As technology advances, the world is moving to a more digital environment. We often hear three different terms in this technological evolution: digitization, digitalization, and digital transformation. In this article, we will differentiate these terms and identify the relationship between the terminologies and attempt to bring some baseline for discussions.

Let’s start with the term Digitization:  Digitization refers to creating a digital representation of physical objects or contents.  For instance, we scan a paper document and save it as a digital document (e.g., PDF).  In other words, digitization is about converting something non-digital into a digital representation or artifact.  Computerized systems can then use it for various purposes.  Digitization is the foundation for any digital journey.

Digitalization refers to enabling or improving processes by leveraging digital technologies and digitized data.  Therefore, digitalization presumes digitization.  Gartner’s glossary defines the term as using digital technologies to alter a business model and create new opportunities for revenue and value. Examples of this would be using digitized customer data from different sources to automatically generate insights from their behaviour. Another would be an account department replace payment request and approval process from a human-driven to software-driven. Digitalization increases productivity and efficiency while reducing costs.  Digitalization improves an existing business process or processes but doesn’t change or transform them.

Digital Transformation is simply business transformation enabled by digitalization.  The primary aim is to integrate technology to most, if not all, business operations. In digital transformation, digital technology is incorporated into all areas of the business to fundamentally improve efficiency in workflows and create value for customers. Cultural, organizational, and operational changes are implemented through the integration of digital technologies. Digital transformation allows businesses to adapt to ever-changing industry trends and landscapes. Digital transformation takes digitization and digitalization a step further by using digital technology to completely change how a business operates. For example, a company might move from selling products in stores to only selling online.

Relevance for Businesses

So, what is the relevance of digitization, digitalization, and digital transformation for businesses? Let’s break it down using real business scenarios:

• Digitization: Digitization is essential for companies that want to take advantage of digital technologies. Digitizing data makes it more accessible and easier to analyze. This is especially important for organizations that deal with large amounts of data, such as healthcare providers and financial institutions.

• Digitalization: Digitalization builds on digitization by using digital technologies to improve processes and performance. For instance, many enterprises have implemented enterprise resource planning (ERP) systems to streamline their operations — specifically, to manage their inventory, finances, and human resources more efficiently.

• Digital Transformation: Digital transformation goes one step further than digitization and digitalization by using digital technologies to create new or fundamentally different business models. As an example, Uber and Airbnb created entirely new businesses by leveraging digital technologies.

Companies that want to stay ahead of the curve must understand all three concepts. By investing in technologies that enable these processes, they can keep their business efficient, agile, and responsive to change.