Digitization and digital transformation – what’s the difference for your business?
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Digital transformation is today at the forefront of managers’ attention. Even if the hype around it has been going on for at least a few years now, businesses are still confused about the terminology. This is especially true for the terms “digitization,” “digitalization,” and “digital transformation.” Often used interchangeably, these three terms actually have distinct meanings.
This confusion might end up reducing the importance of digital transformation and make it seem to be just another trend. In reality, organizations that fail to jump on the digital transformation bandwagon will put themselves in peril in the years to come.
In this article, we zoom in on digitization and digital transformation to explain the differences between them and the value they bring to businesses. Read on to finally understand the difference between all of these terms and see why digital transformation is so critical in powering business growth today.
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What is digitization?
According to Gartner’s IT glossary, digitization is “the process of changing from analog to digital form.” Few people would disagree with this simple definition.
In its essence, digitization is in the process of converting information from a physical format to a digital format – transforming something nondigital into a digital representation that can be later used by computer systems. This is the first step to automating processes and workflows.
Digitization creates business value because companies rely on data in a digital format – otherwise, processing and analyzing it is impossible.
Examples of digitization
- Switching from making notes on paper to typing them up in an Excel spreadsheet,
- Scanning a paper document and then saving it on a computer’s hard drive as a digital document in the PDF format,
- Moving from a paper-based time tracking spreadsheet to an Excel spreadsheet.
What is digitalization?
According to Gartner, “digitalization is the use of digital technologies to change a business model and provide new revenue and value-producing opportunities.” It’s the process of moving to become a digital business.
Digitalization is all about transforming how people work. That’s why acquiring digital skills is so essential for digitalization efforts to work. If the difference between digitization and digitalization is still unclear, consider this:
You can digitize a single process, but you can’t do the same with the entire factory – in this case, you digitalize the factory.
Examples of digitalization
- Factory workers who used to perform tasks manually on the factory floor now control their completion using computer systems,
- Analyzing data from devices connected to the internet for finding new revenue streams.
What is digital transformation?
Let’s see what Gartner has to say about digital transformation:
“Digital business transformation is the process of exploiting digital technologies and supporting capabilities to create a robust new digital business model.”
You can probably tell that digital transformation can’t be implemented as a project. It’s a customer-driven strategic business transformation that requires cutting across organizational silos and implementing digital technologies throughout the business to automate workflows.
Digital transformation usually takes the form of initiatives that cause a great change in how certain tasks are completed in an organization. In general, the goal of digital transformation is to prepare the company to deal with change better – whether it’s in customer needs or market trends. It’s about making the ability to change a core competency of an enterprise as it becomes customer-driven and agile.
Digital transformation is a broader approach that is powered by technology but ultimately focuses on the customer.
Digital transformation examples
Examples of digital transformation by industry
The financial services sector has been deeply transformed by digital technologies during the last few decades. Not too long ago, most transactions were handled in person. ATMs streamlined the basic transaction processes to reduce wait times and extend business hours.
Most recently, banks have been offering online and mobile banking applications as well as innovative cashless payment systems to meet customer demands. Mobile app today allows users to take snapshots of paper checks and make remote deposits in just a few minutes.
New payment systems such as Apple Pay or Google Pay allows consumers to pay for everyday purchases with their smartphones without any plastic card or cash required. Banks now invest in powerful AI analytics solutions that offer spot-on customer insights and even predict future trends in customer behaviors.
Another sector that has been radically transformed by digital transformation is retail, both in terms of the in-store retail experiences as well as e-commerce. Retailers use digital solutions to issue loyalty cards and online promotions on the customer-facing side and reinvent back-office systems with automated inventory or advanced analytics.
Today, shoppers can shop on their smartphones or check into a store and get personalized discounts. Their purchases are tallied by digital systems that track behavior trends and tie them into inventory and purchasing systems to trigger individualized customer journeys. Retailers are also experimenting with cutting-edge solutions, such as the Internet of Things (IoT).
There’s no denying that digital transformation had an impact on the insurance industry as well. Insurers can now offer their customers web and mobile applications in the form of self-service portals, which make it easy for consumers to compare different offers, check coverage, and file claims. All of this can be done without ever having to actually speak to a human agent. This is a huge time-saver for customers and insurance companies, which can now dedicate their human staff to mission-critical tasks.
