Digitalization is a topic that I love discussing for a variety of reasons, and it is an important topic to understand because technology is ever-evolving, faster, and faster. The term “Digitalization” is not just another buzzword but has become the center of an evolving serious discussion on its impacts within society, academia, and all types of industries. The problem I find is that many people, from business leaders to politicians to journalists, often misinterpret and misapply the type of digitization they mean to convey, and I find that you need to understand the differences with each term to correctly apply what you mean. The terms are specialized and (in my opinion) fundamentally different, however, are often used broadly and inconsistently, especially when it comes to the business world (including businesses that “transform” public entities like government offices). I find that many business leaders mistakenly think that digitizing processes suddenly mean that the result is digitalization or what is broadly thrown around as “digital transformation.” However, that is not the case and understanding these concepts is vital, especially in leadership roles. In other words, disambiguating the concept, I believe, is not just about grammar and semantics, but once comprehended allows one to fully understand the complete transformative potential of what digital really is along with ways to utilize it better in strategy and mindset (or company culture).
So, what exactly is Digitalization?
Well, there are many definitions that have been suggested over the years (and I’m not sure if I’ve covered them all) but I believe that for the purpose of this post I have covered the important aspect to convey my message to you :). In academics (Brennan and Kriess), digitalization is defined as digital communication and digital media’s impact on contemporary social life. However, if you look at Gartner’s IT glossary, they note that digitalization is “the use of digital technologies to change a business model and provide new revenue and value-producing opportunities; it is the process of moving to a digital business.”
Yet when I read that, the question that I would ask is what then is a digital business? I love this article on I-Scoop that dives into this topic as well. In summary, they argue that a digital business is the result of take numerous processes and digitalizing a multitude of them (e.g.:taking the supply chain and moving to a digital supply chain) as an essential step towards a digital transformation.
I love I-Scoops take on the topic in the aforementioned article and I want to break that down into simplistic terms. Again, for some this may seem bananas, however, it is vital to understand (aside from making you look smarter) 😉
What is the difference between Digitization and Digitalization?
When I look at it, I find that at the core of this argument that digitalization cannot occur without digitization.
But first the difference: When we speak of digitization we speak of the converting of analog to digital. Really plain and simple. However, many leaders think that this is then digital transformation. Far from it. This refers simply to the internal optimization of processes (work automation, paper minimization) which results in cost reductions.
Digitalization is the use of digital technologies and digitized data to impact how work gets done. It’s about transforming how customers and businesses engage and interact, creating new, digital, revenue streams. This refers to a strategy or process that digs deeper. It goes further than the sole implementation of technology as I outline above (internal optimization of processes), but is a core change to the whole business model and evolution of work.
Now, that you have a simple understanding of digitization vs. digitalization, let’s bring in that last point of Digital Transformation.
What is the difference between Digitalization and Digital Transformation?
I’ve personally seen it firsthand in the business world, and it annoys me that people in leadership roles do not comprehend what digital transformation truly is. Business leaders will very often throw around these terms interchangeably and use digitalization as a sort of umbrella term for digital transformation, again, not understanding that these terms are very different. Hence, I’m breaking it down to basics because I love everything to be simple and hopefully this will allow you to see your business (or this topic) from a different perspective.
You see, when I fuse the term “digital” and “transformation” in my head what comes out is the understanding that digital transformation in business requires a much broader adoption through two things; digital technology and cultural change. To me, the real focus of digital transformation and the term is that it is more about people than it is about digital technology. Digital transformation requires major organizational changes that are;
- backed by leadership
- driven by radical challenges to corporate culture and the status quo
all through leveraging of technology to ultimately empower and enable employees to execute better, faster, cheaper.
That to me is the core of what true digital transformation is.
Understanding the differences in these three terms, especially for those in leadership roles, will hopefully (my wish) stop people from using “umbrella” terms to sound sophisticated in meetings, and really dig into parts of their businesses and organizations to truly digitize the analog processes, implement digitalization and utilize people in the right way. To close, let me quickly sum it up.
Why differentiating the terms matter?
Nomenclature matters. If you consider that “digital transformation” once referred to as “digitization” and digitalization” as “computerization”, then you’ll get why it matters in regard to discussing a phenomenon in which terminology changes just as fast as the technology does. In my head, if business leaders think they are able to digitize a business or digitilize enough processes and call it a digital transformation, then they definitely misunderstand the term and I believe are missing out on a bucket load of opportunities to evolve, gain a competitive advantage in their industry and become agile enough to respond to both consumer and employee expectations and demands. Like I mentioned above, simply going from analog to digital is not a transformation. Yes, it may save a significant amount of dollars – e.g.: rather than having an employee stamp 100Äs of documents to automate the process digitally, but that is far from digital transformation in my mind.
The problem I see is leaders not understanding or believing they understand when they don’t. And don’t get me wrong, not knowing is fine. We all need to learn to crawl and walk. The problem is that many leaders are unsure how to harness the opportunities that digital brings to people, processes, and technology, hence creating a discrepancy between recognizing “digital” as a competitive necessity and successfully implementing a transformative digital strategy. Then they sell it like they invented bread. Comprehend the difference and imagine how many dollars you could save beyond just digitizing the analog.
To close off this topic a global study found that only 25% of organizations had transformed into digital businesses, 41% were on transformative journeys, and 34% invested more time talking about the trend than they did executing or acting on it. The scary thing about that is the 85% of executives in the study mentioned that attaining digital maturity is absolutely critical and vital to the continued growth and organizational success of their business within their industry. Think about that. Are the right people in the right places?
To sum it up simplistically:
Digitization: is the conversion of analog to digital
Digitalization: is the use of digital technologies and digitized data (above point) to impact how work gets done.
Digital Transformation: requires the above in all aspects of business to move to a new digital business (people, capabilities, processes, etc) revolving around people (customers, employees) creating a new economy.
In the end, those who deprioritize or ignore digitalization will fall hard. I love and hate technology at the same time, but if you do not utilize these three areas in your business today, then I believe the risks you’ll face of nimbler, untethered disruptors surpassing you have/will become very real – no matter who you think you are as a company in whatever industry. Look at the smartphone business. Failed smartphone makers, from Big Tech titans (Facebook, Amazon, Microsoft) to legacy tech companies (Dell, HP, Toshiba, Ericsson) to phone manufacturers now in their second life (Blackberry, Nokia, Motorola). Things can happen fast, and I’m sure execs at some of these companies thought they had “digital” all right. 😉