RESEARCH BRIEFING | VOLUME XVII, NUMBER 10, OCTOBER 2017
DIGITIZED ≠ DIGITAL
Jeanne W. Ross, Principal Research Scientist
MIT Sloan Center for Information Systems Research (CISR)
Cynthia M. Beath, Professor Emeritus
University of Texas, Austin
Ina M. Sebastian, Research Scientist
MIT Sloan Center for Information Systems Research (CISR)
Over the four years that we have been studying companies’
digital transformations, we have found that different people
mean different things when they refer to a digital transfor-
mation. Currently, some big companies are attempting to
digitize, while others are focused on becoming digital; some
are even trying to do both simultaneously. To succeed in the
digital economy, companies need to be both digitized and
digital—and there is a big difference, despite the similarity
of the words. To articulate and execute a digital strategy, it’s
important to understand the requirements for becoming
both digitized and digital. This briefing1 tries to clarify what is
involved in each of these two essential transformations.
DIGITIZATION IS AN OPERATIONAL
NECESSITY
Digitization involves standardizing business processes. It is
associated with cost cutting and operational excellence. In
Although digitization is an important enabler
of digital—and digital technologies can
certainly support operational excellence—
all the digitization in the world won’t on its
own make a business a digital company.
essence, digitization imposes discipline on business processes
that over the years were executed by individual heroes in a
variety of creative (but not always optimal) ways. SAP, People-
Soft, and other integrated software packages that burst onto
the scene in the 1990s helped lead the way to more digitizing.
Digitization was a painful process in the 1990s, and for compa-
nies that have not yet been able to standardize core processes,
it is an ongoing struggle.
The benefits of digitization are significant: efficiency, reliabili-
ty, predictability—in short, operational excellence. For all the
pain that it entails, digitization is an essential undertaking in
1 This briefing is adapted from Jeanne Ross, “Don’t Confuse Digital With
Digitization,” MIT Sloan Management Review, September 29, 2017,
http://sloanreview.mit.edu/article/dont-confuse-digital-with-digitization/.
© 2017 MIT Sloan Center for Information Systems Research, Ross, Beath, and Sebastian. MIT CISR Research Briefings
are published monthly to update the center's patrons and sponsors on current research projects.
companies. Without digitization, companies cannot scale;
they cannot absorb the complexity of expanded product
portfolios; they cannot personalize services. Disciplined, stan-
dardized business processes, where appropriate, ensure the
accuracy and security of transactions and back office process-
es. They make data accessible and reliable.
In the ‘90’s and even early 2000’s, business leaders tended to
grossly underestimate the challenge of digitization. Shedding
habits—imposing discipline—proved to be harder than they
imagined. In many cases, leaders committed to digitization
initiatives thinking they were funding new and better tech-
nology. Many didn’t recognize that digitization requires a
commitment to fundamental changes in how people work.
Consequently, most digitization efforts have cost more—and
have generated fewer benefits—than anticipated.
Technology is an important tool for digitizing a company. As
companies discipline business processes, they implement
technologies that automate repetitive back office process-
es and ensure seamless transaction processing. They clean
up master data and architect transaction data to provide
transparency in support of operations, customer support, and
analytics. These process and technology solutions comprise a
platform we refer to as an operational backbone.2
Because they are still in the throes of building and learning to
use their operational backbones, many business leaders are
not distinguishing their transformation to become digitized
from the present need to become digital. They are assuming
that to become digital, they must simply use digital technolo-
gies to become more digitized. They might set out to improve
operations by applying Internet of Things (IoT) capabilities or
to enhance customer service with mobile technologies.
But “becoming digital” is a totally different exercise from
digitizing. Although digitization is an important enabler of
digital—and digital technologies can certainly support oper-
2 MIT CISR research has found that certain technology resources, including
an operational backbone, are key to building organizational agility and
innovativeness, as described in J.W. Ross et al, “Designing Digital Organi-
zations—Summary of Survey Findings,” MIT Sloan CISR Working Paper No.
415, February 2017.
