Digitalization vs Digitization: Does the Difference Matter?

Plenty of words sound alike — there, their, and they’re; by, buy, and bye; and aisle, isle, and I’ll — yet have entirely different meanings. While digitization, digitalization, and digital transformation don’t all hit your ears the same, they’re close enough to cause confusion. By taking a moment to sort out digitalization vs digitalization, you stand to gain significant understanding in managing the scope and potential value of each.

While digitization merely means transforming analog data into a digital form, digitalization focuses on improving processes and automating workflows to increase efficiency and reduce costs. Digital transformation uses digitized data and several layers of digitalized systems to create a competitive advantage, enhance innovation, and encourage agile cultures and new business models.

Digitalization vs Digitization

Digitization is a super simple concept. When you scan a document, you are digitizing it. You’re converting an analog item to a digital version that uses zeros and ones (aka bits) to create sequences of coded information (aka bytes).

Digitalization uses digitized items to enhance business operations and experiences. If digitization is converting data to a digital form, digitalization is transforming that data into improved business processes and systems. Digitalization of data cannot take place without digital information.

When a company inserts digitalized processes into most or all aspects of its organization, it undergoes digital transformation (DX). DX depends on digitalization, which requires digitization.

One way to think about the differences in these concepts is by using a past, present, and future lens. In this view, digitization is the past because it does nothing beyond changing the format of something already existing. Representing the present, digitalization uses tech and tools in day-to-day operations. Digitalization also partially impacts the future since it can reduce costs and improve efficiency, but its outcomes are greater when used strategically throughout several layers of a business, which is digital transformation.

What is digitization?

Digitization converts analog information into digital form. Also known as digital enablement, it organizes information into bits and bytes using a binary system of zeros and ones. Data in a digital format can be processed, stored, and transmitted through the use of digital technologies.

Examples and Applications

Scanning paper documents into PDFs
Converting music from CDs to digital files
Digitization of media such as online newspapers
Developing an electronic map from a paper map
Creating a computer model of a 3D object using design software

Benefits

Enhances accessibility and preservation of data
Increases efficiency and accuracy by creating a single source of truth
Improves cost-effectiveness and convenience
Allows for easier collaboration

What is digitalization?

Digitalization is a strategic process that fundamentally changes daily workflows and systems by using digitized data and technology to improve workflows and operations. The key difference between digitization vs digitalization is that the former is merely about creating data, whereas the latter uses the data with technology.

Examples and Applications

Migrating to cloud-based computing and storage systems to improve data management and access
Implementing digital tools and automated workflow systems to improve manual business processes and enhance communication
Using CRM systems, e-commerce platforms, and digital marketing strategies to elevate customer experience
Employing ERP systems to house and store data and create a single source of truth

Benefits

Transforms operations for improved efficiency and reduced costs
Minimizes human errors and time spent fixing them
Simplifies data management and increases visibility for better decision-making
Aids in insight generation based on real-time customer behavior data to then help personalize interactions and increase satisfaction
Boosts innovation for the creation of new value propositions and revenue streams, leading to greater profitability
Improves sustainability and reduces carbon footprint

The Digital Shift in the Business World

Digitization is a key component of the Digital Revolution, aka the Third Industrial Revolution. This period was all about computing, and this process was necessary to meet the increased demand for data storage, processing, and transfer. From just 1986 to 2007, our storage capacity went from 99.2% analog to 94% digital. This made things like home computers, the Internet, and smartphones possible.

The increased use of digital data mirrors developments in new tech, with artificial intelligence, machine learning, and cloud computing all coming about in recent years. Due to such rapid changes, the executive chairman of the World Economic Forum, Klaus Schwab, introduced the Fourth Industrial Revolution as a distinct new period due to its “velocity, scope, and systems impact.” This period marks a time of transformation so rapid it’s exponential rather than linear pace and so disruptive that it impacts almost every industry.

In today’s digital landscape, these concepts are so prevalent that you may not always notice them. Say you run a team looking to add a new piece of automation software to your business operations. Regardless of which tool you choose, you’d first need to ensure you’re using shareable files and documents. Since many companies already regularly create and share digital documents vs paper-based ones, most of your files are likely already digitized.

