What’s the difference between digitization, digitalization, and digital transformation and why does it matter for PropTech?

In a rapidly changing, digital world with major social issues and changing customer behavior, real estate companies are forced to innovate. During this movement, digitization, digitalization, and digital transformation play a crucial role. A movement in which the slow, robust bricks become acquainted with the fast, maneuverable bits. And, is digital transformation already on your strategic agenda or are you at the beginning of the digital evolution ladder?

Before I founded PropTechNL, I worked as an independent innovation/strategic advisor for companies such as the Dutch Real Estate Company, Savills, Syntrus Achmea Real Estate & Finance on ground-breaking issues. I saw all my clients – to a greater or lesser extent – struggling with three issues: the changing customer needs, the impact of digital on skills, business and corporate culture and the desire to contribute positively to society. In short, the search for ‘the next level’.

Robust static bricks meet fast agile bits

This search does not come from the sky because the world is changing rapidly and the economic, social and ecological challenges are becoming ever greater. Urbanization, an aging population, climate change, and resource scarcity are driving a new industrial revolution and the need for a circular economy. Accelerated technological innovation acts as a lever for this, with digital networks providing strong connections and interdependencies.

Real estate represents the world’s largest asset class and therefore plays a major impactful role. All these developments mean that completely different demands are placed on the functions of our infrastructure and the spatial environment in which we work, play and live. The real estate sector therefore largely determines how we are going to offer solutions to these challenges and how technology is going to be used for this. The result is that the world of robust static bricks is increasingly connecting with the world of fast agile bits. What do these digital developments mean for real estate? How to reach the next level?

Confusion surrounding digitization, digitalization, and digital transformation

In recent years I have talked to many leaders – active in real estate and the built environment – about the next level, participated in panel sessions and attended (inter)national events about innovation and real estate. During these activities, I was overwhelmed with words: digitization, digitalization, and digital transformation. This often causes confusion (and sometimes even frustration). The confusion lies in the question: are real estate companies going to digitize their (current) real estate, are they going to digitise the company or are they going to digitally transform? Digitization, digitalization and digital transformation all have a definition and nuances. Let’s first clarify the differences between the term’s digitization and digitalization, so that we can better understand the more radical term digital transformation.

Digitization(often confused with digital transformation) is according to Wikipedia the transition from information to a digital form, i.e. in a form that can be used by electronic devices such as computers. For example, converting something drawn on paper to a PowerPoint slide. But also converting a physical real estate object, by using drone technology, to BIM is digitization. The construction sector is also working on digitization via the DigidealGO (DigitaliseringsDeal Gebouwde Omgeving) and has four main objectives: Making information digitally accessible, increasing Integrally shareable information for the overall level of knowledge, functionally expanding services and stimulating innovation. This deal includes a major digitization issue. Digitization is a good start, but it is not digitalization, let alone digital transformation. It’s important to remember that it’s the information you’re digitizing, not the processes – the latter involves digitization.

According to Gartner, digitalization is the use of digital technologies to change a business model, provide new revenue and value-creating opportunities; it is the process of a digital business. For example, by linking BIM (Building Information Model) to KPIs and a workflow. Digitalization makes it possible to optimize business results, create new revenues, optimize costs and customer experiences with digital information. In short, to create as much value as possible by applying digital technologies. Digitalization represents a higher level, leading to the innovation of the business model and new processes, with a disruptive/ renewing influence on the existing. It was the digitization process that enabled Steve Jobs to become the world’s largest music retail chain. Apple did not invent the digitization of the music industry, but it did invent the digital business model that facilitated the digitization. Most leaders become nervous as digitalization develops further in the sector. In the real estate sector, for example, people talk about Digital Twins. A Digital Twin offers enormous opportunities to get a better grip on the life cycle of real estate in all aspects, this development also ensures further digitalization of organizations. But then you have to be ready for this transition.