2 | MIT CISR Research Briefing, Vol. XVII, No. 10, October 2017
ational excellence—all the digitization in the world won’t on
its own make a business a digital company. Becoming digital
involves a very different kind of transformation.
DIGITAL REFERS TO A CUSTOMER-CENTRIC
VALUE PROPOSITION
Today, companies are confronting new business opportunities
presented by a host of powerful and potentially game-chang-
ing technologies like social, mobile, analytics, cloud, and the
Internet of Things (SMACIT), as well as cognitive computing,
biometrics, and various emerging technologies. The capabil-
ities of these powerful, readily accessible technologies intro-
duce so much speed and connectivity into businesses that
they enable not just an opportunity to improve operations,
but entirely new value propositions. A digital company inno-
vates to deliver enhanced products, services, and customer
engagement. Because digital emphasizes innovation and
speed, it involves a different kind of transformation. Unlike
the pain associated with digitization, a digital transformation
is more often exciting, thrilling—and a bit unnerving!
To become digital, leaders must articulate a
visionary digital value proposition that conveys
how digital technologies and information can
enhance the company’s existing assets and
capabilities to create new customer value.
The benefits of a successful digital transformation include
growth in revenues and margins, undying customer loyalty,
and the ability to attract top talent (and thus continue to
grow). If they fail to become digital, companies risk their
products becoming commoditized as their competitors offer
information-enriched solutions.
To become digital, leaders must articulate a visionary digital
value proposition. This value proposition conveys how digital
technologies and information can enhance the company’s
existing assets and capabilities to create new customer value.
Being digital is not just introducing mobile apps for custom-
ers. It is taking advantage of the opportunity to redefine a
business—and possibly even an industry.
Companies deliver their digital value propositions in the form
of digital offerings. We define digital offerings as informa-
tion-enriched customer solutions delivered as seamless,
personalized customer experiences. Digital offerings are rev-
enue generating. Companies can implement digital offerings
by starting with a small, simple product or service—just like
a digital start-up. Companies maintain a competitive edge
by continuously introducing new features and services that
enhance the value proposition of that offering, while also
developing related offerings.
Digital companies rely on their operational backbone to
ensure security reliability and scale of their basic transaction
processing, the efficiency of back office processes, and
access to master data. But an operational backbone will not
support the requirements for speed and innovation associ-
ated with digital offerings. Thus, companies embarking on a
digital transformation need to architect a second platform—a
digital offerings platform—to provide access to reusable
digital business components. These components will include
both technical capabilities (e.g., authentication, connectivity)
and business capabilities (e.g., customer onboarding, perfor-
mance dashboarding) that the company will require when it
creates a new offering.
Successful companies in the digital economy will be both
digital—to provide customer value—and digitized—to provide
scale and efficiency. Although companies still struggle to dig-
itize,3 what that means and how to do it are now well estab-
lished; it’s just hard to do it well. How to be digital, in contrast,
is less well established. We have highlighted the contrasts
between the two types of transformations in figure 1.
Defining a digital value proposition that offers solutions cus-
tomers are willing to pay for is more art than science. Schnei-
der Electric offers an example of how a company progresses
from digitized to digital.
SCHNEIDER ELECTRIC4 TRANSFORMS
FOR DIGITAL SUCCESS
Schneider Electric SE is a 181-year-old €25 billion global
specialist in energy management and automation. A series
of more than two hundred acquisitions between 1999 and
2008 expanded Schneider Electric’s portfolio from traditional
electric distribution and industrial control products to incor-
porate its new focus on high-tech intelligent energy manage-
ment and automation solutions.
Digitization
Although these acquisitions positioned Schneider Electric
to offer new, digitally enabled value propositions, they also
3 MIT CISR research has found that only 28% of established companies have
a value-adding operational backbone. Ibid., 15.
4 Schneider Electric’s digitization transformation is described in A. Karuna-
karan, J.G. Mooney, and J.W. Ross, “Accelerating Global Digital Platform
Deployment Using the Cloud: A Case Study of Schneider Electric’s ‘bridge
Front Office’ Program,” MIT Sloan CISR Working Paper No. 399, January
2015. The company’s digital transformation is the subject of J.W. Ross, C.M.
Beath, and K. Moloney, “Schneider Electric: Connectivity Inspires a Digital
Transformation,” MIT Sloan CISR Working Paper No. 417, May 2017.
