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Why All the Division?

Why All the Division?

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Who’s Gone Digital and Why?

‘What?’ ‘How?’ and ‘Who?’ of Digitalization

Digitalization is the uniquely tailored, ingenious combination of an organization’s digital assets, digital usage and digital workforce. Think of these distinctions as the “What?”, “How?”, “Who?” of IIM.
What? – Digital Assets
Digital Assets are what organizations spend on computers, software, and telecom equipment. These assets also include the interconnectivity of IoT Devices and, of course, overall data storage.
How? – Digital Usage
Digital Usage is how digital payments, digital marketing, social technologies, and workflow software are used to manage back office operations and customer relations.
Who? – Digital Workforce
Digital Workforce can be broken down by title or by tasks associated with positions, such as Database Administrator, Social Media Manager, UX/UI Designer, etc.

Now the ‘Why?’

Why have some industry sectors gone digital sooner than others? It is clear that there are many operational benefits of digitalization, but what ultimately drives this decision? According to the McKinsey Global Institute (MGI), there are four factors that determine the likelihood of a commercial, public or social enterprise digitizing:

1. Firm Size

2. Complexity of Operations

3. Knowledge Intensity

4. Threat of Competition

MGI created the chart below which breaks down the level of Digitization by Industry Sector in the United States. It was put together by compiling 27 indicators that combine the ‘What?’ ‘How?’ and ‘Who?’ of Digitalization to show how these industries relate to each other in terms of technological adoption. This chart was created in 2015, so it is likely that there has been more adoption across many industries than what is presented here, but it is still helpful.

The MGI Digitization Industry IndexThe entire MGI Industry Digitization Index summary can be found HERE.

The term “Digital Divide” was first coined 20 years ago to point out the gap between different segments of society’s interaction with technology. The divide was based on socioeconomic and demographic conditions, but it can also be used now in reference to the contrasting levels of Digitalization among different industries and institutions. In most industries there is an astonishing difference in the level of Digitalization between leading firms and average firms.

Even among the companies that have taken the all-important first step of Digitalizing their data and assets, only a fraction of them utilize all of the potential technological capabilities. This means that there is a Digital Divide within the ranks of the digitalized. Automating repetitive tasks and streamlining internal processes to get the most out of high-skilled workers and improving customer relations should be the objective. Ultimately all businesses are customer-driven and there are many ways that Digitalization can improve the overall customer experience and engagement through new business models.

How do the four factors of Firm Size, Complexity of Operations, Knowledge Intensity and Threat of Competition push companies to Digitize?

Here’s the answer, according to MGI:

Large firms are more likely to adopt digital tools than small firms (with the exception of small “digital natives”), in part to manage greater complexity. For a similar reason, firms with long supply chains or many establishments are also more likely to digitize. Companies with a large share of highly educated or specialized workers also tend to be more digitized since the productivity returns tend to be higher. Finally, the actual degree of competition in a sector does not seem to be a factor, but the prospect of competition is.

In other words, large organizations are more likely to Digitalize their assets retroactively, while small start-ups are likely to build their business models digitally from the beginning. Mid-sized organizations are less likely to adopt digital processes. Operations with complex moving parts are also more likely to go digital in order to improve their internal operations. The benefits to improving efficiency for businesses with highly educated, specialized employees are even greater than those with less skilled, lower paid laborers (think billable hours), so they are pushed toward Digitalization to take advantage of their workforce.

The final push to Digitalization is also the greatest motivator; FEAR. The fear that a leaner, younger, more agile and more advanced competitor will emerge and crush you. This fear is not unfounded. In fact, businesses that rely on a single revenue stream or that play an intermediary role are at the greatest risk in the Digital Age because it is the nature of digital disruptors to give things away to consumers and to bypass middlemen. Just think about how music streaming services have changed the recording industry, or how travel booking applications have reinvented the travel industry. These are just two examples, but you can look at how digital disruptors have come into almost every conceivable industry and destroyed value by giving things away to the consumer, seemingly for free. This disruption forces modern companies to create more sustainable business models by experimenting with alternate sources of revenue. 1

The Digital Divide among firms today can be compared to the difference between those organizations that utilized electricity 100 years ago, and those organizations that did not. If you haven’t adopted Digital Processes for your firm, you’re working by candlelight. It’s time to get on the grid.

  1. Manyika, et al., December 2015, p. 15
Form vs Dynamics & the Future of Commerce

Form vs Dynamics & The Future of Commerce

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The saying, “Build a better mousetrap, and the world will beat a path to your door” has been attributed to Ralph Waldo Emerson for years. Mr. Emerson would likely revise his famous axiom if he were alive today. Building a great product is not enough – it must be individualized and customized in order to offer a personalized user experience. This can only be achieved when organizations embrace the digitalization of their processes. Businesses must rethink how they interact with their customers and how they operate internally if they want to remain competitive. Now and in the coming years, an organization’s survival will not depend on having a superior product delivered at a lower cost; instead, survival will depend on that enterprise’s capacity for change.

Form can be thought of as essence and content. Dynamics can be thought of as potential. What is a greater measure of perceived potential than the stock market? On the open market, an enterprise’s value is not based on what that enterprise is, but rather on what the enterprise could be. Here is a table taken from a recent white paper by Zeus Kerravala of ZK Research entitled, “Digital Transformation Ushers in a New Era of Communications” that tracks the turnover of companies on the S&P 500 Index since the late 1950s.

