Digitization, digitalization, and digital transformation are commonly thought to be different words for the same thing, but they’re three separate technology concepts with different implications for your business. Digitization converts analog data into digital format, digitalization improves processes, while digital transformation is a complete paradigm shift to reshape organizations by leveraging technology.
What Is Digitization?
Beginning with the most straightforward term, digitization is the process of converting old-school analog data into digital format. This can happen in several ways but typically comprises the following steps:
- Sampling and Quantization: Analog signals are captured at discrete intervals and converted into a numeric representation. For example, an analog signal sampled at 44.1 kHz can be quantized into 16-bit values.
- Signal Manipulation: Once in digital form, the user manipulates the signal for specific purposes. For instance, audio signals can be equalized and compressed to suit a listener’s preferences.
- Storage and Transmission: In terms of storage, digital data can be compressed and stored on physical drives and cloud storage. It’s also easier to transmit over the internet and other digital channels with minimal loss of quality.
Digitization is used in various applications, from your Spotify playlists to Instagram selfies and data storage. It has revolutionized many industries and made previously analog processes much easier and more efficient.
What Is Digitalization?
Digitalization is the act of taking analog processes and making them digital. Think of it as a way of taking your old ways of doing things and giving them a digital makeover. Gartner’s glossary defines the term as using digital technologies to alter a business model and create new opportunities for revenue and value. Below are three of the main benefits of digitalization:
- Everyday Efficiency: Digital technology is applied to daily tasks to improve efficiency and productivity.
- Business Benefits: With digitalization, businesses can streamline their operations and make them more efficient.
- Information Transmission: Digital information can be transmitted and stored more easily than analog information, so companies also save time and money by going digital.
Thus, digitalization is your ticket to a more profitable and efficient business. It automates tasks previously done manually, such as using a software program to generate reports instead of spreadsheets or paper-based processes. It can also involve using digital devices to complete tasks previously done offline, such as using a smartphone to make a restaurant reservation or buy movie tickets.
What Is Digital Transformation?
Think of digital transformation as digitalization-plus. It goes beyond digitizing processes and focuses on reshaping the entire organization. Below is a breakdown of the multifaceted components that constitute digital transformation:
- Comprehensive Strategy: Using emerging technologies, digital transformation streamlines a company’s core operations and customer value propositions. It is thorough, requiring changes in culture, structure, processes, and governance.
- Customer Expectations: Increasingly, customers expect companies to offer digital solutions such as online ordering and self-service, and they’re quick to take their business elsewhere if they don’t.
- Tech Drivers: New technologies such as artificial intelligence, big data, robotics, and the Internet of Things create opportunities for companies to improve their operations and better serve their customers.
Digital transformation helps companies keep pace with changes in their business environment and remain competitive. To dive deeper into this subject, let’s dissect the nuances between digitization, digitalization, and digital transformation.
Digitization vs Digitalization vs Digital Transformation
Digitization, digitalization, and digital transformation have both similarities and differences in terms of their unique focus and impact. Below, we’ll examine the primary ones to consider:
Similarities
These three processes all share a common foundation in leveraging technology to improve productivity, efficiency, and decision-making. Here’s how:
- Tech-Driven: Tech is the cornerstone. Technological advancements drive all three, whether it’s converting analog to digital data or revamping business models.
- Productivity and Efficiency: The ultimate goal of each process is to improve productivity and efficiency.
- Leveraging Data: All three processes utilize data to drive decisions and actions.
Differences
While all three processes leverage technology, they differ in scope, impact level, and end goals, specifically:
- Scope: Digitization focuses on data conversion. Digitalization is about improving processes with digital solutions, while digital transformation is leveraging tech for a total organizational overhaul.
- Impact Level: Often, digitization is a task-level change. Digitalization impacts operations processes, whereas digital transformation is a strategic shift.
- End Goal: Digitization aims to make data more accessible. Meanwhile, digitalization targets operational efficiency. Digital transformation, on the other hand, aims at complete organizational transformation.
Understanding these similarities and differences can help you decide which approach is best for your organization. We’ll look at these concepts’ business relevance next.
Relevance for Businesses
So, what is the relevance of digitization, digitalization, and digital transformation for businesses? Let’s break it down using real business scenarios:
- Digitization: Digitization is essential for companies that want to take advantage of digital technologies. Digitizing data makes it more accessible and easier to analyze. This is especially important for organizations that deal with large amounts of data, such as healthcare providers and financial institutions.
- Digitalization: Digitalization builds on digitization by using digital technologies to improve processes and performance. For instance, many enterprises have implemented enterprise resource planning (ERP) systems to streamline their operations — specifically, to manage their inventory, finances, and human resources more efficiently.
- Digital Transformation: Digital transformation goes one step further than digitization and digitalization by using digital technologies to create new or fundamentally different business models. As an example, Uber and Airbnb created entirely new businesses by leveraging digital technologies.
Companies that want to stay ahead of the curve must understand all three concepts. By investing in technologies that enable these processes, they can keep their business efficient, agile, and responsive to change.
Trends in Digitization, Digitalization & Digital Transformation
The digital landscape is changing rapidly, with enterprises at various stages of digitization, digitalization, and digital transformation. Current trends indicate:
- Widespread Digitization: Most enterprises today have digitized their data, other than a few industries, such as the energy and construction sector, where data is often still held in an analog format.
- Adoption of Digitalization: As for digitalization, many enterprises have adopted at least some form of it to improve their performance.
- Challenges with Digital Transformation: Fewer organizations have taken the leap into digital transformation. A 2021 Boston Consulting Group study that surveyed 950 companies found that the success rate was only 35%, often due to unclear strategies, poor leadership, and implementation complexities.
These trends indicate the complexities and challenges of full digital transformation. While digitization and digitalization have seen more widespread adoption, digital transformation remains elusive for many organizations due its multifaceted requirements and need for strategic realignment.
Bottom Line: Digitization vs Digitalization vs Digital Transformation
Companies that have been most successful in digitization, digitalization, and digital transformation have taken an outside-in view focused on the needs of their customers and ecosystem. So, if you’re thinking of embarking on a digital transformation journey for your company, concentrate on which options will create the most value for your customers and other stakeholders, not just efficiency for your organization.