Digi(tali)zation: Nomenclature matters

Being a Digital Implementation Manager, I am often asked what digitalization means, why I talk about digitization and what it would be, or what digital transformation and digital implementation mean.

When one considers that digital transformation once referred to digitization and digitalization was once called computerization, nomenclature matters when discussing phenomena where the terminology changes as fast as the technology does. If business leaders think they can digitize a business or digitalize enough processes to digitally transform, they are misunderstanding the terms and missing out on opportunities to evolve, gain competitive advantage, respond to consumer and employee expectations and demands, and create agile businesses.

Another reason why I am often asked those questions may also be that there is only one term in German: “Digitalisierung”. Strange, as the German language – normally – has distinct expressions for variants and is known to be very precise. In English, a distinction is made between digitization and digitalization, whereby the term digitization is used since the late 19th century whilst digitalization came up with the invention of the email application, hence, since the late 20th century.

Try to translate the German word “Digitalisierung” into English: It is always translated with digitization, never digitalization.

Concepts for differentiation are one thing, ignorance and confusion are the other. There has been persistent confusion regarding the difference between these two terms, or a lack of knowledge that there is even a distinction to be made. But what is the difference? And, additionally, what are digital transformation and digital implementation?

Scanned paper sheet with manually handwritten text:

Analog information is converted into a digital form.

Digitization: Transitioning from analog to digital

Let us start from the beginning. Digitization is the process of converting analog information into digital information. Typically, digitization is used for optimization of processes (e.g., work automation, paper minimization) and results in cost reductions. Digitization does not just convert information. Instead, it creates digital information in a format that helps to make further productivity gains.

Digitization is also converting an analog process into a digital process, if the process is kept as is. But this already describes the thin borderline to digitalization. After scanning a handwritten text, using an optical character recognition (OCR) program to further digitize the information into digital text would be an example for such a process. The analog process would be to read and type a written text with your keyboard by using a document software and save the document as a document file.

Digitization is the process of changing from analog to digital form, also known as digital enablement. Said another way, digitization takes an analog process and changes it to a digital form without any different-in-kind changes to the process itself.

If the goal is to keep the personal handwriting character and not only convert the text information from analog to digital, we could also convert the scanned image into a Base64 image which is one of the oldest ways to encode things into html (first proposed in 1987!). The comparable analog process would be … there is none. Maybe making confetti out of the image. Have luck if you need to “decode” the confetti to get the image back!

This process is already digitalization. Something that is changing the analog process or information with a new digital process or information. The result is something digital that has no counterpart in the analog world.

Digitalization: Making digitized information work for you

Once analog data has been digitized, there is enormous potential to use it in software applications and services. Digitalization is mainly about digital services using the digitized information. Digitalization contains or builds a strategy to imply process changes and optimizations to, finally, come up with a new or updated business model.

Do you still go to a local video rental store? Do you order your pizza from a delivery service still on the phone? I bet at least one of the questions is answered by a simple no. And the answer is caused by digitalization. A formally VHS or DVD video has been digitized to a video format that is on-demand downloadable and playable on any device – or can even be streamed (with existing internet connection). Trips to the video rental shop became a thing of the past. The next step was pay TV, a new type of subscription-based business model.

Thanks to digitization and digitalization, data is easily accessible for use across various platforms, devices, interfaces.

Especially during Covid-19 times, the food delivery service apps saved a lot of food businesses and are even used more often then ever before. These are two very prominent examples of digitalization as everyone is very familiar with them. But digitalization also leads to new, extended or updated business models as it is easy to collect data. Centralized data about customers including contact information and product history help (in a good and bad way) to understand what kind of products need improvement, which are or might be requested, desired and so on.

Digitalization is the use of digital technologies to change a business model and provide new revenue and value-producing opportunities; it is the process of moving to a digital business.

Digital transformation: COVID-19 has clearly defined (and rewarded) the businesses that have undergone digital transformation

Digital transformation can mean different to each company. This makes it difficult to explain it in layman terms. Although business leaders often use digitalization as an umbrella term for digital transformation, the terms are very different. Digital transformation requires a much broader adoption of digital technology and cultural change. Digital transformation is the process of devising new business applications that integrate digitized information and digitalized services. Digital transformation is also about artificial intelligence, augmented, mixed or virtual reality tools, predictive services or crowd sourcing.

But digital transformation is more about people than it is about digital technology. It requires organizational changes that are customer-centric, backed by leadership, driven by radical challenges to corporate culture, and the leveraging of technologies that empower and enable employees.

However, the reality is that few businesses have undergone successful digital transformations. Only 25% of organizations had transformed into digital businesses, 41% were on transformative journeys, and 34% invested more time talking about the trend than they did acting on it. What is noteworthy is that 85% of executives stated that attaining digital maturity is critical to organizational success.

The discrepancy between recognizing digital as a competitive necessity and successfully implementing a transformative strategy suggests that many leaders are unsure how to harness the opportunities that digital brings to people, processes, and technology.

Digital implementation: The journey from digitization to digital transformation

Implementing a digital initiative could cover the entire progress from digitization, digitalization and digital transformation but could also just be one of those steps. Typically, digital implementation is about the digital strategy, so including a feasibility analysis from concept to practice.

This requires a shift from age-old information formats, processes and services towards more dynamic setups. Even if there are many new technologies, this does not mean that all of them need to be implemented in your business. The choice of technology depends upon the process you are trying to optimize. Technology, as a matter of fact, is just a means to support your idea.

People often get overwhelmed with the modern technologies and try to implement all of them in their current business processes. The focus should be on finding the technologies that rightly fit your business objectives and implement them effectively. To implement innovative technologies, you will need skilled and dynamic people who are willing to shape the ideas into an actionable plan.

The entire digital implementation should be done in phases. Each phase of execution should be tested in a small environment and end with a risk mitigating milestone. Hence, the work of a digital implementation manager is exactly this: Implementing digital initiatives, being responsible for digital transformation of the business, keeping an eye on digitization and digitalization within the business.