12 truths that will become self evident in the digital decade

We are entering a dynamic digital decade.  Dynamic in the sense that change is increasing in frequency and amplitude.  Digital as the next decade unfolds based on changes in technology.   We have faced this situation before, at the turn of the 20^th century. Michael Hugos, the author of the book Enterprise Games, described that situation in a way that captures the necessity for a different way of thinking.  I paraphrase. 

“It required the first World War (WW1) to figure out the realities of 20^th century technology and drop the pretenses of the prior Victorian era.  I hope it does not require a similar event to shake out of those same pretenses and figure out the realities of the 21^st century.” 

The realities of the 21^st century are digital realities and its impact on individuals and enterprises.  Literally anything is possible with digital technology making it essential that we start the decade with a set of principles that help us see the emerging digital world for what it is, what it could be and what we want it to be.

Societies have made declarations in the past.  For example the U.S. Declaration of Independent declarations provided a starting point based on statements of beliefs and values.  Declarations defined the start of the eCommerce era from Negroponte’s “Being Digital” to Weinberger, Levine and Locke’s Cluetrain Manifesto.  Following that tradition and based on the interviews with more than 30 thought leaders we propose the following ‘truths’ will be come self evident in the first digital decade.

1.     Raising human ability is the expectation for everything digital.  There are no users, customers, or associates only people.  People looking to improve their lives. meet their needs, achieve their ambitions, complete tasks, etc.  Human ability should be the source of value for digital technology.  Digital technologies that do not support raising human ability either directly or indirectly are worth less than those that do.

2.     Everyone and everything is an actor on a digital stage.  Nothing is inert in a digital world as individuals, institutions; instruments all interact to create connections, context and capability. The ‘internet of things’ is a world of “makers”, individuals and organizations that create rather than consume the future.  Their actions make innovation the velocity of market change – another principle below.

3.     Supply exceeds Demand as digital technologies such as 3-D printers and increasingly sophisticated global supply chains create a world where the means of production and distribution are available to all.  The resulting increase in customer choice raises the importance of applying technology to create meaningful digitally based differences.

4.     Results trump responsibilities as the value of organizations and individuals derives from what they achieve rather than the resources they control.  Customers, markets and executives will assign greater value to the efficacy of outcomes rather than the efficiencies of processes because people pay for the outcomes not the process.  Yes business must be ethical and sustainable, but beyond that results still matter. 

5.     Variance is the source of continuous value.  Variance has been a source of cost and an imperative for management control.  In the digital world, variance provides a source of new ideas and future value rather than reason to maintain conformance to current practices.  A lack of variance indicates an inability to innovate, grow and engage the diversity and dynamism of the digital world.

6.     Information is crude oil of the future.  Neelie Kroes, the European Commissioner for the Digital Agenda recognized this trend as raw information is crude in nature requiring refinement before it can fuel organizations.  Big data and analytics capture and process the rising tide of digital information and place it at the center of organizational strategy and operations.  Once refined, information becomes oxygen taking on other characteristics.

7.     Information is also oxygen, without it everyone suffocates in ignorance.  You cannot control information in the same way as the past.  Living in a ‘world without secrets’ a term coined by Gartner’s Richard Hunter is reality.  Individuals and organizations will either offer transparency and translucency – transparency’s weaker form - or accept that others will shed their light on you.

8.     Learning is the license to operate in the future.  In a digital world anyone can have 4 wins and 0 loses.  It is much better to have 24 wins with 14 losses provided there are 38 lessons learned.  Sustainability in a world of change rests in intelligent adaptation to customers, technologies and strategies.  Assume that no one person or organization will get it right the first time or all the time, but if they learn and improve they will always have the chance to win.

9.     Innovation sets market velocity as markets move from planned product launches or strategies to a plethora of individual pulses and innovations.  This is a natural outcome of “makers” creating the future on the digital stage.

10. Attention is a currency you earn that goes beyond selling advertising and aggregating customer eyeballs.  Attention makes things important and increasingly people engage their attention via digital technologies.  This will move beyond apps, email and games on mobile devices into deep customer engagement and experiences that organizations must build and bank for future success.

