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What does digitization really mean? – A framework for practitioners

Jan Sedlacek General Leave a Comment

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“Digitization” seems to be the master keyword to unlock just about any business conversation these days, it’s literally omnipresent. And yet there is no established definition. The original meaning of the term was converting analogue signals into binary ones. The prime example of that meaning was digitizing music to CDs. However, this narrow definition does not do justice to the widespread implications of the ongoing transformation in business and society alike. Of course both academics and consultants came up with attempts for definitions but those are, well, theoretic.

A digital framework for practitioners

This is why we think a framework is needed to sort out the relevant dimensions and aspects of digitization in order to manage them. We have developed the following framework based on many digital ventures that we’ve built, many projects that we’ve run and many organizations with which we’ve worked on those topics. Feel free to download and use it but we appreciate quotation… and feedback.

Click to download

Based on this framework we have created an online test that allows you to identify how digital your own company is:

How digital is your company?Take the test

Digital transformation: Doing things differently

We propose to talk about Digital Transformation if the primary goal of an initiative is efficiency. We are aware that the term is also used for the overall change process in society and business, but we’ll come to that a bit later. On a corporate level however it means in the first place to digitize the business that is there already, just as music was digitized to CDs back in the 1980ies. Contemporary examples include most artificial intelligence applications, robots, process automation but also internal awareness and agilization programs aiming at increasing innovation capabilities within organizations.

Although it’s often not always openly declared, efficiency is the most common goal of digital initiatives. Lowering cost is the easiest business case of them all, so every manager will buy into it. For that to happen all you need to change is the way you are doing things by digitizing processes and products alike. It’s about transforming the existing operations. This already is not easy but it really is the easiest part of digitization from our experience.

Those kinds of transformation initiatives usually lead to incremental improvements, which we call “doing the homework” because they are mandatory. However, there is little empirical evidence that they ever lead to fundamental change.

There are two distinct aspects of digital transformation in the above outlined meaning:

Digital innovation: Doing different things

If the goal is to open up new revenue streams, it takes more than that; fundamental change is needed. This is what we call Digital Innovation. Growth these days is simply not possible without some genuinely innovative aspect to it, and there is simply nothing new of any significance, which is not digital anymore. That kind of innovation usually happens at the edge of technology, but then quickly takes the shape of business model innovations as well, exploring the economic possibilities that the new technologies enable.

We are hence talking about something thoroughly new, not mere improvements in the legacy business such as improved speed or usability. True Digital Innovation leads to new kinds of business.

There are two distinct aspects of digital innovation:

Conclusion: Systemic customer centricity & digital transformation in the society

On the aggregate level of the society, this leads to a rapidly improving customer experience across the board in all industries. It’s because in the end, all of these developments ultimately question and rethink the way how we do business altogether and even how we collaborate with each other.

If “digitization” as a concept is defined too narrowly, it misses both the micro- and macro-level views as well as the interdependencies between the different aspects. Ultimately, it leads to a huge transformational impact on the society as a whole. However, the drivers for that are exactly the micro-economic building blocks that we’ve outlined in our framework.

This is something many business leaders fail to understand at the outset of a digital initiative: If you don’t live and breathe customer intimacy, you can’t ‘become digital’.

What is very unique to Digital Innovation is that the underlying technology also enabled something alien for quite many traditional businesses: Systemic customer centricity. There is nothing romantic in a humanist kind of way in that, no: It’s very simply that technology turns customer intimacy into a competitive advantage and hence an edge of growth or margin. This is unprecedented in history because for the first time technology makes customer intimacy scaleable. Vice versa, the lack of it has become a death sentence for a business (most notably in the form of bad reviews with better scoring competitors just a click away).

There is a very direct consequence from this for the way we manage digital business: Traditional metrics such as cost or revenue ratios don’t make sense for growing digital models, at all. The only meaningful financial perspective here is the unit economics view: All that counts is how much you pay for a new user and how much money that user will generate over his lifetime with your business. Hence, there is an inherent financial incentive to make customers happy in order to loyalize them, e.g. through good value-for-money, superior service, etc. Customer intimacy really is hard-wired into every truly digital model.

Credits: Digitization framework © Stryber, mood image by Annie Spratt, artwork by Prisma AI.

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