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Digitalization: More than a definition

Digitalization has many faces - and possibly just as many definitions. It stands for the transformation and automation of processes and at the same time describes a change in society that offers almost endless possibilities. Based on the various definitions, in the following we look at the effects of digitalization on the private and professional spheres and take a look at the special position of companies as well as the challenges and opportunities that the digital transformation holds for them.

Geschrieben von
Anne-Laura
January 5, 2021
-
17 min reading time
Inhaltsverzeichnis
  1. Definition: What is digitalization?
  2. Impact: What does digitalization mean for private and business life?
  3. Benefits and opportunities: What is the use of digitalization in companies?
  4. Examples: How does digitalization work in individual industries?
  5. Digital Workplace: What does the workplace 4.0 look like?
  6. Challenges: How do companies master digitalization?  
  7. Outlook: Where is digitalization headed?  
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Let's start with a definition: Digitalization refers to the transformation of analog processes into digital ones. What sounds like simple logic has led to profound changes in almost all areas of people's lives over the past 30 years. Activities that used to be carried out by analog means are now done digitally. Many of them are so integrated into our everyday lives that they are hardly perceived as part of the digitalization process anymore.Correspondence via e-mail as opposed to letter post is just one example of how far digitalization has already entered our lives - not only influencing them but also defining them. Simply put, in this very moment when we read information on the Internet instead of pulling it out of books, we are living the definition of digitalization that we are simultaneously searching for.

On the one hand, then, digitalization takes place at the technical level. This is what the most common definition mentioned at the beginning refers to. On the other hand, however, the term also encompasses aspects of networking, automation and, above all, so-called digital transformation in companies. And finally, digitalization also describes a mental change that provides the basis for a new mindset and many opportunities. Starting from the various definitions of the term "digitalization" this article clarifies its impact on the private and professional spheres and then goes into the special position of companies and their challenges and opportunities.  

1. Definition: What is digitalization?

Digitalization, as much as we know, is more than just researching on the Internet or sending e-mails. Many aspects of the digital transformation run in the background and have only a marginal impact on life in society. At the same time, there is no single definition. Rather, digitalization refers to different processes depending on the context. In the following, we have summarized the most important approaches to defining digitalization:

Digitalization = The transformation of analog processes into digital ones

This attempted definition is also historically at the beginning of the digitalization timeline. Originally, the digital age began with the conversion of image, video and sound material into digital formats.The core of this definition approach is therefore the conversion process on a technical level. Today, this step of data conversion is largely skipped, since information is produced, processed and stored only digitally anyway.

 

Example: Photos used to be taken with a film camera, developed on photographic paper and pasted into the album. Today, pictures are mostly created via the smartphone and are stored there in digital form.  

Digitalization = The automation of manual processes

Another core feature of digitalization is the gradual transformation of manual workflows into automated processes. This means that tasks that were previously performed by human hands can now be handled by intelligent software. Companies in particular have been benefiting for sometime now from the ability to perform simple routine tasks and structured processes with the help of suitable IT systems. But we also take advantage of this aspect of digitalization in our private lives every day.

Example: In the past, if you wanted to make a bank transfer, you had to fill out the transfer form by hand and hand it in at the bank where it was entered manually by the employees. Today, payment orders are largely issued via online banking and executed automatically.    

Digitalization = Data networking

A major topic in recent years is the networking of digital data. On the one hand, this aspect concerns industry, where it means the networking of machines, products and logistics. On the other hand, we are also becoming increasingly networked in our private lives. In the so-called smart home, technical devices such as smartphones, televisions, tablets, computers, speakers, refrigerators and light bulbs are connected to each other via the Internet.

 

For example, everyday tasks are no longer carried out manually and in sequence, but are performed via an app on the smartphone or a voice assistant such as Alexa or Siri, where they are networked with each other via the Internet. Roller blinds are raised at 7 a.m., the heating comes on, and the radio broadcast comes out of the speakers, which can be turned down using the voice command "turn down".

Digitalization = Digital transformation

Digital transformation, often also called digital change or digital revolution, is originally less a synonym for digitalization than the totality of its social effects. When people talk about digitalization today, they often mean digital transformation as a whole - in other words, processes of social change that arise as a result of digitalization at the economic, cultural and political level. In the context of companies, digital transformation is a buzzword for a profound change in internal company processes and business models.  

   

Example: Daily newspapers have lost significant revenue due to the rapid rise of online journalism. To meet their readers' need for digital content, most newspapers have now digitalized their business model with the help of online subscriptions.

