The meaning of 'digital', 'digital transformation' and 'digitization'

The meaning of ‘digital’, ‘digital transformation’ and ‘digitization’

Every enterprise in the world is transforming itself digitally in some way or the other. It does not matter which industry you look at whether healthcare, banking, or manufacturing, all industries have realized the need to adapt themselves digitally. Digital and digital transformation have become requirements in our lives. And looking at the current situation, we can confidently state that digital is here to stay. Therefore, it is better to learn how to deal with it.

My personal experience is that ‘digital’ is quite tough to grasp upon, and it gets even more challenging when people use different definitions for it. Many of my unclarities were addressed very recently only when I did a digital transformation course. This eye-opening experience, I want to share with the world. Because in the future, even more companies will go digital, and my blog can help them learn about it.

So, why not start this learning process with a basic understanding of the digital concepts’ meaning?

First, let us talk about digital

This word is perhaps the most difficult to ‘define’ word I have come across in my life. However, I will do my best to explain the terminology and provide references for your convenience.

As Gartner puts it, digital is “the dominant use of the latest digital technologies to improve organizational processes, improve interactions between people, organizations, and things, or make new business models possible.”[1]

Even though it is very tempting to seek a simple and straightforward definition, digital should be seen more as a ‘way of doing things’[2] than ‘something’ definable in one word. McKinsey & Company discuss the following three areas in which an organization must change to become ‘digital’:

“Creating value at the new frontiers of the business world by doing (one of) the following:
- Re-examining the way of doing business
- Developing entirely new businesses (in adjacent categories)
- Going after new value pools in existing sectors
Creating value in core businesses that execute a vision of customer experiences by interconnecting a set of four core capabilities:
- Proactive decision making
- Contextual interactivity
- Real-time automation
- Journey-focused innovation
Building technological and organizational processes to create an agile and fast organization.”[3]

If digital implies focussing on new value creation, increasing customer experiences, optimizing your core business, and on people, culture, mindset & technology, then digital transformation means, transforming your enterprise, anchoring all the above points as your foundation!

Now, let’s move on to the definition of digital transformation.

Now, let us talk about digital transformation

We are living in dynamic times. An increasing number of new technologies enter the market almost daily. Due to technology, several aspects of society have dramatically changed. Take, for example, customers, whose behaviour has altered completely. In 2020, about 3.5 Billion people in the world owned a smartphone[4] , and we are spending more than 3 hours per day[5] on our telephone devices. As a result, companies started catering to customer demands through mobile commerce activities by developing online sales channels and apps that assist in shopping (demonstrating how a dress would look on you, or which lipstick colour suits you best). These are just a few examples of what technology is doing to customers. Similarly, other business dimensions, like competition, data, processes, and innovation, are also changing.

Ok, so technology has changed customer behaviour. Companies are forced to change their customer approach because they do not want to lose market share to competitors. Apart from technology, also the pace of technological change has changed; it has increased dramatically. Companies are bringing their products much faster to the market than ever before. As Harvard Business Review puts it: “The rates of new product introductions and adoption are speeding up”.[6] Think in this context about your smartphones again. When you purchase a new phone, is the old one (close to being) useless, or is your new purchase based mainly on possessing a device with upgraded features? To keep relevant in the market, organizations are using ever more technologically advanced solutions within their organizations. And this is precisely how George Westerman et al. (2014)[7] and define digital transformation: “Digital transformation is the use of digital technology to radically improve the performance and/or reach of a company”.

In more detail, we could say: “the adoption of digital technology to transform services or businesses, through replacing non-digital or manual processes with digital processes or replacing older digital technology with newer digital technology. Digital solutions may enable – in addition to efficiency via automation – new types of innovation and creativity, rather than simply enhancing and supporting traditional methods”[8].

Some companies modernize their technology to stay relevant in the market, while others see it as a competitive strategy to stay ahead of their competition. However, most often, companies undergo a digital transformation because it is a matter of survival. A Deloitte study[9] shows that between 1965 to 2012, almost 40% of the incumbent companies lost their leadership position, mainly due to digital technology. Therefore, businesses need to “clarify their strategies, develop new capabilities and transform their cultures to become a digital organization[10].” With the rise and increased use of newer technology, new companies are entering the marketplace, challenging the market leaders, and disrupting the markets entirely. To stay active and relevant, incumbents must adapt to the current challenges.

And that is easier said than done because digital transformation is the transformation of your entire business.

Last, let us discuss digitization

Digitization is often confused and misinterpreted as digital.

Digitization is about standardizing business processes with operational excellence and cost reduction as primary goals. As Gartner puts it, digitization 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[11].” “Digitization refers to the internal optimization of processes (e.g., work automation, paper minimization) and results in cost reductions. Conversely, digitalization is a strategy or process that goes beyond the implementation of technology to imply a greater, core change to the entire business model and the evolution of work[12]”.

So, when companies are entirely digitized (standardization of processes, increased efficiency, and gained operational excellence), they are still not a digital business. To become a digital enterprise, companies must focus on customer centricity, creating new value propositions, technology, people & culture.

Digital transformation is about transforming the entire organization through multiple aspects of which digital technology is only one aspect. Technology is not the goal of digital transformation; it is only part of it.

This website educates the world on the meaning of digital, digital transformation and digitization explained.

References:

[1] https://www.gartner.com/en/information-technology/glossary/digital-2

[2] https://www.mckinsey.com/industries/technology-media-and-telecommunications/our-insights/what-digital-really-means

[3] https://www.mckinsey.com/industries/technology-media-and-telecommunications/our-insights/what-digital-really-means

[4] https://www.statista.com/statistics/330695/number-of-smartphone-users-worldwide/

[5] https://www.entrepreneur.com/article/360320

[6] https://businessrealities.eiu.com/in-brief-managing-the-pace-of-technological-change

[7] Leading Digital, G. Westerman et all, 2014 & Tech Whisperer, J. Bindra, 2019

[8] https://en.wikipedia.org/wiki/Digital_transformation

[9] https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/raising-your-digital-quotient

[10] https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/raising-your-digital-quotient