What Is Digitization? A Guide for the 21st Century
What is digitization and how is it different from digitalization? And, just as importantly, why do these two terms matter?
The term digitization is often confused with digitalization, and they are often used interchangeably. Both processes are important for the modern business owner, but they are distinct. To compete in the digital economy, it is important to understand both of these ideas, then incorporate them into the organization’s digital strategy.
What is digitization?
Digitization refers to the process of changing analog processes or assets into digital form, without impacting the actual process or its outcomes.
Here are a few basic examples of digitization:
- Switching from paper invoices to electronic invoices
- Hospitals transitioning from paper to electronic health records
- Using email instead of fax machines
Most organizations have largely made the transition to digital business processes, which are usually cheaper, more convenient, and more efficient.
There are instances where “legacy” analog processes remain widespread, despite the availability of digital options. Paper receipts are still widely used in retail, for instance, in part because there is no viable alternative.
Over time, though, the digital economy will continue evolving, roadblocks to digitization will continue to fade, and digital business processes will become more and more common. This brings up another frequently asked question related to digitization.
Namely, what is the difference between digitization and digitalization?
Digitization vs. Digitalization
Digitization has a relatively straightforward definition, as we saw above – switching from analog to digital.
The meaning of digitalization is less clear-cut, though many sources agree on the fundamental premise: digitalization revolves around using technology to innovate and redefine products and services.
From this perspective, there is significant overlap with many of the most common uses of the term “digital transformation,” which often refers to the use of technology to enhance or reimagine entire areas of the business.
Gartner says that digitalization aims not just to improve existing processes, but to “create and deliver new value to customers.”
According to MIT Sloan Management Review, “becoming digital” is a business endeavor that revolves around digital transformation, formulating a digital value proposition, and using digital technology to deliver value in new ways.
Deloitte, likewise, will often use digitalization as a synonym for digital transformation.
Digitalization, says all of the world’s most influential research firms, is not just advantageous, it is a prerequisite for participation in the digital economy.
To understand why, it is useful to understand how the digital revolution is shaping the global business landscape.
A brief history of digitization and digitalization
The concepts related to computer science and data science can be traced back several hundred years, if we choose to include the ideas that would eventually spawn today’s digital revolution.
The binary system, for instance, was developed by Leibniz in 1679. Charles Babbage conceived of a programmable computer in the early 1800s. And during the last century, computer science truly took off, with the use of digital audio transmission during World War II, the development of computer storage systems, the invention of database management systems, and more.
These and a myriad of other inventions during the last century made it possible to develop digital technology, then roll that technology out to the commercial marketplace.
By the 1980s, personal computers had arrived and by the 1990s, the internet was beginning to blossom.
Digitization, in short, had begun to arrive in force during the last decades of the 20th century and with it, the potential for digital transformation.
Digitalization in the modern economy
The Dotcom Bubble, a massive growth of internet-based businesses, demonstrates the power of digitalization.
Innovative use of digital technology allowed startups to disrupt, transform, and even dominate well-established industries. They were able to achieve explosive, exponential growth because they leveraged digital technology in completely different ways and delivered new forms of value to their customers.
PayPal, Amazon, Ebay, Netflix, and many other companies have achieved massive growth thanks to the power of digital technology.
Yet digitalization is not restricted to massive hyper-growth companies – even local businesses can use digital technology to innovate and deliver new value to their customers.
As we transition into the post-COVID era, the Next Normal, digitalization will become more and more important.
Digitalization before 2020
Digitalization has affected the entire global economy, but not all industries have been impacted equally.
Naturally, those industries directly related to digital technology and IT have accelerated the fastest, as well as innovative companies that chose to adopt technology early on. Amazon, for instance, was able to use the internet to deliver completely new forms of value to the online shopper and, as a result, it dominated the online retail market.
Other industries have been slower to transform.
These include industries that rely more on industrial than on digital technology, such as construction or agriculture. In other cases, a combination of factors delay digitalization, such as in the healthcare industry, which can be slow-moving, complex, and heavily regulated.
Digital transformation in 2020 and beyond
In time, this will change, however.
Digital technology continues to evolve, and virtually all industries are evolving with it. The pandemic has also affected the pace and scope of digital transformation in many sectors – the mass adoption of virtual communication tools, for instance, has fueled the growth of telecommuting, telehealth, online communication tools, and more.
Before, during, and after the pandemic, digital adoption will be a core driver of growth and digital transformation.
Organizations that want to stay competitive and innovate in tomorrow’s dynamic and fast-paced economy, therefore, should prioritize tools that streamline digitalization, such as digital adoption platforms (DAPs).
Companies will need to focus their efforts not only on implementing tools quickly and efficiently, but on using them to their fullest extent possible.