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2. Effects: What does digitalization mean for society?

 

Impact in the private sphere:

Some celebrate digital progress, while others fear it. The fact is that there is no area of human life into which digitalization has not yet entered. The effects are therefore manifold and affect all aspects of our everyday lives. In general, digitalization has led to a simplification of processes that relieve most people of many tasks in their daily lives. For today's schoolchildren and students, acquiring knowledge via the Internet is now part of everyday life and research in libraries only unthinkable.

At the same time, there is often a fear that digitalization will gradually replace people and thus endanger jobs. With a view to self-service checkouts in supermarkets, this objection is certainly justified. In the best case, however, digital processes complement human work, as is already the case with manufacturing in the automotive industry. At the same time, digitalization is opening up innovative fields of activity across all industries, creating new jobs that did not exist before. The fact that at some point we will only be served by robots is therefore not to be expected in the near future.

The effects of digitalization on social life are particularly noticeable, especially in the area of communication. The smartphone has led to a fundamental change in the way we communicate. News is hardly ever shared in a face-to-face conversation anymore, and the postcard from vacation is a relic of old times. Instead, messaging apps are used to share news, pictures and videos - at any time and from any place.  

Impact on companies and the world of work:

The effects of digitalization are clearly noticeable in companies of all sizes and affect almost all areas here. As society as a whole undergoes rapid digital transformation, companies must rethink all processes in order to keep pace with the changing requirements of their respective industries in the long term. Changed value creation structures and markets require companies to act quickly. In the process, both internal processes must be digitalized and new touchpoints with customers must be found and products and services must be adapted to the changed expectations accordingly.

Just like management, which must initiate and implement digitalization processes internally, employees in the world of work 4.0 also face new challenges and opportunities. Ten years ago, the Corona crisis would have meant total economic failure. Today, most activities that allow location-independent working could be continued from the home office even during the lockdown. The basis for this were structures for which the course had already been set before the crisis: Company laptops, collaboration tools for digital communication, cloud software for data storage.

By far the most noticeable effects are those of digitalization in industry - or as it is now known, Industry 4.0. The core element of this fourth industrial revolution is the intelligent networking of all steps in the manufacturing process. People, machines, logistics and products are in a permanent exchange of information via big data platforms. From raw material to end product, every component of the value chain is digitally networked. A quantum leap for efficient and customized manufacturing.

3. Advantages and opportunities: Digitalization in business

The changes resulting from advancing digitalization can be felt in all areas of everyday life in society and have an impact on social, cultural and political aspects of our lives. At the same time, companies are particularly affected by digitalization. Here, processes and operations at all levels must undergo a profound digital transformation. Start-ups as well as small and medium-sized enterprises face a wide range of challenges if they want to take advantage of the opportunities of the digital future. After all, the benefits are enormous: digitalization puts companies on a future-proof foundation that will be crucial for competitiveness in the future. So if companies want to keep pace with the competition in 5, 10 or 15 years, they need to set the course for the digital age now.  

Advantages

Digitalization secures competitiveness. This phrase may sound like a cliché, but that doesn't change its truth. It has long since ceased to be enough to have the best product on the market. An efficient design of business, work and production processes is at least as crucial for a company's competitiveness. The great opportunity of digital transformation in companies lies in harnessing these processes with the help of digital technologies and skills. Whoever ultimately wins the race for the greatest competitive advantages will therefore depend to a large extent on whether internal processes are also mapped digitally.

But why exactly is process digitalization so important? In a nutshell, it saves time. Business processes that are automated with the help of the appropriate technological infrastructure and without human intervention are faster and less prone to error. This is particularly true in areas with high automation potential, where large volumes of data have to be processed, stored or sent. Hardly anyone would wish for the time back when supermarket employees typed every price into the cash register by hand.

But not only that. Digitalization brings with it another factor that is enormously important for the world of work 4.0: flexibility. The postmodern working world is characterized by time- and location-independent structures that are networked across continents due to globalization. If companies want to keep pace with the changing demands of the New Work, the digital infrastructure must be created. Even before Corona, calls for mobile working solutions for employees were growing louder. The crisis has now shown that flexibility is not a luxury good, but rather indispensable if companies want to ensure their survival.  

Digital structures not only save time, they also save money. Because where data and information are processed automatically and independently follow smart logics, time-consuming consultation processes and manual activities are eliminated.

Until now, custom manufacturing has been associated with a high expenditure of time. The Industry 4.0 factory makes it possible to respond more closely to customer wishes and ensures the economic viability of production, even for customized production of small quantities. In industries with large volumes of special requirements, production thus remains economical even under increased competitive pressure.

