Digital technology is a good way to kill a great company.

Apply digital technology in the same way as IT at your own risk!  The differences between digital technology and traditional IT technologies require changing management and leadership thinking.  Applying old rules to new tools is a good way to kill a great company. 

Digitization is the process of applying digital technology to business resources.  Digitization via mobile, big data, analytics, cloud, etc. extract information bits out of physical atoms.   Digital dogma contends that “clicks” are better than “bricks” and future innovation demands digitizing the business.   They are if leadership seeks to be a viable digital business rather than just applying technology to digitize the status quo.

Digitization is the modern equivalent of ‘paving the cow path’ an old BPRE term.  In this case, digitizing the status quo freezes your value proposition in

Digitized resources, products and services have advantages.  They are cheap to create, easy to distribute, readily global, adaptable, etc.   The strategy to digitize the business appears simple: get a mobile app, add analytics, put up a page on Facebook, and source processes via the cloud.   

Being digital equals social media + analytics + mobility + cloud.  Right?

Wrong

Digitization alone, the simple application of technology to business, erodes business fundamentals in one or more of the following ways:

• Digitization alone creates unfunded customer mandates as they assume digital equals free.  Banks subsidizing the real cost of mobile banking and its digital customer experience.  Banks have to take millions of dollars of cost out to pay growing cost of free digital transactions as you deliver more value for significantly more cost.

• Digitization alone compromises the price customers will pay when you can get them to pay.  Customers anchor their value perceptions in an assumed cost of production.   The more they perceive the cost of production the more they are willing to pay.  eBooks are an example as they are more capable and valuable to the reader so they should be willing to pay more for an eBook, but they don’t.   Instead they pay less because an eBook costs you less to produce.

•  Digitization alone creates a direct competitor to existing products and services.  Customers not only anchor their price to the cost of digital production, they also place downward pressure on prices of traditional products and services.  Why was I paying 2X for something that I can get the digital version for much less?

• Digitalization alone bleaches pricing power by increasing the ability of customers to compare prices across products and competitors.  Transparency around price, product and availability fuel a race to the bottom where there can be only one lowest cost leader and a range of competitors working themselves out of business.

• Digitization alone diverts attention and time away from the core that generates the vast majority of sales, cash and profits.  Focus is at a premium in current economic conditions. 

• Digitization alone leads to a 10% paradox where digital is the fastest growing and smallest part of company revenues and not material to results.  This forces executives to either step back or take a leap in the hope that they can grow revenues and profits fast enough to replace core revenues and earnings.

• Digitization alone creates a capital conundrum as feeding digital capital needs requires staving the core at a time when taking cost out of the core drivers earnings faster than growing digital channels. 

• Digitization alone is not the most a viable strategy for building a business.  In practice digitization alone easily leads to turning real sources of competitive advantage into virtual commodity anchors.

A successful digital business requires more than turning atoms into bits.  Look at any successful digital business from Amazon to Uber and you find more than a simple swapping people, process and facilities for mobility, information and websites.   You find a digital business with a digital business strategy.

More on digital business strategy, but without an informed strategy that recognizes the realities of digitized resources – your investments in mobility, cloud, social, big data etc. can be a good way to ruin a great business model.