In today’s business landscape, organizations face a dilemma: should they prioritize digital transformation (DT)—the modernization of operations through technology—or leapfrog straight into Artificial Intelligence (AI)? While “AI-first” has become a buzzy rallying cry, the reality is more nuanced. For established organizations with legacy systems, digital transformation almost always needs to precede AI to unlock sustainable value. For digital natives, AI may lead the way. Here’s why the sequence matters.
Why Digital Transformation Usually Comes First
From the research, there is a clear pattern: for most existing organizations (those with legacy systems, fragmented data, and manual processes), digital transformation usually needs to come first. Here’s why:
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- Processes need to be digitized for AI to function effectively. Without clean, digitized data and efficient workflows, AI cannot operate reliably or deliver insight. Digital transformation lays the groundwork by converting analog processes, integrating systems, and improving efficiency.
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- Infrastructure maturity matters. TechRadar reports that although 96% of organizations claim to have adopted AI, many fail to realize full value due to manual processes, fragmented architectures, and outdated systems [TechRadar].
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- Avoiding “proof-of-concept purgatory.” McKinsey highlights that many AI projects stall at the demo stage because the underlying digital environment cannot support enterprise-wide scaling [McKinsey].
In short, for existing companies, digital transformation is not optional groundwork—it’s a prerequisite.
Where AI Can Lead
That doesn’t mean AI must always wait:
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- Digital natives (companies born in the cloud with fully digitized workflows) can embrace AI-first strategies from the outset, designing processes with AI embedded at their core.
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- AI as a transformation accelerator. AI can actively help organizations digitize faster—for example, through document automation, AI-driven analytics to prioritize modernization, or intelligent customer engagement tools.
In these scenarios, AI is not layered on top of digital transformation—it is the driver.
Integrated Sequencing: Digital First, AI Next
Rather than treating digital and AI transformation as separate efforts, leading organizations pursue them as a sequenced, integrated strategy:
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- Digital transformation is foundational, the essential groundwork upon which AI innovation can flourish.
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- AI then becomes the multiplier, generating insights, automating intelligence, and unlocking compounding value.
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- Success depends on: leadership alignment, cross-functional execution, modern infrastructure, and clearly defined business objectives—not treating AI as a standalone initiative.
Quick Stats & Trends
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- High AI adoption, low ROI: 96% of organizations claim to use AI, but many fail to realize meaningful impact [TechRadar].
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- Strategy gap: Only 31% of companies have a structured AI strategy [TechRadar].
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- Legacy friction: Manual processes and outdated systems remain the biggest blockers [TechRadar].
Recommendations for Your Business
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- Start with a digital transformation readiness assessment. Map your infrastructure, data, and workflows before committing to AI.
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- Define your business goals. Let desired outcomes—not hype—dictate whether to invest first in digitization or AI.
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- For established enterprises: digitize first. Modernize infrastructure, unify data, and automate workflows before layering on AI.
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- For digital natives: consider AI-first. With clean, digital foundations, you can design processes around AI from day one.
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- Adopt an integrated roadmap. Treat DT and AI as a continuum—not silos—with clear sequencing and strategic alignment.
Conclusion
For most organizations, digital transformation must come first. It builds the data quality, infrastructure, and cultural readiness required for AI to scale. AI then becomes the multiplier—the intelligence layer that drives insights, automation, and new business models. For digitally mature companies, AI may lead the charge, but for legacy-rich enterprises, starting with transformation is the safer, smarter path.
At Treaty, we help clients navigate this balance—ensuring their digital foundation is strong and their AI strategy is purposeful, sequenced, and aligned with business value.