 MIT CISR Research Briefing, Vol. XVII, No. 10, October 2017 | 3
introduced a great deal of business complexity. Management
felt that the variability and fragmentation of existing enter-
prise processes resulted in operational inefficiencies and
missed revenue opportunities.
To address these concerns, around 2009 Schneider Electric
began to introduce transformations intended to digitize
the company. In particular, the company installed a cus-
tomer relationship management (CRM) system to facilitate
cross-selling and provide transparency into customer data.
Also, management led the consolidation of the hundreds of
ERPs absorbed in the company’s many acquisitions to just
twelve. The CRM and ERPs together formed the core of the
company’s operational backbone. To facilitate adoption and
use of this evolving backbone, Schneider Electric instituted
significant organizational changes, such as a new Informa-
tion, Process, and Organization function that centralized
responsibility for IT and enterprise processes.
Digital Transformation
By 2016, Schneider Electric had defined a digital vision—“Life
Is On”—that reflects the company’s commitment to its cus-
tomers’ needs. The company had assigned P&L responsibilities
to forty-eight lines of business, organized into three Businesses
reflecting its major customer segments: Buildings and IT (res-
idential and nonresidential building managers, including data
centers), Infrastructure (energy utilities), and Industry (indus-
trial firms and original equipment manufacturers).
Schneider Electric’s digital value proposition leverages IoT to
provide enhanced energy management and automation across
all customers’ equipment and sites. Schneider Electric analyzes
sensor data to provide information that customers can use to
manage their own facilities, or that Schneider Electric can use
to support customers from one of its locations.
To provide these solutions, Schneider Electric is building out
a new platform it calls EcoStruxureTM. This platform includes
core technical services such as cybersecurity, complex event
processing, identity, and subscription billing; and business
services like apps and analytics and other requirements for
Figure 1: A Comparison of Digital and Digitized
Digitized
Benefits Operational efficiency, reliability, and cost
savings
Technology Requirement Operational backbone (e.g., ERP, CRM,
shared services)
Transformation Focus Process discipline; business standardization
where needed
asset performance management. As the company creates
new offerings, it will be able to reuse these services.
As of late 2016, Schneider Electric was piloting asset perfor-
mance management services with fifty of its most strategic
customers. But in order to succeed with these new digital
offerings, management realized that the company must again
transform and so set changes in motion: Responsibility for
Schneider Electric’s emerging EcoStruxureTM platform was
transferred to the CIO, who also has responsibility for the
company’s operational backbone. The company created six
business clusters where leaders can debate the relative impor-
tance and potential value of innovative ideas. To help custom-
ers adopt new digital offerings, Schneider Electric is forming a
centralized sales and services organization. And the company
has started engaging customers in co-creation processes to
identify how digital offerings can best meet customer needs.
BECOME DIGITIZED AND DIGITAL
As established companies position themselves for success
in the digital economy, they will find it essential to be both
digitized (i.e., operationally excellent) and digital (i.e., offer-
ing innovative customer services). If a company has a strong
operational backbone, the company's IT unit can help with
development of the digital offerings platform and ensure that
this new platform integrates as needed with the operational
backbone. If the company is still learning to digitize, though,
the IT unit may be consumed with digitization initiatives. In
this case, a separate business unit can oversee initial experi-
ments around digital offerings to identify what services might
be of interest to customers.
Like digital start-ups, companies with a weak operational back-
bone can offer new digital services. But if their new offerings
find a market, these companies will need to quickly implement
key elements of an operational backbone to enable scaling up
the new business. They will also need to architect a platform
for their new digital offerings, or they will find that the early
burst of innovation will stall when they attempt to integrate
services in ways their customers have come to expect.
Digital
Revenue generation and growth
Digital offerings platform with reusable technical
and business services for offerings
Rapid innovation; introduction of a new value
proposition
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