Digitalization and Business Transformation: Disambiguation

Reis et. al (2018) did a systematic literature evaluation related to digital transformation using the peer-reviewed database of the  Institute of Scientific Information – Web of Science (ISI).

The search with the term “digitalization” resulted in over 2000 documents and to be able to filter the most important research topics, they also analyzed the keywords cited. This revealed that the terms related are Digital Transformation, Digitalization, Management, Internet of Things, Internet, Strategy, Government, Industry 4.0, Innovation, Technology, Enterprise Architecture, Competitive Advantage, Information-Technology, Systems, Educational Technology, Digital Business. (Reis, et al. 2018, 415f.) 

They reviewed more than 200 articles and discovered that the number of published papers had been significantly increased after 2014, the most contributors are the USA with 21%, followed by Germany 19% and China 5%. Based on their analysis the terms “Digital Transformation” and “Digitalization” will be used similar. Both applying to “services, processes and organizational structures throughout information technology (IT) / information systems (IS) and web-based enablers”. (Reis, et al. 2018, 416)

Reis et al. found various definitions of digital transformation, which can be categorized containing three elements: (1) Technological, (2) Organizational, (3) Social.
Digital transformation is based on the use of digital technologies, it requires a change of organizational processes or new business models and it is influencing the human life, e.g. enhancing the customer experience. (Reis, et al. 2018, 417f.)

While Reis et al. see that “Digitalization” and “Digital Transformation” are used similar, Savić (2019) assert that “Digitization” and “Digitalization” were used almost interchangeable. He tries to give a definition of the terms due to the “practical need that humans have to communicate clearly and to be properly understood. […] confusion still exists about the meaning, scope and use of these terms” (Savić 2019, 37)

  • Digitization: Converting from analog to digital format
  • Digitalization: Automating business processes
  • Digital Transformation: Creating a digital company
Figure 1: Digitization, digitalization, and digital transformation reviewed through five facets: focus, goal, activity, tools, and challenges, with examples of each; adopted from (Savić 2019, 37)

Venkatraman described already in 1994 in a paper the five levels of “IT enabled Business Transformation: From Automation to Business Scope Redefinition” (Venkatraman 1994).  It starts from a basic one for “Localized Exploitation” of IT functionalities, which is what Savić calls digitization. The next ones are “Internal Integration” and “Business Process Redesign”, analog Savić’s digitalization. And goes to “Business Network Redesign” and “Business Scope Redefinition”, what matches with Savić’s digital transformation. According to Venkatraman the reason for business process redesign can be the exploitation of IT functionalities for the reason to “seek efficiency” by automation or to “enhance capabilities, which aims to create strategic capabilities for future competition” (Venkatraman 1994, 85).

Figure 2: Alternatives Approaches to Business Process Redesign, adopted from (Venkatraman 1994, 85)

Exploiting technology is “important strategically, because evolution […] brings with it changes in the source of competition.” (Porter 1979, 144). Porter (1979) explains that before you create a business strategy, you first have to identify the company´s strengths and weaknesses by assessing the five forces affecting competition in the related industry: the power of the buyers, the power of the suppliers, the threat of new entrants, the threat of substitute products, and the rivalry among existing competitors. Then the company can plan  how to position to defend against the competitive forces, how to influence the balance of the forces, and how to anticipate “shifts in the factors underlying the forces and responding to them, with the hope of exploiting change by choosing a strategy appropriate for the new competitive balance before opponents recognize it” (Porter 1979, 143)

Porter has identified over the time three shifts in IT functionality change: (1) “How Information Gives You Competitive Advantage” (Porter and Millar 1985), (2) “Strategy and the Internet” (Porter 2001), (3) “How Smart, Connected Products Are Transforming Competition” (Porter and Heppelmann 2014)

In (1) and (2) the competitive advantages had been coming from increased efficiencies along the value chain processes, which Savić calls digitalization. But in (3) the competitive advantage is the “changing nature of products [which] is disrupting value chains and forcing companies to rethink nearly everything they do, from how they conceive, design, and source products; to how they manufacture, operate, and service them; to how they build and secure the necessary IT infrastructure” (Porter and Heppelmann 2014, 65). This is following the definition of digital transformation from Savić.

