Despite the growing interest in digital business transformation, there’s still some confusion about what this means. As a result, project teams have been using the terms digitisation, digitalisation, and digital transformation interchangeably to describe their initiatives. In fact, these terms describe key phases of transformation projects, and it’s important to outline their differences.
As a case in point, during the COVID-19 pandemic, business leaders were forced to accept the need for agility. Those who took the time to understand how digitisation and digitalisation lead to digital transformation were better placed to lead their organisations’ transformations into the agile businesses of the future.
In this article, we’ll take a closer look at digitisation, digitalisation and digital transformation and what these mean for organisations.
Digitisation vs Digitalisation vs Digital Transformation: Why Does it Matter?
With exponential advances in digital technologies, it’s the responsibility of business leaders to understand how they can capitalise on opportunities to better meet their customers’ expectations, achieve efficiencies, and increase competitiveness.
When organisations better understand whether they’re engaged in digitisation, digitalisation, or digital transformation, they have a better understanding of how their efforts contribute to their wider digital transformation journey.
According to McKinsey, 70% of digital transformation initiatives fail. This highlights the continuing gap between vision and execution in organisations’ business strategy.
What is Digitisation?
Up until fairly recently, organisations kept their records in physical folders and files. With the adoption of digital computers, these records were subsequently stored in digital format. Thus, the process of digitisation began. It’s the process of converting analogue (continuous) streams of data into discrete forms (binary digits or bits) of data.
Digitisation has the advantage of storing information in a format which can be processed and presented in a variety of ways depending on requirements. For example, it can be merged with other pieces of information, shared, printed, etc… Similarly, digitally recorded sound can be remixed, repackaged etc…
Therefore, many of the tasks that were previously involved in retrieving, sorting, and processing information have become automated, thereby increasing efficiency and maximising value.
Yet, despite these gains, information systems still mimicked analogue ways of storing and processing information: This information was stored in files and folders that looked like filing cabinets. Organisations needed faster and more cost-effective ways to extract value from their data.
What is Digitalisation?
Digitalisation uses digitised data to improve business processes. Therefore, digitalisation presumes digitisation. In fact, most organisations have already embarked on digitalisation. For example, many are beginning to realise the benefits of cloud software applications. Thus, customer, supplier, financial and other records can be stored, processed, and presented to suit the requirement — e.g. Excel spreadsheet, PDF document…
Digital dashboards, in particular, are advanced planning tools that aid in effective decision making. Digitalisation increases productivity by automating decision making, replacing human-driven events with software-driven events.
What is Digital Transformation?
Digital transformation, or more accurately, business digital transformation, extends digitalisation to enable new business models.
Digital transformation applies the principles of automation to customer, supplier, and stakeholder interactions to create new business, economic, and social opportunities, as well as new revenue streams.
Because digital technology pervades every corner of industry, government, and society, it’s an inevitable consideration when considering new growth opportunities. Increasingly, organisations are asking themselves questions such as “How can we change things using X technology to create better customer experiences/make better decisions, etc…?”
Netflix provides a great example of digital transformation at work. It started as a mail order business which took advantage of advances in telecommunications to provide streaming media products. Today, it holds extensive data about viewer preferences, which it uses to develop digital content using its own production studio, in direct competition with traditional broadcast media. Such a transformation was only possible for the company because it took advantage of new opportunities created by digital technologies.
So, in summary, we have…
Digitisation vs Digitalisation
We digitise information, transforming it from a continuous (analogue) format into a discrete (digital) format. For example, physical documents are digitised so they can be accessed on a computer, thereby increasing productivity. Digitalisation uses this digitised information to generate new workflows that serve a variety of business functions.
Digitalisation vs Digital Transformation
We digitalise workflows so that business operations such as procurement, payroll, and finance are performed more effectively. However, digitalisation initiatives do not extend as far as creating new digital business models.
We digitally transform organisations. Organisations undergoing digital transformation are seeking new digital business models that enhance agility to take advantage of opportunities in the market . It involves a coordinated strategy of cultural and technological business transformation. In practice, digitisation, digitalisation, and digital transformation occur concurrently.
The Case for Digital Transformation
Digital transformation is the re-imagining of business models for the digital age. It transcends traditional silos created in sales, marketing, customer service, and other business functions in search for innovative ways of engaging with customers, suppliers, employees, and stakeholders.
Digital transformation is a continuous innovation process, constantly adapting to consumer, employee, and stakeholder expectations.
For this to happen, cutting-edge technologies such as big data, cloud computing, internet of things, artificial intelligence, fog computing, and social technologies need to be coordinated to engender faster and better ways of working, communicating and trading.
Beyond digital applications, digital transformations form the basis of radical cultural shifts at the heart of organisations, as employees and other stakeholders embrace the adoption of technology.
Digitisation and digitalisation are essential steps on the path to digital transformation. Organisations that have taken the steps to understand the differences between digitisation, digitalisation, and digital transformation are positioned to implement effective business plans that will transform them into the agile businesses of the future.