Digitization vs Digitalization vs Digital Transformation [Three Stages of IT Systems Strategy]

Written By: Eric Kimberling
Date: February 3, 2023

There are three primary types of digital initiatives that you should be thinking about as you embark on any sort of transformation involving technology and that's what i want to talk about in this article.

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The three different types of digital initiatives that organizations can embark on are digitization, digitalization and digital transformation.

Digitization

The first of three steps in any sort of digital initiative is digitization. Digitization is actually something that started in the 70s, 80s and into the 1990s when computers were first being adopted by organizations throughout the world. Probably the easiest way to understand and summarize what digitization means is to think about the evolution of paper-based business processes and information to computerized pieces of information. 

For example, if you think about accounting prior to the 1970s, most accounting and general ledgers were tracked on paper but in the 1970s, 80s and 90s, organizations started to computerize their general ledgers in their accounting. Another example would be expenses and receipts, things that you track on paper potentially but you can also store digitally and an even more basic example, more at a consumer level rather than at a business level would be when you think about music and videos today, it used to be that you needed a record or a cd or a video tape to watch movies, now it's all digital. Digitization is taking manual, paper-based pieces of information and moving it to computers.

Digitalization 

Now, if digitization is the base foundational aspect of modern technologies the next step in the evolution from manual processes and manual information to computerized digital transformations is digitalization. Digitalization is taking digitization one step further and that's where we're not only putting information into computers but now we're changing the way we do business, we're changing our workflows, we're leveraging technology in a way that allows us to rethink how we do business. 

For example, beginning in the 1980s and the 1990s, manufacturing organizations focused not only on moving their information and data from paper onto computers but then they started rethinking how they can use computers to rethink how we conduct our business. How to forecast demand better so that we can forecast manufacturing better, so production planning became an automated process and so on. That really forced and enabled the whole idea of rethinking the business model for manufacturing organizations. 

Organizations in other types of industries are experiencing new ways of rethinking how they do business as a result of technology. Think of digitalization as the next step in the evolution of computerization, where now we're taking digital information and we're turning it into digital business processes and workflows.

Digital Transformation

The third step in this evolution is digital transformation. Digital transformation is really the comprehensive view of an organization not just leveraging technology but more importantly leveraging improved business processes, improved people and organizational structures to totally transform a business.

With digital transformation we're building on the first two phases of the evolution of digitization and digitalization. Now we're taking it one step further and looking at the comprehensive view of people, process and technologies. The key here is really looking at not only how we can automate business processes, not only how we can change our business model but how we can tie this all together to address the people, process and technology components of transformation.

An important thing is to recognize and define how your digital transformation aligns with your overall strategy.  When you think about strategic objectives and goals that you've set for an organization, usually digital transformations can be a way to enable and further support those strategic objectives. For example, if your goal is to grow top line revenue, digital transformation might be a way to help you sell more services or products, it might be a way to help you cross-sell to customers and really leverage technology in ways you hadn't thought of before. The key here is not only to leverage that technology but to train people and to redefine business processes in a way that allows the organization to fully adopt those digital technologies.

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Digitization vs Digitalization vs Digital Transformation

We have shared three different steps or sequences within the evolution of digital initiatives and no one of them is going to be right or wrong, no one of them is better than the others. We're certainly all moving toward digital transformation but a lot of what you have to do as an organization is look at where you are today. If you're an organization that is still working off paper-based processes, then chances are you're probably going to start off with a digitization versus a full-blown digital transformation. If you do decide that you're going to take that quantum leap and jump all the way to a full-blown digital transformation, you just need to recognize that there's risk that goes along with that. If you're a risk averse organization or if your current culture doesn't support a full-blown digital transformation, you'll need to rethink how you approach your digital strategy to ensure that you've addressed all the things you need to make your project successful. 

It's important to understand where you are in this overall digital journey, understand how big of a jump you're making and the bigger of a jump you're making it's important to recognize there's more risk and there's more of a need for organizational change management because the stakes are higher. Presumably, the upside business benefit potential of a digital transformation is there too but you ultimately have to decide what's right for you and your strategy and your digital transformation.

If you are looking to strategize an upcoming transformation or are looking at selecting an ERP system, we would love to give you some insights. Please contact me for more information eric.kimberling@thirdstage-consulting.com

Be sure to download the newly released 2023 Digital Transformation Report to garner additional industry insight and project best practices.

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Eric Kimberling

Eric is known globally as a thought leader in the ERP consulting space. He has helped hundreds of high-profile enterprises worldwide with their technology initiatives, including Nucor Steel, Fisher and Paykel Healthcare, Kodak, Coors, Boeing, and Duke Energy. He has helped manage ERP implementations and reengineer global supply chains across the world.

Author:
Eric Kimberling
Eric is known globally as a thought leader in the ERP consulting space. He has helped hundreds of high-profile enterprises worldwide with their technology initiatives, including Nucor Steel, Fisher and Paykel Healthcare, Kodak, Coors, Boeing, and Duke Energy. He has helped manage ERP implementations and reengineer global supply chains across the world.
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