What does it really mean to be “digital?” The definition covers everything from employees with access to high-speed Internet, millennials who regularly use email, e-filed tax returns, employees who use mobile phones to access news and information, freelancers who perform work online, video streaming services, digital payment, and information and communications technology (ICT) as a share of total investment.
When companies begin to qualify the concept of becoming a digital enterprise, they think about it in a very current context. The horizon has more to do with how digitization will change the shape of our economy: There are estimates predicting that by 2025, the effects of digitization could boost the U.S. GDP by $2 trillion dollars. The impact is generally applied to three categories:
- Increased supply and productivity, or increasing the participation of the labor force, better and faster matching of workers with employees and tasks to employees, and increased productivity of workers. This in itself is viewed to be a quarter of the predicted GDP growth.
- Improved asset efficiency. How does a digital world decrease downtime and expenditure on maintenance and preventative activities, and how does it enable us to understand the current utilization of assets? This will take up another quarter or so of the $2 trillion.
- The single biggest impact, almost half of the $2 trillion, will result from operations and supply chain optimizations. When you think about the concept of multi-faceted productivity – impact on supply chain operations, monitoring and control of production, logistics and routing, product development with criss-crosses into sales and marketing, quality control, and the piece that everyone seems to be talking about, Internet of Things or IoT (intelligent building systems, improved fuel efficiency) – these kinds of things will all have a major impact.
When we ask companies what it means to be a digital enterprise, they may be thinking about digital labor, digitally optimized capital investments or productivity. That’s the key – what are those factors and behaviors? They turn into broadband or smartphone subscriptions, digital payments, streaming video, video as a channel and a digital labor force.
Different industries are moving at different paces. Those transforming the fastest are technology, media, and finance and insurance, while healthcare, construction and hospitality fall at the bottom of the totem pole. We’re just now beginning to see electronic check-in in the hotel industry, for example, which has been the norm in the airline industry for several years. What is driving the shift is industries that strongly subscribe to the principle that digital assets create competitive advantage.
For those industries in the middle of the totem pole, the “intermediaries” such as manufacturing and retail, there are a lot of steps – logistics and just in time (JIT) inventory and the like – so failure to subscribe to the right level of urgency can translate into a risk that the value chain a particular organization delivers gets broken apart. You buy from one place, it gets delivered from another and these vertically integrated value chains get broken apart.
What’s at stake? It’s a winner-take-all dynamic because digitization blurs industry boundaries. Media companies, for example, were for decades about content and delivery, and distribution was handled by an entirely separate sector of the industry. Today, if you have content but not the delivery channel, you’re almost irrelevant. This applies to all of us. I saw a recent statistic stating that in the neighborhood of 28 percent of all payments today are made digitally.
Generationally, you expect that Millennial penetration will be 100 percent and Gen-Xers will also be high – but when you look at Baby Boomers, 84 percent are using the Internet and 64 percent are using smartphones. This means that the digital world has encroached across all generational boundaries. If this is true, failure to become a digital business means that in mobile alone, between 65 percent and 85 percent of your customers will have access to your competitors who are faster and easier.
If you’re in healthcare, you don’t have a driving need to transform the way a media company does. Those moving slower are doing so because they don’t see the need and are thinking only about their channel, not about things such as digital labor, digitally optimized capital and multifactor productivity.
A recent poll conducted by CompuCom shows that it’s not a question of if, it’s a question of when, digitization will take place. More than half of 152 IT professionals surveyed, 58 percent, indicated their organizations are already at least 70 percent digital, while a quarter, 26 percent, said their organizations are 50 percent digital or less. Sixteen percent noted that becoming digital is not yet a priority.
Laggards will be pushed, because as digitization enters their industry, competitors will pay the cost out of their model and use pricing as a competitive weapon to gain market share. Legacy companies find themselves challenged by born-in-the-cloud companies – for example, online brokerage and investment services compete with traditional brokerage houses, which have thousands of brokers – but what are the cost differentials? And if the data that drives all this is being built on Big Data and predictive analytics, the tools that sit behind an online service are fundamentally equivalent to the tools that sit behind the human-delivered model…but the cost basis is different.
The digital hybrid model says that: 1) we must become a digital enterprise; and 2) our marketplace that was first transformed by a multigenerational customer base is now influenced by situational factors. These factors drive how individuals make choices around how they want to obtain products and services. Some people simply want to talk to a live person, and that will never change. To successfully address this very sophisticated marketplace, not only do you need to offer digital, remote assistance and face-to-face options, but also you need to be able to provide the opportunity for an individual who engages with one of those options to channel shift to another.
Real estate is another example. Born-in-the-cloud companies such as Zillow are beginning to challenge what a multiple listing service has done for years. Do all the research you want, but then stop and look around. Digital assets determine competitive advantage. Information has become widely available and it will disrupt all of our traditional value chains. Digitization will create openings for new competitors, like it or not, and our cost basis and market prices will be impacted, our industry boundaries are going to blur and our economy will change. Pay now or pay later.
How digital is your organization? Leave your comments here on that or any aspect of my post.