Digital is an enabler for complete transformation

If you have had digitization and digitalization, you are at the beginning of the ladder of digital transformation. An organization can undertake various digitization projects, ranging from digitizing real estate properties, automating processes to training employees with digital skills. The most important thing is that digitization and digitalization are essentially about technology, but the digital transformation is not. Digital transformation is about stakeholders such as customers, the total ecosystem. Digital transformation, on the other hand, is not something that real estate companies can implement as a project. Digital is an enabler for complete ‘transformation’, aimed at upgrading and innovating organizational models and opportunities to survive and thrive in an age of digital Darwinism. What is a digital transformation?

Digital Transformation, according to digital-guru Brian Solis, is the evolving pursuit of innovative and flexible business and operational models – powered by evolving technologies, processes, analyses and talent capabilities – to create new value and experiences for customers, employees, and stakeholders. Digital transformation not only has an impact on the business, but it is also a restructuring of the business, economy, and society at system level due to digital diffusion. This third level is a fundamental goal-oriented transition that changes large-scale behavior throughout the system.

Digital transformation is not about implementing digital solutions and advanced technologies – it is about achieving growth by focusing on three key areas: developing transformational marketing strategies, creating seamless customer experiences and building smarter, faster, more flexible organizations. An example of a company contributing to digital transformation is Tesla Inc. Tesla was explicitly established to “accelerate the advent of sustainable transportation by forcing electric cars to market as quickly as possible. An integral part of this mission is the use of digital technology to transform transportation by connecting Tesla cars to a shared fleet of self-propelled vehicles running on a distributed, sustainable energy network.

PropTech does not go without leadership

Back to PropTech. PropTech is a composition of the words: Property + Technology. Because two worlds come together, there is a huge opportunity to digitize the physical real estate, build a digital company and create new value and experiences for customers, employees, and stakeholders. As far as I’m concerned, stakeholders also include mother earth, because we have no plan(s) B. So, PropTech for Good. Although PropTech knows many fathers, I use the following definition:

“PropTech is the movement in the built environment towards digital transformation. -Menno Lammers, 2019.

To transform digitally, leadership is needed. It is the leaders – these are not necessarily the hierarchical leaders/ CEOs – who take the first steps into the unknown. It is they who ensure the continuity of the organization and take us with them into the future. The moment we feel safe, the rest follows, and the visions of the leaders come to life. PropTechNL empowers ambitious leaders to take those first steps into the unknown and give direction to the future. Together we make a life-changing journey that is good for the world, the company and the individual. During this journey, we help leaders make faster and better decisions in a complex and rapidly changing digital world, taking their organization to a higher level, better serving (new) customer needs, and making a positive impact on society.

Many roads leading to Rome

This journey to is outside the comfort zone (that’s where the magic happens) and a transformation is also not science. If Rome had been built in one day, we would all have asked the same construction company to realize it. Digital transformation is not something you do in one day and is certainly not a project that you just add to it. The only way to move forward is to learn to find out how to apply lessons when scale is being built. Along the way, important milestones of success will take place and the digital strategy becomes clearer as the first prototypes and use cases provide insights. The customer experience makes a leap forward, business processes become shorter and costs decrease. New ways to create the new value will present themselves more quickly. This moment does require extra leadership and effort from the entire ecosystem.

Reconsideration of the total business model

The term digital transformation emphasizes transformation through technology outside your own field of expertise. If you understand the potential of digital technology, you know that it is not so much about a digital transformation as about a fundamental reconsideration of the business model, for which digital technology is the catalyst, and by definition you have to look for synergy outside your own comfort zone. Customer segments, channels, partners, propositions of the organization and the associated knowledge and skills are all under the microscope.

“There is no formula for inventing the future. A company has to have a complete vision of what it can uniquely do, and then back it up with conviction and the capability to make it happen” – Satya Nadella (CEO Microsoft)

Some leaders feel the digital transformation on the strategic agenda as a disincentive, others as a challenge and an opportunity to become future-proof. There is no ladder for a successful digital transformation. Strive to put the ladder against the wall in the right direction, knowing that change is a constant. Change is good. Transformation is better. The movement in the built environment has already begun…

>> You will find the original Dutch blog here.

Author:

Menno Lammers

Founder – PropTechNL

Founding Board member – PropTech House, the European Network