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Mastering Digital Transformation- Part 1

Mastering Digital Transformation- Part 1

Earlier this month, I followed an invitation to deliver a presentation on the topic “Mastering Digital Transformation: Challenges and Strategies for Brands and New Businesses”.  It was a welcome opportunity to finally dig deeper into a “hot topic” that admittedly, I have largely avoided so far. Interestingly, what I read, pondered and actively processed has made me feel both uncomfortable and excited. Undoubtedly, a digital tsunami is going to come over us within the next decade, and it will change business as we know.  So today and in the coming weeks, allow me to share with you in a three article episode what I have learned related to digital transformation, as well as my thoughts on how we can proactively master it.

What does digital transformation mean?

The terms digitization, digitalization and digital transformation are often used synonymously to describe the impact of digital technologies on society. On closer inspection, however, we can appreciate the finer nuances at these concepts:

  • Digitization describes the process of transferring analog data into digital (computer-readable) formats, or put in other words: of turning ABC 123 into 0s and 1s. Rooted in the development of the modern binary system by the German mathematician Gottfried Wilhelm Leibniz in 1679, digitization really took off in the 1940s with the groundbreaking work of John von Neumann that started the information age.
  • In contrast, digitalization can be defined as the  process of technology-induced changes in business. In other words, the term focuses on how emerging digital technologies may be applied to induce meaningful changes to businesses and its customers.
  • Last but not least, digital transformation focuses on describing the total and overall effects of digitalization on business and society, thus capturing the implications that newly adopted digital technologies will have on the economy, ecology, society, and business ecosystems.

We may capture these nuances in one sentence as follows: Digitization enables digitalization leading to digital transformation.

What key digital technologies will drive change?

In the past years, a range of digital technologies have been much talked about in the media. Chances are that you’ve read or heard about technologies turned buzzwords such as big data, IoT, AR, VR, AI, machine learning, industry 4.0, martech, fintech, blockchain and cryptocurrencies, among others. How to keep up with —and make sense out of— the myriad of new tech-terms? How to find out which technologies are relevant for you and will be game-changers?

As part of its digital transformation initiative started in 2015, the World Economic Forum (WEF) has identified six digital technology areas that they predict will produce applications that will impact a wide range of industries:

  • Artificial intelligence (AI) will improve the collaboration between humans and intelligent machines that can do things traditionally done by people. AI machines will be able to sense or perceive the world to autonomously collect and process data, and then decide and act independently. AI applications will also be able to sovereignly learn and adapt over time.
  • Big data analytics denotes the computational analysis of extremely large data sets (increasingly stored in the cloud) to reveal surprising new market and customer insights (patterns, trends, and associations, especially relating to human behavior and interactions).
  • The Internet of Things (IoT) is expected to grow from presently 7 billion to almost 50 billion connected devices by 2020. The IoT promises to make the world smarter through a network of everyday objects exchanging information with each other to trigger automated, value-adding activities.
  • Robots and drones are twin technologies that allow for greater automation of tasks in industrial production and services business as well as logistics, thereby helping companies to operate more efficiently, safely and environmentally friendly.
  • Autonomous vehicles (AV) use by a mix of technologies (such as vehicle-to-vehicle and vehicle-to-infrastructure connectivity, GPS, cameras, ultrasonic sensors, among others) that work together seamlessly to safely perform a dynamic driving task in all situations and conditions throughout an entire journey.
  • 3D printing transforms digital blueprint files into three-dimensional solid objects, which are created by laying down consecutive layers of thinly sliced horizontal cross sections of the final output; this technology will allow for more individualized and small size manufacturing on demand and somewhere close to one’s own location, thus reducing the need for parts and goods to be shipped.

It’s important to understand that these major technologies don’t unfold in isolation, but are interconnected and building upon each other, thus exponentially amplifying the impacts of digitalization. For example, the  IoT enables self-driving cars and trucks that communicate with each other and  with other devices (traffic lights, traffic flow guidance systems, parking meters, etc.). Big data analytics will allow to monitor, enhance and flexibly direct the traffic flow of these autonomous vehicles. Trucks might eventually be replaced by drones gliding down from airborne fulfillment centers to make deliveries straight to a home.

How fast will these key digital technologies unfold?

Every year, the  technology research and consulting company Garnter releases its latest Hype Cycle for Emerging Technologies. In this chart, Gartner maps out how the expectations on a range of emerging technologies (vertical axis) change over time (horizontal axis). Gartner argues that emerging technologies pass through five distinct phases: After entering into public awareness, a new technology  sees a steady steep rise in expectations (phase 1, named “innovation triggers”) until the new technology reaches the “peak of inflated expectations” (phase 2), from were it plunges into the “trough of disillusionment” (phase 3) before gradually ascending again along the “slope of enlightenment” (phase 4) to eventually reaching the “plateau of productivity” (phase 5) when the technology becomes widely adopted and used in meaningful ways.

Garnter’s Hype Cycle supports a point made by US futurist John Naisbitt in his book “Mind Set!” Most technological changes are evolutionary, not revolutionary. Typically, they take more time to unfold than people initially expect — but eventually, most predicted changes do happen.

What are the predicted effects of these digital technologies?

Digital transformation will have profound implications on business and society. The WEF and Accenture estimate that by 2025, new digital technologies have the potential to unlock 100 trillions USD in net benefits across all industries (including significant reductions in CO2-emissions). Thereby, the consumer goods, automobile, logistics and electricity industries are predicted to benefit most strongly from the new digital technologies.

However, successfully crossing over into the digital age requires businesses to adjust, renew and renovate their whole value chain for the digital age — which includes their value offerings, business models, distribution channels, organizational models, cultural attitudes, and financial and business metrics.

Like every period of massive change, digitalization will not only produce winners. Digital transformation threatens established corporations that are unable to start a new, digitally empowered creative growth cycle  to be creatively destroyed. It will also lead to massive  job losses due to a new wave of automation. The WEF and Accenture report that current estimates of global job losses due to digitalization vary from as few as 2 million to as high as 2 billion by 2030. Fortunately, digitalization will also create a range of entirely new jobs. Nevertheless, policy makers face the challenge to ensure that the current workforce is retrained, and that the future workforce is adequately educated, to develop the required skill set for the digital age, and to find ways to mitigate the loss in wages of those who lose their job partially or entirely.

Interim summary and outlook: Today, we discussed that a wide range of interconnected digital technologies are predicted to profoundly change business and society. Digital transformation promises massive gains in net value, but also puts the future of many established businesses and traditional jobs on the line. In the coming two episodes of this article on digital transformation, I will first discuss what challenges digital transformation places on both established and new businesses, and then explore strategies on how to successfully master digital transformation.

© Dr. Detlef Reis 2018

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