innovate.
TABLE I. IMPACTS OF AI ON SERVICES
In another paper, 500 studies were conducted, of which
Name Positive Impacts Challenges approximately 41% used several types of AI-related
technologies in process automation and decision making. About
Healthcare Creation of new drugs Assurance of robust 31% of the samples used automated learning algorithms in the
algorithms that work processes, which significantly reduced human involvement in
Improved Diagnostics for all possible patients
those processes. Approximately 19% of the organizations used
virtual and robotics assistant and also applying Neural
Customer Customization of services Replacement of
Services humans Networks algorithms. Finally, just 1.2% of samples use this
technology regarding cognitive safety because these systems
Transportation Non-stop autonomous Autonomous cars will require other resources and technologies and billions of
and Logistics transportation. Reduce car reduce the driving structured and unstructured data. Organizations adopt AI
crashes Learning pleasure.
capabilities of autonomous technologies to increase their company's competitive
vehicles advantage. Based on this research, this hypothesis was proven,
and it was found that AI improves the effects of automation,
Education New courses in school - optimizes existing processes, identifies and predicts, and
improves human interaction. As a result, the organization's
Environment- New service opportunities High electricity
related services for societal well-being. consumption from AI performance at the level of finance, marketing and
technologies administration and workforce increases and therefore the value
of the business improves [31].
 R. Hajishirzi and C. J. Costa, "Artificial Intelligence as the core technology for the Digital Transformation process," 2021 16th
Iberian Conference on Information Systems and Technologies (CISTI), 2021, pp. 1-6, doi: 10.23919/CISTI52073.2021.9476607.
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