Digitalization is not just another buzzword. It is an evolving topic of serious discussion in society, academia, and industry. However, digitalization is often misinterpreted and misapplied to digitization. Despite the terms being highly specialized and fundamentally different, they are often indistinguishably used, broadly defined and inconsistently applied. Furthermore, many business leaders mistakenly believe that digitizing processes will result in digitalization or digital transformation. Disambiguating these concepts is not just a semantic exercise, it is an exercise in grasping the full transformative potential of a digital mindset and strategy.
What is Digitalization?
Several definitions of digitalization have been proposed. From an academic perspective, Brennen and Kriess define digitalization through digital communication and digital media’s impact on contemporary social life. In Gartner’s IT glossary, 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.” However, this begs the question: what is a digital business? I-SCOOP offers an answer. They argue that a digital business is the result of a multitude of digitalization processes (i.e. going from supply chains to digital supply chains) and an essential step towards digital transformation.
Digitization and Digitalization: What is the Difference?
At the core is the argument that digitalization cannot occur without digitization. Digitization is the conversion of analog to digital, whereas digitalization is the use of digital technologies and digitized data to impact how work gets done, transform how customers and companies engage and interact, and create new (digital) revenue streams. Digitization refers to the internal optimization of processes (e.g., work automation, paper minimization) and results in cost reductions. Conversely, digitalization is a strategy or process that goes beyond the implementation of technology to imply a deeper, core change to the entire business model and the evolution of work.
Digitalization and Digital Transformation: What is the Difference?
Although business leaders often use digitalization as an umbrella term for digital transformation, the terms are very different. Digital transformation requires a much broader adoption of digital technology and cultural change. Digital transformation is more about people than it is about digital technology. It requires organizational changes that are customer-centric, backed by leadership, driven by radical challenges to corporate culture, and the leveraging of technologies that empower and enable employees.
Why Differentiating the Terms Matters
When one considers that ‘digital transformation’ once referred to ‘digitization’ and ‘digitalization’ was once called ‘computerization,’ nomenclature matters when discussing phenomena where the terminology changes as fast as the technology does. If business leaders think they can digitize a business or digitalize enough processes to digitally transform they are misunderstanding the terms and missing out on opportunities to evolve, gain competitive advantage, respond to consumer and employee expectations and demands, and become agile businesses.
However, the reality is that few businesses have undergone successful digital transformations. Kane et al.’s (2017) 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 acting on it. What is noteworthy is that 85% of executives stated that attaining digital maturity is critical to organizational success. The discrepancy between recognizing digital as a competitive necessity and successfully implementing a transformative strategy suggests that many leaders are unsure how to harness the opportunities that digital brings to people, processes, and technology.
Those who deprioritize or ignore digitalization do so at their own peril, especially when the risks of having nimbler, untethered disrupters surpass them are all too real.