digitalization

Introduction to Digital Transformation

The world is currently in the midst of a new industrial revolution. Us humans are converting the world we've known for ages into a new, digital world. This digital transformation will have a huge impact on all aspects of society and will present both individuals and companies with many opportunities. Here, we have gathered all of our thoughts and insights into this topic to give you a better understanding of how you can utilize this new, developing world to benefit your business. 

Digitalization happens when people and technology meet!

 

10 min reading

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Introduction

For those who have experience in IT or other technology-based industries, the concept of digitalization should now be well-known. However, this "digital wave" has moved well beyond these industries and it currently affects the daily lives of all people to some degree.  These people, too, deserve to understand what impact the digital wave will have on their lives.

If you follow the news at all, you've no doubt heard of digitalization. Digitalization applies to schools, elderly care, and many other parts of our society. However, it's important to understand that digitalization is not a trend - it is a revolution. 

We call it the Industrial Revolution 4.0. 

It's also important to keep in mind that this change, though it might seem rapid, will only speed up. This the very nature of new, exciting technology. It might seem intimidating, maybe even a little bit scary, but it's the truth. 

On this page, you will find insights and strategies for digital transformation that can be implemented, no matter your business or your industry. Through our blog, we will occasionally delve into specific industries more deeply, offering resources that relate to digitalization in marketing, sales, operations, or HR.

Feel free to visit our Insights & Cases page for useful knowledge on digital transformation.


We'll break down digital transformation into three key components:

 

What is digitalization?

Why is digitalization important?

Why strive for digital mastery?

How to start with digital transformation?

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What is Digitalization?

Digitalization, or digital transformation, means embarking on a continuous digital journey. It's not a project with a start and end, but rather a new way of working. It means changing your organization with the purpose of thriving in our digital world. 

From 2015 to 2016, digitalization gained serious momentum. Of course, new technology alone cannot change anything – man must always be part of the equation. What we refer to as digitalization or digital transformation occurs at the point where human behavior meets this new technology, implements it, and uses it. 

That said, digitalization is not a mystery. Where many global consulting companies attempt to make the concept complex and difficult, we at TeQflo believe that simplifying the concept is a better approach. Take our simple definitions, for instance: 

  • Digitization = Converting analog to digital
  • Digitalization = When humans meet technology
  • Digital Transformation = The journey from point A to point B

Below, we'll deep dive into the following topics in an attempt to give you a better, broader grasp on the topic:

Six Examples of Successful Digitalization

There are countless examples of companies that have made the transformation to digital very successfully. Below, we'll outline just a few and highlight how they were able to adapt so well. On our Cases & Insights page, you can find even more detailed information about each one.

Uber – Uber was founded in San Francisco in 2009. By 2015, there were more Uber cars in the US than traditional taxis in New York City. 

AirbnbLike Uber, AirBnb was founded in San Francisco and created a business model on the principles of a "sharing economy." 

LinkedIn - In 2002 Reed Hoffman founded and launched a social networking platform strictly for professionals. 

Amazon – Now legendary along with its founder, Jeff Bezos, Amazon started in 1994, when the internet was still in its infancy. Back then, it was just an online bookstore. Soon after, it evolved and has continued to successfully reinvent its business model. Not only has it adjusted to digitalization, but it has also stayed at its forefront. 

KlarnaIn Sweden, we have many exciting companies that have successfully ridden the wave of digitalization. As e-commerce increased, this company attempted to provide newer, smarter solutions for making digital payments. 

Tibber – Another Swedish company, Tibber has combined a smart electric car charger with green electricity and low electricity prices driven by artificial intelligence. This has allowed them to outpace and outprice competitors at every turn. 

The Fourth Industrial Revolution

The Fourth Industrial Revolution, or Industrial Revolution 4.0, is a fact. Man's need for what digitalization offers came about long before the technology to make it happen was developed!

Industry_Evolution_Pillar-Page_Digitalisation

Moore's Law vs. the Human Brain

Named after Gordon E. Moore, one of Intel's founders, Moore's Law describes the phenomenon that the number of transistors that can fit on a chip is growing at an exponential rate. For years, that rate proved to be roughly double the number of transistors every two years, though it has since been revised. 

This Law describes what many of us might consider to be a "breaking point," with technology rushing forward at an insane pace. For Moore, he was talking on a nano-level – chips and processors. On a greater scale, we can still see that while research and innovation are taking longer, breakthroughs cause development to drastically speed up again. 

This relates to the human brain in a rather interesting way. 

Moore's_Law_over_120_Years

You see, though our brains have changed over time, they are still programmed more or less the same as they were 40,000 years ago. This presents us with limitations when it comes to keeping up with technological developments. 

