Digitization vs digitalization: Why you must know the difference

Picture this: You go to a clothing store, browse the latest collections, pick the ones you like, try them on, and walk out in style with the bags in your hands. You might frequently do this process online as many e-commerce applications become popular. How would you label this transition? Is it digitization or digitalization? Is there a difference between the two, or do they mean the same thing?

As businesses adopt more digital technologies, they need to increase their visibility and scope to sustain and thrive. Understanding these two terms is essential for organizations to propel themselves into this digital era and eliminate any inefficiency in their processes.

What is digitization? 

Digitization, by definition, is a simple concept: to convert analog data into digital data, turning paper into zeros and ones, bits and bytes. The purpose of digitization is to make data accessibility, data storage and management, and data shareability easier; to retrieve the data needed wherever, whenever with just a few clicks.

Here are a couple of quick examples of digitization: Storing contacts in your phone instead of in phone books, scanning a document and storing it as a pdf, or turning the hard-bound photo album into a digital album in your laptop.

Digitization has gradually evolved over the years. In a significant accomplishment by the John Hancock Mutual Life Insurance Company, more than 600 megabytes of data from two million customers with insurance policies was digitized in 1955. One year later, IBM announced its first-ever disk storage unit with a storage capacity of 5 MB. Now, our mobile phones come with a whopping storage capacity of 1 TB.

Digitization does not optimize the process. Rather, it sets the stage for process optimization by making the data readily available. You can then come up with ways to better put it to use. Digitization is a business’s first step towards digital transformation.

How can digitization help you? 

Companies in any industry must digitize their information to survive in this digital world. Digitization results in many benefits for a company, which we’ll discuss below.

Easy access to data 

Digitizing your data saves huge amounts of money and labor. Just imagine, you don't have to carry boxes of paper files around and you can make the information available to a global population faster, along with many other benefits.

The first step to automation 

Digitized data combined with the right technology can help businesses automate manual processes. Automation is imperative for any business because it scales up their efficiency while saving hours that can instead be spent on creating new ideas or improving productivity.

Increased communication and collaboration 

Data digitization is essential to improve the customer experience and help your employees work more efficiently. It's much easier for your employees to identify the documents they want when the data is digitized and neatly organized. It's not just cross-team collaboration between your employees, but your prospective clients can also obtain the information they need on their own without going through tedious processes.

Digitization helps make data communication simpler, paving the way to collaborate better.

Better decision-making capability 

Because digitization helps deliver data to recipients faster, management can make better business decisions faster, too. By leveraging the right technology with digitized data, they can monitor how their business operates and modify their process as and when needed.

Data recovery is much quicker 

Paper documents are easily prone to damage. They can fall into the wrong hands, or a fire could destroy them.

Digitized data coupled with the right technology helps you protect your documents by restricting access to only authorized users. You can back up your important documents so that they can be restored easily in the event of any natural calamities.

What is digitalization? 

Digitization serves as the foundation for digitalization to happen. Gartner says that “digitalization is the use of digital technologies to change a business model and provide new revenue and value-producing opportunities.” 

Remember the e-commerce example that we mentioned in the beginning? Now that you have an understanding of the two terms, it's clear that the underlying concept here is digitalization. Aside from the applications storing your data digitally, they streamline every aspect of your purchase process entirely online, from browsing clothes to payment and delivery.

Why is digitalization important? 

Digitalization is imperative for every business striving for digital transformation. It shifts manual processes to a digital space where repetitive, hand-operated, and physical tasks are automated and streamlined to improve efficiency and productivity.

A few examples of digitalization include:

• Using a payroll software to generate salary break-up and tax details.
• Booking airline tickets through your smartphone.
• Managing your support tickets with a software application. 

Because digitalization paves the way for monitoring and evaluating your data, it helps you make better business decisions.

Information and communication technology (ICT) is one of the most digitized industries. It encompasses a broad range of components such as internet access, data management, support, mobile application and software development, content automation, and more. However, it doesn't mean your business must have elements that are favorable for digitalization.

