Digitization vs Digitalization vs Digital transformation: Towards increased profitability

Although the terms digitization, digitalization and digital transformation sound very similar, each of them have a very distinct and different meaning. One key differentiator is that neither digitalization nor digital transformation can occur without digitization of certain processes. Below we discuss the difference between digitization, digitalization, and digital transformation in more detail and how, when applied correctly, it can lead to increased profitability:

1. Digitization

2. Digitalization

3. Digital transformation

Of the above mentioned three terms, digital transformation should be seen as the end goal and undoubtedly presents enormous opportunities for innovation and gaining a competitive advantage. Research and Markets estimates the digital market to grow at a compound annual growth rate of 23% to $3.3 trillion by 2025. However, before considering digital transformation for your business, you need to rethink the organisation as a whole. You should also understand that this is not an all or nothing approach – businesses can start by digitizing certain aspects of the operations. 

1. Digitization  

Digitization is the process of improving internal processes such as workflows and enabling improved accessibility to reduce costs. It does not seek to optimise the processes or data but merely to convert data to digital format. In other words, digitization converts something non-digital such as health records, maintenance records and various forms of other data into digital format for a computer to use for several possible reasons. 

2. Digitalization  

Digitalization aims to enable, improve and transform business functions or models by leveraging digital technologies. Aptly described by Gartner, as a process that includes “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.” 

3. Digital transformation   

Conversely, digital transformation concerns itself more with people than with processes. It aims to integrate digital technology in all business areas changing how the business operates and delivers value to customers and key decision makers. It explores how businesses use technology and resources to change business processes and performance and improve profitability. 

The table below presents a simplified comparison of the three terms with some real-life examples: 

              Digitization Digitalization Digital transformation
Definition Converts business processes into digital format to be processed by a computer The process of improving internal processes such as workflows and enabling improved accessibility in order to reduce costs Integrates digital technology in all business areas changing how the business operates and delivers value to customers
Examples
  • Move from paper checklists and surveys to mobile apps
  • Save paper reports in digital format
  • Converting audio and video files from analog to digital
  • Using Customer Relationship Management (CRM) software to improve customer experience and customer experience management
  • Software-driven process changes in transport and logistics to improve revenue and profitability
  • Adding a custom-made mobile app to overhaul SAP ERP system to allow job scheduling of employees
  • The digital transformation of a company’s supply chain and brand strategy to better connect with its customer base

Digital transformation can be measured by profit margins – as profits increase, resources are freed up so that companies can implement more changes to improve efficiency and productivity. Improved efficiency and productivity lead to better decision making which enhances market penetration. This, in turn, increases the customer base and, again, profits. 

Businesses globally are transforming to digital and reaping the benefits. In fact, many local South African organisations are already seeing significant ROI from their digital transformation investments. Do you want to join the Industry 4.0 digital revolution and transform your business? Download our free guide below.

 

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About the Author
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Richard Barry

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Chief Innovation Officer at Polymorph

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