Digitization explained in brief
Today, people associate the term "digitalization" with a large number of things, including many things from everyday life: streaming TV series flexibly in terms of time and location, signing even the most complex contracts (e.g. loan agreements) online; controlling the heating via smartphone while on the move; having emails read aloud by the Alexa voice assistant; having perfect client onboarding for your new app or online store, and so on. ... To put it very simply, digitalization can be described as simplifying everyday life and increasing efficiency in the economy through modern information and communication technology. However, there are also negative connotations: For example, the disappearance of entire industries is lamented, massive job losses due to artificial intelligence are feared, robots and algorithms are viewed critically, data misuse and data trading lead to political discussions. And there is a vague fear that in the near future, machines may be smarter than their designers.
Digitalization vs. digital transformation vs. digital change
Given the wide range of associations, it is hardly surprising that a variety of terms have developed around digitalization. In addition to the term "digitalization", we also find "digital transformation" and "digital change".
In practice, the terms are often used interchangeably. But is this really the case or is it due to convenience or a lack of better knowledge? This short wiki article examines this question. If a clear distinction and coherent systematization can be made, this article will help to better understand the complexity of the phenomenon of "digitalization".
On the term "digitization"
Definition
Strictly speaking, digitization refers to the conversion of analogue signals into digital formats [1] or the digital modification of instruments, devices and vehicles [2]. Given the scope of the word "digitization" in public debate, this appears to be a surprisingly narrow definition. Is this correct? Yes, history suggests that it is: in fact, the word digitalization was used at a much earlier point in time than, for example, the term "digital transformation". A good example is the document management software industry. The aim here 20 years ago was to convert paper into electronic documents and archive them. A similar example is the music industry, which linked the phenomenon of digitization with the then new MP3 format back in the early 2000s.
Gap between theory and practice
So why is it that this apparently narrowly defined term is so ubiquitous and has the meaning we see today? The reason is probably that the term digitization is usually used unconsciously for "related" digitization phenomena, which are described below.
On the term "digital transformation"
In business publications in particular, the term "digital transformation" is often used instead of digitization. These two terms are often used synonymously or without differentiation.
If one sticks to the above narrowly interpreted, technical definition of digitalization, it is clear that more must be added to a "digital transformation". Against this background, the following definition makes sense: Digital transformation refers to the "targeted use of digital technologies to reshape or redesign one's own value creation processes using digital technologies" [3]. This definition therefore focuses on the macroeconomic and microeconomic aspects of digital change.
The levels of digital transformation
The three levels of digital transformation, which are shown in the following table, are worth mentioning for this approach.
| Transformation level | Transformation level Description | Examples |
| Processes | Business processes are automated by software | ERP systems, credit management software ... |
| Products | Customer benefits are increasingly generated from software functions and digital content | Assistance and navigation functions in cars, e-books, apps, business software ... |
| Business models | Trend from selling products to offering services | App store, software-as-a-service, sharing economy portals, FinTechs |
Table: The levels of digital transformation
The key success factors for a digital transformation
Based on empirical studies, four key factors are cited for a successful digital transformation process: Technology utilization, changes in value creation, structural changes and financial aspects [4]. In addition, completely new ways of thinking are required, as new players with disruptive business models are quickly capturing large market shares [5]. Jeffrey Immelt (CEO of General Electric) said the following in 2016: "We can no longer be an industrial company. We have to become more like Oracle or Microsoft."
This quote already primarily addresses the mindset within companies. Which digitalization strategy is important? How do you reorganize the company, which technologies do you use, etc.? This perspective has also given rise to another term: One also discovers the term "corporate digital transformation" from time to time. This focuses primarily on companies.
The term "digital transformation"
While the relationship between digitalization and digital transformation is not immediately obvious, the connection between digitalization and digital change is quickly recognizable: "digital change" clearly suggests a broader perspective. And so it is. In fact, the term "digital change" describes the characteristics and consequences of the digital change process "digitalization" on all social and societal areas of life (medicine, education, politics, media, culture, real estate, entertainment, infrastructure) [6] and economic processes.
Selected areas of digital change
Many of the achievements and phenomena that are currently the subject of intense debate can be assigned to digital change. Here is just a small selection to illustrate the system:
- Big data: the ability to obtain, exchange and analyze data is becoming radically more important [7]. Social networks, modern analysis methods and the internet are turning data into a valuable asset and a competitive advantage, which brings with it increasing challenges for data protection.
- Internet of Things: Objects, everyday objects and machines are connected to each other via the internet and can thus communicate with each other [8].
- Artificial intelligence (AI ) and self-learning machine systems [9], current applications: Chatbots for customer advice and support, automated translation, speech recognition, etc.
- Networking people and systems: Networking through social networks, apps, cloud computing ...
