Business Transformation

Nature and Impact of Digitalization

by Hans Gillior

The Nature and Impact of Digitalization

(Chapter 1 of coming book: Leading Digital Transformation)

“Digital is the main reason just over half of the companies on the Fortune 500 have disappeared since 2000.” – Pierre Nanterme

It is the age of globalization and digitalization. An era where information, capital, services and production means flow across national, cultural and corporate borders with ease. Industrial barriers built by regulations, capital needs, and patents are reduced and, in many cases, crushed completely. All transfers are enabled by digitalization – where services, processes, information and IT are not contained to a culture, region or country. It does not matter if a product or service is produced in Mumbai, Beijing or Stockholm – they all compete on the same market.  It is an era where products and services are produced and managed where it is most cost beneficial and value creating. If the total value of service is higher being produced in Mumbai – then that sets the standard for that service. Location is not the key determinate in the value equation. What is important is that I can consume the service or product when, where and how I see best fit. How the service or product support my lifestyle and personal branding. The downside to the age of globalization and digitalization (often called “new normal”) is that societies and companies compete on an international scale with high unpredictability, and where work is moved around in a quite chaotic way. This is the reality of “new normal”. No one is protected in the unpredictable digital landscape. 

“There are no boundaries or borders in the digital age” Karim Rashid

The key effect of globalization and digitalization is revolving around the concept of “Value creation” – how well we create value and experience for the end-customer. The fact is that globalization and digitalization will enable continuous movement (into a new equilibriums) in the business environment to ensure that value is optimized to the end customer. New player will succeed if they can create more value than traditional players to disturb or disrupt the market equilibrium. Companies will move production or service to where more value is created. Companies will keep those employees that contribute to the experience of the end-customer – the rest will not be used (phased out). This is harsh reality but is the way that corporations and organization are developing today. Value creation must directly or indirectly be linked to experience of the customer. 

SECTION 1: Introduction

I have studied Digitalization for several years and the more I study the phenomenon, the more complex it becomes. The complexity primarily lies in the fact that Digitalization changes in nature rapidly over time. The way digitalization was defined in 2010 is not how it is defined today. The reason comes from the rapid evolution of technology, social behavior, political regulations and directives, economic trends etc. that in combination is hard to predict and master. What we can conclude is that any simple attempt to define the phenomenon Digitalization will fall short and be irrelevant in a couple of years. Also, we see today consultancy firms, research companies and digital gurus trying to contain the phenomenon Digitalization by creative definitions. Today (2020), digitalization has become a buzzword including all and nothing. How to break through the static wall of opinions and focus on a definition in the right context? In this section, I will give definition a try, but it is necessary to start from its roots and master its context define trying of defining Digitalization. Why is Digitalization relevant now – and what has changed? 

SECTION 1: A Brief History of Digitalization 

Digitalization or Information Technology is not anything new. Humans’ ability to store information on different mediums (wooden and bone carvings) have been around for thousands of years. 5000 years ago, the Sumer civilization developed an advanced information system where clay and wooden tablets were used to store information about taxes, laws and contract (as part of bureaucratic infrastructure) that needed to stand the test of time. The technology and mediums have changed over time, but information has played a vital part in developing and administrating societies.

With industrialization in the 18th century, digitalization took a new step in its evolution. The French Jacquard looms could around year 1803, weave different complex patterns with the help of punched cards. In the middle of the 19thcentury, electric telegraphs were developed to send information through the wire. In 1849, the news about the election of the Prussian King Fredrik Wilhelm IV to German Emperor was distributed 500 kilometers in less than one hour. The following years, the Anglo-American Telegraph Company connected United Kingdom and USA via Canada with a telegraph cable. The transmission speed was 8 words per minute and was an enormous break though. The British Empire became connected in a complete telegraph network. 

What we need to understand when tracking the evolution of “digital” technology is that each evolutionary step creates a new business environment and opportunities. The introduction of the telegraph enabled new companies, business models and customer expectations in the information domain – which in turn is a necessity for the next step in the evolution. In each technical break-through, a large part of companies will be phased out (unable to adjust to new business landscape) and hence replaced by new companies adapting the new technology. It is a natural industrial and business evolution. 

In the turn of the century, “mechanic” computers and typewriters gained importance in business administration with global companies such as IBM and Swedish FACIT. The “mechanic” computers were then challenged by electronic digital machines in 1950’s and were phased out during 1970’s with cheap electronic devices. 

Digitalization (or Computerization) can be traced back to the 1940s with the invention of computers and the code cracking at Bletchley Park. During the 1950s, new computer companies arose from university research and IBM took a lead in the development of computers and software. The Space Race and Military investment boosted the development of computers for many years. In large corporation, computers continued to support and develop all business administration. Computers became a common part of the office landscape in the 1980’s and 1990’s. 

“IT and digital devices has reduced the work force in our bank by 70% over the years!” – Swedish Bank Manager 2015

The personal computer (PC) was launched in 1980’s (used by one person) and started a journey that would change society. With introduction of internet (web browsers) in 1990’s, regular people gained access to information, knowledge and services in a completely new way. Companies could sell products and services online! Still, consumers where limited to the stationary computer in the home or at the office. It resulted in a .com boom where new internet-based services and business models where launched with mixed success. The .com era was enabled by new innovative ideas in combination with new technology and almost endless access to risk start-up capital. However, the consumers where not ready to purchase services and products on-line at that time – and the .com companies had problems to deliver stable delivery chains and payment solutions. The .com crash temporarily halted the digital transformation of the society….

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About Hans Gillior

Hans Gillior is a founding partner of The Goodwind Company, an advisory and knowledge company in field of digital transformation. The Goodwind Company believe in the sharing economy and the power of networks across borders and cultures. The company provides a “best practice” framework (service library) supporting Digital Transformation GooDIGITAL based on the collective knowledge and experience of Goodwind partners, academia and business partners.

Hans Gillior is an experienced Principal in field of IT/Digital Transformation with both senior line manager and senior advisor positions. He has a proven track record of changing the mind-set of leadership, and implementing dynamic governance and capabilities to create a competitive advantage in unpredictable digital markets. He is a digital thought-leader part of local and global expert networks, but also a frequent speaker at conferences, management coach/trainer and author.

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