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Digital transformation requires digitization—and a whole lot more

Digitization is required for digital transformation

Digital is an adjective. And it refers to a host of powerful, accessible, and potentially game-changing technologies. It also refers to the transformation that companies must undergo to take advantage of the opportunities these technologies create.

Companies engaged in digital transformation most likely understand that what made them successful in the past won’t help them succeed in a digital economy. A digital transformation involves rethinking the company’s value proposition, not just its operations. This means innovating to deliver enhanced products, services, and customer engagement.

Of course, digital transformation has many obstacles, the biggest which, according to Jeanne Ross, Principal Research Scientist at MIT Sloan’s Center for Information Systems Research (CISR), is the need to be digitized.

“Digitization it is an operational necessity,” says Ross. “Companies seeking digital transformation need to have an operational backbone that ensures end-to-end transaction processing, efficient back office processes, and easy access to accurate master and transactional data. Companies that are not digitized have little hope of becoming digital.”

Unfortunately, despite more than 20 years of business digitization history, CISR has found that only 28% of established companies have successfully digitized.

Why? Perhaps because most companies have underestimated the challenge of digitization. “Shedding habits—imposing discipline—has proved to be harder than business leaders imagined,” writes Ross in a recent article for MIT Sloan Management Review. “In many cases, leaders have committed to digitization initiatives thinking they are funding new and better technology. Many didn’t recognize that digitization requires a commitment to fundamental changes in how people work.”

As a result, most digitization efforts also cost more than anticipated. But digitization is an operational necessity that, when successful, has significant benefits, including efficiency, operational excellence, and predictability. And without digitization, according to Ross, companies cannot scale, absorb the complexity of expanded product portfolios, or personalize services.

Without digitization, management’s attention will be consumed with fixing whatever is going wrong today in a company’s operations,” writes Ross in her SMR article. “There will be no time for innovation. Leaders won’t have the resources to invest in a digital transformation or the operational excellence to support their digital value proposition.”

Ross makes it clear that while digitization is an important enabler of digital, even radically increased digitization won’t, on its own, make a business a digital company. Nonetheless, digitization provides for the scale and efficiency that companies will need to compete in a digital economy.

If your company is on the digital journey, “it’s time to focus very strategically on narrow goals for digitization,” suggests Ross, “so you can turn your attention to the excitement of a real digital transformation—one that fosters rapid innovation and helps you define new digitally-inspired value propositions.”

Jeanne Ross teaches in the MIT Sloan Executive Education program Revitalizing Your Digital Business Model.

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