Digitalization

Digitalization is hot

When I was looking around me, to see how much digitalized my live and the lives of my family and friends have become, I was not surprised to find the answer to be: very much. We communicate via email, we are used to online shopping, we manage our bank accounts online and share pictures, videos and status information via social networks from all over the world. Over the last years, the average age of people using digital tools to increase their quality of life or simply to stay connected with those around them has increased. It is since long not only the young college kids anymore but rather their parents and even grandparents who have been adopting a digital lifestyle. Plenty of this is due to networking effects. That is the phenomenon that a service or product is gaining attraction the more users/buyers it finds and as a result after a certain number of participants is reached, growth rates are no longer linear but exponential. That exponential growth usually continues until a very dominant market position is reached. Typically in these markets oligopolies are formed – often a “winner takes it all” situation. Social networking or app store platforms are recent examples for companies well orchestrating digital networking effects. Telephone networks and some form of insurances are older ones.

Living in a digital world, perceiving most of my surroundings as pretty much digital, it really struck me by surprise that this seems to be totally different for most of the business world: Companies, especially established companies in European markets are just starting to warm up with the thought of digitalizing their business processes and offerings. That seems to be counter intuitive at first – after all it is our banks that offer online-banking, it is often our local shop that delivers an online order etc. But on second glance, from a business perspective this is not really digitalization; it is merely one or two digital sales channels among others, everything else staying the same. It is the one dimensional digitizing of your marketing or distribution. It becomes full fledged digitalization only by adding the digitized operational dimension. Comparing this to the level of digitalization of our private lives it would be like using a computer to write an email but rather than sending it electronically printing it and having it delivered via the offline postal services. Digitalization has to be holistic to turn the initial overhead into a competitive advantage. To get there, (at least) the following three points have to be achieved:

1) Understand your current business model

That might sound too easy. But for the following steps it is essential that you have a very clear understanding of the competitive advantage you are currently holding in the market, that is distinguishing you from your competition. Which values are most relevant for your historic successes, how did you gain them and which key resources and capabilities allowed you to hold on to them for the time being?

2) Understand the role information is playing in your current processes.

Information is data enriched with interpretation, context and/or meaning. In processes heavily driven by information underlying data this is the key step to ensure the maturity level of your upcoming digitalization. Finding the balance between leaving opportunities on the table and over-engineering and hence burning resources is the challenge. Within that step, identify which resources have to be digitized and by how much and then leverage them to gain the right information at just the right moments to support your processes.

3) Digitalization: Combine business model and information with an innovation mindset

Digitalization is balancing technology capabilities with traditional business models and methods with the goal of creating new value. Linking your digitized resources, having relevant information available at any step in your process and using that to strengthen your value proposition will lead you towards digitalization. But that kind of information and technology driven approach is just the first step. From here onwards a form of digitalized thinking has to be implemented across all levels of your company. In order to find the maximum value-potential digitalized answers, the status quo has to be questioned. Digitalization at the end is an innovation process. And innovation often means to cannibalise what was once good, probably while it still is good (enough). Combining the spirit of innovation with information and technology capabilities promises new and enhanced digitalized business models and processes, leading your company a step further into the future.

Digitalizing your business will ultimately tell you more about your customers’ needs and habits than you ever knew before. It might even lead you to a place where you have a relationship with every single of your customers. Some of the early adopters of digital business models are already there: Airbnb, Uber or Apple to name a few. They all have in common, that their services require at least a registration and therefore the basis for building a relationship. Tesla is probably the first car manufacturer, who has achieved the same for a product that was until lately rather analog/offline: The car. There is no reason, why this should not become true for your product or industry.

Image source: Facebook, Paul Butler
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