S&P 500 Index Lifespan, 1960-2025

From the same white paper1, which can be download in its entirety HERE:

The chart shows that in 1960, businesses remained on the index for 50 to 60 years. By the 1980s, the speed of churn had doubled. Based on these trends, by 2025, businesses are forecast to stay on the index for only 12 years. ZK Research predicts that 75% of the S&P 500 Index will turn over in the next 10 years as digital transformation takes hold.

The lifespan of 500 largest U.S stocks (weighted by market capitalization) map up nicely with the Three Waves of Technological Disruption. There are many factors that impact markets and this is purely speculative, but the major drops seen from 1980 to 1990, and 2000 to 2010 could be the result of late technological adoption. The First Wave of Technological Disruption was the availability and development of the personal computer in the early 1980’s. We see a significant drop in the lifespan from 1980 into the 1990’s. Could this be because many of the largest companies didn’t effectively incorporate this instrumental technological development into their systems, while emerging companies managed to do so and passed them by? The Second Wave, the development of the web in the 1990s into the 2000s, was also followed by another major drop in the average life on the S&P 500 Index. Did slow utilization play a role in this spike as well? Now we are in the midst of the Third Wave which is being defined by the leveraging of data and the streamlining of processes through automation. We should see a slight uptick in the lifespan according to the graph. It’s fair to assume that if companies that don’t keep up with these powerful tools and modernize, they won’t be around for very long. Many variables impact markets, but it is hard not to notice the waves.

Although though there are upticks in the lifespan of the major organizations, as the chart shows, the rate of change within the S&P 500 is occurring at a high frequency. These institutional changes might be because technology is continuing to develop at such a rapid pace. The increasing rate of development won’t just impact the major corporations – it will touch everyone. If your organization is slow to react, you could easily find yourself not just one wave out, but rather two or three. Pretty soon you’ll sink.

Here is a list of the 10 largest companies in the S&P 500 as of May 31, 2016:

    • Apple
    • Microsoft
    • ExxonMobile
    • Johnson & Johnson
    • General Electric
    • Amazon.com
    • Facebook
    • Berkshire Hathaway (B shares)
    • AT&T
    • JPMorgan Chase

How many of these companies will still be on this list in 20 years?

In philosophical terms, dynamics and form are intertwined. There is no being without becoming in the world of Process Philosophy. This applies to any business or organizational process. Simply put, there is no stasis. You and, by extension, your organization can’t be too much of form or too much of dynamics. Essence and potential must work together. Consider this revised version of Ralph Waldo Emerson’s famous expression: “Build a better mousetrap, and the world will beat a path to your door… but the world won’t stick around.”

The question that you need to ask yourself regularly is how can you get your users to stay?

  1. Kerravala, Zeus. ZK Research. Digital Transformation Ushers in a New Era of Communications. 2017.

Waves of Disruption

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We are in the midst of a major technological disruption – one that will transform the nature of our business practices and daily operations. How we function internally and with our external customers will evolve. The kind of dynamic change we are experiencing has occurred twice in the last 40 years. We are in the third wave of technological overhaul. These waves of change will likely happen more frequently in the future. The simple truth is that once this wave has passed, EVERY company will become a technology company to a certain degree.

First Wave of Technology Disruption

The first wave came about with the availability of the personal computer in the early 1980s. In 1965, Moore’s Law predicted that the number of transistors on an integrated circuit would double every two years and decrease in relative cost at an exponential pace. It stated that processing power would double and the price would drop by half in bi-yearly intervals. This prediction coming true is what pushed the world into the digital age. Computers could be built smaller and smaller and at a fraction of the cost of the prior years’ models. By the early 1980s the technology was affordable enough and could be made small enough that individuals could take advantage of them.

The decentralizing of computing technology allowed individuals to rapidly perform functions and improve overall efficiency. This was the beginning of database management as we know it today.

Second Wave of Technology Disruption

Telecommunication networks were used to link these personalized computers. This interconnection enabled the rapid collaborative development of open source software through online repositories, which became the worldwide web. These software programming languages came to be standardized and used all over the web. Most businesses at the time utilized these programming languages to set up their own intranets, which were isolated and customized to their own particular needs.

Tech companies like Microsoft, Apple, Google and Apache had to allow for these technical standards which were established in the early days of the web to be supported by their server software and browsers rather than build their own individual proprietary software. This allowed the web to continue to grow because it required cross-system functionality. For example, Google Chrome would support the same features as Apple’s Safari and vice versa. It also meant that one tech company couldn’t black out their competitors features and forced them to compete by advancing the tech and delivering better products. Businesses began to use the massive established telecommunication networks for practical business solutions in the late 1990s and 2000s. This allowed for instantaneous access to data and mobile utilization through email and later through mobile applications. As smartphone technology advanced and connectivity became more reliable and more available, the mobile workforce blossomed and traditional corporate systems and expectations began to shift.

Third Wave of Technology Disruption

This is where we are now. This current wave is propelled by the availability of vast amounts of data and artificial intelligence and machine learning. According to the Association of Intelligent Information Management (AIIM), the Third Wave of Technological Disruption will be about using advancing technology to improve efficiency and productivity and for “understanding, anticipating, and redefining internal and external customer experiences.” The wave is going to change many organizations’ approach. There will be less need for intermediaries. Multiple parties will be able to work on the same task with minimal delays and an increased level accountability. Systems will face less security risks IF organizations make the proper investment in their information governance programs… That is a big “if.”