Digitization and digital transformation are two terms often used interchangeably in discussions about the impact of technology on organizations. While they share some similarities, they are fundamentally different concepts. Let’s explore the differences between digitization and digital transformation and why they matter for businesses.

What is Digital Technology?

We are surrounded by digital technology. According to (Ross et al., 2019), digital technologies are Social Media, Mobile Apps, Analytics, Cloud Computing, and the Internet of Things (IoT); they refer to digital technologies by the acronym SMACIT.

Digitization.

Digitization is the enhancement of processes and operations with SMACIT or related technologies. Simply put, digitization converts analog information (data stored on physical media, such as paper records or tapes) into digital formats. This could be as simple as scanning paper documents and saving them as PDFs or as complex as using machine learning algorithms to extract information from unstructured data sources. Digitization is necessary for businesses to exploit the capabilities of SMACIT, such as improving efficiency, quality, and profitability (reducing cost.)

We often associate digitization with automation since we can automate most digitization processes with the help of software and machines. For example, we might use Optical Character Recognition (OCR) software to automatically extract data from invoices or medical records, eliminating the need for manual data entry.

Digital Transformation.

Digital transformation, on the other hand, is a much broader and more complex concept; this is the fundamental change an organization must undergo when it adopts SMACIT to alter how it operates, creates value, and interacts with customers. Digital transformation is not just about technology; it is about people, processes, and culture; it is a journey.

To digitally transform an organization, leaders must rethink every aspect of their business, including their business model and customer experience, if they want to maximize the capabilities of SMACIT. For example, an organization might use data analytics to gain insights into customer behavior and tailor its marketing campaigns accordingly. You might also implement cloud-based infrastructure to facilitate remote work and collaboration.

The critical difference between digitization and digital transformation is that digitization is seen as a tactical, operational process that can be implemented quickly – a quick win. In contrast, digital transformation is strategic and long-term and usually requires significant investment and commitment from an organization.

Why the difference matters?

Understanding the difference between digitization and digital transformation is essential for business leaders because it affects how they approach technology investments and change management.

Digitization can provide immediate benefits such as improved efficiency and reduced costs. However, organizations focusing solely on digitization risk missing out on the broader benefits of digital transformation, such as enhanced customer experience, increased innovation, and new revenue streams via new offerings.

Digital transformation requires a different mindset and approach than digitization. It requires a commitment to innovation, a willingness to experiment, and continuous learning and improvement culture. Leaders serious about digital transformation must invest in the right technology, people, and processes and be prepared to change their business models and operations significantly.

In a nutshell.

Although digitization and digital transformation are often interchangeable, they are fundamentally different concepts. Digitization is necessary for businesses to exploit the capabilities of SMACIT; however, more is needed to achieve true digital transformation. True digital transformation requires a strategic, long-term approach encompassing every aspect of the organization’s operations and culture. With a digital transformation approach, businesses can enjoy sustained competitive advantage and profitability.