Digital Transformation vs Digitalization, don’t Fall for It

I. Introduction

As we have learned from earlier episodes, the idea of digital transformation presents a lot of obstacles and will require a business to undergo a transformation process. However, the idea of digitalization is frequently mixed up with this. In this article, we will examine why it is crucial to distinguish between the two ideas and determine which is best for your purposes.

II. Understanding Digital Transformation

A fundamental change in how businesses function and provide value to customers is required for digital transformation. This transformation involves redesigning an organization’s entire ecosystem, including its people, processes, and platforms and goes beyond simply incorporating new technologies. Any attempt to start a digital transformation journey solely from a technological standpoint is likely to fall short of changing the business if it even succeeds at all.

1. People: Any digital transformation’s success depends on its people. Driving innovative thinking demands a digital-first mentality and upskilling initiatives. The change will be rejected, unsuccessful, or very limited without the changing mindset and continuous input from your employees.
2. Processes: Redefining processes and fostering efficiency are all elements of digital transformation that benefit consumer experiences. The core principles of your organization must be at the centre of new processes, which also need to decrease siloed activities, offer value to customers, and prioritize efficiency. Logic and technology “breakpoints” must also be taken into consideration while developing these new, redefined processes.
3. Technologies/Platforms: This entails picking and integrating the appropriate digital tools and systems to enable employees to carry out processes more efficiently. To reach your objective, you’ll need reliable vehicles for the journey. Choosing the best ones can be challenging, but like all journeys, success requires using more than one vehicle or mode of transportation.

In some instances, the fourth pillar of digital transformation is mentioned: the program. The feedback loop and the backlog of ideas for improvement are here. In my perspective, this is a foundational element that significantly depends on people and creating the correct innovative culture, while directors and C-Level executives give the steering or prioritization in accordance with their vision. Without a strong foundation of the people, the program will be fed continuously from top to bottom and is more likely to fail. Simone Mink has an excellent article and extensive information about the topic here

Successful businesses, like Netflix and Amazon, have been able to effectively manage these pillars in their efforts to change into digital businesses, fundamentally altering their business models to succeed in the digital era.

III. Understanding Digitalization

Digitalization, on the other hand, is the process of using digital technologies to change a business model, providing new revenue and value-producing opportunities. It’s about converting information into a digital format. The process of digitalization is one aspect of the broader digital transformation strategy.

For instance, a paper-based invoice system that transitions to an electronic invoicing system is an example of digitalization. While digitalization presents several benefits, like improved efficiency and accuracy, it may also pose challenges, such as data security concerns.

In the example of migrating from paper invoices to digital, we can see that there are clear benefits of speed, efficiency and cost savings, however at heart, no business process has been significantly impacted other than the printing invoicing and no new revenue streams have been generated. It’s the limited nature of digitalization that makes the difference.

IV. The Interplay Between Digital Transformation and Digitalization

But not everything about digitalization is bad or wrong. Digitalization is an integral part of digital transformation. While digital transformation represents the strategic big picture, digitalization is the tactical execution of that strategy. Effective digitalization drives digital transformation, providing the tools necessary for transformative change.

In the example of migrating from paper invoices to digital, we can see that there are clear benefits of speed, efficiency and cost savings, however at heart, no business process has been significantly impacted other than the printing invoicing and no new revenue streams have been generated. It’s the limited nature of digitalization that makes the difference. Moving from paper invoices to digital could be a first step to enable further changes to a bigger process that will indeed be a part of a bigger journey.

VI. Conclusion

While digital transformation and digitalization may seem similar, understanding their differences and interdependencies is crucial for effective strategic planning in today’s digital era. Digital transformation, a holistic change involving people, processes, and technologies/platforms, encompasses digitalization, which focuses on the use of digital technologies to modify business models.

VII. Preview of the Next Article

In the next article, we will dive deeper into practical steps to execute a digital transformation strategy, focusing on how to manage the interplay between people, processes, and technologies/platforms for optimal results.

Stay tuned to learn more about how.