What is Digitalization?

Digitalization is the use of digital technologies to change a business model and provide new revenue and value-producing opportunities; it is the process of moving to a digital business.[1]Digitalization is done to process, store, and transmit information through digital circuits, equipment, and networks. Digitalization makes it easier to access, preserve, and share information. It is essentially a process of converting everything into digital format. Ultimately, digitalization aims to ease lives and create a more self-reliant business model that promises standardized quality and cost-efficiency.

Digitalization is the generic term for the Digital Transformation of society and the economy. It describes the transition from an industrial age characterized by analog technologies to an age of knowledge and creativity characterized by digital technologies and digital business innovation. Alongside business innovation, digitalization – the development of digital innovations – is one of the most important business trends for the future of the economy. Companies need to develop digital strategies and focus on what are the key success factors of digital transformation. Digitalization has many different aspects:

For example, the term digital transformation describes the gradual transition of existing economic and social systems into the digital age. The term Digital Disruption describes the radical changes triggered by innovative digital business models.[2]

In recent years, many companies have begun to digitize (ex: saving files digitally instead of in hard copies, or using electronic document signing); now, they are moving toward digitalization. This has not only been in an effort to modernize, but also in response to a changed business environment.

Digitalizing has become an increasing focus in the past few years since many companies relied on digital operations during the COVID-19 pandemic. As employees transitioned to working from home, telecommuting and virtual meetings became part of daily operations. At the same time, data integration and privacy became increasingly important. Although many companies are now returning to in-person operations, many are planning to make remote or hybrid work a part of their ongoing business model.

As a result, they must implement technologies that will keep their workforce informed, productive, and safe. This involves using technology to provide easy access to resources, broadcast pertinent information, and facilitate effective employee feedback loops.

Digitalization vs. Digitization vs. Digital Transformation[3]

When you consider digitalization, digitization, and digital transformation to be equal, you’ll quickly find yourself in a pickle. Even though these terms may be connected to each other, they are certainly different. So why is it important to differentiate these three terms? If you misunderstand these terms, you may be missing out on many opportunities to gain a competitive advantage and become a fully-digital agile business. Many leaders found themselves in misconception, thinking that they can digitally transform their business by digitizing their data and digitalizing their processes. These 3 terms greatly differ and you should be aware of this if you’re thinking about serious business growth.

Digitalization vs. Digitization
Simply said, digitalization isn’t possible without digitization.

Digitization refers to the conversion of information from analog to digital formats. On the other hand, digitalization refers to the use of digital technologies and digital data to create new value-producing opportunities and transform the way customers and companies interact with each other.

Digitization is more focused on the internal optimization of processes such as work automation and paper minimization while digitalization goes deeply beyond that.

Digitalization vs. Digital Transformation
Even though digitalization may often be used as an umbrella term for digital transformation, both of these terms greatly differ.

Digital transformation refers to the much wider use of digital technologies and cultural change. It’s more about people than it is about digital technologies. It demands core changes in the organization backed by leadership.

It emphasizes empowering employees with digital technologies in order to change the corporate culture.

The Effects of Digitalization on Business Operations[4]

Digitalization’s effects can be seen in almost every industry, including commercial real estate, health care, manufacturing, sports and entertainment, and utilities. Examples include:

  • Commercial Real Estate:
    • Properties adapting to AI technology and becoming increasingly automated, internet-enabled, and “smart” or “green”
    • Digital tenant and security experiences (ex: mobile apps for property features, online support services, etc.)
  • Health Care:
    • Digital patient files and medical data
    • Appointment and visit recordkeeping software
  • Manufacturing:
    • Automated manufacturing and “smart” techniques
    • Digital applications and infrastructure for worksite operations
  • Sports & Entertainment:
    • Mobile platforms for event management and safety
    • Digital ticketing and payment structure
  • Utilities:
    • Project automation and adaptation to the “smart home” market
    • Digitization of routine processes

Although these updates can improve recordkeeping, modernization, and data-based innovation, they also put companies at risk for significant cyber threats and data breaches, which can be incredibly damaging and costly. In fact, the average cost of a data breach in the U.S. is $8.19 million. To digitalize safely, it’s important to invest in cybersecurity resources and training. Privacy is critical for safe digital experiences – for both organizations and their customers.

