Mark McDonald

A member of the Gartner Blog Network

Mark P. McDonald
GVP EXP
8 years at Gartner
24 years IT industry

Mark McDonald, Ph.D., is a former group vice president and head of research in Gartner Executive Programs. He is the co-author of The Social Organization with Anthony Bradley. Read Full Bio

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A different definition of digitization is based on value and revenue not atoms and bits

by Mark P. McDonald  |  October 20, 2011  |  6 Comments

Today I have delivered a talk at Gartner Symposium in Orlando on the subject of Digitization: the next wave.  Here are a few thoughts:

The definition of digitization is changing and creating new ways of thinking about business, innovation and opportunity.  The standard and first definition of digitization centers on the representation of things with information.

Wikipedia describes digitization as the representation of an object, image, sound, document or a signal by a discrete set of its points or samples. The result is called digital representation or, more specifically, a digital image, for the object, and digital form, for the signal.

The result of this first definition of digitization is the representation of something found in the physical world in the form of another media.   Nicholas Negroponte took much the same approach when he defined the essence of “Being Digital” as replacing the importance of atoms with bits.

The first definition of digitization drove the creation of today’s eCommerce world.  We have all invested millions in creating digital copies of analog capabilities.  You have the physical store and an eStore, you have physical payments and ePayments, you have reality and e or virtual reality.

The duality implied in the first definition of digitization has driven the creation of new types of businesses, new levels of efficiency, greater transparency and choice than anyone could have imagined.  But there is more than just business innovation based on digital replication.  That is where a different definition of digitization comes into play.

Consider the possibilities of a different definition of digitization as:

The degree to which an enterprise’s products and service value and revenues are realized through technology.

The focus is not on representation, but on revenue.  Not on the amassing of digital assets controlled via an analog based management mindset.  Not a simple reflection of the enterprise in cyber/virtual/electronic “world”.

The idea of digitization reflects part of a business response to the ‘internet of things.’

A definition based on value and revenue broadens the idea of digitization as it moves beyond managing information about things to creating new value based the properties of digital information itself.

The technology implied in this definition goes beyond IT and the traditional sense of business applications, data and channels.  Sure technology will continue to change all of those things, but that is an extension of replacing atoms with bits, it is a logical next step to digitally paving business process cow paths.

Rather than thinking about transactions and systems, think of the array of technologies that can be involved in the creation of value:  mobile phones, telemetry, social preferences, big data, meta data, analytics, behavior, expression, cloud infrastructure, etc.  Each represent a part of an emerging digitized economy and sources of future value.  Now think of the business models that enables when you go beyond replicating current value propositions via digital channels.

I believe that this type of description of digitalization is behind the core strategies at Google and Facebook which care more about the information of information, its meanings, connections and extension of the human experience, than the simple automation and distribution of information or information based products.

Brian Arthur in a piece for McKinsey Quarterly described a Second Economy , one consisting of machines working with other machines independent of human intervention.  That is part of the next digitized economy, but it is frankly the boring part as Arthur’s discussion predominantly talks about the replacement of people and people to machine interactions with machine to machine process integration.

Rather than describing digitization as a business based version of SKYNET, the next wave of Digitization reflects new ways of thinking where we look to create value by:

  • Using information in its broadest sense to give people greater choice and independence and transform the customer experience.
  • Creating new strategies based on what customers know or what they can be able to know and how best to apply that to address their needs, wants and aspirations.
  • Improving operations and performance through greater degrees of coordination, better resource allocation, faster and deeper decisions
  • Leveraging in house capabilities in new ways to generate new business models.
  • Creating new non-price based value propositions that disrupt incumbents not based on reach, but based on efficacy.

If this definition sounds a bit wooly (as the Brits would say) or focusing more on what digitization is not rather than what it is, then you are right.  This is an area where we are doing active research, talking to leading companies and thought leaders who are doing things that they cannot easily describe, but are immensely valuable.

