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To be or not to be Digital?

January 16, 2018

 

 

The answer is, Yes! Today and now, organisations must think about how to envision or transform themselves into a digital organisation. You may have an immediate question,… why today and now? Honestly, this answer is not straight forward and would have several connotations and different arguments. So, let´s have a look at some them along this article.

 

“Buzzwords” are taking over in this digital era. High-Tech organisations such as IBM, Amazon, Microsoft, Google and Facebook have used “buzzwords” to disseminated and promote an ideal adoption in a digital era. Conversely, leaders and experts have motioned that a digital endeavour is not for every single organisation. So, what are those arguments that can provide strong reasons to embark into a digital venture? Let’s be simplistic and discuss them to support why today and now organisations should think about “being digital”.

 

Organisations might have several arguments to digitally transform themselves. To do so, they might usually frame such arguments around strategic objectives. For instance, creating a new value proposition, improving distribution of products or services, increasing profitability or improving customer engagement & experience. If these objectives are generally valid enough; it will be worth to review why to be digital is a differentiator or massively contribute to outperform those objectives. In fact, tech specialists and experts pointed out the starting of a new industrial revolution. This revolution is the result of several changes in the way nowadays we understand and deal with technology and innovation. Along the years, organisations moved from manufacturing and mechanising processes (1) into manufacturing in mass production (2). Then, computers and automated process (3) overtook to show a new way things are done. More recently, organisations started using cyber physical systems (4) to perform better, faster and stronger. So, what are those fundamental arguments to underpin the 4th Industrial revolution? Answers might have several analyses but I would like to review four arguments that can help to understand why the digital wave is creating, transforming and perhaps disappearing organisations.

 

Value and supply chain deconstruction

 

In today´s traditional organisations, lineal value chains are shaped by sequential chain links where each one contributes marginally in the final value of a product or service. For instance, in the manufacturing sector, final and tangible assets are the result of transforming a raw asset in valuable and expensive products.

 

In traditional value chains, each chain link adds value in the economy process to produce a new product or service. Nonetheless, such traditional horizontal chain is nowadays being altered and deconstructed due to technology. In this new scenario, chain links can work independently since technology is removing economical inefficiencies along interchangeable chain links. Not only standardisation and interoperability are changing verticality in organisations but also information is becoming a reliable asset with command to accelerate business value. For instance, Uber has recently invested in autonomous cars where drivers, an expensive middle-man, will be out of the game and customers will take over to instruct directly all service-related tasks. Eventually, Uber platform is becoming a high-tech interacting hub not only for passengers but for logistics agents to support courier services, clerical services and food delivery. This is an example of how a value chain will be a value network that enables independency and flexibility into an ecosystem of clients, services and businesses.

 

Changes in transactional costs

 

In organisations facing an expansion, it would be the case when transactional costs will overtake their related operating and administration costs. Costs will be higher than production costs which eventually will slow down such organisational growth. Traditionally, costs have been calculated under lineal scale metrics. In other words, a “X” amount of things take “Y” amount of time. However, current organisations are taking other variables to alter such measuring. Exponential organisations are changing this lineal function by incorporating exponential technologies to change their costs and elevate their incomes faster.

 

The Digital Era has stimulated a collaborative and global economy where Internet ubiquity and virtual communities have changed the way we manage assets. Owning assets seems to be more expensive than renting or leasing them between a group of people with similar interests. For instance, a digital platform can help to interact almost instantaneously in a marketplace with new customers and cheaper costs than investing in each of the components to enable it. Cloud is another good example. Cloud enables sharing computer processing power and storage throughout an elastic and scalable community platform. Instead of having assets and looking for their return of investment, digital organisations converge resources to achieve their objectives by renting, leasing or sharing service costs. Without a doubt, collaboration and community interaction is helping to decrease transactional costs and improving the way we finance them.

 

Polarisation in economies of scale

 

A production process can be cheaper when all available resources are used so their unit costs are less. This a good reason for several organisations to undertake global expansions by means of economies of scale. However, digital networks are becoming a relevant factor in this new economy.

 

Technology ubiquity and Internet connectivity can enable instantly global presence of an organisation and eliminate inefficacies in the asymmetry of communication. Small enterprises are taking advantages around this to rapidly react in order to be more dynamic in comparison to hierarchical and traditional corporate structures. For instance, Amazon offers selling products globally; consequently, customers have more options with higher capabilities to decide what and where products or services to buy. Most important, better informed.

 

For some industry sectors, an economies of scale approach can be an alternative but for other organisations, this can result in frank disadvantage. Nowadays, a product value increases not only when it is processed but also when customer is part of the value chain and services are traded as part of selling experiences and emotions. Evidently, the value chain structure is becoming diffuse and unstructured as the customer becomes another chain link with capabilities to alter the product value. Today, the economies of scales are not only based on mass production but also on the way customers perceives and change the value of products or services.

 

Information technology capabilities

 

Information technology capabilities have evolved altogether with human ideas. Today and now, there are three technology capabilities that have advanced interestingly: “Analytics”, “Big Data” and “Cloud.” These three capabilities converged to activate and enable new business models and exacerbating a new way to analyse information, intangible assets, elastic computing power and ubiquity. In a digital ecosystem, it will very difficult to unlink independently each capability. For instance, IBM has focused its strategy in “Analytics”, “Big Data” and “Cloud” and build an integrated platform with several digital services. Todays is simpler to use technological resources where provisioning of infrastructure is faster with less implementation costs. The current challenge is how to intensify technology that is highly available and with on-click distance.

 

 

 

Written by Jorge Orozco Vargas (www.liquefyintegration.com )

 

Opinions expressed in this article are solely my own and do not express the views or opinions of my employer.

 

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