On the contrary to Porter, Carr (2003) argues in his article “IT Doesn´t Matter” that the competitive advantage vanishes over time. For first movers it will mean huge investments, while later capacities are increasing and leading to falling prices and commoditization. Kane, Palmer et al. (2015) conclude that rather focusing on technological opportunities, companies should focus to use technologies to achieve strategic goals. One of their findings from the 2015 digital business global executive study and research project is that “nearly 90% of respondents say that business transformation is a directive of their digital strategies” (Kane, Palmer, et al. 2015, 6)

Muzyka, Koning and Churchill (1995) use a definition for business transformation created during a conference convened by the Corporate Renewing Center at INSEAD: “A fundamental change in organizational logic, which resulted in or was caused by a fundamental shift in behaviors”  (Muzyka, Koning and Churchill 1995, 348).

“Digital transformation is a more complex type of technology enabled business transformation” (Ismael, Khater and Zaki 2017, 6). The authors of this study reviewed and consolidated the actual knowledge found in the literature. They identified in the discussions about digital strategy key decision areas and synthesized them with the frameworks found into one guiding framework. In the following they analyzed the rational behind the context, content and the processes of content formulation and strategy implementation of digital transformation.

Figure 3: Literature Synthesis Framework, (Ismael, Khater and Zaki 2017, 8)

A digital transformation strategy, or digital strategy, has far reaching consequences and need to coordinate and prioritize the different dimensions of digital transformation. It should be aligned with other operational or functional strategies. (Hess, et al. 2016) (Matt, Hess und Benlian 2015)

Figure 4: Relation between digital transformation strategy and other corporate strategies (Matt, Hess und Benlian 2015, 340)

Works Cited

Carr, N. G. (2003, May). IT Doesn´t Matter. Harvard Business Review, pp. 41-49.

Hess, T., Matt, C., Benlian, A., & Wiesböck, F. (06 2016). Options for Formulating a Digital Transformation Strategy. MIS Quarterly Executive, S. 123-139.

Ismael, M. H., Khater, M., & Zaki, M. (2017, 11). Digital Business Transformation: What Do We Know So Far? Retrieved 07 26, 2019, from University of Cambridge:

Kane, G. C., Palmer, D., Philipps, A. N., Kiron, D., & Buckley, N. (2015). Strategy, not Technology, Drives Digital Transformation. MIT Sloan Management Review and Deloitte University Press.

Matt, C., Hess, T., & Benlian, A. (14. 05 2015). Digital Transformation Strategies. Business & Information Systems Engineering, S. 339-343.

Muzyka, D. F., Koning, A. d., & Churchill, N. C. (1995, 12). On Transformation and Adaptation: Building the Entrepreneural Corporation. European Management Journal, pp. 346-362.

Porter, M. E. (1979, March-April). How competitive forces share strategy. Harvard Business Review, pp. 137-145.

Porter, M. E. (2001, March). Strategy and the Internet. Harvard Business Review, pp. 62-78.

Porter, M. E., & Heppelmann, J. E. (2014, November). How Smart Connected Products Are Transforming Competition. Harvard Business Review, pp. 64-88.

Porter, M. E., & Millar, V. E. (1985, July-August). How Information Gives You Competitive Advantage. Harvard Business Review, pp. 85-103.

Reis, J., Amorim, M., Melão, N., & Matos, P. (2018). Digital Transformation: A Literature Review and Guidelines for Future Research. In Á. Rocha, H. Adeli, L. P. Reis, & S. Costanzo, Trends and advances in information systems and technologies (pp. 411-421). Cham, Switzerland: Springer.

Savić, D. (2019, Jan|Feb). From Digitization, through Digitalization, to Digital Transformation. Online Searcher, pp. 36-39.

Venkatraman, N. (1994, Winter). IT enabled business transformation: From Automation to Business Scope Redefinition. Sloan Management Review, pp. 73-87.