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Examples of digital transformation by department
Marketing and sales
Traditional roles in sales and marketing have been redefined in the digital age because they’ve become data-centered. Organizations now have the ability to collect and process large amounts of data about consumer behavior. This allows sales and marketing teams to approach their work in brand-new ways.
They can study customer behaviors from the first touchpoints throughout the buying journey to the moment of purchase, segment customers more precisely, and understand how to approach customers to boost conversion.
Digital marketing initiatives generate high-quality brand interactions, allowing businesses to get closer to their customer base, build a strong brand, and increase customer loyalty. Moreover, digital marketing campaigns are far less expensive than print and mail campaigns or television advertising. Digital marketing and sales open the door to process automation and in-depth analytics that drive business growth.
The on-demand economy has radically changed the habits of customers who now expect easy access and real-time experiences from every brand they interact with. They want to get everything with just the swipe and tap, available around the clock.
What does it all mean for customer service teams? That customers now expect the delivery of problem-solving 24/7 via their channel of choice. That’s why so many customer service departments now invest in tools that can help them achieve that – from web-based self-service customer portals or interactive chatbots powered by artificial intelligence (AI) that can answer customer questions and deal with simpler inquiries. That way, human agents are left to deal with more complex problems.
Benefits of digital transformation
Improved customer experience
Advancements in technology radically changed how companies interact with their customers. Digital technologies allow businesses to provide consistent customer experience, all the while gaining a better understanding of customer pain points and providing solutions to them as quickly as possible.
Creating a satisfactory customer experience is of paramount importance today – it can become an organization’s unique selling point and critical strategy for business growth. That’s why companies that embrace digital transformation with all the digital tools can engage their customers better, faster, and more accurately.
Boosting employee skill sets
As companies constantly adopt new technologies, employees are also required to update their skills and meet the changing technological demand. That’s why digital transformation initiatives allow employees to expand their horizons and create better communication between different departments as they begin to use the same tools.
Digital transformation improves the general productivity and quality of work delivered by employees who no longer have to waste time on manual processes. Instead, organizations can automate a lot of workloads to bring their employees more satisfaction and encourage them to gain new skill sets and become the workforce of the future.
Building a digital culture
By carrying out digital transformation projects, businesses help their employees to easily adapt to technological changes around them and utilize them for the benefit of the business. A digital environment that encourages continuous learning keeps everyone motivated. This also prepares the company to face a new reality and quickly embrace the changing market or customer trends. That’s why digital transformation is closely related to culture.
Better analytics and data collection
Another benefit of digital transformation is that it allows organizations to finally tap into their most valuable asset: data. Analytics tools monitor, collect, process, and analyze customer data to assist managers in making better-informed decisions that bring the business a unique competitive advantage.
Digitization of services and products
New technological advancements not only contribute to the changing behaviors of customers but also give rise to brand-new products and services. These are closely related to customer demands because data-driven companies can understand better what their customers need and deliver it quickly. A company that knows how to react to changing customer desires fast and listens to them closely stands to gain customer loyalty.
Digital transformation focuses on improving customer experiences and engagement, but this also means increased customer loyalty and greater revenue. As people stick with the company, they become returning customers who generate far more profits than new customers. Digital transformation opens the doors to new sales channels in brand-new markets because it makes targeting segments located on the other end of the planet possible.
Building a competitive advantage
The ability to compete in the market is what helps companies survive. In the world of the continuous digital transformation of the business environment, only the businesses that manage to implement digital tools will continue to grow. By transforming the organization into a fully digital business, leaders can keep pace with the competition and ensure that their company never becomes irrelevant.
What is the difference between digitization and digital transformation?
While digitization is about bringing in new technologies for digitizing physical assets, digital transformation refers to doing things in a brand-new, digitally enabled way. Digital transformation encompasses all aspects of business, such as customer understanding and touchpoints, growth strategy, process automation, new business models, enterprise applications, and many other aspects.
We hope that this article finally clears the difference between digitization and digital transformation, showing you how important digital transformation is in today’s business reality.
If you’d like to learn more about what digital transformation looks like in practice, reach out to our experts. We have delivered many enterprise projects focusing on digital transformation across different departments and know how to enable business growth.
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