Where Do You Stand In Your Digital Journey?
The Digital Journey of a business is determined by when and how a business moves from Digitization to Digitalization to Digital Optimization to Digital Transformation.
Yes – these are distinct terms which almost always are used interchangeably. One thing to keep in mind is once the digital journey begins, each element in the digital chain is dependent on the previous one, i.e., digitalization cannot begin before the right extent of digitization; and digital transformation cannot happen without the right extent of digitalization and digital optimization. Moreover, the Digital Journey for one organization could be very different from that of another one. E.g. – the digital journey for a consumer physical goods manufacturing company could be different from that of a media and entertainment company.
The position of your business in the digital journey is dictated by how you look at data (digital information) and if you implement ways to capitalize that to make your enterprise a data-driven business.
To understand a ‘digital journey’, it’s essential to look at few examples to understand how the terms are distinct from one another.
E.g., Let’s consider a pharmacy and healthcare products store which is maintaining its inventory in a paper-based registry (not yet digitized). The moment they start keeping all this information on a computer – they have begun digitization. When they move from books to reading bar-code based information to update their store inventory – all via a software, then they done two things – digitized the information and digitized the process.
Digitization is creating a digital (bits and bytes) version of information that is originally in analog/physical form (paper documents, images, sounds etc.), so that it could be used by a computing system for processing, storing and sharing.
If a bank’s loan application and approval process are paper-based, the information is digitized (data is later entered by back office into computer systems). But the moment this is offered as an online alternative, the bank would have not only digitized the process but also achieved digitalization because they would have made application + approval process simpler for customers. In the pharmacy store example, let’s look at the distributor firm. When it makes paper-based entries for each of the products and quantities to be replenished for a store, the order placement process is not digitized. But when it adopts a mobile-app-based data gathering process (go to a store, enter items and quantity in the app, and hit the ‘place order’ button to place an order), process digitization has happened. The distributor has gone one step ahead in the digital journey.
In manufacturing industry, when the process of Product Design of creating paper-based drawings, got converted to CAD created drawings, the data and the process (of creating and managing drawings) both got digitized. When the manual Inventory Management tasks were migrated to an ERP application’s Material Management module, process digitization happened. When Production Planning process was digitized using another ERP module (Production Planning module), the digital footprint advanced further. When customer-related data started getting managed using CRM system, yet another process digitization happened – so on and so forth.
When many processes were digitized by managing them via applications, those applications made data digitally available for everyone, but still operated in silos. One thing to note is – if this data in silos is used only by the immediate silo owners to bring in process improvements, then you are not really performing digitalization yet. Digitalization would commence only when you further do two things simultaneously: 1) Use digital data collectively’ from these distinct digitized processes for driving process improvements or optimization; 2) Use digital technologies to achieve these improvements/optimization.
Digitalization means use of digital technologies to access and leverage the digital information from across multiple systems and data points, to gain actionable insights that can lead to process optimization, productivity gains and pave the way for business transformation etc.
The digital technologies, which are a combination of SMAC – Social Media, Mobility Analytics (Big Data, Business Intelligence) and Cloud technologies, are enablers in achieving digital optimization/transformation.
Note – we have not talked about ‘Business or Digital Transformation’ yet. Many firms want to become ‘Digital Businesses’ without understanding that they first need to get digitalized. Digitalization is the beginning of the Digital Transformation journey.
Once digitalized, the next thing to look for is the insights from digital information across silos and figure out whether any of the existing processes can be simplified, enhanced, automated, made faster by use of digital technologies, i.e., can the current ‘processes and operations’ be transformed. You are still not changing the business model, but rather optimizing yourself. This position in the digital journey is called digital optimization.
E.g., in a manufacturing company, when the process owners correlate the (digital) information from procurement systems, inventory systems, product design/PLM systems, Manufacturing Information systems etc., to reduce bottlenecks, machine downtimes, changeover times, reduce inventory, make production leaner & faster, reduce material wastage – thus achieving higher throughput, or reducing manufacture cycle time – they have achieved digital optimization.
Digital Optimization is the process of using disjoint digital information to enhance the way your business operates leading to either increase in revenue (by selling more of the same products, without changing the business model or product offerings), or, decreasing Operations Cost by bringing in process efficiencies, automation, productivity gains)
Growing usage of digital technologies involving Social Media, Mobility, Analytics and Big Data, and Cloud computing (SMAC), cybersecurity, Big Data and Analytics, Integration with Social Media,
When your business uses digital information further to really transform the way it is earning money or expanding market share – by creating new products, offerings, premium services on existing offerings, or changing existing offerings (e.g., leasing the product instead of selling it), or creating value-added offerings on top of existing product – by use of digital information across digitalized processes with digital technologies – your Business has actually done Digital Transformation or Business Transformation. There is no limit to how far you can go in both – digital optimization as well as digital transformation.
These two terms can mean different things to different businesses. Some businesses are natively digital, i.e. they sell digital products or services (media and entertainment businesses like Netflix, platforms like Airbuy, LinkedIn etc.) while others are natively non-digital – they sell physical goods or non-digital services (manufacturing, energy, electrical, healthcare etc.).
Let’s take a look at some examples of digital optimization/digital transformation.
Natively digital businesses:
- When Blockbuster, which rented movie DVDs at physical stores, started renting via online renting and DVD delivery services – it digitally optimized its operations and earned higher profits. But when Netflix streamed movies to browser and mobile phones, it invented a new business model and achieved digital transformation of its business.
- Amazon’s books selling business underwent digital transformation when it started streaming audio (digital) books.
- When digital publishers moved from the static digital advertising (commit ad spaces a month in advance), to a dynamic, real-time auction-based ad display model they achieved digital transformation.
- When Johnson & Johnson enhanced their business and revenue by adopting ‘targeted marketing’ to users by analyzing their previous buying patterns, it was digital transformation
Natively non-digital businesses:
- A car manufacturer transforming its operations and processes using digital technologies and digital information from across multiple elements of the production line to achieve higher throughput or better vehicle quality – that’s digital optimization, but altering its design to produce a driver-less car – its digital transformation.
- Installing sensors in cars to monitor performance of various parts in the car to give real-time performance related updates on consumers’ mobile phones – digital transformation.
- Philips and energy services company Cofely are now offering pay-per-lux (lease lighting equipment and pay for usage of lights) at Washington Metro and Schiphol Airport. Clients pay for light used, not for light fittings (CapEx to OpEx).
- Joy Global Inc. a manufacturer of heavy mining machinery offers parts replacement and servicing by installing sensors on their equipment and continuously monitoring their performance.
- GE’s IoT platform Predix collects data from field equipment and predicts its maintenance.
Digital Transformation is use of digital information and digital technologies to transform or innovate your business beyond digitalization leading to modification in business model, changing the value chain to create new products or services that result in enhanced value to the customer
Digital Transformation can also be achieved by a business by selling raw data from its manufacturing processes/post sales data/customer usage data/ or build analytics on top of this data and sell it to other business for a fee.
Digital Optimization and Digital Transformation may often go in parallel and sometimes they overlap as well. It’s very important to note that each term – Digitization, Digitalization, Digital Optimization and Digital Transformation – is possible only when your business has achieved the previous. Digital Optimization and Digital Transforming may also continue hand-in-hand transforming your business to a digital business.