Thinking

What is “digital” and does it really matter?

“Digital” and “digital transformation” – a fundamental change in the economy and the way business is done, or just old news? For the past decade, digital has been the buzzword of choice for executives, consultancy firms, investors and scholars – to explain the rapid changes we see in the economy. As always, it is difficult to understand what’s real and what’s hype.

The term digital as we know it today is vague and loosely defined, and has taken new and broader associations than the original meaning of the word (i.e. binary digits in digital systems, as opposed to analogue systems). Though the term might be vague, the current and future impact on society is tangible.

What is digital?


There are plenty of different answers to what digital means. The definitions tend to revolve around “innovation, disruption and change” of “people, technology and business”. Digital also tend to vary depending on who you talk to in an organization: the CMO might talk about social and influencer marketing, the CIO might talk about cloud technologies, the CFO about analytics and automation, and the CEO about new business models and new products to customers.

Looking at some examples of how others define digital, you might find the following:

Bain: “The digital revolution isn’t just about technology. It’s about how your customers react, your competition shifts and your costs transform.”

SalesForce: “Digital transformation is the process of using digital technologies to create new — or modify existing — business processes, culture, and customer experiences to meet changing business and market requirements.

Gartner: “Digitalization is the use of digital technologies to change a business model and provide new revenue and value-producing opportunities; it is the process of moving to a digital business.

None of the above are wrong, but just for the fun of it, let’s try our own definitions:

Digital is the ever-changing phenomena of how digital technologies, changing cultures, new business practices and new products/services – interconnect and affect each other. It is the fuzzy intersection of business, culture and technology, in the rapidly changing age we live in.

Digital strategy is an organization’s plan of action to achieve its aspirations in the digital age. A (good) digital strategy is a business strategy that makes sense in the digital age. It is not something isolated from the rest of the business, it is the business. Therefore, when we say “digital strategy” we simply mean “business strategy for the digital age”.

Digital transformation is the process of those changes occurring in a business or societal context. Typically, the word “transformation” is either something you actively do yourself, or something that is reactively happening to you and your organization. Which of the latter you’re facing, depends largely on your level of proactivity.

One can also argue that we’re still using the word digital in its original meaning, but that we have simply extended “what” we’re representing by the digital digits and how we process that information. I.e. digital is about representing and processing something digitally, the difference is that we no longer only represent and process isolated bits of information, but rather representations of our entire society itself.

Is digital something new?


So, is this really something new? Yes and no. Technology have always developed, cultures always changed, and businesses have always needed transformation. However, we’re convinced that the age we live in now is something altogether different than before, and that the impact on organizations and economies are, and will continue to be, profound.

Some argue that we are currently in the Fourth industrial revolution, a phrase coined by Klaus Schwab just a few years ago. The First revolution occurring in the 18-19th centuries driven by the steam engine and advances in the iron and textile industries. The Second in the late 19th and early 20th century with advances in electricity, combustion engines, mass production and telegraphs. The Third from around mid-20th century with the advent of personal computers, networking, and ICT technologies. And the Fourth industrial revolution, marked by rapid development of computing, AR/VR, IoT, connectivity, 3D printing, automation, blockchain, nanotech, AI, and robotics.

Using Schwab’s timeline, the digitalization has been going on for over 50 years, which is similar to what Erik Brynjolfsson and Andrew McAfee would call the “Second Machine age” (which according to their definitions is about mental power, whereas the First Machine age was about physical power). McAfee and Brynjolfsson also argues that we’re now entering the “Second Wave of the Second Machine age”, which is characterized by “machines that learn” (rather than just being told what to do).

We chose to define that the current digital age we’re focusing on, has been going on since around 2005. It started with the release of the modern smartphone (2007), when social media took off (2008-), rapid developments and adaptation of cloud technology, the advent of platform business models such as Amazon, Airbnb, Uber and Baidu (2008-), and popularization of machine-learning algorithms (2010-) – to name a few.

So, what’s different with the current digital age? Three things, we argue:

The speed

Consider the speed of how (AI) algorithms have progressed the last few years. In 2011 the best machines had an error rate of 25% when trying to recognize and classify images from the ImageNet database. 2016 the best algorithms performed at about 3% error rate, outperforming humans (at about 5%). In five years, these algorithms went from “really bad” to “almost twice as good as humans”.

Another popular, though somewhat flawed, comparison is the amount of time it took for some popular consumer technologies and services to reach 50 million users. The telephone: 50 years. The computer, 14 years. Internet: 7 years. Twitter: 2 years. And Pokemon Go? 19 days.

The scale

How many individuals can you reach via Facebook? Theoretically about 2.27 billion (active monthly users, end of Q3 2018), that is given that you are able to communicate something relevant to them (or pay heaps of cash to Facebook for ads). That scale of mass-communication has never before been possible.

Consider the availability of web resources and how fast they can scale. Anyone can create an account at Google, Amazon or Microsoft to tap into their vast array of services. Everything is available via well-documented API:s – from natural language recognition to identity management. Knowledgeable users can launch applications and quickly scale from zero to infinity.

The complexity

Take the machine-learning application of finding footballs in pictures, a fairly simple problem that we can now teach machines to perform very well. The process and algorithms to teach the machines are quite straightforward, but to actually explain how the machine “thinks” once it has been thought is very much more complicated. This produces complexity and at times, uncertainty. Consider this in more decision-critical applications such as autonomous vehicles.

How will 5G technology affect society? It’s almost impossible to answer due to the number of factors involved – both technological and cultural. To name a few: how fast will infrastructure be built, how well will it work, will there be services making use of the technology, will users adopt it, what will it cost, etc. This complexity is true for most new technologies entering business and society today.

Given the speed, scale, and complexity of the current digital age, the impact on society and business is both uncertain and difficult to predict, but also very tangible in the way it changes our lives.

Does digital matter for everyone?


Should you care about digital? What’s hype and what’s real? From a business perspective, we believe that the answer to those questions depend on who you are, what you do, and where you work.

From an industry perspective

Clearly the impact from digitalization is dependent on which industry you are in. For example: What products and services are available, how value is produced and refined, how is value delivered to customers, how stakeholders interact with each other, etc.

Take the media industry as an example. An industry that has seen a complete shift from analog to digital models in about a decade. This is largely because of the possibility of digitizing the product, and the convenience for customers when that is done.

Another example: the professional services industry. For a long time quite unaffected by digitalization, an industry that has kept its services and business model intact for decades. However, this is quickly changing with adoption of AI/ML technologies – just look at what’s happening in accounting at the moment.

From a role perspective

Which business function to you work in? Do you have a role within a function where digitization presents immediate opportunities or challenges? Some functions and roles are affected more than others. Marketing is one example where most things have changed in the last decade. Janitorial services? Probably not so much.

From a personal perspective

Do you want to drive progress or stick to old routines? Though long-term change is inevitable, you can probably hold of a few years by sticking your head in the sand. This might be a successful strategy if you are close to retirement, otherwise we advise you to get on top of what digital means for you.

Digitalization has in just on decade changed how we communicate, interact, work, love, and entertain ourselves. Though there is a global digital divide, when it comes to inequality in digital resources, accessibility and skills – few parts of the globe are left untouched by modern digitalization. What’s next? Who knows, but given the current advancements in (especially) AI technology, we have only seen the beginning of how digitization will affect our lives and the way we do business.

Do you want to know more or need help with a project related to this topic? Talk to us on hello@avrio.se to see how we can help. We always welcome your queries and feedback.

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