Digitization, Digitalization and Digital transformation

Updated: 7 days ago



Author: Mohab Abu Ahmad

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Date of Publication: 01/08/2022





Whenever the topic of business processes comes up recently, we often hear of terms such as Digitization, Digitalization, and Digital transformation. Many people tend to confuse those terms. So, what do they mean and how to differentiate them?

For starters, it is important to note that these terms refer to operational or strategic management decisions and not technological development. Now, whilst Digitization, Digitalization, and Digital transformation, we often use interchangeably it is wrong to do so. However, they are interconnected because they describe the technological implementation level of a certain entity in its processes.


Defining Digitization, Digitalization and Digital transformation

The first level would be digitization. This refers to the simple process where we convert our analog data sources to digital data files. Example: would be recording written information on paper (analog) into data typed and stored digitally on cloud or on hardware.

Example of digitalization process

The second level is Digitalization. It’s when we utilize the technology available to us to enhance or alter a business process. Example: Sharing the data digitized (Digitization example) on the cloud drive of the company. So that we can collect or review data simultaneously. Additionally, another example could be enabling customers to leave feedback online.


Digitalization example of Shared cloud drive

Finally, Digital transformation is a series of deep and coordinated culture, workforce, and technology shifts. That enable new educational and operating models. Transforming an institution's business model, strategic directions, and value proposition. (Reinitz, 2020)


Here, we utilize the technology available at our disposal to undertake a companywide change, inspiring a new business model. Where we integrate technology into all areas of our business, fundamentally changing how we are operating and delivering value to our customers. Moreover, it’s a cultural change that demands an organization continually challenge its status quo, experiment, and get comfortable with failure. (The Enterprisers Project, 2016).


An example of Digital Transformation would be a firm providing services via the cloud. Likewise, it would be a company changing itself into a full online company where its employees work remotely.

technology integration in business process levels
Figure 3: Graph of technology integration in business process levels. Digitization (converting analog to digital data) Digitalization (online feedback) Digital Transformation (the business model changing completely to remote work).

Real life case of Digital transformation


Perhaps the biggest case on how crucial Digital transformation is the story of Netflix and Blockbuster, in the early 2000s, both offered DVD rental services. However, Blockbuster primarily offered its services through video rental shops. Whilst Netflix was mainly a subscription mail delivery DVD service. Back then Blockbuster was the market leader. In 1999 Netflix enabled its subscribers to use their services online through their website (Digitalization). Meanwhile, Blockbuster was still mainly operating through its Video rental shops incurring large operating expenses to run their business.


Figure 4 displays how the cost intensive business model of Blockbuster resulted in very severe losses between 2002-2004. Later in 2007, Netflix rolled out its online streaming service. In these, its subscribers can watch some of their content on their tv’s from the internet. This will later turn into Netflix main service providing method (Digital Transformation). Later on, Blockbuster went under (defunct) in 2010 going through liquidation process after declaring bankruptcy. While Netflix went on to become the market Leader.

Comparison between NETFLIX and BLOCKBUSTER NET income
Figure 4: Net Income of Netflix compared to Blockbuster from 2000-2020 in USD. (Barchart.com).

Note: After the year 2010 the Blockbuster (Blue) bar is no longer present the company went

under and no longer operated afterwards.


 

Reference List


Appendix

Differentiating Digital transformation from Digitization and Digitalization
Figure 5. Differentiating Digital transformation from Digitization and Digitalization

(Reinitz, 2020)


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