Who is also confused by the terms digitization, digitalization, and digital transformation? Being in a digital role I am critical of this topic because I usually see people using these three words as synonyms or mixing them. In the above picture, I explain the three terms and how they relate to digital technologies such as API (Application Programming Interface).
What is Digitization?
Digitization refers to creating a digital representation of physical objects. For instance, we scan a paper document 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. Computer systems can then use it for various use cases. An API doesn’t digitize. However, an API can play the role of integrating two computer systems to reduce media breaks.
For example, a user enters personal info into a mobile app. The mobile app sends this info to an API that will push the info into a backend system or database. The data is then accessible for other computer systems and use cases.
What is the Business value of Digitization?
Digitization itself has no business value. However, it lays the foundation for business cases that leverage the data. In other words, it’s the enabler to create business value, which needs data.
What is Digitalization?
Digitalization refers to enabling, improving or transforming business process by leveraging digital technologies (e.g., APIs) and digitized data. That means that digitalization presumes digitization as described in the previous section.
For example, a company hires a new employee who will need a mobile phone with a subscription to communicate with customers and his team. As part of his onboarding, the employee has to write an e-mail to the fleet manager who manages both. The fleet manager will send an email with the employee’s info to the telecommunication company to order both. At the telecommunication company, a customer agent will enter the info from the email into the system and start the order fulfillment process. After some days the fleet manager receives the phone, a subscription, but without SIM card. The fleet manager waits until the SIM card arrives and sends everything to the employee. After two weeks, the employee is ready to communicate with his team and customers.
What if we digitalize the onboarding of a new employee? When HR employes a person, an HR process gets triggered that will automatically order a mobile phone, subscription, and SIM card via the telecommunication company. The order triggers automatically the order fulfillment process. The telecommunication company will send everything at once to the employee's workplace address. The employee will already have their working mobile phone from day one.
To this goal, the telecommunication company offered an API to order a mobile phone, subscription, and SIM card. The company integrated the API into it HR onboarding process and triggers it automatically.
What is the Business value of Digitalization?
The business value of this digitalization example consists of three values:
- The employee is productive and can create value from day one because he can communicate with customers and his team.
- The fleet manager gets automatically updated about the new employee, the mobile phone, and subscription. He/she can focus on supporting the employees rather than sending emails to order the mobile phone.
- The telecommunication company reduces costs for the order fulfillment process. The customer agent can focus on value-generating interactions with the customer and invest more time into a better customer experience.
Ultimately, part of the onboarding process (getting a mobile phone and subscription) is improved and even transformed. More specifically, the process is automated and reduces manual effort completely.
This is an example of two companies who leverage digital technologies like API to improve or rather transform business processes.
What is Digital Transformation?
Digital transformation is the profound transformation of business activities, competencies, and business models to fully leverage the opportunities of digital technologies.
For example, a company has personal information about many customers. Other companies have to verify personal info to do business (e.g., insurance companies). Based on the customer info, the company provides an identity verification product for other companies who want to verify a person’s information. And since the company has so many customer info, other companies likely use this identity verification product.
What is the Business Value of Digital Transformation?
Please note that identity verification wasn’t a competency of the company until now. However, the company identified an additional business model based on customer info that might complement or even supplement its current business and market. This is digital transformation.
This is an example in which a company fully leverages digital technologies to transform business activities, competencies, and business models.