11.  Capital has left the building. Perhaps the most esoteric and most important of the principles based on an observation of Erik Brynjolfsson and Andrew McAffee that technology based productivity increases return gains to capital more than labor as operations become more capital intensive. The current situation of record equity share prices and record unemployment hint at this decoupling.  Technology based changes finance and financial innovations, such as derivatives, increasingly enable capital to walk on its own down Wall Street and around the world independent of Main Street. 

12. Technology is greater than IT (Technology > IT) as the nature, role, ability and capacity of digital technologies builds on and extends beyond traditional IT applications and infrastructure.  IT largely concentrates on automation and integration of back office operational processes.  Technology, in general and digital technology particularly extends into front office generation and fulfillment of demand.

And an extra one to make it a bakers dozen.

13. Comprehensive value defines sustainable value.  The ability to consistently grow via value creation rather than exploitation becomes critical in a dynamic world.  Comprehensive value, the subject of a prior report, describes the economic, shared, sustainable environmental and personal values organizations must deliver to grow in the future.  Economic returns are important, however in a world based on these principles how you turn a profit becomes increasingly important to the ability to create profits in the future.

What do you think?  What are the principles and declarations we need to make in defining the emerging dynamic and digital world.

A Digital Discussion

A while ago I was a guest on CXO Talk an innovative web cast run by Vala Ashfar and Michael Krigsman.  The focus of the 55 minute session was Digital and the recording is from April.

Here is the link

https://plus.google.com/u/0/events/cfo0t5seme45nek0jobh1lovn7o

Welcome your comments

Mark 

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. 

Everything digital becomes physical, eventually resulting in changing human ability

Virtual is one of the premises of digital thinking.  Turning physical atoms into virtual bits and selling those bits sits at the heart of digital thinking.  

Digital supporters believe digital bits enable superior performance, revenue and growth.  They old that companies created and competing on the web routinely beat their real world counterparts. On the surface that appears to be true given the success of digital giants, many of whom offer services that impossible without the web.

Look deeper at their business models you find that these digital giants have significant physical presence that is essential to their business model.  Sure they are digital companies, but they are digital in combination with the physical world rather an in spite of it.

Digital businesses have a significant physical side because the web is not a

self-contained and self-sustaining system.  What happens on the web can stay on the web, but its much more valuable when it connects with the real world.  If it does not connect with the real world then it matters, just not as much as other things that embrace a combination of digital and physical.

Everything digital becomes physical. 

It is a pretty bold statement, but one that is true particularly if you add one word – eventually.   That may be hard to accept as the hype about digital revolves around virtualizing things like personal relatonships (Facebook), product descriptions (Amazon), music (iTunes) and consumer attention (Google).  But in each of these cases, the value of the virtual information exists when it is recombined with the physical world.  You in the case of Facebook, what you buy from amazon, what you listen to and your purchasing dollars are what make Google’s advertising valuable.

Lets go one step further. 

Everything digital eventually becomes physical.  With most things becoming physical in terms of changing human ability.  

The majority of digital eventually revolves around human ability

Human ability refers to the range of activities you have the capability and capacity to perform.  Human ability ranges from being able to feed yourself all the way to the work of the worlds greatest physicians, scientists and business leaders.  Human abilities encompass everything we do.

If everything digital eventually become physical,

and

Most things manifest themselves in changes in human ability

Therefore;

Most things digital eventually manifest themselves

in changes to human ability.

We cannot say that everything digital becomes human ability, but enough of the value does to make human ability a central design element for any digital business.  A fundamental question for any digital initiative therefore becomes:

How does digital technology change human ability?

This is a fundamentally different question that the focus of IT centric investments that concentrated on cost takeout, automation, integration etc.

IT’s focus was financial.  Making the numbers work in terms of the business case boiled down to simple math comparing as-is and to-be costs of doing business.  This makes sense given the massive investments required to build out IT infrastructures and operations.

