Many people use the terms digitalization, digitalization and digital transformation interchangeably.
But I believe the differences among these three terms amount to more than just semantics — so over the years, I’ve developed working definitions of each that I often share during my conference keynotes and executive briefings. These definitions help the people interested in leading business change to speak the same language on the one hand, and characterize and organize their various efforts on the other. I thought it might be useful to share my definitions (and some helpful examples) here.
Why Does This Matter?
Look, anything that puts an organization on the right path toward transformation is goodness, as far as I’m concerned. But mistaking “mere” digitization for transformation sells the potential short and creates a false sense of progress. Lumping everything together under the banner of digital transformation, on the other hand, makes the term so broad as to be without meaning and the mountain so high as to be insurmountable.
I’ve found that parsing the digital journey into three separate but related tranches can be quite liberating for leaders struggling with how to start, sobering for leaders who have perhaps overestimated their own organization’s progress, and effective for leaders put off by the staggering failure rates for ‘big bang’ transformation.
As an aside, I appreciate that others may have different ways of drawing the lines between these terms. I hope you’ll find my take useful.
What is Digitization?
Digitization fixes the past by applying technology to solve for the inefficiency and ineffectiveness of legacy systems and processes that no longer meet the needs of the modern business.
Think of digitization as the process of swapping out analog for digital across the core operations of the business. For example:
- Converting physical information into digital forms that can be organized, structured, understood and interpreted by machines.
- Moving ‘old tech’ workloads to more modern approaches — whether this means migrating business applications into the cloud; replacing a creaky old intranet with corporate social tools like Slack, Facebook for Business or Microsoft Teams; or moving from spreadsheets to SaaS for data capture and reporting.
- Automating rote human processes via robotic process automation (RPA) or even shifting toward data-based decision making through the application of machine learning and narrow AI in the business.
None of this is trivial work; none of these are unimportant initiatives. In fact, they’re critical, as they stand to deliver measurable cost savings and/or productivity improvements. Digitization projects are foundational (if sometimes remedial) programs that aim to eliminate the industrial era ‘debt’ that might otherwise stymy business transformation. That said, there’s nothing in digitization that is truly transformative — the business remains fundamentally the same.
What is Digitalization?
Digitalization perfects the present, empowering an organization to be the best at what it does today. This goes beyond efficiency and effectiveness, to deliver a truly modern, technology-enabled experience for all constituents (customers, employees, etc).
Oh, what a difference two little letters make. Where digitization delivers efficiency, digitalization optimizes the experience. Digitization often emphasizes the kinds of improvements that are more obvious in their absence; digitalization the kinds of improvements that make the difference by their presence. The kinds of improvements that would cause a customer, partner or employee to describe the organization (or at least parts of it) as doing “digital”. For example:
- Employing technology to eliminate disparities between what you deliver (and how you deliver) online vs offline — whether this is the seamless and friction-free omni-channel experience your current customers expect; or the ability for your workforce to maintain productivity in the office, on the road or in remote working locations.
- Gaining and acting on a clear understanding of the customer journey and having an accessible and actionable single customer view.
- Stripping away cumbersome interactions across products and services, making it easier for customers to buy and easier for employees to sell, supply, support and serve.
It is through digitalization that organizations add e-commerce, go mobile-first/voice-first/VR-first, modernize their marketing, improve collaboration across departments or divisions, support a network of remote workers. These things don’t fundamentally change what you do (sell shirts, manufacture cars, ship parcels, provide legal advice) so much as they change the ways in which you get it done.
Again, the changes required and the resulting benefits are not insignificant but they still don’t make you a fundamentally different business — they do make you a better, more digital version of your current self. In fact, I look at the combination of digitization and digitalization as the workhorses of business modernization. They are essential to survival and growth for any traditional industry or organization. In other words, the sort of always-on, stepwise progression by which we adapt our existing business to the new environment in which it operates.
What is Digital Transformation?
So far, with digitization and digitalization we have mostly just enabled the business to do the things it already does differently. Digital transformation, on the other hand, empowers the business to do different things that it has never done before. In this sense…
Digital transformation creates the future, morphing the organization into something new — not just in terms of technology but in terms of vision, culture, structure, model and value — to be wholly adapted to a world that is digital at its core.
In the past, I’ve defined digital transformation as ‘closing the gap between what your digital constituents already demand and what your analog company actually delivers.’ I think this is still a good working definition. It doesn’t mention technology, it assumes your constituents have already arrived at the future ahead of your company.
Today though, I would add that it demands innovation (not just modernization) across the board. For example:
- Leveraging core assets or expertise to serve current markets in different ways or enter new markets in distinct ways.
- Making the transition to the access or subscription economy by turning product into service, even as your primary model.
- Engaging in organization-wide upskilling to ensure a future-ready workforce, instead of delegating digital to a department.
Transformation is indeed bigger, broader, bolder than either digitization or digitalization — it builds on those things but neither replaces them nor is a substitution for them. Where digitization is about efficiency and productivity, then digitalization is about experience, digital transformation is about invention and reinvention. To me, digital falls short of being transformative if it does not ultimately lead the organization to someplace entirely new.
That said, I still don’t believe that transformation must happen all at once, everywhere across the organization — and this is exactly why it is important to digitize and digitalize for the present while transforming for the future.
All Together Now…
Digitization, digitalization and digital transformation are not the same thing, but share a common purpose: to shift the organization away from industrial era paradigms that no longer serve the expectations of post-industrial stakeholders.
By understanding the distinction among these three related concepts, leaders can more accurately assess where they are on their journey, more properly set expectations and gauge the effectiveness of their efforts, make better decisions about where, when and how to tap into digital (in any of its forms) now, and chart a course toward what might come next.
