How digital is your business? The quick answer is probably very much when you consider your web sites, Facebook pages, IT systems, email and the like as evidence of being digital. Viewed from the perspective of digital transactions, most of us are digital experts. We feel that we are digital. But are we really being a digital business?
The idea of ‘being digital’ has been around since Nicholas Negroponte’s book of the same title back in 1996. His thesis then, and the operative definition of digital to this day has been the use of technology to replace physical atoms with digital bits. That notion has driven billions of dollars of investment as companies took analog business processes and turned them into digital information based services.
This creates digital transactions, digital operations, but does that constitute a digital business?
We ‘feel digital’, according to a 2011 survey where more than 2,000 CIOs rated the level of digital technology applied to 12 major business processes. On average, the CIOs rated 58 per cent of their processes as dependent on digital technology, see the figure below.
The presence of digital technology does not make you a digital business no more than using electricity makes you an ‘electric’ business.
A different measure of digital business is not digital technology transactions, but the use of digital resources in creating value and generating revenue. Value and revenue define what truly ‘being digital’ means. It also identifies different degrees of digitaliasation that provide organisations with a path to digitalise their business.
Compare the level of digital revenue against digital transactions and we see a real difference between feeling and being digital. When we asked the revenue question from the same CIOs their answers revealed an average 28 per cent of organisational revenues were generated from digital resources.
We feel digital without being digital due to digital mimicry strategies where digital technologies to replicate essentially analog business models. Turning a book into an eBook or a store into an eStore are examples. This explains the difference between a cost structure based on digital dominance and relative digitally based revenue timidity. This type of ‘digital strategy’ injects digital transactions into fundamentally analog based business models represents an efficiency evolution in commerce.
This has transformed the way we transact, but it has not fundamentally changed the ways organisations create value and generate revenue. The ‘internet of things’ can help us do what we do better, faster, cheaper or it can create new capabilities that change the quality of our lives, the value we create and generate new sources of revenue.
Digital mimicry gives the false impression of ‘feeling digital’ without really being a digital business. It enables companies to feel digital as they become expert at creating digital transaction. We are not digitalising the business as value creation and revenue generation remains fundamentally unchanged. This happens when the digital strategy calls for copying analog concepts. An example is San Francisco’s use of smart phones, location based services and the web to seek out and pay for public parking. Another example is Google’s goggles that apply augmented reality, search and communications to inject information into our lives. Digital implementation, yes, but not really digital business innovation.
Digitalised businesses do exist and often rely on generating revenue either via selling access/advertising or acquiring digital customers through offering ‘freemium’. These models drive ‘digital giants’ like Facebook, Google, LinkedIn, etc. Unfortunately few organisations have millions of users to sell to the market or the ability to generate the revenues required to sustain a 5:1 ratio of free preying to fee paying customers. There has to be another way to build a digital business beyond creating faint copies of the digital giants, after all Borders and Blockbuster did not survive by trying to copy Amazon and Netflix.
Feeling digital vs being digital
The gap between ‘being digital’ and ‘feeling digital’ is increasingly important as a wave of lightweight technologies and technology models create an ‘internet of things’ filled with new sources of value, revenue and the opportunity to digitally disrupt industries and incumbents. We can use these technologies to further mimic the analog world, but does that digitalise business?
Organisations remain digital business novices so long as they do not face the requirement to engage digital resources to create new sources of value, find new ways to monetise digital efficiencies, or generate revenue from new types of products and services. Being digital in the emerging world of the Internet of things requires more than implementing digital technologies and refining digital channels. It required digitalising business through a process of abstracting analog value and creating new digital and analog resources that create new sources of value and revenue.
Mark McDonald is a group vice president and head of research in Gartner Executive Programs