Impact of User-Friendliness on Timing

Digitalization is happening all around us, sure, but not at the same time. Timing differs between industries, services, and products. We clearly see that the products and services with low ease-of-use and high friction in the buyer-seller relationship are typically affected first. In other words, digitalization disrupts industries in which buyers demand a smoother customer experience first. Just think about what's happened to print media and brick-and-mortar retail. Other industries, where buyer-seller friction is relatively low, until now have largely been left unscathed.

That said, don't be fooled into thinking that your industry will remain as it is today. There are plenty of tech-savvy companies entering into complex, niche industries. Remember, Amazon started selling books online. Now, SpaceX handles deliveries to the International Space Station. Already, several start-ups are challenging the banking industry, which has led major banks to attempt to acquire them.  

Now think about your own industry. What about the potential effects of digitalization? Is user-friendliness low and buyer-seller friction high?  If so, there are excellent opportunities for you to blow past your competitors - before they try to do the same to you!

Digitalization vs. Path Dependency

For many of us, the pace and progress of digitalization can be difficult to grasp. Still, even the layman gets the sense that it is taking place very quickly. Some might even say it feels as if it has accelerated. Well, that’s because it has. 

The internet, smartphones, and social media have all contributed to the faster dissemination of both information and technology. What is local today can be global tomorrow. Below, I've included a graph showing various technological breakthroughs and how long it took them to reach 50 million users. 
Time-To-Reach-50-Millions-PillarPage

Four Technical Waves of Change

The Internet - When the internet came, the world changed. Suddenly we had incredible opportunities to find information, communicate, and collaborate on a global level.  

Smart Phones - The smartphone has become the central platform of our lives, with most of us racking up several hours of screen time per day. Since their introduction, we have been constantly connected, and many features have been built right into our cellular phones. 

Social Media – With the founding of Facebook, communication, and collaboration changed forever. With over a billion users, it is the largest platform on the planet. Today, young people live largely digital lives, while older people enjoy physical lives aided by many digital elements.  

Gamification - Perhaps the most unknown driving force behind technical change is gamification. This is the process by which elements from games are applied to other contexts, such as education and sales. Not only is it working, but it is incredibly powerful. 

This is largely due to the fact that games stimulate the brain to release chemicals like dopamine, serotonin, and oxytocin – all of which contribute to happiness and satisfaction. Unfortunately, this means gamification can be abused. Indeed, "black hat" driving forces or tactics are used quite often by gaming companies. Fortunately, there are "white hat" forces that can help counter this. 

Humans in the Digitalized World

Change affects people dramatically. It’s our natural attitude to want things to stay as they are. Though how we respond to and relate to change varies from person to person, it can be hard to get a straight answer from a subject about how they feel about a changing and significantly more digital environment. 

Many people would actually rather not admit when they are uncomfortable with new technology. We don't want to be perceived as "backward" or "passive." Ideally, we want to be seen as progressive, innovative and capable.

You’ll find that change is packaged in a number of different ways. It can be large and transformative, or small and continuous. Regardless of the direction, it is important to remember that every change is met with a natural amount of resistance. Resistance will happen. This is true no matter how good senior management’s intention, or how positive the potential business impact may be.

Four Digital Generations: To Which Do You Belong?

Digital transformation (change) is also a generational issue. These four groups are described in the book “Get Digital Or Die Trying” as:

Digital_People

Decoding Digitalization into Four Areas

It's common to hear that digitalization is very broad, which is certainly true. After all, it affects everything from business models, IT, sales to customer relations, leadership, marketing, and more. This “broadness” makes it important to view digitalization from a holistic perspective. 

Digitalization can be categorized into four areas:  

Internal Digitalization - This is the infrastructure that can improve and change internal processes such as business systems, integrations, hardware, licenses, etc. It includes simplified IT and technology and drives internal efficiency, primarily effecting costs savings. 

External Digitalization - External digitalization drives external attractiveness, which includes many digital communication tools (sales, marketing, and customer service). Unlike internal digitalization, this can dramatically affect the company's revenue growth trajectory. Collecting customer data to personalize the customer experience, automating your sales organization, or building chatbots to help answer customer questions 24/7 are great examples of external digitalization.  

Business Model Innovation - Digitalization has introduced a variety of new and exciting opportunities. Perhaps the most notable changes have been those that affect a company's business model. Through data and technology, innovative companies are reinventing how they create, deliver and capture customer value. And their buyers love it. Indeed, companies that have realized the potential of digitalization, listened to their customers, and acted accordingly are often the ones that will have the best chance of surviving into the digital future. We predict that business model innovation will be one of the leading drivers behind continued profitable growth.

Examples of new business models include:

  • AirBnb, which introduced the sharing economy to the hotel industry. 
  • Klara, which simplified payments and banking.
  • Uber, which challenged and undercut the taxi industry.

