The first step in understanding digital transformation is to distinguish it from two concepts it is often confused with: digitization and digitalization.
These three concepts are like the steps of a ladder; each is built on the previous one, but none replaces the other.
Concept
What does it mean?
Example
Digitization Digitization
Converting analog information into digital form. The information changes; the way of doing business does not.
Scanning paper invoices and storing them as PDFs.
Digitalization Digitalization
Using digital technologies to improve, accelerate, and automate existing business processes. The process changes; the business model does not.
Creating the invoice in the system, sending it automatically as an e-invoice, and posting it to accounting instantly.
Digital Transformation Digital Transformation
Using digital technologies and data holistically to reshape the company's business model, the value it delivers to customers, its organization, and its culture. The company itself changes.
A company in which all processes, from sales to collection and from production to service, run on a single set of data; in which decisions are based on real-time data and AI-supported predictions; and in which customers and business partners connect directly to this ecosystem.
The practical consequence of this distinction is that a company can buy digital tools for years and still not have undergone digital transformation. Purchasing technology is not the transformation itself; it is merely its raw material.
Digital transformation is every company becoming a software-driven company: intelligently connecting people, things, and processes.
Let's unpack the definition a little further
The three elements in the definition above were chosen deliberately:
PEOPLE
People
employees, customers, suppliers, and business partners. In the digital company, all of these stakeholders are connected to the same information ecosystem; the customer can track their own order, the supplier can plan their own delivery,
and instead of the employee searching for the information they need, the information reaches them.
THINGS
Things
machines, vehicles, sensors, devices, products. Thanks to the Internet of Things (IoT), the physical world generates data; the status of a machine on the production line, the location of a vehicle in the field, or
the movement of a product in the warehouse becomes part of the system.
BUSINESS
Processes
end-to-end workflows extending from order to cash, from procure to pay, and from plan to product. In the digital company, processes do not break at departmental boundaries; they flow seamlessly and measurably on a single data model.
What connects these three "intelligently" is software. The most distinctive feature of a company that has undergone digital transformation is that its business information lives not in people's memories, in e-mails, or in disconnected spreadsheets, but on an integrated software platform.
The building blocks of digital business
The capabilities that make up a digital enterprise are not a single technology; they are a set of complementary capabilities. At the center is business execution; all other capabilities feed this center.
Business Execution
Artificial Intelligence (AI)
Machine Learning (ML)
Internet of Things (IoT)
Real-Time Analytics
Mobile
User Experience (UX)
Integration
Collaboration
Services
APIs
Assets
It is possible to purchase each of these building blocks separately; but what creates the transformation is their working together on the same data and the same processes.