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Mini-series Part 1: Definition of digitization and digitalization
In the next three posts on this blog, I would like to introduce the topic of digitization/digitilization, and the effects on accounting and accountants. If one does a Google or Twitter search about this topic, one finds a variety of articles that indicate its rising importance. In this post, I would like to summarize a few definitions for the terms “digitization” and “digitalization”, largely following the distinctions made in this blog post:
Digitization is the process of creating digital versions of analogue and/or physically represented data. This has per se no business or accounting meaning, but is a necessary part of the digitalization process (see below). The output of digitization can then be used by computers and software for further processing. Archives, for instance, digitize their records to preserve them, make them searchable, and distributable if needed (you can find an example for the US National Archive digitization project here).
Digitalization in turn is the leveraging of digital technologies and digitized information to enable, improve, transform and support businesses, business operations, business processes, decision-making, big data usage, etc.. Digitization is a necessary step in the digitalization process, especially if companies want to reduce (or even eliminate) the dependency and use of physical records (typically on paper). This does not only help improve the business, but also save a considerable amount of costs in paper usage, waste, and archival storage. Where the purpose of digitization is the conversion of records into a digital format, digitalization is geared towards actionable business needs.
Very often, these terms are used synonymous, but in fact, they are not! The difference (or rather complement) between them can be likened to cost and management accounting. There, cost accounting denotes the tools and actions to record, process and output costing data, whereas management accounting adds the purpose of decision-making to the cost accounting toolbox. This entails important implications for accounting information systems, which I will cover in the second part of this mini-series.