Digital Leadership - As we mentioned earlier, people often react strangely to change. In order to master the digital world, it's essential to have leadership that understands and embraces even the most dramatic of changes. This sort of "top-down" implementation is the best way to come out of the digital transformation with positive results. 

Sources:
The above learnings are mainly derived from:

  • Gilian & Hammarberg – "Get Digital or Die Trying"
  • Bonnet, McAfee, Westerman – "Leading Digital"
  • Gartner, Rasking, Waller – "Digital to the Core"
 
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Why is Digitalization Important?

Digitalization: Why it's Important 

In the following section, we will continue to examine the current digital transformation, discussing several very important topics. These include: 

  • The Four Core Principles of Digitalization
  • Examples to Avoid if You Want to Survive
  • Digital Masters: Business Relevance and KPI Impact

The Four Core Principles of Digitalization

Everything That Can Be Digitalized, Will Be Digitalized

Now that you understand what digitalization actually is, we can start to identify the reasons why we should embrace it. The quote above is actually taken directly from what many professionals consider to be the "digitalization bible," a book called "Get Digital or Die Trying.'"

I feel this quote really captures the short and simple answer to the question of "Why should I digitalize my company or brand?" The simple answer is that you will have to digitally transform your business anyway, whether you like it or not. The only choice you do have in the matter, is whether you will attempt to get ahead of your competitors, or play catch-up down the line. 

 All That Is Digitalized, Can Be Copied

 One thing that tends to hold people back from partaking in the Digital Revolution, is the knowledge that anything that exists in digital form is much easier to copy. They don’t want to help their competitors. However, smart business owners and entrepreneurs know that this is actually a benefit, not a negative, because they are viewing digitalization from the proper perspective. Put yourself in your customers’ shoes and reinvent how you make their lives easier. Use digital transformation to focus on new value creation, and you’ll be fine. Remember… 

All Copies Lessen in Value

Like making copies of copies on your office printer, every time something is replicated, it loses a little value. This is just one of the "bitter truths" of digital transformation. It is also a wake-up call to anyone still on the fence to ensure they are one the forefront of their chosen movement. Again, focus on innovation and customer value creation, and you’re on the right path to leading the way, rather than following someone else.

All That Cannot Be Digitalized, Will Increase in Value

Though many people feel it is the other way around, human beings are actually becoming more important in our increasingly digital world. In most cases of digital transformation, it was catering to man’s desires that drove the innovation.

Technology, robots, algorithms, and software are rarely able to meet the needs we as humans have. Digital transformation is a means to a people-centric end. Remember, digitalization is not human OR technology. It is human AND technology – in that order.

Examples to Avoid if You Want to Survive

This may sound a bit dramatic, but it's actually the truth. There are a large number of businesses that simply failed to capitalize on digitalization and either became irrelevant or extinct. A good example is Blockbuster Video. It used to be a multi-billion dollar giant in the US movie rental market, with thousands of stores nationwide. 

However, the company's failure to recognize the threat posed by digital solutions like Netflix ended up sealing their fate. As consumers quickly changed their viewing behaviors, Blockbuster was left treading water. Meanwhile, Netflix was spearheading the industry, becoming one of the first to come out with a digital video streaming solution and an effective digital go-to-market strategy for global expansion. 

What all survivors of the digital transformation have in common, is that they changed their business model and created digital solutions to adapt to new customer behaviors. 

Digital Masters Outperform and Outcompete

Management researchers Westerman, Bonnet, and McAfee all came to a very interesting conclusion about digitalization. They discovered that the "Digital Master" was far more profitable, productive and valuable than their industry peers, with numbers similar to the following: 

  • +26% in profitability
  • +9% in sales productivity
  • +12% in market valuation

These three effects are most sought-after in business strategies, plans and objectives. The research results were practically the same across multiple industries. Still, what exactly defines a “Digital Master”? In most cases, it can be narrowed down to two distinct factors:

  • Digital capabilities
  • Leadership capabilities

Digital capability is all about choosing and using smart, digitalized solutions based on the company's specific context. In other words, this term defines how good a business is at leveraging the right modern technologies to achieve their overall business goals.

Good leadership capabilities, on the other hand, are required to properly implement the digital tools necessary for success. It’s about the ability to optimize work processes. Digital leaders have the ability to digitally improve their organization and workforce.

In most cases, researchers were able to divide the companies they surveyed into four distinct “digital mastery” categories:

Beginners – Typically organizations who have not yet embarked on their journey to digitalization. The study shows these companies usually don’t have the leadership and ambition to get started with digital transformation in the first place. Their future seems bleak.

ConservativesThis group isn’t yet exploring the power of digital transformation, but are otherwise running successful companies and possess good leadership skills. In practice, these are typically the more traditional companies who do have the capital to drive digital change, but perhaps lack the urgency to do so. This type would be wise to start investigating digital trends, to prevent “Blockbuster scenarios” at a later time.

