The digital age has created many new terms and buzzwords. We are talking buzzwords such as the cloud, AI, IoT, and As a Service. Digitization, digitalization, and digital transformation have also become part of the connected world’s lingua franca. That said, few of these word’s users can tell what the difference is between them.
They use ‘digitization,’ ‘digitalization,’ and ‘digital transformation’ interchangeably, robbing these words of their power and importance. Yet, despite their semblance, these terms have distinct meanings. Part of the reason why there is confusion between them because they are part of the rising digital transformation hype happening in society, academia, and industry.
It, however, pays to grasp their similarities and differences to avoid possible misunderstandings, misinterpretations, and even poor decisions, when making business decisions.
What is Digitization?
Digitization converts analog information into digital representations. For instance, you can scan a hard copy (analog) document to produce a soft copy (digital). Stated, it is converting non-digital items into their digital representation for use in computerized systems. Digitization encodes information into zeroes and ones facilitating computer storage, processing, and transmission.
What is Digitalization?
Digitalization is a process that digitizes data and digital technologies to improve and optimize operations. It is a foundational process and a connection between the hardware/ physical world and the software/digital world.
Digitalization refers to the change that digital technologies bring in business operations in the business world as they embrace the digital business age. Digitalization, as per Gartner’s definition, increases a business’s value production and revenue opportunities.
Businesses that undertake digitalization improve and optimize their processes, increasing output and revenue. They also cut wastage and costs and improve their interactions with other players.
For this reason, businesses are turning to enterprise resource planning (ERP) systems to automate their day-to-day operations. They utilize ERP to digitalize their project management, accounting, procurement, risk management, and compliance sectors, among others.
What is Digital Transformation(DX)?
Digital transformation(DX) is a broader concept that aligns entire populations, systems, businesses, or institutions with digital technology or trends. Thus, digital transformation has a broader scope than digitalization or digitization.
It is a long-drawn-out process that fosters a culture change towards digital technology. In business circles, digitalization powers digital transformation leading to business transformation. It is a customer-driven strategic business process that involves cross-cutting organizational change and implementing various digital technologies.
Digital transformation programs have a series of digitalization projects that bring a complete turnaround in an organization.
While digitalization involves integrating and applying technology into existing businesses, digital transformation embraces new digital ways of doing things.
Digitalization and digitalization are elements of a digital transformation process that create new business realities with a new market and new customers.
History of Digital Transformation
Digital transformation has caused a storm in business circles. As a result, there is a high appetite for digital change among businesses. As per a report by the International Data Corporation (IDC), global spending on digital transformation will have a market cap of $2 trillion by 2022.
While the history of digital transformation goes back to the 1940s, the concept only gained ground in the late 1990s and mid-2000s. Below is a brief timeline of digital transformation’s history.
- In 1948, Dr. Claude Shannon published a paper titled A Mathematical Theory of Communication, creating a foundation for digitization. Thus, Dr. Claude is the father of modern digital communications.
- The microchip and semiconductor transistor were invented in the 1950s, kicking off the migration of analog computing to digital.
- The 1970s introduced home computers, and data entry jobs emerge as businesses migrate their data to digital platforms.
- The World Wide Web launches in the 1980s, ushering in the automation era.
- The late 1990s and early 2000s brought an explosion of automation, and the digital revolution spread worldwide.
- The digitization of existing analog and manual systems is complete by 2010 and ushers in the era of digital transformation.
- Pioneer digital transformation tools began to rise in 2014, and many businesses embrace digital transformation as a long-term growth strategy.
- In 2016, Forrester’s Digital Transformation Forum suggested that digital transformation should be a never-ending desire for growth and improvement. This declaration leads to an increase in the number of entities upscaling their digital transformation tools.
Industries leading the digital wave include the manufacturing, process manufacturing, transportation, and retail sectors. The manufacturing industry is leveraging digital technology in smart manufacturing while the transport industry is investing in digital supply chain optimization. The retail sector is leveraging digital technology in omni-channel commerce, in-store contextualized marketing, augmented virtual experience, and next-generation payments development.
Digitization, digitalization, and digital transformation have become vital 21st-century business processes. The astute business leader should fully grasp their meaning and potential to ensure accuracy in communication and enhance decision-making during their implementation.
By differentiating the meaning of these terms, business managers can kick off the digitization of business data. They can then digitalize business processes and eventually digitally transform their business strategies for success.