Digitalization vs digital transformation

Digitalization vs digital transformation – two terms that are often mentioned in the same breath in today’s business world. But what exactly is behind these concepts? How do they differ? Let’s take a deeper look at these important topics together.

Digitalization: The first step into the digital world

Digitization is the process of converting analogue information and processes into digital formats. It is about optimizing and automating existing processes and systems with the help of technology and thus migrating them into digitally available formats.[Source: 1].

Core aspects of digitization:

Increased efficiency: Digitization enables companies to speed up and streamline their processes.
Automation: Routine tasks are taken over by digital tools, saving time and resources.
Use of data: Digital systems enable better collection and analysis of data, which leads to more informed decisions.
Improved communication: Digital channels facilitate the exchange of information within the company and with suppliers and customers.

An illustrative example of digitization is the switch from paper files to digital document management systems. Here, an existing process – file management – is optimized through the use of technology without fundamentally changing the business model[source: 1].

Digital transformation: the big hit

Digital transformation goes far beyond mere digitalization. It describes a comprehensive change that affects the entire company and often leads to completely new business models[source: 2].

Characteristics of the digital transformation:

Holistic approach: Digital transformation affects all areas of a company, from corporate culture to interactions with suppliers and customers.
Strategic realignment: It’s not just about introducing new technologies, but about a fundamental reorganization of the corporate strategy.
Innovation focus: Companies develop new products, services and business models that would not be possible without digital technologies.
Customer centricity: Digital transformation aims to fundamentally improve the customer experience and create new value for customers.

A prime example of digital transformation is the change from traditional retailers to e-commerce platforms. Here, it is not just the sales process that is changing, but the entire business model, including logistics, customer service and marketing strategies[source: 3].

The crucial difference - digitalization vs digital transformation

While digitalization focuses on optimizing existing processes, digital transformation aims to comprehensively change the business model and corporate strategy[source : 2]. Digitalization is often the first step on the path to digital transformation, but it alone is not enough to truly transform a company.

Digitization

Focus:

Automation and optimization of existing processes

Scope:

Concerns specific processes and technologies

Goals:

Increasing efficiency and productivity

Approach:

Often technology-driven, focused on the introduction of new tools

Digital transformation

Focus:

Comprehensive change to the business model

Scope:

Encompasses the entire company and its culture

Goals:

Development of new value creation potential and long-term competitiveness

Approach:

Strategic and holistic, requires a change in mindset[Source: 2]

The role of technology - digitalization vs digital transformation

Innovative technologies play a central role in both digitalization and digital transformation. These include, among others:

Cloud computing
Big data and data analysis
Artificial intelligence and machine learning
Internet of Things (IoT)
Blockchain

The difference lies in the way in which these technologies are used. In digitalization, they are primarily used to improve existing processes. In the context of digital transformation, they are used to create completely new opportunities and fundamentally change business models[source: 4].

Challenges and opportunities - digitalization vs digital transformation

Both digitalization and digital transformation bring challenges with them. Companies have to invest in new technologies, train employees and often fight against internal resistance. Digital transformation also requires a rethink at all levels of the company and can lead to far-reaching changes in the organizational structure.

However, the opportunities far outweigh the risks. Companies that successfully digitize and digitally transform themselves can:

Significantly increase your competitiveness
Opening up new markets
Offering more innovative products and services
Work more efficiently and cost-effectively
Responding better to customer needs

A look into the future - digitalization vs digital transformation

Digitalization and digital transformation are not one-off events, but continuous processes. With the rapid development of new technologies, companies will have to constantly adapt and reinvent themselves[source: 5].

Experts predict that the boundaries between the physical and digital worlds will continue to blur in the future. Concepts such as the metaverse, augmented reality (AR) and virtual reality (VR) could lead to completely new forms of interaction between companies and their suppliers as well as companies and their customers. Direct interaction between a company’s suppliers and its customers is even conceivable, with the company acting as an intermediary between the two worlds.

Conclusion from digitalization vs digital transformation

Digitalization and digital transformation are two closely related but different concepts. While digitalization lays the foundation by optimizing existing processes, digital transformation goes one step further and revolutionizes entire business models. It is crucial for companies to consider both aspects. Digitalization can bring quick efficiency gains, but only through a true digital transformation can companies remain competitive in the long term and take advantage of new growth opportunities. In a world that is changing ever faster, the ability to adapt and innovate digitally is not just an advantage, but a necessity. Companies that successfully master both digitalization and digital transformation will be the winners of tomorrow.