Digitization, digitalization, and digital transformation. These words are constantly used to talk about how businesses embrace modern technologies today. Generally, the three concepts end up sounding very similar - no wonder that they're sometimes used interchangeably. But in reality, they refer to completely different activities with different purposes, goals, and implications on business operations.
In this article, we dive into the details of digitization, digitalization, and digital transformation. We show you the most important differences between these terms and provide some helpful use cases to prepare you for your digital transformation journey.
Table of contents:
- Digitization, digitalization, and digital transformation – here's what should you know
- What is digitization?
- What is digitalization?
- What is digital transformation?
- What is the difference between digitization, digitalization, and digital transformation?
Digitization, digitalization, and digital transformation – here's what should you know
Using these three terms interchangeably is a mistake since they refer to completely different things. While digitization is about converting information from a physical format to a digital one, digitalization harnesses the potential of digitization to actually improve business processes.
And digital transformation is the last step in the journey where organizations get to transform their business activities, models, processes, and products to reap the full benefits of modern digital technologies.
What is digitization?
Digitization is the process of moving information from a physical format to a digital format. It basically means transforming something non-digital into a digital representation that can be used in computer systems and employed in digital processes and workflows.
Nothing more important for creating business value than data. And digitization creates excellent sources of data. That's why you can think of digitization as an activity that helps to build a strong foundation for business use cases that are meant to be data-driven and processes that can benefit from access to data.
Examples of digitization:
- Writing notes on paper and then typing them out into a Word file or an Excel spreadsheet.
- Scanning a document and saving it on the computer's hard drive as a digital file in a format such as PDF.
- Converting analog VHS cassettes to DVD, CD, or Blu-ray discs that include additional data.
What is digitalization?
As you can probably tell, digitization and digitalization are closely related. You already know that digitization is about transforming information from analog to digital format. Digitalization is a process that takes advantage of digitization in order to improve business processes.
Digitalization means putting the digitized information to work. It's about using digital technologies and data to improve business processes, create new revenue streams, and building a digital culture. The idea is to put digital information at the core of business processes – all to become more efficient and productive.
Examples of digitalization:
- Uploading a PDF file from the computer's hard drive to the cloud so that it can be shared with many people at once and analyzed using yet another tool based in the cloud.
- Uploading digital movie files from CD, DVD, or Blu-ray discs to online services to allow people to download, stream, or rent them online.
- Converting a Word document or Excel spreadsheet to a file in Google Docs or Google Sheets stored in Google's cloud platform - that's how the document can be shared among several users at once.
What is digital transformation?
Digital transformation is the last stage in this journey - a process that takes advantage of both digitization and digitalization. In its essence, digital transformation uses digital technologies in order to create new or modify the existing business models, processes, cultures, and customer experiences. The goal? Addressing the changing business and market requirements.
Digital transformation is all about reinventing the business for the digital age. It's a customer-centric process - it starts with how a company thinks about and engages with customers.
When your employees move from paper notes to digital documents uploaded in the cloud, they also gain a chance to reimagine your business operations - and how that change affects the customers. By planning and building processes with the digital opportunities in mind, organizations set themselves for success - they become more agile, flexible, and prepared for market changes.
What is the difference between digitization, digitalization, and digital transformation?
Let's sum up everything we've mentioned so far.
Digitization is about moving from analog to digital format.
Some businesses used to keep their records on paper in handwritten or typed physical documents. All this business data carries a lot of value, but as long as it's locked in an analog format, it's basically useless. Sharing this information is troublesome as well since it involves dealing with even more physical documents such as binders or xerox machines.
It's only natural that once digital formats became mainstream, most organizations converted their paper-based records into digital files. Digitized files made finding and sharing information much easier.
However, business systems and processes were still designed around analog formats and old ideas about how to find, share and use information. This is where digitalization comes in.
Digitalization is about using digital data to streamline processes.
Access to digitized information is at the core of digitalization initiatives. Digitalization doesn't go as far as changing business models or creating new types of businesses - it's more about keeping on doing what we do but being faster and better at it because our data isn't trapped in a dusty archive.
Digital technologies opened the door to new ideas about process acceleration but also the creation of entirely new processes. These new ideas are the driver behind digital transformation.
Digital transformation is about reinventing the business with technology.
It's a transition in how organizations use digital technologies to add value to customer interactions and invent new business models. Netflix is a great example of this process.
Digital transformation case study – Netflix
Did you know that Netflix started out as a mail-order service for renting videos? That move already disrupted the sector, which back then was based on brick-and-mortar video rental stores.
As digital technologies evolved, streaming video online became possible – and Netflix instantly jumped on that opportunity, developing a streaming platform used all over the world. Users can stream video content directly but also get personalized recommendations that are perfectly in line with their thanks to the AI recommendation engine.
But that's not everything. Today, Netflix assumes the role of a traditional broadcast and cable TV network and production studio all at once as it develops a library of on-demand content at competitive prices.
Netflix is such a great example because it took advantage of all the available technologies to inform how its business developed and continues to grow today.
Prepare your business for the future
One of the key elements of digital transformation is understanding the potential of new technologies in helping companies to respond to new market trends and customer demands. Digital transformation aims to reshape how organizations approach every single part of their operation - from customer service to product development.
In the past, organizations would wait until customers found them. But the rise of digital technologies that ensure 24/7 connectivity changed the face of all the fields related to the customer, such as sales, marketing, advertising, and customer service. In order to become truly customer-centric and meet customers halfway, you simply need to invest in your digital transformation.
If you're looking for an expert to guide you through the process, get in touch with us. Our experts helped multiple companies leverage digital tools to streamline their processes, accelerate operations, and deliver a fantastic experience to their customers.