Digitization, Digitalization, Digital Transformation – A Stake in the Ground

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Since about February or March of Anno Domini 2020 we regularly hear about how the Covid crisis is driving “digital transformation”. You now might ask yourself why I put this term into quotes. Bear with me for a minute, it’ll be explained …

For sure, this crisis is forcing many a company into enabling its employees to work remotely. It also forced some companies to at least temporarily close physical doors as supply chains and/or delivery of products and services are severely inhibited or even broken. We also see a lot of companies implement interesting hybrid strategies that bring what we thought of being decidedly offline experiences into the online world.

A good example for this trend are wineries that lost an important lead generation and sales channel with their temporary inability to host wine tastings in their cellars. Till now the opinion was that nothing can beat the experience of being down there in a wine cellar, surrounded by barrels of ageing wine, musty air, like-minded people and a connoisseur that explains the wines, their provenance and their characteristics.

Still, some of them have transformed the experience they deliver during wine tastings into a combination of offline and online experience. Wine gets selected by the customers, an appointment for the tasting is made, and the wine is wrapped into some nice packaging, along with some information, and sent to the customer. The tasting itself then is supported by platforms such as Virtual Wine Tasting, Tasting Room, or Cheerswithme. The experience might not be the same as at the winery, and it shouldn’t. Instead, it offers something that a pure offline event cannot offer, either: The ability to taste and try very different wines in a community, without leaving home, and supported by an expert, maybe even as part of an overarching event.

Another example: Some, mainly smaller local retail shops, looked into the Amazon playbook – on a far smaller scale, but still.

Not being able to allow customers into their premises, they started to place their phone number on the door to be able to accept orders while they were building their web shop, first as a stop-gap solution, then replaced by something more powerful. Delivery initially started as simple as using the owner’s car – again, to be replaced by something more powerful.

They evolved their business model.

Other companies that I look at, support their service centre by implementing a conversational AI, starting with simple self-service and marketing scenarios, planning to extend these into more sophisticated ones.

Yet other ones are optimizing their quotation process by extending the scope of their existing sales force automation system from opportunity, account, contact and activity management into the quotation process, therefore reducing technology breaks.

These are four very different examples of actions taken by four very different types of companies.

And now we are coming back to “digital transformation”.

Are these companies undergoing a digital transformation after all?

And even more broadly: What is a digital transformation after all?

These are interesting and important questions.

And not simple to answer, let me tell that.

To begin with, let me do some definition work, for the sake of clarity.

Does it matter to define?

Sure as! And here is why.

Well, actually communication theory is a subset of information theory, but this is not the topic of this excursion.

Both are pretty complex topics that I am going to simplify quite a lot to make my point.

Communication is mostly about the mutual exchange of information between a sender and a recipient. They use a communication channel, and they both have their own frame of reference, which they use to encode and decode messages.

Sounds pretty techy, doesn’t it?

So, let’s look at people. Important communication channels to convey information between two people are the written and the spoken word. The words are encoded in a language, say, English. All of us have a different command of this language, even if we are native speakers. English is not equal to English. Means the channel (written or spoken word) itself does not guarantee that the meaning that the speaking person wants to transport is what the listening person hears.

If that wasn’t already enough: The frames of reference of our two people are defined by many things, including their upbringing, their culture, origin, gender, the relationship they share, even their mood. Let’s call this their contexts.

Most people share parts of their contexts; this means their contexts are not mutually exclusive – luckily, or else communication would be impossible. However, these contexts differ. This, in turn, means that, even if the listening persons hears exactly what the speaking person says, it will likely be interpreted differently.

The result? The result is a misunderstanding.

One way to reduce the likelihood of misunderstandings is to define terms. Scientists are doing this all the time. All for the sake of being precise.

People use the same terms all the time.

So, yes, definition matters.

Many people, including myself, are talking about businesses undergoing digital transformation. I am convinced that none of us has the same picture in mind when we are using this term, or digitalization, or the slightly shorter one that is digitization. We sometimes even use them interchanging.

But are they the same?

Let’s dig into it and see – and start with what Wikipedia has to say, coming to an own definition, if necessary.

And trust me, it is necessary. Wikipedia relates digitization to information only, digitalization to industries and organizations, and digital transformation to whole societies.

This is not exactly helpful in the context of businesses, as it means that a business cannot undergo a digital transformation – unless one looks at it as a society, which is probably too bold.

So, here we go. Let’s keep the notion of customer experience in mind and define!

Wikipedia defines digitization as „the process of converting information into a digital (i.e. computer-readable) format, in which the information is organized into bits. The result is the representation of an object, image, sound, document or signal (usually an analog signal) by generating a series of numbers that describe a discrete set of points or samples”.

Well, that’s quite a chunk, but in line with what the Oxford English Dictionary (OED) says. So, let’s digest it and reduce it to its core.

Digitization is the process of converting analogue information into a computer readable format.

A good start; it gives the what but is missing the why. The definition is about data, not process, therefore the reason for digitization is process efficiency.

Therefore, my definition of digitization:

Digitization is the process of converting analogue information into a computer readable format with the goal of improving existing processes.

Or in other words: Digitization is about doing things better.

Interestingly enough, Wikipedia redirects digitalization to digitization, suggesting that these terms mean one and the same. On the other hand the term digitalization is covered to some extent in the article about digital transformation. According to that article digitalization is a “technologically-induced change within industries, markets, and branches” that “has enabled new […] processes […] business models [and …] services […]”.

The OED relates digitalization to “the adoption or increase in use of digital or computer technology by an organization, industry, country, etc.”.

This, again, is in line in the sense that digitalization seems to be about process. These processes can rely upon digitalized data but also on (natively) digital data. If they create data, it will be digital. So:

Digitalization is the use of computer technology on top of computer readable data to create new processes that provide better business outcomes than the original ones or that have not been possible at all without the use of computer technology.

In brief: Digitalization is about doing better things.

According to Wikipedia, digital transformation is “the use of new, fast, and frequently changing digital technology to solve problems”.

Now you know it, don’t you? At least you now know why this article is flagged for having multiple issues … by the way, quantum computers are ruled out by this definition, as they are not working digitally.

So, let’s have a look at what the Gartner Group says: A “digital business transformation is the process of exploiting digital technologies and supporting capabilities to create a robust new business model”.

What the Gartner definition makes clear is that digital (business) transformation is not about implementing technology but about transforming the whole business: It is a business transformation that is targeted at creating new business models, and being able to adapt to a changing environment. Abstracted away from businesses, the results of a digital transformation are new and different outcomes. To be able to get these new and different outcomes, the  transformation builds on the power of computers, algorithms, and data. To be possible, a digital transformation requires an outside-in view, while technology is a mandatory enabler. Digital transformation inherently is disruptive.

Looking into this, my definition of digital transformation is:

A digital transformation is an organizational transformation that covers organization, values, culture, mission and vision, using an outside-in view. It is enabled by computer technology. Through this combination, the organization can provide new solutions for problems or solutions for problems that could not be addressed before.

In brief: Digital transformation is about doing entirely different things.

Does the Corona-crisis accelerate digital transformation?

Looking at the definitions of digitization, digitalization, and digital transformation, the answer is a clear no.

Let’s summarize:

  • Digitization: Doing things better.
  • Digitalization: Doing better things.
  • Digital transformation: Doing entirely different things.

What companies are dealing with are digitization and digitalization, being able to do things or do them better.

A digital transformation is a complete reinvention of the business, which is disruptive in nature. While a few might choose this way, the majority does not.

Final thought: Which opens the door for disruptors …

What do you think?

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