Digitization: Drawing Together Strands in the Narrative

By: Kamakshya Prusti, Senior  Manager of Business Consulting at Tata Technologies Ltd.

What is digitization? A number of white collar executives, including many in senior positions, think digitization is no more than an extension of IT. Worse still, they are quick to shrug it off as a fad in private, no matter if they extoll digitization publicly as the next best thing to happen to their enterprise. The dirty little secret about digitization is that it’s a word we all use and think we know what it means. Essentially, as much as the oracles of ancient Greece, the word digitization is open to more than one interpretation. What is the point if a business goes ahead and announces its big-hairy-audacious digitization strategy without first hammering out a consensus among stakeholders around the semantics of ‘digitization’ and what it means to their specific business situation?

So, what is digitization after all? Is it about specialty equipment or is it all technique? Or is it a matter of training? How is digitization going to be different from general-purpose IT for business connectivity, e-commerce, analytics and the like. That’s the most obvious question on almost everyone’s mind. And the searing fear among executives is that digitization would force them to rubbish some of their IT assets while forcing new and expensive IT wares on them that carry pricing schemes different from the ones currently in use.

In the beginning, there was this word digitization, which can be described in simple terms as the process of making an electronic version of a real-world object or event as well as storing, displaying, manipulating it (on a computer) and, further on, distributing it over networks like the Internet. Digitization thus becomes a business concept that builds upon the growing number of information systems around us. And as a process, it involves the capture, storage, transmission, and analysis of data generated by e-commerce platforms as well as traditional business. The end goal is to help enterprise users make decisions that get them the results they look for. Any company that acknowledges digitization as an opportunity for itself and a way forward is doing nothing but simply announcing its intention to join an ecosystem of interactions that is evolving really fast. Gartner has extended the epithet ‘The Nexus of Forces’ to this coming together of social media, mobility, cloud computing and information systems. In sum, digitization is a well-thought-out plan of action an enterprise prepares and executes, making use of digital resources, to provide its customer with a very distinct set of benefits or experience.

The digital journey started in the ’80s with the standardization of the TCP/IP “rules of communication,” in turn leading to worldwide proliferation of the Internet. Internet-based communication proved a different kind of animal altogether – instantaneous, inexpensive, and accessible at any time of day or night from almost anywhere, and across a range of devices. This is a common DNA shared between Internet and digitization. Internet laid the foundation for e-commerce, which met the pressing need to monetize Internet by using it for commercial purposes as well. E-commerce also served as a platform for linking people within and outside an enterprise. By establishing such linkages, e-commerce lifted business out of its confines (namely, the four walls) and expanded its addressable market. Fast forward to the present time and we are witnessing the early stages of the digital era, where the digital–physical separator is melting away. Success in the e-commerce era depended on the ability of a company to provide a platform for linking process with people. Digitization is more fundamental in nature. In this case, rapid progress in the enabling ecosystem and development of computing technology has led to the possibility of new business architecture for every company that seeks to participate. Business press is full of phrases like agile, smart, big data etc., to contextualise the development.

Digitization impacts B2B and B2C businesses differently. In a B2C scenario, it tends to make a rather quick impact by building a more direct and stronger bond between the consumer and the product or brand. In B2B, on the other hand, digitization has more of an indirect impact. The net effect of a digital campaign takes the form of a change in the expectations of the customer about the product or brand based on her experience in B2C environments elsewhere. Post the campaign, customers might see the brand in a different light. Seen through the eyes of Generation Y (16-36 age group) consumers, ease of transaction over a digital platform is a given, a necessity, not a luxury. More often than not, Gen Y-ers expect a company’s on-line store as well as offline stores to match one another in terms of service quality and speed of fulfilment. Businesses must provide a consistent cross-channel experience for customers. And where the brand fails to meet this anticipation, customer disaffection – a certain estrangement from the brand – sets in, almost instantly.

Overall, the extent to which an industry is impacted by digitization depends on the degree to which interconnected digital technologies and applications can influence the way the customer consumes the particular product or service. In general, industries whose output is content in one form or other (such as publishing, music, media, broadcasting, education, entertainment, and gaming) are more likely than others to come under the wheels of digital disruption.

From a core strategic standpoint, the management needs to understand the impact of digitization on important organizational aspects such as:

Resource allocation

Digitization challenges, undermines, and disrupts business operations by influencing the way producers, suppliers and consumers respond - in terms of how they produce, buy, order, shop and consume information. It might be a while before cash flows from the digitized stream starts showing up prominently in the financial statement (P&L). But businesses can shrug off digital only at the risk of falling behind or, what can be worse, being eliminated from the digital race altogether. This means businesses must spread their investment at the right moment across the right avenues, including digital.

Status of the individual business in the industrial food chain

Typically, any business ecosystem would see buyers, suppliers, integrators and financiers jostling for influence and trying to move the balance of power in their favour. In the new landscape of digital, there is just one way companies can build out their influence in the market: by capturing, analyzing, and interpreting information. There is a growing community of IT services as well as hardware, software, and broadband providers around to help businesses do all that and more. This will enable businesses to rouse their digitization platform into vigorous activity. In turn, this provides an enterprise the velocity and direction it needs to break loose from its traditional mould in which it has been cast for long – that of a producer or distributor of goods or services. Using digital as a springboard, businesses can potentially play multiple roles like that of knowledge broker, system builder, or complementor (who provides products that complement products from other companies) and expand their theater of influence in the industrial food chain.

Flow of business-critical information

The horizontal value chain of business, a traditional Michael Porter take that focuses on systems, departments or processes, comprises sequential inputs that give a certain output for the consumer. Fundamentally, this approach tends to dam the flow of information by linking all points of intersection during the process and reducing communication to a two-way flow. By contrast, a vertically digitized value chain enables seamless transfer of business-critical information from its point of origin (sales/customer feedback) all the way to downstream business processes (e.g., procurement, manufacturing, quality, and dispatch).

Accommodations booking site AirBnB, for instance, turned traditional value chain on its head to establish a digitized one that has since improved customer engagement. Companies that show such daring to reconfigure their value chain and focus on “verticalizing” it are the ones that will indeed catch the digital wave and get the best out of it.

New markets vs. existing ones

Central to any enterprise’s survival is its ability to exploit existing assets profitably while setting its foot in new markets and foraying into new technologies. There is need to maintain a happy balance between immediate needs (exploitation) and investment for the future (exploration) and achieving this golden mean could be stressful for most organizations. The rapid pace of change, which is the very signature of digitization, also adds to the stress, but businesses must do it all the same. Rapid changes and customer expectations mean that playing a wait-and-watch game could prove life-threatening this time. Jack Welch’s pithy observation, like no other, sums up this sentiment, “If the rate of change on the outside exceeds the rate of change in the inside, the end is near.”