Digitization, digital transformation or cognitive: which level your company is on

Twelve French lessons

In 1999, before a trip to France, I decided to study the language. I took twelve conversation lessons aimed at travel: hotel, restaurant, train station. I arrived in Paris confident.

It worked exactly within the scope it had been trained for. I asked for a room, ordered food, bought a ticket. And in the first conversation that strayed from the script, I discovered I had mastered a handful of useful phrases, which is not the same thing as speaking French.

The distance between those two situations is the same one that separates a company that uses digital tools from a company that is digitally fluent. And, as on that trip, the problem is rarely goodwill. The problem is confusing the stage you are at with the stage you intend to reach.

Three levels, and three words used as one

The clearest model for organizing this is the pyramid proposed by Volker Lang in Digital Fluency. English already has a separate word for each level: digitization, digitalization and digital transformation. In practice the three get used interchangeably, so it is worth stating what each one covers: digitizing information, digitalizing processes and digital transformation.

That slippage in vocabulary is not innocent. It lets a company that has finished the first level announce internally that it has done digital transformation.

Level 1: digitizing information

It is converting the analog into digital. A law firm that digitizes all of its case files moves from shelves of paper to searchable records, gaining protection, durability and physical space.

The level looks operational and has consequences that are not. A cyber risk surface now exists where there was none before. Someone has to decide between renting and buying storage. The material has to be organized in a structured database, or it becomes a digital warehouse. And all of that costs time, money and quality of execution.

A 2017 McKinsey paper, The case for digital reinvention, already recorded the point many companies learned later: digitizing provides infrastructure, and infrastructure on its own produces neither organizational change nor strategic results.

Level 2: digitalizing processes

It is using what was digitized to do the same with fewer resources, or to do it better with the same.

Which resource gets saved depends on the sector. In services, time and headcount. In industry, consumption and raw material loss. In logistics and extraction, carbon footprint.

At the firm in the example, it is when analysis of the digitized files starts answering questions: which type of filing gets approved faster, what those filings have in common, which argument each judge tends to accept. Information stops being a record and becomes a decision.

Gartner warned in 2019, in Optimizing Digitalization Efforts, about the most common risk at this level: optimizing processes that are not aligned with the organization’s objective. Efficiency in the wrong direction gets to the wrong place faster.

Level 3: digital transformation

It is when information becomes revenue and the business model changes.

At the firm, it would mean turning the internal filing-analysis tool into a subscription product sold to other firms and to independent lawyers. The asset stops being the archive and becomes what the archive taught.

The most cited case is Amazon, which turned the internal optimization of its own data centers into a cloud computing division larger than the business that produced it. MIT Sloan Management Review, in The Essential Guide to Digital Transformation, insists on what that example demonstrates: transformation is strategic and cultural before it is technological.

The fourth level, which is not about technology

Each level demands more complexity, more investment and more strategic impact. And from the second level on, none of them holds up without prepared leadership.

There are three common paths to solving that. Hire a consultancy that combines strategic review with technology investment. Hire technology and data professionals and build a board with transformation experience. Or raise the digital literacy of the leadership itself and, in the rarest and most successful cases, of the whole organization.

The third path is the one that leads to what we call cognitive transformation. It is not having more tools. It is leadership starting to frame the questions differently: where is there a process that could be decided by data, what information of ours would be valuable to someone else, what would we stop doing if we were starting today.

Back to the analogy, it is when the company stops consulting the pocket phrasebook and starts having a conversation.

Why this is a strategy decision, not an IT one

The practical consequence of the model is a reversal of order.

The level 1 decisions, where to store, how to structure, how much to spend, depend on the ambition at level 3. A company that intends to monetize information needs to structure its data one way; a company that only wants to get paper out of the room needs another. Deciding the infrastructure before deciding the ambition is the most expensive way to find that out.

The question that opens the planning cycle, then, is not “which technology are we going to adopt”. It is “which level do we want to be on in three years, and what does that require of the people already here”.

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