My best performing piece on Medium is “How I learned what “digital transformation” truly means after waving 👋 to a couple Gs”. In that post, I discuss how the words “digitization” and “digitalization” have completely different meanings. I couldn’t figure out why this was the case. It turns out it’s the dictionary’s fault.
If you look in a conventional dictionary, the definition of “digitalization” reads:
“Digitalization: The act or process of converting from analog to digital.”
And for “digitization” it reads:
“Digitization: The conversion of data or information from analog to digital or binary.”
So if you grow up in the normal world where dictionaries matter, you’re not going to immediately make a distinction between the two words. However, if you’re in the management consultancy space, there’s a certain utility in refining the meaning of these two words to have different meanings. And that’s what’s happened over these last five years, but I was still carrying my prejudices for what they mean according to a regular dictionary.
The word “digitalization” has come to mean making entirely new digital businesses that couldn’t have existed before computing; the word “digitization” continues mean what the dictionary says: taking something analog and making it digital. It’s just a difference of the two letters “tali” that span the chasm of a surviving business versus a thriving one.
It’s difficult to see the value of making this distinction when you come from the tech industry. We forget that some businesses are more digitally mature than others because technologies had the biggest impact in specific industries. For example, I remember in the 80s, when my former boss Nicholas Negroponte was saying outlandish things like, “Printed newspapers will begin to disappear, and you’ll read the news on a computer one day.” His vision happened, and it took twenty years for the media industry to realize that switch. The ones that are still around were able to reap the full benefits of digitalization by running in the cloud as a new kind of business with new recurring revenue sources to survive.
However, if you’re in the business of selling unfinished wooden furniture via a chain of shops across the country, you never needed to worry as much about going fully digital. So you didn’t. It was expensive to do so, and you didn’t have the people in your company that could make that transformation happen on their own. All businesses that were grounded in data and information could by nature easily be made more digital — converted into bits. On the other hand, traditional bricks and mortar businesses like our furniture chain were grounded in atoms, and didn’t easily digitize into bits. They resisted digital transformation because it was an unnatural move to take.
When taking on the challenge of “digital transformation” there are a few organizations that will take on the Amazons of the world to realize disruptive new businesses out of new technologies. They’re digitalizing. And if they’re less mature as a business technologically, they’re going to take their paper-based processes and move them onto their computer hard drives. Or if they’re more ambitious they’ll move them all the way into the cloud. They’re digitizing. Whether you’re digitalizing or digitizing, it doesn’t matter as part of your digital transformation journey. But it’s important to keep in mind that there’s two kinds at work.
COVID-19 shifted many businesses’ sense of urgency in making the shift to digital. As best characterized by Microsoft CEO Satya Nardella at the outset of the global pandemic:
“We’ve seen two years’ worth of digital transformation in two months.”
To review, Nardella’s talking about both flavors of digital transformation: digitization and digitalization. If we ignore the dictionary and consult Gartner’s glossary of these two terms, the conceptual difference reads with more clarity:
Digitization is the process of changing from analog to digital form, also known as digital enablement. Said another way, digitization takes an analog process and changes it to a digital form without any different-in-kind changes to the process itself.
Many businesses needed to learn digitization as their primary form of digital transformation. For instance, if your restaurant was using printed menus and was still allowed to stay open during the pandemic, you had to switch to menus with QR codes so that customers could browse the offerings quickly on their smartphones. If your restaurant wasn’t able to remain open and all your revenue came from folks showing up and sitting at your tables, then you quickly needed to learn digitalization as Gartner defines it:
Digitalization is 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.
Takeout was never an important piece of your business, but you quickly built a new “order online” takeout business by subscribing to existing online delivery services. Or, if you wanted to make more money and lose less to a Grubhub or DoorDash, you went one step further and made your own digital storefront to capture more profit.
Keep in mind that digitization is the more basic form of digital transformation, where cost or and/or process efficiencies happen. And digitalization is when you’ve made a totally new revenue stream by using digital technology. The FAANG companies of Facebook, Amazon, Apple, Netflix, Google are all using digitalized business modalities, whereas companies built in the past decades are either digitizing to just catch up or they are digitalizing to compete against the FAANGs.
Digitizing is speaking un poco machine. Digitalizing is speaking fluent machine. How much machine does your business speak?