We have lived with “Being Digital” now for almost twenty years and while there is still a long way to go in being digital, there is also a new set of opportunities beyond just digital representation that we are just starting to see.

What are you seeing?

Note: there will be subsequent blog posts on this in the coming months, culminating with a research report at the end of the first quarter next year, so please lookout for these either below when the links go live, or via the keyword digitization.

Working titles for these future posts include:

  • What makes a different definition of digitization possible?
  • How has this different definition of digitization evolved?
  • What is the impact of digitization of financial performance?

6 Comments »

Category: 2012 Strategy Technology     Tags: , , , ,

6 responses so far ↓

  • 1 IT News and Views – the Friday Collection « Domain Technologies Blog   October 21, 2011 at 9:29 am

    [...] A different definition of digitization is based on value and revenue not atoms and bits Interesting, albeit a little scattergun, Gartner blog about the different ways that digitization (sic) can be approached in the future. The thrust appears to be that the new ways of working offer an opportunity to offer a more effective and responsive service to customers. See if you agree, here. [...]

  • 2 Ian   October 25, 2011 at 8:04 pm

    If I understand correctly, we are at a cross-roads in the evolution of digitisation. We are now at a point in time where digital resources have to a large extent been built and developed. This has taken two paths: the creation of new types of assets, such as data warehousing, etc., and replacing or replicating existing resources with digital counterparts, such as e-commerce and automation of human tasks by machines. Whilst this can result in efficiency gains, it hasn’t fundamentally changed what businesses do (just how they do it). The revolution will come as new business models arise to fully leverage the cache of digital stock.

    If my reading is correct, I would be interested to understand whether you believe this adds a fourth main type to the traditional resource based view (economic, natural and social) to include digital resources as a potential source of sustained competitive advantage (when deployed in an appropriate business model)? Or, alternately, are digital resources really a subset of social resources in that they contribute to facillitating collective action towards a business objective.

  • 3 Mark P. McDonald   October 26, 2011 at 7:28 am

    Ian

    Thanks for your comments and your question. This is research work we are doing right now so your questions and thoughts are rather helpful.

    You are correct in that we are examining digitization from the perspective of revenue and value creation rather than the transformation from atoms into bits. This is opening some new doors to thinking about business models and perhaps more importantly the potential for a ‘mass’ of digital information to create value in its own right.

    Frankly, the data from more than 2000 companies indicates that there are no fully digitized business models, and those that claim 100% of their revenues are digitized appear not to perform as well as those with lower levels of digitized revenues.

    So yes, I think that it may be possible to define/describe a type of resource (ala Barney and Teece) that is digital in nature and distinct from other resources. Obviously more work to do, but stay tuned.

    Thanks Mark

  • 4 SYLVIA BELMORES   June 18, 2012 at 5:28 am

    digitization,why is it important in our daily lives?

  • 5 Mark P. McDonald   June 18, 2012 at 7:05 am

    Sylvia, thanks for your question. Understanding digitalization is important because it will increasingly shape our daily lives in terms of the information we receive, the choices we will make and the means by which we exercise those choices. Here is what I mean.

    As the world grows digitally, it generates more information in greater detail. The result is that everyone has more information available to them and can use that information in different ways — both good and bad.

    At the same time, information creates choice which can influence our behavior, the value of products and services, our ability to make decisions. Consider the different type of decisions you can now make with just the additional nutritional information provided on food created by nutritional labeling.

    Finally, the way we make these choices will change. As a simple example look at how the expression of ideas and commentary has changed just in this blog. Now consider the changes that will be created when your decisions are captured and reflected in mobile devices, remote sensors, etc.

    So digitalization is important because it is being fused into our daily lives, little by little. Right now its like the web before web browsers , you can see what may come to pass and know that something will happen.

    Mark

  • 6 tejal   July 25, 2012 at 4:13 am

    How does digitization affect traditional telcos? What challenges do they have to overcome?