Markets change. And with digitalization, so are the opportunities to survive in the changing markets. For companies, digitalization opens up new market opportunities that allow them to tap into new target groups with services, for example. At the same time, the digital transformation enables completely new business models. This will benefit companies with an analog business model in particular in the long term.

Finally, manufacturing and processing companies in particular benefit from the use of artificial intelligence (AI), as standardized processes are less prone to errors, which increases product quality in the long term.

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4. Examples: What does the digital enterprise look like in the individual industries?  

There is no such thing as cross-industry digitalization. The digital transformation is picking up speed differently in the various sectors of the economy and is proceeding in a largely heterogeneous manner. While public administrations, for example, have long lagged behind digital progress, industry was one of the first sectors to recognize the ravages of time. Although digitalization is seamlessly affecting all sectors, the approaches vary greatly from one industry to the next.

The fact that a digital roadmap is lacking not only in companies, but also nationwide, is demonstrated by the area of public administration. The Online Access Act states that the infrastructure for the digital transmission of applications and documents to municipalities, states and the federal government should be possible by 2022. However, it is still mandatory to appear in person or sign by hand for numerous declarations to administrative bodies. As part of the German government's digitalization roadmap, this formal hurdle is to be replaced in future by declarations by e-mail wherever possible. Forms will also be available to citizens in electronic form in the future and data exchange will thus take place digitally.

In the automotive industry, the digital transformation has led to a number of new usage scenarios. Self-driving cars, for example, are a prime example of a key factor in digital progress: the automation of actions previously performed by humans on the basis of an intelligently networked system of cameras, sensors and scanners that evaluates the data obtained in a matter of seconds. Car sharing, which is popular in large cities, also makes use of digital methods and enables users to start their borrowed vehicle at any time of day without keys or vehicle documents.

The digital transformation has also led to far-reaching structural changes in the financial sector. On the one hand, online banking has revolutionized traditional banking. This means that banking transactions can be carried out via any Internet-enabled device, regardless of time and place. At the same time, payment services such as Apple Pay simplify contactless and cashless payments via smartphone, while cryptocurrencies such as Bitcoin, which function on the basis of a blockchain (i.e., a chain of data blocks that continues to grow with the digital transaction), are booming. Central banks around the world may soon follow this model. China plans to be the first country in the world to introduce a digital currency by 2022.

The Corona crisis has directly or indirectly driven digitalization projects in almost all industries. Major structural changes also took place in the healthcare sector, for example with the introduction of digital consultation hours via video telephony. Overall, digitalization offers a particularly large number of advantages here for securing medical care for an aging society in the long term as well. The electronic patient file, the digital prescription, or the video consultation are no longer distant dreams of the future, but will very soon be an integral part of our everyday lives.

Education has also taken a quantum leap in 2020 - at least as measured by the digital maturity of the sector in pre-Corona times. Teaching materials for homeschooling are suddenly being distributed to parents in digital form via e-mail. At the same time, education providers are setting up e-learning options for distance learning. But the Corona crisis also ruthlessly exposes the failures of the industry: Germany's education system urgently needs a digital infrastructure to enable digital participation for all and to accompany pupils, students and trainees in the digital transformation.

And the digitalization winner of 2020 is: online retail. While stationary retailers had to close their doors, business via the Internet boomed. To remain competitive in the long term, local retail must also find ways to take advantage of digitalization. The opportunities are certainly there: Create digital interfaces to customers, transform analog business models into digital ones, digitalize business processes at all levels.

For manufacturing industry, digitalization means more than just optimizing work processes. Instead, the digital transformation is bringing about a holistic transformation of production processes and changing the factory of today at all levels. At the end of this fourth industrial revolution, the smart factory awaits, i.e. the factory of the (not so distant) future. Digitalization is thus creating the technical and structural basis for consistently mapping production processes digitally. The core element of Industry 4.0 is the networking of systems that connects every member of the value chain. From the delivery status of missing production parts to customer contact information, all data and information are in constant exchange and thus make it possible to react to changing requirements without human instructions. At the same time, the self-control of production systems plays a key role in the smart factory. Robots and machines now no longer respond only to requirements defined by humans, but make intelligent decisions independently along the entire manufacturing process. The infrastructure for this communication across borders - i.e. between people, machines and products - is the Internet. But it is only another technical basis that ultimately makes the exchange of data possible: the equipment with sensors that digitally record all the information and pass it on.