Fashionistas – In this group, we find mostly technological pioneers. Their companies wanted to test cool new solutions, but were not yet able to determine the value they offered their businesses. Given their innately digital nature, these organizations are more than comfortable implementing and using technology. However, we see they frequently lack to leadership capabilities to achieve their strategic business goals through technology.

Digital Masters – This group combines the best attributes of the Fashionistas and the Conservatives. They’ve chosen the right technology solutions for their business and have implemented them in impressive, innovative ways. These companies are masters leveraging tech for the strategic benefit of their business. Their operations are faster, they understand their customers better, and they are more able to drive customer value. The results speak for themselves: better profitability, higher sales productivity, and higher market valuations.

The four levels of digital mastery displays how well adapted a company is to the digital era that we live in.Source: "The Digital Advantage: How Digital Leaders Outperform Their Peers in Every Industry,"  Capgemini Consulting and MIT Center for Digital Business, November 2012

Most companies have already tried their luck at applying digital tools. Examples include marketing via social media, search engines, and comparison sites. In this area, too, companies saw quick development thanks to the fact that the internet was in full use on a global scale. Many systems have already been digitized, including time reporting, accounting, etc. Still, development continues. 

It's important to remember that not all trends and techniques should necessarily be acted upon. That said, external monitoring is more important now than ever. After all, being able to decide what to act on and what not to act on is often crucial. In most cases, we recommend an incremental adoption of new technologies in order to reach the rank of digital master. In the following section, we'll discuss how to do this in more detail. 

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How to Start With Digital Transformation?

Digital Transformation: How To Do It

As we have seen in the past, digitalization is equal parts technology and human behavior. It refers to a change, but it doesn't always have to be a drastic one. If one makes a serious mistake when implementing change into their organization, it can affect employees, clients, and customers in a myriad of ways. 

Furthermore, the change itself can be quite uncomfortable. As a matter of fact, you can safely assume people are going to resist. Sometimes groups even openly “rebel” or undermine change initiatives. This is why a successful digital transformation largely depends on good leadership throughout the change process. Below, we'll discuss the four steps required to initiate digitalization properly. 

With rapid digital advancements and opportunities, a company cannot wait around. It is time to act now.

Step 1 - Preparation

The challenge of leading digital change is usually more significant than understanding the technology itself. This is why proper preparation is so important.

Leaders should be sure to take steps to: 

  • Create an internal understanding of why the change is important.
  • Perform an assessment analysis to understand the starting position.
  • Develop a digital vision and ensure the management team is on the same page. 

Unfortunately, many leaders do not take the above steps very seriously. They’ll purchase a digital solution, hand it over to the business, and then that’s it. What happens then is that digitalization ends up becoming uncoordinated, personal agendas win, and valuable resources end up being wasted. Research has shown that approximately 70% of all digital transformation efforts fail, largely due to internal resistance. If you want to be successful, you need to start your digitalization journey off on the right foot. 

Step 2 - Focus 

Once the digital vision has been set and communicated, the important work begins: actually getting started. Unfortunately, this is often easier said than done, and important decisions will often be postponed for unclear reasons. There are three key steps to this part of the transformation process: 

  • Break down the digital vision into separate areas with clear objectives. 
  • Decide how you want to control, organize, and measure the transformation.
  • Allocate a portion of your company's budget to the digitalization journey.

Only when the above activities are clear, planned and measurable, will the digitalization journey become tangible for everyone involved. If the true business objective remains vague or difficult to understand, you need to keep digging until clear goals and activities appear. 

It is also not uncommon for the digitalization journey to be given to a single person. This is incorrect, as the transformation should be a "journey together." After all, you’re looking for a business transformation, not an individual transformation. Furthermore, simply delegating the responsibility neglects the idea that this journey will take time.

For many companies, the available budget still governs the allocation of funds for such endeavors. Approved budgets are an effective way to get a mandate to implement change. Other solutions are far less effective. For instance, you wouldn't want to try to squeeze new projects into already allocated budgets, as this will only result in slow decisions and unnecessarily late implementation.

Similarly, the budget for digitalization should be quite flexible. In an agile or semi-agile work environment, new opportunities and challenges are often discovered throughout the change process. This makes it crucial to keep an open mind, and to implement regular and effective feedback loops. If it turns out that resources are best allocated differently than originally expected, your team should have the autonomy to make that call without going through a rigid and lengthy process.

In summary, in order to enable successful digital transformation, you want to create working conditions that allow for quick and qualitative decisions. You want to be proactive. Speed and adaptability are key.

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Next Steps

Next Steps

By now, you should have a better grasp of digitalization as a whole, as well as why it is important and how you should progress.

The next step is to:

  • Understand how a Digital Master is made here
  • Do an initial analysis of your current situation here
  • Book a meeting with us! We will listen to your challenges and talk about your opportunities.

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