What is the difference between digitization, digitalization, and digital transformation?

I often encounter these terms: digitization, digitalization, as well as digital transformation. That’s not the problem as I’m always interested in reading an article or listening to a presentation or a webinar about these topics. The problem is that a lot of times they are used interchangeably or incorrectly. Let’s explore what is the difference between digitization, digitalization, and digital transformation.

What is digitization?

Digitization describes the conversion from analog information into a digital format. In other words it is the process of converting information from a physical format into a digital one.

For example, converting a physical receipt into a PDF by scanning it or photographing it represents the process of digitization. Converting a video stored on a VHS tape into an MPEG file. Or converting the audio from an audio cassette into mp3s. Does anyone remember cassettes? 🙂

What is digitalization?

In Gartner’s IT glossary, digitalization is “the use of digital technologies to change a business model and provide new revenue and value-producing opportunities.”

It other words, digitalization is the process of leveraging digitization to improve a business processes.

Let’s take our receipt example and put it in the context of filing an expense claim so you can get reimbursed for it. It’s not unheard of to fill out a physical copy of an expense claim, attach your receipt and submit it to Finance for processing. I wouldn’t be surprised if a lot of us are still doing that.

Another way is to fill out an online form version of the expense claim, attach a digitized version of your receipt (remember the one we scanned or photographed?) and submit it to Finance. This last process represents the digitalization of our analog or paper-based process. It’s using a technology, a tool, a platform to create a value-producing opportunity, in our case an operational efficiency. Why? Because by digitalizing the expense claim submission we enable greater traceability, faster processing times, increased data quality, improved customer experience, reduction of work and so on.

Sounds pretty good, right? While digitalization carries implicit positive connotations, digitization does not. Digitization is an act that may enable digitalization, but the latter always requires the former. Digitalization cannot occur without digitization.

What is digital transformation?

Lastly, digital transformation is the impact caused by the process of digitalisation. It refers to the societal effect of digitalization.

Back to our receipt example, with digitalization, a Finance Clerk doesn’t need to use their data entry skills as much as with the analog version of the same process. Instead they will now use that time to focus on auditing the submission and maybe doing some analysis on how the reimbursement impacts the overall expense budget. Maybe the Finance Clerk does not need to handle expense claims any longer as the whole process could be automated, or just have to audit those over a certain value. Their time could now be spent in other areas requiring attention. The impact goes even beyond that of the Finance Clerk. Even the submitter can now go through this process quicker and probably with fewer errors. Their time can now be spent more on their day to day job and so on.

Here’s a word of caution, when looking at digital transformation, most organizations invest into training their staff on how to use the technology required for digitization and digitalization, but not how to steward the data. And let’s be honest, the most value lies in the data, not the technology. So if you are part of these processes and transformation, please don’t forget to emphasize the importance of data governance and data management.

Conclusion

Lets recap. Digitization is the process of converting information from a physical format into a digital one. When this process is leveraged to improve business processes, it is called digitalization. The results of this process are called digital transformation.