5. Digital Workplace: What does the workplace 4.0 look like?

Although digitalization can take very different forms in different industries, one element is usually similar across industries: the digital workplace. For many companies, this is the entry point for enterprise digitalization. But what does the workplace 4.0 actually look like?

Companies don't need to hire digitalization officers to know that an intranet is now an indispensable part of the modern workplace. Human Resources in particular uses so-called publishing intranets to communicate internal company information and to make data and applications available to employees on a mobile basis.

While communication via the intranet is always one-way, i.e., from the company to the employees, in the modern working world structures must also be created for communication in and among the specialist departments. The use of so-called collaboration tools has become established for this purpose, and not just since Corona. These make it possible to communicate within a team or with customers, share data and work on projects together, regardless of location.  

Finally, a workstation that enables location-independent work must also always provide the appropriate document management. In addition to a central and structured filing system, this also has the option of managing and jointly editing documents. In addition to internal server solutions, the basis for this is increasingly a cloud. Data protection and data security aspects also play a particularly important role here.

6. Challenges: What is slowing companies down and how they can master digitalization

But what is the reason that digitalization graces the covers of manager magazines, blogs and daily newspapers, but still receives only fragmented attention in the companies themselves? A Europe-wide study of 2,500 small and medium-sized enterprises shows that 54% of SMEs think that the introduction of digital technologies is essential for maintaining their competitiveness, and as many as 76% name digitalization as a corporate priority.

 

Nevertheless, SMEs in particular face numerous challenges. German companies cited a lack of digital infrastructure, in particular an inadequately developed, nationwide high-speed Internet network (27 %), as the biggest hurdle, closely followed by a lack of IT skills among employees (24 %).Here, 38 % lack software experts, while 33 % of the companies surveyed do not employ staff with sufficient strategic knowledge to drive the digitalization project forward. Yet this is precisely where the core problem lies. Too many companies lack the strategic compass to get the digital transformation under wayat all levels.  

 

Develop a strategy

But without a digital roadmap, the digitalization project is doomed to failure. Digitalization can only succeed if it involves every department and is managed centrally. If individual departments go it alone when introducing software, for example, no one will benefit in the end. Digitalization will only work if it runs like a thread through all instances across the entire company. Many companies have recognized the need for strategic support and have created the position of CIO or CDO (Chief Information Officer or ChiefDigitalization Officer) for this purpose.  

 

Establish a culture of innovation

One aspect that can make the difference between winning and losing a digitalization project is the willingness of employees to change.Companies must involve every part of the workforce - from employees to managers- in the digital transformation and thus create a willingness for process adjustments. Software that is ultimately available but not used by staff due toa lack of knowledge or will has ultimately failed in its purpose. Keyword: change management. Training courses and workshops make it possible to introduce employees to the new material from a technical point of view and to mentally say goodbye to old processes.

 

Technologies of the future

Technological progress has revolutionized the way people work as well as the production and provision of services and goods. Artificial intelligence (AI), Big Data, cloud solutions or industrial 3D manufacturing processes have long since found their way into companies and factories. At the same time, companies are increasingly using software solutions for internal communication and simplification of business processes. Data mining, i.e. th eintelligent evaluation of large volumes of data, helps here, as does the megatrend of hyperautomation, behind which lies an automation of complex processes. At the same time, smaller software solutions for the digital workplace are also gaining in importance in almost all companies. Collaboration tools and intranet solutions are often the entry point for many companies.

 

Digitalization is a matter for the boss

Even the best strategy and technology will not ultimately lead to the desired success if management is not behind it. What's more, digitalization is always the responsibility of top-level management. Although implementation is carried out by the responsible technical personnel in the IT departments, the overarching goal cannot be delegated: to transform the company holistically. So if the potential of digitalization is recognized early on at management level, that is the key to success.

 

7. Outlook: Where is digitalization heading?

Digitalization is changing the way people work, learn, communicate and ultimately live. An end to this development is hardly to be expected. If we want to participate in the digital transformation - whether as a student or a patient, as an employee or a CEO - we have to allow progress to happen.  This realization was made painfully clear not least by the Corona pandemic: after all, companies with a high level of digital maturity camethrough the crisis particularly smoothly. Even now, more and more traditional companies are being left behind by a new generation of digital high-flyers. If companies, especially management, invest their heart and soul, time and resources in their digitalization project, they will soon be able to reap the rewards of their commitment. Where digitalization will ultimately lead us can only be revealed by looking into a crystal ball. But one thing is clear: the benefits and opportunities of digitalization are gigantic.

Study:

European SME Survey 2019

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