The Difference Between Digital Transformation and Digitization
What is the difference between Digitization and Digital Transformation?
A great misconception we see nowadays, the confusion between the concepts of “Digitization”, and “Digital Transformation”. The fundamental understanding by most business managers, top leaders and CEO’s of believing that installing and operating systems through software, such as the ERP, CRM and or any other software’s lead to their businesses’ digital transformation. However this understanding is not correct.
On the contrary, by taking this step, these leaders have digitized their businesses, by automating their standard business processes and using different software’s.
To begin with, lets define both concepts, digitization is the use of technologies and/or software, to improve how traditional value propositions are delivered. While digital transformation Is the ability to deliver new value proposition and generate new revenue streams. By just defining the two we can notice, that both concepts are not interchangeable.
Nonetheless companies cannot digitally transform if they have not digitized. The need of core systems, processes, and data that provide operational excellence is a must, while digitization is a must it will create discomfort when the business decided to digitally transform. Digitization requires top-down leadership principles with centralized accountabilities while digital business success requires local empowerment with distributed accountabilities. This puts companies in the middle of these dueling requirements…
To minimize this paradox, companies should before going into digital transformation, review their business models and examine their core business operation reliability to its business success. Choose the right business model that suits the business environment and enable the company to achieve its mission. Identify which processes would ensure an efficient, reliable supply chain as well as reduce any variability in its product offering that wasn’t valued by customers and reduce the non-value adding variables in its processes.
In order not to be lost in details, I will summarize the differences in simple bullet points to capture the big picture and understand the basic differences.
1- Examples of the technology used by each:
Digitization: ERP, CRM, PMP, banking engines
Digital Transformation: Social media, Mobile, Analytics, Cloud computing, IOT (acronym SMATIC) and 3D, machine learning….
2- Targets to be achieved from each concept:
Digitization: Operational excellence, disciplined approaches and accountabilities
Digital Transformation: Rapid innovations to respond quickly to changing customer demand and digital technologies.
3- Focus of each concept:
Digitization: Lower costs, reliability, predictable customers services
Digital Transformation: New customer offerings, new revenue streams, provide solutions to customers and Innovation, that make customers willing to pay for
4- Organization Structure of each:
Digitization: Traditional Hierarchy, Top- down, efficient but disparate silos
Digital Transformation: Autonomy and empowered agile cross functional teams, aligned with company mission
” Companies that are designed to be digital will have a structure that, in most cases, include some hierarchy, but don’t lead with structure. They allow peoples responsibilities and reporting relationships to evolve as needed to meet customer demands. Structures comes later, when a digital offering has been adapted and the company wants to scale up.” MIT
5- Design of each:
Digitization: IT Architecture, Information technology infrastructure
Digital Transformation: Business design architecture. A holistic organizational configuration involves people (roles, accountabilities, structures, skills), processes (workflows, routines, procedures) and technology (infrastructure, applications)
6- The Role of IT in each:
Digitization: Create technology infrastructure, take responsibilities of selected software’s
Digital Transformation: Support business leaders, but not in a position to take responsibilities of digital business design., as explained above it is business person responsibility CTO
7- Company Culture in each:
Digitization: Process standardization and organizational Discipline
Digital Transformation: In addition to discipline, it is the culture of innovation and agility
8- The use of data in each:
Digitization: Wrong data, will lead to the result of the automated process to be inaccurate
Digital Transformation: Data is collected by experimentation, reiteration and learning
9- Trade off in each:
Digitization: Flexibility and speed
Digital Transformation: Efficiency and
10 Business Performance:
Digitization: Struggle to survive
Digital Transformation: Sustainable success
11- Product development in fast changing world:
Digitization: Adherence to a set of sequentially organized steps, Difficult to change in response to new requirement, Static
Digital Transformation: Ongoing real- time collaboration. Ever evolving to hiccups and shortfalls, Dynamic
12- People skills needed:
Digitization: function focused, silos’ employees, no sharing information, obeying orders, no broad knowledge of the organization information, executors, time and budget controlled
Digital Transformation: problem solver, adaptive, human centered, sense-making, curiosity, resilience, creativity and critical thinking
As we can see both of these concepts differ drastically, and although people use these terms interchangeably their implementation and results vary differently.
We can even say that to an extent digitization and digital transformation are opposing concepts, and their biggest commonality is technology. However, we need to appreciate that although they are different, they are complements to one another, as digitization represents the IT infrastructure, and digital transformation represents business processes, therefore digital transformation cannot be achieved without digitization.
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