Why Do Businesses Spend Billions on Digitization and Digitalization Today?

Anna Khrupa by Anna Khrupa on March 24, 2020

Why Do Businesses Spend Billions on Digitization and Digitalization Today?

Rapid technology development, individual customer requirements, global competition – just a few reasons for the digital transformation that is taking place across different industries all over the world. According to the IDC survey, 85% of business decision-makers think that they have only two years to make significant moves into the new digital world, or they will lose their competitive advantages on the market. The study by McKinsey says that only 8% of the companies believe that their current business model will survive the digital transformation. In the modern world digitalization becomes a major challenge for any organization. But what is digitalization?


Digitization vs Digitalization vs Digital transformation – what is the difference?

Digitization, digitalization, and digital transformation – all these terms are used to describe the processes in the digital world, however, they describe completely different aspects of it. In a nutshell, digitization is the transformation of analog information (object, image, sound, or document digitization) and encoding it into a numeric or machine-readable format so that computers can save, process, and transmit such data. 

Converting paper-based information into PDF (or any other digital format) is one of the examples of data digitization, so is converting a video from a videotape or music from a vinyl record to digital media. Basically, the digitization process means that businesses build a more flexible, more secure and more efficient relationship with new technologies. Digitization provides a sound basis for digitalization, which represents a new, deeper level of the “embrace digital” game.

What is digitalization? Digitalization is quite an abstract notion which occurs when we start to talk about the transformation of the processes. According to Gartner, digitalization is about the use of digital technologies to transform a business model to increase revenue and value-adding opportunities. This means that companies adapt to new technologies to connect with customers in order to understand and meet their specific needs. 

Digitalization refers to profound changes in the digital world that have a huge impact on both business activities and people’s everyday lives. One of the most efficient ways to introduce digitalization is through automation. Automation is the automatic execution of procedures that is performed without human supervision. One of the most popular forms of automation technology is RPA short for Robotic Process Automation. RPA helps companies across different industries to overcome operational challenges and make the digitalization process quick, easy, and painless.

Digital transformation is a much broader term. It is not something that companies implement as a project, it is a strategic approach and cultural change that requires the adoption of technologies. Digital transformation also describes the continuous development of digital tech that shapes the economic processes as well as customers’ expectations and needs.


Advantages of digitalization in business

Rapid technology development, individual customer requirements, global competition – just a few reasons for the digital transformation that is taking place across different industries all over the world. But what seems to be just a challenge of time at some point, actually brings a lot of benefits to the business.

According to a Gartner survey, 56% of CEOs noted that digital improvements in their companies have led to revenue growth. Wood Mackenzie said that digitalization could save energy firms 73 billion dollars every year. It is worth noting that enormous potential for savings is only one of the significant benefits digitalization can bring.

What are the other advantages? There is no doubt that digitalization can help businesses understand their clients better and improve their customer experience. Today we can find numerous digital tools giving the opportunities to gather customer insights as well as store and transfer customer data efficiently.

Secondly, digital transformation allows companies to increase their overall productivity. But what are the digitalization examples in business? According to the Global Digital Transformation Benefits Report, digital transformation allowed Indian power generation company Tata Power to reduce power restoration times from hours to seconds. And an American beer company New Belgium Brewing due to digitization managed to shrink its downtime by 50%. 

It is obvious that in the modern, fast-changing world businesses should be able not only to adjust to their clients’ needs, but also to find the means to make their employees happy. According to the Deloitte survey, 42% of HR or business executives think that workers are satisfied with their day-to-day work. At the same time, digital workplace could provide employees with flexible means of communication, tools for simplification of their work which, in turn, will lead to an increase in their productivity.

It is equally important that digitalization of business makes companies more agile and helps them deliver their products to the market faster. Digital improvements also drive the innovation process, thus allowing companies to respond to changes quickly and stay ahead of their competitors.


Business digitalization: How much do companies spend?

Nowadays, thousands of companies around the world are trying to become more digital and spare no expense for that purpose. According to the IDC forecast, global diital transformation gspending will grow 17.9% year over year in 2019 and reach 1.18 trillion dollars. IDC also foresees that 6 trillion dollars will be invested in digital transformation over the next 4 years. In particular, IDC predicts that companies will double their spending on virtual labs by 2022.

One of the industries that pours money into digitalization steadily is the banking sector. It is hard not to notice that digital transformation in banking attracts big investments. According to the Accenture report, during the last 3 years, global banks spent 1 trillion dollars on digital projects. One of the most active players in the digital race is JP Morgan, it announced that it would grow its tech investments by 600 million dollars to 11.4 bln dollars this year.

Banking is not the only industry trying to embrace innovation and take advantage of digitalization. Digital transformation in the automotive industry is also a visible trend. According to Forbes, big automotive manufacturers, such as Ford and General Motors, invest large sums of money into the digitization process in order to achieve better visibility over the supply chains as well as get more useful data allowing responding to the market changes quickly and efficiently. The German media write that Volkswagen is going to pour up to four billion euros by 2023 into digitization projects. The manufacturer said that at least 2,000 new jobs within digitization projects will be created.

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