The Relationship Between Digitization and Digital Transformation

Translated

As the hype surrounding Digital Transformation persists, the terms "Digitization" and "Digitalization" have also joined the debate, increasing the level of advertising while also adding to the confusion.

These three terms have different meanings, or we can distinguish them. Of course, different authorities may have different views on their differences.

However, this is not just a semantic problem. People confuse them by underestimating the power and importance of digital transformation, putting the survival of their organization at risk.

A typewriter: digital technology of the last century

1. Digitization: Direct Term

Digitization essentially refers to acquiring analog information and encoding it into 0 and 1 so that the computer can store, process, and transmit such information.

According to Gartner's IT Glossary, "digitization is the process of changing from an analog form to a digital form" - a definition that few would disagree with.

As in past decades, there are many examples of enterprise digitization today. Converting handwritten or typed text to digital form is an example of Digitization, converting vinyl records (LP) or video on home video system (VHS) tapes to digital music.

In the corporate environment, Digitization is important for handling analog information as well as for handling "paper-based" office processes -where "paper-based" is just a metaphor for "analog".

However, it's important to remember that digitize is information, not processes - that's what the word digitize is about.

2. Digitalization: Full of Ambiguity and Confusion

Unlike Digitization, digitalization does not have a single, precise definition. "digitization" and "digitalization" are two conceptual terms that are closely related and are often used interchangeably in the extensive literature. "What we call digitalization is how many areas of social life are reconstructed around digital communication and media infrastructure." explained by J. Scott Brennen (doctoral candidate in the communication) and Daniel Kreiss (Associate Professor) of the school of media and Journalism at the University of North Carolina System.

Therefore, Brennen and Kreiss base the definition of digitalization on social life - in other words, how people interact. As this interaction moves from analog (ordinary paper mail, phone calls) to digital (email, chat, social media), work and leisure are becoming digitalized.

Gartner also has a tiny space in the term. "Digitalization is the use of digital technology to change business models and provide new revenue and value creation opportunities," explains Gartner's glossary. "It's a process of moving to digital business."

Therefore, Gartner's definition is very different from that of academia. They focus on changing the business model rather than social interaction.

However, Gartner's definition does raise another question -- what is a "digital business." "Digital business is the creation of new business designs by blurring the digital and physical worlds," Gartner's glossary explains.

Unfortunately, the latter definition is a mess. What is the digital world? What does an "ambiguity" world mean? For that matter, what is "commercial design"? Gartner seems to be divided on digitalization, as a recent report by the Brookings Institute cites an entirely different definition. In the report "Digitalization And The American Workforce" (written by Mark Muro, senior researcher; Sifan Liu, data analyst; Jacob Whiton, research assistant; Siddharth Kulkarni, ex-research analyst; and all members of the Brookings society. Kulkarni is now the data science manager of Adobe.) "According to Gartner, digitalization is the process of using digital technology and information to transform business operations," it said.

According to this definition, digitalization is more about business operations than social interactions or business models - although obviously, all of these concepts are interrelated.

Brookings' report focuses on how digitalization affects people. "Digitalization is changing the world of work," according to the report. "The acquisition of digital skills has now become a prerequisite for personal, industrial and regional success."

With the organization's implementation of "digital technology" - in this case, computers and other information technologies - People's jobs have changed. For example, imagine a factory worker putting down a hammer and lathe and using computer-controlled equipment instead. According to Brookings, this change is at the heart of digitalization.

Automation is a significant part of the digitalization story, whether it's changing roles or changing business processes in general. In fact, for many people, digitalization is mainly applicable to these processes. "Digitalization... improve process efficiency and data transparency. Of course, it should help increase your revenue, "explains George Tacke (CEO) and Annette Ehrhardt (senior director of global communication and marketing) of Simon-Kucher & Partners. "If you run an online platform, your company maybe 80% digitized. You can get higher efficiency or create more customer value by digitizing the remaining 20%."

In this example, implementing the technology behind such an online platform is not the digitalization step per se--it is moving business processes to such a platform. As a result, Gartner's definition of binding digitalization to business operations seems pertinent, as these operations are made up of business processes that digital technologies can transform.

3. Digital Transformation: Beyond Digitalization

However, digitalization is quite different from digital transformation. An organization may undertake a series of digitalization projects, from automating processes to retraining employees to use computers. In contrast, digital transformation is not something that enterprises can implement as a project.

On the contrary, this broader term refers to customer-driven strategic business transformation, which requires cross-domain organizational change and the implementation of digital technology.

Digital transformation initiatives will usually include several digitalization projects. However, executives who believe that digital transformation is no more critical than digitalization make a profound strategic mistake.

Digital transformation requires organizations to respond better to change as a whole, essentially, as enterprises become end-to-end customer-oriented, digital transformation makes change a core competency. This agility will facilitate ongoing digitalization initiatives but should not be confused.

Therefore, in the final analysis, we digitize the information, digitize the processes and roles that constitute the business operation, and digitally transform the business and its strategy. Every word is necessary, but it is not enough for the next term. The most important thing is that digitalization is essentially about technology, but digital transformation is not. Digital transformation is about customers.