- Virtual reality: By using virtual reality (as well as augmented reality and mixed reality) in the private and business sectors, real reality can be augmented by an artificial reality.
Most important social impacts
The effects of digital change are just as diverse. They are the subject of the daily news. Only three of them are outlined in this wiki article to illustrate the system:
- Digital change is massively transforming entire industries and companies or even causing some of them to disappear in their original form [2]. A memorable example is the fundamental and lasting change in the banking and insurance industry, which is frequently discussed here in relation to financial services.
- There are also major upheavals in the world of work: in Germany, more than 70 percent of tasks in 15 percent of occupations can already be performed by computers [10]. According to an American study, almost half of all jobs in the USA could be automated within the next ten to 20 years [11] - although these figures are transferable to Europe and Germany [12]. However, the digital transformation will also create new jobs: The OECD, for example, estimates that 65 percent of our children will perform jobs in the future that do not even exist today [13]. This development can be well illustrated by Schumpeter's metaphor of creative destruction.
- At the same time, the way the world of work functions is changing: hierarchical structures are being replaced by flexible networks and work performance is no longer measured by time, but by results [14].
Summarized definition of terms
In conclusion, it is quite possible to differentiate between the terms "digitalization", "digital transformation" and "digital change" if you are precise enough. The extent to which this can be implemented in practice is questionable. But it helps to better classify, structure and grasp the many topics in the "digitalization" universe of thought. This wiki article serves to improve this understanding. The summarizing graphic should be understood against this background:
Illustration: Relationship between digitalization, digital transformation and digital change
Sources
1 Wikipedia (2018). Digitization. URL: de.wikipedia.org/wiki/Digitalisierung
2 Bendel, O., (2018). Gabler Business Dictionary. Digitalization. URL: wirtschaftslexikon.gabler.de/definition/digitalisierung-54195
3 Kreuzer, R. T., Land, K. H. (2015). Dematerialization - The Redistribution of the World in Times of Digital Darwinism, p. 198.
4 Matt, C., Hess, T., Benlian, A. (2015). Digital Transformation Strategies. In: Business & Information Systems Engineering 57(5), pp. 339-343. URL: www.researchgate.net/profile/Christian_Matt/publication/281965523_Digital_Transformation_Strategies/links/580bdfd408ae74852b5a72e3.pdf
5 Harvard Business Manger (2016). If you want to keep pace with the digital transformation, you have to rethink! URL: www.harvardbusinessmanager.de/blogs/wer-mit-der-digitalen-transformation-schritt-halten-will-muss-umdenken-a-1102091-2.html
6 Federal Ministry for Economic Affairs and Energy (2015). Monitoring Report Economy DIGITAL 2015. URL: www.bmwi.de/Redaktion/DE/Publikationen/Digitale-Welt/monitoring-report-wirtschaft-digital-2015.pdf
7 Schallmo, D. R. A. (2016) Jetzt digital transformieren - So gelingt die erfolgreiche digitale Transformation Ihres Geschäftsmodells. URL: books.google.de/books
8 Gruenderszene Lexikon (2018). Internet of Things. URL: www.gruenderszene.de/lexikon/begriffe/internet-of-things
9 JAAI (2017). Strong AI, weak AI - What can artificial intelligence do? URL: jaai.de/starke-ki-schwache-ki-was-kann-kuenstliche-intelligenz-261/
10 Dengler, K., Matthes, B., (2015). Consequences of digitalization for the world of work: Substitutability potentials of occupations in Germany, IAB Research Report, No. 11/2015, Institute for Employment Research (IAB). URL: www.econstor.eu/bitstream/10419/146097/1/843867167.pdf
11 Frey, C. B., Osborne, M. A. (2013). The future of employment - how susceptible are jobs to computerization? Oxford, Oxford Martin School, Univ. of Oxford. URL: www.oxfordmartin.ox.ac.uk/downloads/academic/future-of-employment.pdf
12 Bonin, H., Gregory, T., Zierahn, U. (2015). Transfer of the Frey/Osborne (2013) study to Germany. Brief Expert Report No. 57, Center for European Economic Research GmbH. URL: ftp.zew.de/pub/zew-docs/gutachten/Kurzexpertise_BMAS_ZEW2015.pdf
13 Schaible, S., Fischer, C., Seufert, J., Fuest, K. (2017). 12 theses on the effects of digitalization on the world of work. Roland Berger study. URL: www.rolandberger.com/publications/.../roland_berger_zukunft_der_arbeit.pdf
14 Rump, J., Walter, N. (eds.) (2013). World of work 2030. trends, forecasts, design options. URL: www.bosch-stif-tung.de/sites/default/files/publications/pdf_import/Studie_Zukunft_der_Arbeitswelt_Einzelseiten.pdf