7 Complications of Digital Transformations
Digital transformation in a practical way
29/05/2024Part One: Introduction
Why Digital? Atom VS. Bit
The exponential development of processor power and software, as well as the development of the internet and mobile technologies, have enabled digital hyperproductivity and hyperconnectivity and paved the way for digital work. The digital revolution has created a digital and virtual world that is a counterpart to the traditional and physical world. In this new world, companies create value digitally.
Every organization, company, and leader must understand the digital economy, how to create value, and how and when companies need to take action to adjust to new rules. If not, companies risk losing relevance with current and potential clients and customers if they don’t adapt and change. They won’t produce value as clients expect and need and won’t create value for their owners, employees, or society. Whether in state administration, public companies, nonprofit and charitable organizations, or private and state-owned firms, it is crucial to thoroughly understand the digital economy and adapt operations, procedures, and overall business. To thrive in this new era, we must adapt to these digital changes, as Charles Darwin’s message from 1809 reminds us: “It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change.”
The main assets of the digital economy are (digital) data, information, and software solutions, including artificial intelligence.
Products and services are converted to digital data. News, messages, texts, photos, videos, and music are converted to digital data, which enables these products and all services around them to transfer to the digital economy. WhatsApp solution digitally processes messages, including photos and videos, and distributes them to defined recipients or establishes audio or video communication between two or more sites. The Netflix application provides series and movies to subscribers in streaming mode. Amazon e-book clients search for and acquire books, which are instantly delivered to clients as soon as payment is finalized.
Software or robots automate operations, from onboarding, payment, search, and purchase to product delivery and support.
Digital products and automated operations in the digital economy create an economy of bits compared with the traditional economy of atoms. E-books and the operations around them are compared to printed books, bookstores, sales, distribution, and delivery. The economy of bits is an abundance economy as an unlimited number of clients can purchase copies of the e-book without an end. In contrast, the traditional economy is an economy of scarcity, as after the last available book is sold, it is necessary to print the books again using additional resources. Transferring any business to an abundant economy is beneficial to companies because it eliminates the scarcity of resources.
For businesses, creating value in the digital world has many advantages. The digital world opens many possibilities for innovation and disruption of traditional companies by introducing digital products and services or digital ways of innovating existing products and services. It is based on pure economic principles, changed only to accommodate the new rules of the digital economy. Roberto Saracco (“Digital Transformation—Scarcity vs. Abundance.” IEEE Future Directions blog, https://cmte.ieee.org/future- directions/2019/01/25/digital-transformation-scarcity-vs-abundance/) defined economy in the physical world as an economy of atoms, and economy in the digital world as an economy of bits. Saracco explains that traditional business, or the economy of atoms, is an economy of scarcity. There is a limited number of atoms; if we give atoms, we no longer possess them. The digital economy is an economy of bits and abundance because there are no limitations. If we give away bits, we still have them (a copy is indistinguishable from the original). “More than that. The economy of atoms has high transaction cost, i.e. it cost money (and resources) to move atoms along a value chain, whilst the cost of moving bits is basically nihl.”
The second benefit is the internet as a digital channel that provides low-cost communication and collaboration between companies and potential and existing clients. It enables broad (global) reach and reduces transaction costs to a minimum while providing additional services and capabilities. The digital economy offers superior (to the traditional economy) possibilities for fast scaling (blitzscaling) and scoping. Esko Kilpi, in the article “The Future of Firms. Is There an App for That?” (https://medium.com/@EskoKilpi/movement-of-thought- that-led-to-airbnb-and-uber-9d4da5e3da3a ) relying on the work of Nobel laureate Ronald Coase, “The Nature of the Firm” explains this change: “The Internet, together with technological intelligence, makes it possible to create totally new forms of economic entities, such as the “Uber for everything” - type of platforms/service markets that we see emerging today. Very small firms can do things that in the past required very large organizations.” He adds that if the costs (transactions) of value exchange in society are drastically reduced, as is the case today, the form and logic of economic entities must change! Traditional (organizational) firms are a more expensive alternative.
5.3 billion people are using the internet—4.9 billion of them on social networks—and they, on average, spend seven hours per day connected. Businesses that are operating in the digital world have many benefits: working in an abundance economy with enormous growth potential, lower barriers to entering different industry groups, addressing client segments worldwide, addressing needs of new generations of clients, the possibility for innovation and disruption, better inclusion, and many more. Challenges and difficulties include securing digital operations in the faster-changing environment and protecting data, software, and people; ensuring validity and data correctness; overcoming the digital divide to include the rest of the world’s population; and protecting their innovations and disruptions from competition.
Ismail, Diamandis, and Malone in Exponential Organizations 2.0: The New Playbook for 10× Growth and Impact explain: “What’s important to understand is that in the age of the Exponential Organization, the exponential cost drops not only for sales and demand generation but also for the cost side, with a radical drop in the cost of supply. For example, the use of crowdsourcing and community ideation by companies like Xiaomi, GitHub, or Reddit means their product development costs approach zero. What we’re now seeing with ExOs—and this is tremendously important—is that the marginal cost of supply goes to zero.” Consequently, the arrival of the digital age has resulted in an evolution of business practices, with a significant shift toward the virtual world. Ray Kurzweil, a prominent futurist, introduced the Law of Accelerating Returns in 2001, stating that technological progress follows an exponential growth pattern rather than linear, as often predicted.
Read more in the book “Between 2 Worlds: A Road to Digital World” at https://www.amazon.co.uk/dp/B0DB9HVK1Y
Branislav Vujović
DIGITAL ENTHUSIAST AND FOUNDER OF NEW FRONTIER GROUP
"Strive to become better"
Branislav Vujovic is founder and Supervisory Board member of New Frontier Group and Author of the book Between 2 Worlds, Road to digital world.
