Digitization vs digitalization – what’s the difference and why does it matter?

Digital transformation is having a moment. You might say it’s been having a moment for a decade – and you wouldn’t be wrong. After all it is probably the most talked about business paradigm shift in living memory. Why now? Well, before COVID-19 entered our vernacular, many businesses held back on the extent of their digital transformation due to the perceived imbalance between the disruption caused by the change management requirement versus the value created.  

However, since COVID, many organizations have been accelerating their transformation programs because in the current hyper-turbulent market conditions and commodities super cycle everyone is looking for a competitive edge, and the smart thinking now concurs that value delivered by digitalization goes way beyond that of mere cost savings or process efficiencies. The package of benefits that includes data insights, learning that drives continuous improvement alongside scalability, risk management, and resilience is the true Koh-i-noor in the crown. 

What is the opportunity?

Back in 2016, the World Economic Forum estimated that $100 trillion would be added to the world economy through digital transformation by 2025. It went on to predict that by 2025, interactions driven by platforms were expected to enable roughly two-thirds of the $100 trillion value at stake from digitalization. 

According to Gartner 91% of businesses are now engaged in some form of digital initiative and 87% of all senior business leaders say digitalization is a priority. 

What can we draw from these eye-watering predictions and high levels of commitment to the cause? Digitalization is a big deal. A deal maker and a deal breaker for all organizations across all sectors.  

Digitisation or Digitalisation?  

At this point it is probably worth pointing out that the terms digitization and digitalization are often used inter-changeably. However, there are important distinctions: 

Digitization according to Gartner is ‘the process of changing from analogue to digital.’ It is making information available and accessible as a digital asset and therefore it is the information and not the processes that are being digitized. Most importantly, there’s no fundamental change to the workflow. Whilst there may well be advantages of taking paper-based or manual processes and digitizing them with little or no transformative thought to the accompanying workflows, the real magic and value delivered comes through the process of workflow transformation and that requires change management. 

Digitalization is the use of digital technologies to change a business model and provide new revenue and value-producing opportunities. Digitalization brings about total transformation of the workflow from start to finish. If this is done well you liberate vast amounts of value through cost saving, process improvement, efficiency, scalability, risk mitigation, business resilience, and access to data to inform and drive the business forwards at speed and with the insights needed for continuous improvement. 

Put very simply, Digitization is mostly about doing the same things in a slightly different way. A faster caterpillar. While digitalization opens up the possibility of doing new, better things (and hopefully doing less manual, repetitive, boring, unpleasant work too) which in turn supports the change that organizations seek for their processes and their people, to allow the butterfly to fly. 

While “digitization” and “digitalization” share many of the same letters, the outcomes that can be created by the latter far outweigh those associated with the former. No caterpillar can out crawl a butterfly.  

What are the benefits of digitalisation? 

For energy and commodity trading organizations and those in the financial markets, with whom we work, the use of advanced data analytics tools in market risk management, contract creation, logistics and complex networks have manifold and long-term benefits in terms of providing new opportunities for delivering business value and improving transparency.  

For example, digitalization and resultant new technologies can improve profit margins, save traders time compiling data for contracts. In addition, digitalization converts data to market intelligence, giving the business the means to respond to changes in real-time and thereby mitigate risk. 

The speed at which organizations can access data, extract the maximum value from it and act on it is foundational to success. In fact, in the case of commodities trading, digitalization has caused a data explosion where access to real-time and near real-time data is widely available, where once it had only been the preserve of the few. The democratization of this data through self-service access has levelled the playing field. Digitalization and the innovation it effects is the key to building and maintaining competitive advantage. 

How to succeed

• Know that digitalization is always more about the people and organization than it is about technology. 
• Focus on end-to-end workflows, processes and capabilities, to shape the definition and vision of a future state. 
• Get domain experts on your team who have a deep understanding of your particular market niche as well as exemplary technical skills.  
• Combine these with agile ways of working, which surface value to stakeholders early and continuously within short timeframes (e.g. “sprints”) and you have the golden combination. 
• One of the hardest problems in digitalization, is to correctly define the problem(s) you are trying to solve, the order in which to solve them and the optimal point of entry into that problem space. 
• Only consider using non-domain rich engineering teams once you have defined your point of entry into the problem, the architecture, development environment and security model and started scaling your digitalization program. Throwing bodies at the problem at the start will not end well.  
• Don’t throw the baby out – you may find building microservices around legacy systems achieves the same transformational aims at lower cost, risk and disruption to the business. 
• Be prepared for a continuous program of improvement – being agile in all senses of the word will lead to successful digitalization outcomes. 
• Start small and deliver value, everybody likes to get behind a win.

Digiterre has been working with organizations to help them digitally transform their businesses for the past 22 years. Read more about this work with clients or get in contact to discuss your current challenges by emailing [email protected]