For many companies, an early step toward digitalization is streamlining communication using mobile technology, such as mobile risk intelligence communications platforms. These platforms help implement technologies to improve safety by enabling intuitive two-way communication and allowing users to easily access pertinent resources.

The Importance of Digitalization[5]

The technologies underlying digitalization continue to evolve rapidly, even as they are being adopted throughout business and society. Digitalization, however, is not simply a matter of “more technology.” Digitalization is important for an organization because it unlocks new thinking and approaches in how the organization perceives its role within its ecosystem and its opportunity for increased profitability. Technology is not an end in itself. With digitalization in place, these organizations can begin to create new value chains and experiences that are collaborative, interactive, sustainable, and profitable. Here we highlight how enterprises have used digitalization to transform their organizations into best-run businesses:

  • Customer experience: The Entertainer, the UK’s largest independent toy retailer, has the vision to be the best-loved toy store one child at a time. SAP Commerce Cloud is helping them to understand their customers so that they can consistently deliver a five-star experience.
  • Employee self-service and experience: Tapestry, a New York-based global retailer, is using a centralized portal to reach their 17,000 employees worldwide, which has resulted in significant annual cost savings. As well, during the pandemic, Tapestry was able to conduct real-time pulse-checks with employees on their health and safety during the COVID-19 pandemic.
  • Sustainability: Salzgitter AG is using technology to reduce its carbon footprint and enable sustainable change in the steel industry.

Examples of Digitalization[6]

  1. John Deere: How did a farming and farming equipment company digitalize its business? One thing they’ve done is analyze data collected by internet-connected devices to determine new revenue streams. They also use the data they collect to advise farmers in order to maximize their crop yields. John Deere Digital Operations Center connects users with their data by creating equipment with built-in sensors that relay information to the John Deere Operations Center. Farmers can access this portal through their own account via tablet, computer, or smartphone to receive updates, suggestions, and forecasts.
  2. Target: Once having outsourced its web services to Amazon, Target reclaimed its digital presence and has created a new, remodeled design that blurs the lines between eCommerce and brick-and-mortar stores. The stores have been equipped with new tech and have started offering online ordering, in-store pickup, and curbside pickup. Target has also been successful in consistently engaging its social media followers—leading them to new products that they can buy directly through social media platforms. Target has seen its revenue increase significantly since implementing its digital strategy.

Advantages of Digitalization[7]

Organizations all throughout the world are adjusting their operations to be digitally compatible. Many businesses have realized the importance of digitalization and already converted or invested in new business models. Consider communication, music, eBooks, and online shopping. This change will not spare any industry.

It is no secret that businesses must continually change in order to stay viable. In our current digital world, organizations don’t have any choice but to embark on the digital transformation journey.

Organizations may run more effectively, save expenses, and boost production are some of the advantages of digitalization in business. In summary, it is a matter of life and death for them.

The advantages of digitalization are:

  1. Streamline processes: Every business is continuously looking for innovative methods to improve efficiency. If you want to become more efficient in business, you will need to embark on the digitalization journey. When a business process is automated, you can expect reliable outcomes every time. Automating processes and related business rules will help your organization achieve greater transparency and fairness. Efficiency is defined as how well time, effort, and money are utilized to complete a task or achieve a goal. One of the most significant advantages of digitalization is that it reduces the time it takes to complete a task, the effort necessary to complete it, and the cost of doing it correctly.
  2. Higher productivity: When you automate manual repetitive processes, you free your employees from monotonous job tasks and allow them to focus on more difficult and innovative initiatives that will help your business function more efficiently. With business process automation systems, tasks may be done more faster and with fewer mistakes. Finally, process automation enables employees to make better use of their time at work.
  3. Reduce operational costs: Every business owner’s objective is to save time and, more importantly, money. Manual tasks and processes are intrinsically slower than automated activities and processes since they are conducted one at a time. Inefficient processes cost organizations up to 30% of their annual revenue. When business procedures are done manually, there is a far greater chance of resources being squandered. Digitalization enables the most efficient and cost-effective use of your core resources.
  4. Increase transparency: Depending on the process you’ve decided to automate (financial, billing, collections, sales, and/or support), critical metrics can be gathered and reported on to provide you with the crucial information you want. Transparency in business processes is critical for long-term success. If processes and their status are digitally monitored, higher management will have more faith in how things are done. Well-documented processes and transparent workflow boost an organization’s visibility. Managers don’t have to worry about employees forgetting what they’re supposed to be doing since everyone understands what they’re supposed to be doing at all times. When leaders visualize processes, they can immediately identify bottlenecks and opportunities.
  5. Quality and consistency: One of the most important advantages of digitalization is that it guarantees that each operation is carried out in a consistent manner, resulting in high-quality, dependable output. If you automate your customer service follow-up process, for example, your consumers will receive the same quality of support from your company every time. Because of the assurance of quality and consistency, as well as the time and efficiency benefits, you may begin designing higher-quality, more feature-rich products with little or no increase in manufacturing time and costs.
  6. Less human error: When operations are automated, the likelihood of human error is considerably decreased. When it comes to doing tasks, humans are more prone to error than machines. Machines are never weary and can run constantly 24 hours a day. So let us assign what we don’t want to perform to computers and concentrate on more challenging tasks.
  7. Governance and reliability: Because automated processes are consistent, you can rely on them to
    • Run your business
    • Provide reliable procedures to your clients, giving you a competitive edge.
      Workflow automation’s dependability guarantees that critical corporate governance operations are carried out 100 percent of the time and in compliance with the law.
  8. Enhanced agility: Businesses, now more than ever, must stay up with the fast-paced digital environment. They must be able to swiftly respond to any market shift, upheaval, or new opportunity. Organizations should be agile enough to shift directions rapidly and to do so, agile techniques should be adopted across all departments, and when business processes are automated, it allows for modification and adaptation to changes at a relatively fast pace.
  9. Improved employee morale: When employees are required to focus on manual repetitive tasks, it reduces their ability to learn, develop, and advance professionally. Employees benefit from digitalization since it automates these repetitive activities, allowing them to engage in more significant initiatives and so enhancing their morale.
  10. Better decision-making: Digitalization and information management work hand in hand; as information is analyzed, it transforms into knowledge, and knowledge leads to better decisions.

Challenges of Digitalization[8]

Digital transformation looks different for each given business. There are certain similarities, but still, there’s no one-fits-all template you can apply to your business and win.

Therefore, this vagueness of the term is the initial and primary challenge for everyone involved because it’s unclear at the very beginning what DT will entail.

For example, let's take the case of a seafood retail/restaurant. Their initial thought of digitization was to get an e-commerce website for their business, but we ended up creating an entire order management system for them to streamline and automate processes. This was the solution that could take care of the bottlenecks (which would only get worse with “just an e-commerce website” since the number of orders increased.)

How do you overcome this challenge? Business owners should dream alongside development project managers and, united, the technical bottlenecks can be solved.

Another thing that should be taken into consideration is the size of the company because it directly affects the number of employees and interconnected business processes that are involved.

Smaller companies, usually, have fewer employees and departments, which simplifies the transformation. It’s much easier to train 15 people on how to use software than training 10 groups of 15 that should work together and overhaul 5 processes instead of 40.

For larger companies, this process is more challenging because progress should take into account the phasing-in part, where changes are taking place department by department. One also should remember that it’s important to adjust the business processes and expectations during the transition.

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