Digital’s focus is more direct. Smart phones, social media, big data, sensors etc. are technologies that directly touch the individual.  They are personal in the way a personal computer never could be.  They still have a business case but one built on the value resulting from expanding people’s ability – customers and associate/employees alike – that really matters. 

Human ability is at the center of successful digital business models and a core element of their design.  It is easy to lose sight of human ability’s role in digital business given all the attention paid to transforming atoms into bits.  But human ability is there because everything digital becomes physical particularly when it changes our abilities. 

Digital Anxiety

The impact of technology on people, business and society is a constant source of anxiety.  Technology in general and the web in particular spawn predictions of doom and gloom.  From technology creating digital zombies, to constant social revolution, cyber terrorism and the like, technology has apparently created more harm than good.  Charles Kenny’s recent opening remarks in Bloomberg “What the web didn’tdeliver” is the latest round of digital anxiety.

Where are the flying economy or even my flying car?

Kenny’s assertion is that the web and technology in general have failed to deliver the economic boom predicted at the turn of the last century.  During the heyday of the first Internet, the world looked like an un-interrupted path to growth and prosperity with a keyboard in every pot and an internet connection for every person.  These were the days of the digital divide as an economic and social issue.  Kenny is right to point out that simply getting online did not necessarily mean getting into the fast lane.

The world according to Kenny is not entirely accurate.  Sure we stand a decade after the dot-com bust in a world of uncertain economic times, unemployment and challenge.  Over the last 10 years we have weathered several economic crisis in Asia, Russia, Asia again and the worst economic conditions since the great depression.   The problem with Kenny’s logic is that he associated current economic conditions with a failure of technology.  That would be a logical connection if technology were the source of economic failures, but far from it.  The crisis of the last decade have more to do with repeated boom-bust cycles fueled by capital flows and greed more than technology.

Technology applied to capital markets have contributed to the financial crisis as their information and automation made complex derivatives and other instruments possible.  Market volatility increases as technology enables 24/7/365 and program trading.  Technology has made these things possible, but its still people that take the possibilities to market.

The past decade’s financially driven crises are particularly pernicious as like it or not finance touches everything.  A financial crisis is unlike the demand driven crisis of the past where simple stimulus is the recipe for success.  Its one thing when consumers do not have enough money because they lost their job.  It’s another thing when there is no money in the system regardless of who has a job.

Blaming technology for not enabling us to grow past recessions makes sense in the context of demand driven situations.  It is weak logic at best when it comes to resolving and rooting out the causes of financially driven crisis.  Our current predicament is due to Wall Street and K Street more than it is to decisions made in Silicon Valley.

Technology distributes productivity gains differently than in the past

There is more to what is going on in the economy than just a failure of technology to deliver constant and escalating levels of growth.  Technology is changing the nature of productivity and the economic returns generated by productivity.  Eric Brynjolfsson and Andrew McAffee make the point that technology is shifting productivity returns away from people and towards capital, particularly in the case of digital technologies.   That observation provides part of the current situation where companies make record profits while economic and employment levels lag.

The issue here is not that the information revolution has not generated economic prosperity.  It has, but not for enough people and not in ways that were able to overcome or prevent the financial turbulence that put us in this mess in the first place.

Technology is a net contributor to the human experience, beyond the hackneyed arguments that we all waste time surfing the web at work.   It has given us new ways to understand the world, connect with each other, mobilize our common interested and innovate our shared and personal experiences.  Those values are ones that do not readily appear in GDP figures. 

More people have more technology than ever before and they are using that technology to improve their lives in ways that go well surfing the web.   Those are the facts that should be the focus of what the web and its related digital technologies delivered not inaccurately ascribing a technology effect for a financially created cause.

Kenny is right in his assertion that “if we’ve learned anything over the past 10 years, it’s that there are no simple Web-based solutions to an economy in the productivity doldrums.”  True, but that is like a chef blaming their utensils for a poor meal.  Feeding digital anxiety serves no one, other than to fill column inches in a magazine.