People constantly talk about “digital transformation.” It’s referred to as a “hot topic” and many argue for its embrace. But few people, even those claiming expertise or practical experience in “digital transformation,” can clearly articulate what they mean by the term. When pressed, they might give examples about filling in forms digitally on an iPad rather than on a piece of paper. Or talk about developing software applications using agile methods. To me, such examples set too low a bar for transformation. Further, the lack of clarity makes it hard for an organization to know what it’s striving for and whether or when it has “transformed” or not.
Here's my effort to assert some distinctions and clarify the scope of digital transformation.
Digitization:
Digitization refers specifically to the process of converting analog information into digital formats that can be read and processed by computers. Examples include scanning paper documents to create digital copies or digitizing old video and music recordings into new digital formats. It focused primarily on taking physical artifacts and making them digital.
Digitization is important both for dealing with analog information as well as ‘paper-based’ processes – where ‘paper-based’ is just a metaphor for analog.
It’s important to remember, however, that it’s the information you’re digitizing, not the processes – that’s where digitalization comes in.
Digitalization:
Digitalization refers more broadly to adopting or increasing the use of digital technologies across business operations, often to replace slower, less efficient manual or analog processes. For example, moving record-keeping or internal communications onto digital platforms.
It is about making processes digital, often through automation of steps, activities and/or workflows. Digitalization occurs, for example, when factory workers no longer engage with a physical object through hammers and lathes but instead shape that object using computer-controlled equipment. As a result, digitalization often implies changing skills and roles as part of the changing process. So, as the Brookings Institute notes, digitalization is transforming the world of work; specifically, the acquisition of digital skills has become a prerequisite for individual, industry, and regional success.
But the term digitalization also captures the integration of digital technologies into everyday life, leading to changes in non-business processes or activities. For example, there’s digitalization occurring in how many domains of social life are restructured around digital communication and media infrastructures. As social interactions move away from analog technologies (snail mail, telephone calls) to digital ones (email, chat, social media), both work and leisure domains become digitalized.
Digital Transformation:
Digital transformation is the most comprehensive of the three terms. It refers to the customer-centric strategic business transformation resulting from the effective implementation of digital technologies along with necessary organizational changes. Digital transformation initiatives could include several specific digitalization projects.
Digital transformation implies large-scale organizational and cultural changes in how a business functions - it's not just using more tech but allowing tech to transform the business model. It involves holistically integrating digital technologies into different areas of a business to fundamentally improve operations, deliver enhanced customer experiences, take advantage of new opportunities, increase competitiveness, etc.
Digital transformation requires the organization to deal better with change overall, essentially making change a core competency as the enterprise becomes customer-driven end-to-end. For most organizations, digital transformation is an ongoing effort.
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There’s a lot of overlap in practice between the concepts of "digitalization" and "digital transformation," and the terms are sometimes used interchangeably. However, there is a nuanced distinction:
Digitalization refers specifically to the process of integrating diverse digital technologies into business operations and models. Digitalization is about adoption - taking advantage of digital opportunities.
In contrast, digital transformation implies going beyond just adopting disparate digital components and truly transforming the fundamentals of how a business functions. It requires reimagining operations, culture, and customer engagement with digital capability at the core.
A digitalization effort might automate certain processes or implement e-commerce channels – so it can transform specific business operations. But digital transformation implies holistic change to build entirely new digital offerings, operate with agility, empower employees through digital skills, and create connected customer experiences across platforms.
So, while adoption of emerging technologies is part of both concepts, digital transformation connotes organizational change on a grander scale to be fundamentally digital to the core.
In summary:
Digitization is about converting information and (some) artifacts into digital forms.
Digitalization refers to adopting digital technology or automating processes, leading to operational improvement and business model innovations.
Digital transformation involves using technology to enable fundamental and strategic business transformation.
We digitize information, we digitalize processes and roles that make up the operations of a business, and we digitally transform the business and its strategy.