37  Still Confused with Digitalization vs Transformation?

Being clear about the key concepts involved in digital and business transformation is no longer straightforward. These terms have been so abused by so many people with so many different intentions that they have outlived their usefulness in communicating ideas and sharing a common language and are now shrouded in tons of dust and without substance.

To make matters worse, the literature on digitalization and transformarion does not help at all when transformational leaders seek to clarify things.

The production of knowledge around transformation, with an uneven and variable level of quality let it be said, is simply gigantic and reflects the contribution of thousands of academics, practitioners, consultants, technologists, and even public officials, who have contributed their own vision of the phenomenon in recent years, generally emphasizing those dimensions that most affected them.

The end result after long years of hype about digitalization and transformation is a biased concept whose meaning depends on who uses it, when and in what context, and which currently lacks a significance shared by the community of transformational leaders. Let’s see if this article can help clarify some related but different terms once and for all.

37.1 Academics vs Professionals

While academics and practitioners generally assume that digitalization impacts and challenges transformational leaders across industries and contexts, there is an overwhelming lack of clarity in understanding this concept.

One of the main challenges is that there is no reconciled definition of the core elements that make up digitalization. In fact, many studies see digitalization and digital transformation as entirely different things: for some authors they involve only a slight change enabled by technologies (i.e., when a new enterprise resource planning system (ERP) is implemented in a department of a company); for others it means the impact that technology has in the strategy or business model of an organization; while for others it implies a more profound and evolutionary approach that develops over time.

Many of the terms that articulate business transformation currently lack a shared understanding among the community of transformational leaders

It is also quite worrying that there are several key related terms, such as digitization and digitalization, whose differences are often unclear and which add even more confusion and ambiguity when transformational leaders use them as part of their organizations’ transformation processes and decision making. So, let’s look at the main differences between these terms to clarify them once and for all.

37.2 Digitization

The term digitization means the conversion of information from an analog format to a digital one. It is a pure technical process that seeks to convert something that is analog into a binary language (composed of “0s” and “1s”), so that it can be processed by digital information systems (e.g., a computer, a smart phone, etc.). An example of digitization is converting a paper photo to a digital photo to store it on a flash drive, using a scanning process.

Digitization involves significant improvements in the use that organizations make of ICT and in guiding technology implementation strategies. This explains why technology adoption models and the criteria used to select ICT tools in a business context, as well as how data can be integrated into information systems, are common themes pertaining to digitization.

In the end, digitization is the first and foremost step in advancing digitalization processes and, subsequently, in business transformation.

37.3 Digitalization

Digitalization involves the use of data and digital technologies to optimize and/or automate management processes in the organization, including those related to the collection and analysis of data itself.

Therefore, digitalization encompasses change processes that are much deeper than those of digitization, since they involve the use of technologies in a much broader organizational context.

The terms computerization and informatization are concepts closely related to the notion of digitalization and are often used as synonyms.

37.4 Digital Transformation

The term digital transformation is used by academics and professionals to refer to changes of all kinds that occur in human activity as a result of digitalization. For companies, it embodies a socio-technological process whereby the application of digitalization is raised to a systemic level within the organization.

Digital transformation emphasizes aspects related to cultural change, the way in which the organization is managed, the roles of people, as well as the changes that occur in the operating environment as a result of the adoption of digital technologies.

In other words, digital transformation implies a strategic change process focused on advancing the systematic digitalization of the firm while keeping the different business strategies in sync with the IT strategy.

Therefore, digital transformation is different from that of digitization and their meanings are not interchangeable. Meanwhile, both digitalization and digital transformation make use of digitization and digital innovation with the intention of improving business products and services.

37.5 Smartization

Undertaking smartization is a process that implies that digital transformation has become deeply embedded in the organization.

Effective smartization involves a large-scale migration of the organization’s operational and organizational model to another model based on data and knowledge. This requires that companies apply management practices that involve data-based processes and technologies and a more agile and efficient customer-centered organizational design that sustains activities over time.

At this point, you may be wondering, is smartization the same or is it different from digital transformation? Is there any true difference between the two?

Well, in view the main and most significant difference is that smartization represents a great step forward far beyond digital transformation. However, smartization is not possible without digital transformation, and if transformational leaders are not first familiar with the essential elements that make up digital transformation, they will surely find it more difficult to continue delving into the basics of smartization.

Smartization and digital transformation are different things, but the first cannot be accomplished without the second

37.6 Conclusion

Given the confusion that can be found today among transformational leaders about the key concepts surrounding business transformation, it is worth stopping for a moment and striving to clarify them so that the community can share a common vocabulary. How else are we going to move forward and understand many of the changes that are yet to come?

All transformational leaders should be clear after reading this article that digital transformation is a deep and evolutionary change process that affects all aspects of the organization, led by digital capabilities and technologies aimed at creating value. This is the very central idea that should guide our understanding of transformation.

Only when digital transformation has become deeply rooted in the organization and new management practices aimed at gaining speed and precision are implemented from a deeper (data-based) knowledge of customer needs, do businesses set out on the path to smartization.

Once these conceptual clarifications have been made and the reflection that each transformational leader can make, transformational leaders are in a better position to understand business transformation processes, make more informed decisions and communicate more appropriately with their stakeholders.

Image: Francisco J Navarro-Meneses (2023)