The World Economic Forum estimates that digitalization could deliver a staggering $100 trillion in value to business and society over the next decade. This eye watering figure is not a given and big changes will need to be made in company infrastructures, governance and regulatory frameworks, while instilling public trust in new technologies, to achieve this goal.
Market research firm IDC defines digital transformation as the “continuous process by which enterprises adapt to or drive disruptive changes in their customers and markets (external ecosystem) by leveraging digital competencies to create new business models, products and services”.
Digitization may use digital technologies to change business models create new revenue opportunities. But it is not as straightforward as it sounds. “As organizations accelerate these changes, it’s increasingly clear that traditional ideas about the business value of IT are inadequate for understanding the true value that digital now offers” explains Saul Judah, research director at Gartner.
Digital transformation goes beyond the technology. It is an enormous challenge in terms of change management that affects every part of the way a business operates both internally, externally and through its entire supply chain. It is the foundation for the new digital economy.
Understanding the value of digital
Digital economics looks at the “creation, consumption and control of value associated with digital products, services and assets in an organization,” says Judah. Within this framework, organizations can account for how much of their business value is digital and how it complements traditional value taken from products and services.
“For many companies, this economic value is largely untapped, but for a few leaders – such as Uber, Airbnb, Google and Netflix – it has become the means to differentiate, create and capture their markets,” explains Judah. “They have grasped that the framework for exploiting the value of digital business is digital economics”.
The economic benefits for organizations that get digitization right are there. Capital is being rapidly invested in digitized technologies and start-ups. At the same time, success stories are being given unparalleled valuations. As the World Economic Forum points out, it once took Fortune 500
companies on average 20 years to reach a billion-dollar valuation; today’s billon-dollar start-ups achieve it in four years.
Take the expeditious rise of China’s Didi Chuxing, for example. Originally founded back in 2012, the app lets users hire taxis, private cars and designated drivers. In 2015 it was running approximately 3 million rides a day. By 2016 it was completing 16 million rides a day. It now holds 87 per cent of China’s private car-hailing market. Last year it attracted a $1 billion investment from Apple and swallowed up its rival Uber China. It is now valued at an astonishing $31.5 billion, according to start-up analysis company Zirra.
Thinking beyond streamlining
Many enterprises, however, see digital transformation as a way of simply streamlining operations and cost cutting. This is a blinkered view and, while it makes operational improvements, it brings them nowhere near value transformation. The real potential is in creating new revenue streams, crossing into new industries, opening up global markets and being agile enough to deal with continually changing industry trends and new technologies.
Orange Business Services, for example, is helping Siemens France implement the factory of the future by providing reliable and affordable industrial grade networks. “With regard to how we run our factories, digital transformation should give us greater production flexibility and greater capacity to handle increasingly varied products, with savings in terms of materials and energy,” explains Antoine Garibal, director of development and strategy, Siemens France.
Digital technologies, including mobile, cloud, artificial intelligence, big data analytics, the Internet of Things and global meshes of sensors, are accelerating the pace of change – but its full potential cannot be achieved without human intervention – collaboration between business, policy makers and non-profit organizations.
Digital transformation is posing a huge “multidimensional challenge” for leaders, according to the World Economic Forum. First there is the problem of identifying where both technology and customer expectations will head next. Secondly, there is the monumental task of reorganizing global enterprises, which may require dismantling the existing business to compete head on with digital start-ups. Finally, there is the crucial role of collaboration to ensure that the value of digitization to both business and society reaches its potential as quickly as possible.
Uncorking the value of digitization
The big question is how can industries deliver on the value of digital transformation.
The automotive industry, for example, has accelerated off the start line. The World Economic Forum estimates there is $700 billion opportunity to harvest value from digitization in the automotive industry from value added subscriptions to next-generation servicing. BMW has already started to use cobots on its assembly lines that work alongside humans, while Orange Business Services is working with Hertz to provide companies with technology-enabled pool fleets. The keyless vehicles can be booked via an app, online or via the phone.
The clock is ticking
Although digitization is happening now and there are start-ups that have got ahead in the game, it isn’t too late for traditional enterprises to draw up digital transformation strategies and put them into action. But, warns the World Economic Forum, they need to “digitize quickly, using existing assets, such as vast volumes of customer data and invested capital to radically remodel their business”.
Find out more about how Orange Business Services can help you on your journey to digital transformation here
Jan has been writing about technology for over 22 years for magazines and web sites including ComputerActive, IQ magazine and Signum. She has been a business correspondent on ComputerWorld in Sydney and covered the channel for Ziff-Davis in New York.