To move from business digitization into tool adoption and company-wide transformation, you want to be strategic about planning. You cannot merely aim to add more digital technology — you must be selective and intentional about process digitalization. You must consider how to use transformation to create the most value and impact based on your desired outcomes.

Think about the differences and interconnectedness of these three concepts like the steps required to develop and build the Interstate Highway System:

Each individual road is constructed by transforming raw materials into a consistent mix of pavement and paint (digitization).

The roads are routed in a specific way to connect certain states, simplifying travel through a segment of the country (digitalization).

All the routes work individually to improve travel, but they also work together to create a network that spans the entire country and enables quicker and easier movement for an entire population (digital transformation).

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Digital Transformation in Business Operations

Transformation means integrating strategic technological processes into most or all areas of operations. It uses digitalization across employee- and customer-facing operations to create new value and enhance engagement.

Leveraging Digitization, Digitalization, and Digital Transformation

Digitalization, digitization, and digital transformation are separate connected aspects of operating a business today. When considering their application, companies will want to be both practical and strategic to ensure organizational improvement and increase innovation. They’ll also need to be thoughtful about overcoming challenges to ensure successful transformation. Ultimately, DX is unique to each organization, and companies must choose which areas to optimize to drive growth.

Digital Journey Case Studies

Virtually all industries are already using digital optimization to remain competitive and successful. As digitalization technologies improve and their use increases, companies wishing to stay relevant and profitable must do the same.

Some examples of digital data, technologies, systems, and outcomes across various industries include:

Healthcare: Digital health records, automated appointment systems, mobile health apps

Manufacturing: Robotics, Internet of Things sensors, AI and machine learning, cloud-based ERP software
Retail: Mobile apps, targeted marketing campaigns, virtual shopping experiences
Banking: Online banking, APIs, person-to-person payments
Agriculture: Machine harvesters, drone farming, produce monitoring
Hospitality: Hotel operations software, property management systems, guest services personalization

In addition to improved systems and outcomes, DX sometimes leads to entirely new business models. In today’s digital world, companies like Shopify, Zoom, Netflix, Spotify, and Adobe all depend heavily on their comprehensive adoption of digital technologies and transformation processes.

Netflix

Back when brick-and-mortar video and DVD rental stores were common, a new company with a new strategy (and eye-catching bright red envelopes) came on the scene and changed everything: Netflix.

Netflix began as a mail-order DVD company where members paid a monthly fee to have movies shipped to their homes. They digitized videos from cumbersome VHS tapes to modern DVDs, removed the physical need to travel to a store, and delivered movies right to customers’ mailboxes. Today, having left DVDs behind, we know Netflix as one of the biggest apps for streaming movies and TV.

Netflix’s initial business model disrupted the video rental industry, alleviating customer concerns about late fees and limited availability. By moving from mail-order to the cloud in 2007, they also removed the need for customers to wait. As a result, they successfully transformed their own business as well as an entire business category. Today, they’re a company that’s scaled to a net worth of over $240B. They’re such a common household feature that many smart TV remotes come with a dedicated Netflix button.

Adobe

As a software company, Adobe’s business was about digitization from the start. Flagship products like Photoshop, Adobe Acrobat Reader, and Illustrator were top-tier tools for editing photos and PDFs as well as creating illustrations.

However, the 2008 recession eliminated some cash flow companies were willing to use to continually update the Adobe product range. Thus, Adobe began a shift to a subscription-based model, which required a reinvention into Adobe Creative Cloud. As part of their transformation, they also acquired an e-commerce platform and a web analytics company. They increased investment in employee experience, company culture, branding, and benefits.

With time, a new business model, new technology, and a new identity, they rode the waves of change management and set the standard for software as a service companies today.

The Path to Digitalization and DX

Digitization, digitalization, and digital transformation represent distinct yet interconnected concepts that play a crucial role in shaping the future of businesses. Learning to differentiate between them can help you find the right avenues for operational change and value creation. By adopting the appropriate digital solutions, your company can maintain relevance, increase its competitive edge, and drive growth.

If you’re on the path to digitalization and DX, The C2 Group can help you evaluate your digital maturity and develop a comprehensive transformation. Together, we can improve your company’s outcomes, increase innovation, and possibly even create new revenue streams.

Ready to get started on your journey of digitalization and transformation? Submit a digital transformation consultation request today.

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