Take IKEA, for example. What started as a retail store quickly adapted to the modern world by leveraging digital technologies to keep its business booming. Aside from online shopping, IKEA acquired TaskRabbit for people requiring external help with delivery and assembly of the furniture they purchased. In addition, IKEA implemented a smart home project leveraging augmented reality (AR) so that people can virtually furnish their homes to see what works where before purchasing furniture. They reported revenue growth that went from 7% to 31% in just three years, owing to digitalization.

Benefits of digitalization 

There are many benefits to digitalization and using business technology, and we talk about some of them below.

Automated processes 

When a business process is automated, you can count on consistent results.  Automation eliminates repetition and duplication of work, which lowers costs. Companies that use digital transformation initiatives to increase efficiency and improve resource utilization have a direct cost impact.

Improved productivity 

Systems for automating business processes can help people complete tasks faster and more accurately. By automating repetitive tasks, digitalization enables businesses to free up time so they can concentrate on more research and innovation, leading to business growth.

Increased transparency 

Digitalization enables transparency in business transactions and other processes, which is essential in a world that’s always online and connected. Transparent workflow and well-documented procedures increase an organization's visibility, making it easier for upper management to spot opportunities and bottlenecks.

Greater collaboration 

The COVID-19 pandemic changed the scene for many fields and industries, forcing everyone to do their work remotely. Digitalization allowed companies to provide the tools (for example, applications to meet and chat virtually, task management applications, and more) necessary to keep team collaboration strong. The remote collaborative work model was so effective that many employees didn't want to go back to the office and preferred working from home.

With the hybrid model being the future of work, organizations must digitize themselves so that they can adapt to changes quickly and provide their staff with a sense of value and support.

Greater visibility 

In today's digital-first world, digitalization allows companies to boost their brand reach and visibility. They can engage users on every available digital platform (e.g., websites, online stores, etc.) and actively communicate through all online media. This makes it easier for organizations to address constantly changing user needs and preferences.

Understanding your users better 

Customer experience is a key driver to sustainable business growth—that’s why it’s become a hot spot in a competitive battleground. Your products or services are simply not enough. Digitalization helps you to learn your users' behavior with respect to your business, and it’s crucial to understand them and serve them better.

You can digitalize your business to improve your customer experience using an analytics platform to gather insights based on users' actions, and a CRM software to get a holistic view about each customer. Digitalization helps companies gain an edge when it comes to understanding their users better and delivering a seamless experience.

A means to overtake your competition 

This digital world has become highly competitive; every business is constantly working up new ideas and innovations to propel themselves ahead of their competition.

Digitalization is essential for companies to be able to aggressively research their competitors, learn about go-to-market and new market opportunities, forge new ideas, and mold existing strategies for innovations. Digitalization is the second step towards digital transformation.

Digital transformation : The final stage 

Digital transformation is the final phase that encompasses digitization and digitalization to create a radical change in the way a company does business. It has a greater impact than a mere “increased digital technology.” Digital transformation opens up new thought processes that result in newer approaches to how you perceive your business. This has the potential to create entirely new business models.

Two great examples of digital transformation are Netflix and Uber. Netflix competes against television networks, rental stores, and even theaters with its large-scale video streaming. Even more, they get extraordinary insights into users' viewing behavior, which they can use to optimize the strategy accordingly.

Uber's entire business model revolves around a variety of digital technologies. Cab booking and tracking, call capabilities, invoicing, and other digital technologies work in tandem to deliver a seamless booking experience.

Transform your business for today 

Adapting your business for digital transformation allows you to get deep insights into your customers. You can then leverage digital technologies to address the gaps between your business and your customer. The result would be game-changing efficiency, and a highly personalized customer experience. Who wouldn't want that?

We'd love to know where you are in your digital transformation journey. If you have a story, we'd love to hear it!