The terms digitization, digitalization and digital transformation are popular buzzwords that are often used interchangeably, however do they mean the same thing? These terms or concepts often means different things to different people and they are open for interpretation. In my experience, what they do have in common is that they capture, create and deliver value in business models, ecosystems and communities. They improve how we interact as society and how customers interact with companies and how they consume products and services. In this blog, we'll discuss the obvious difference between digitization, digitalization and digital transformation. The diagram below seek to depict the concept for the evolution of digital transformation. Digitization is the conversion of analog to digital and a sub-process of digitalization, where digitalization (the process) uses technology (digitization) to optimize the entire value chain and digital transformation is the effect of both that is collectively accelerating the global and societal transformation process.
Digitization is the conversion of any information or analog into a digital format (1s and 0s) that is understood by a computer system. It uses tools and technology to automate manual tasks and improve time consuming transactions, lowers costs, improves transparency and efficiency while enhancing security. For some organizations it is moving away from the use of paper to a paperless environment using technology. Digitization for example can transform customer-facing journeys in powerful ways, often by creating the potential for self-service to improve user experience.
Digitalization is the use of converged digital technologies to optimize and automate the entire value chain of the business in order to deliver differentiated value proposition to customers. According to Porter (1985) value chain is a linked series of activities that an enterprise uses to convert raw material into profitable product or service. This is still relevant today, raw material could be data, information etc. Digitalization has caused value chains to evolve into digital ecosystems. It is making the boundaries across the different areas of the business, functions and roles more flexible and fluid. Digitalization continues to redefine how enterprises interact with customers and vice versa. It enables organizations to rethink legacy business models and effectively manage the customer experience ecosystem.
"Digital" is driven by rapid pace of technology innovation and adoption in the market. It represents new ways to doing business. For example, it transforms value proposition of products or services, introduce flexibility, agility, convenience and richer customer experience. It fundamentally change how most businesses engage with their customers and vice versa. Business dictionary defines "Transformation", in an organizational context, as a process of profound and radical change that orients an organization in a new direction and takes it to an entirely different level of effectiveness. Unlike 'turnaround' (which implies incremental progress on the same plane) transformation implies a basic change of character and little or no resemblance with the past configuration or structure.
Digital transformation is how an organization adopt and adapt emerging or exponential technologies to create new business models, transform legacy systems, culture, structures and ultimately providing richer customer experiences. It is about creating and delivering new value in processes and systems that supports organizational vision. As Digital transformation continues to move more rapidly impacting many industries. Innovation in digital technologies and new business models is expected to continue in the upward trajectory, with new disruptive technologies introduced in the market.