The digitisation of the economy is merely one additional layer on top of previous revolutions in the economy, not something that makes past methods entirely obsolete. There's now a new context and new rules for a game that's not entirely new. Let's explore 8 major consequences of this (r)evolution.
The phenomenon that we call digital is first driven by the mass availability of relatively affordable digital technologies designed to support inexpensive interactions and transactions with far less friction than in the past. Thus activities that used to be out of reach of most people and reserved to insiders of various domains of human life have become affordable and accessible to a far larger number of people and businesses; that is the case for example in publishing, tinkering with hardware a.k.a. hacking, producing movies or music, shooting pictures, distributing and selling content... While digital technologies are necessary for digitisation, they are far from sufficient in human organisation because we also need a culture and practices to fully leverage new capabilities. But when technical means and mindset combine there are deeply transformational effects rooted in the following eight top consequences:
- foundation of advantage stems from practice instead of mere access - as such access to a knowledge resource or a tool is no longer a source of advantage for individuals where access has become easy and relatively inexpensive. It follows that what makes a difference is not what we can access whether in terms of tools or means of production and distribution or in terms of education, but rather what we can do with what we access. Therefore we're increasingly in an economy where good practitioners have an advantage over even very well trained individuals with limited ability to put their knowledge to work;
- (re)invention of activities with new ways of seeing - since the science, technology and engineering that we are exposed to shapes our way of seeing the world and our business, it is now clear that professionals with a keen understanding of these new means of production will look as almost any activity in totally novel ways doing away with many of the constraints previously assumed to be impossible to escape from. For example, when thinking about a complete online banking experience throughout the customer lifecycle, the founders of N26 found ways to abide by fundamental KYC obligations in financial services without need of physical presence. Another example is that of e-learning where players like Coursera dropped a fundamental assumption as regards the learners' desire to receive a diploma sanctioned as such by some authority, thus making it possible for large numbers of people to afford access to certifications and complete specialisations from reputed institutions of higher education;
- from captive markets to empowered buyers - with the technical means being available to the masses the balance of power between buyers and sellers has shifted in many industries, in part because the buyers have better access to crowd-sourced information about the goods and services they are considering and in part because their voice as users has a far greater reach than in the past. For example, both retail and business buyers have access to vast amounts of information about a product or a service well before speaking to one of its representatives and once they own it they have an influence on future buyers like never before; it is what was described by Google as the Zero Moment of Truth and popularised by influence and word-of-mouth marketers with particular intensity in the past decade or so;
- standardisation of interfaces between systems as driver of freedom - ease of integration between tools through standard methods like APIs, XML and web services for example. That second aspect of maturing digital technologies creates more freedom for users and more difficulty to create lock-in for sellers of technologies. It also reduces the relevance of monolithic integrated platforms, forcing even players who were dominant in that space to adopt modular architectures. For example, services like TIBCO's Mashery or platforms like Jitterbit, Zapier or Mulesoft embody the strategic importance of APIs in modern business;
- companies as networks and ecosystems - as technical means provide for more modular and loosely coupled architectures, interactions across organisational boundaries become much cheaper and the transactions between economic agents become better, faster and cheaper. As a result the organisational forms of vertical or horizontal integration provide less economic advantage than they used to since the same results can be achieved faster by assembling a network of focused companies that can coordinate across company boundaries to achieve shared goals without the overhead of a corporate structure and the politics that go with it. Increasingly critical parts of what companies do may be run outside the walls of the company itself by specialist players taking full advantage of economies of scale and focus. In many cases that gives rise to complete ecosystems of interdependent yet loosely coupled players collectively capable on taking on their more integrated counterparts. When one player owns and operates the critical assets that bring all these players together they have a dominant influence and shape the business into a platform. For example, the companies using Android are successfully competing against Apple's iOS community, while makers of frameworks like Symfony are the driving force behind communities like Drupal, Laravel, eZ Publish or OroCRM. And of course, players like Uber or Airbnb act as virtual market makers putting buyers and sellers in contact through match-making engines that operate according to rules set by their owners thus giving them an ability to capture a significant share of the economic value created by those transaction;
- business as uninterrupted flow of information - since the technologies underpinning a given period in History shape how individuals and businesses think of the world and their interactions in it, the emergence of machines able to process and transfer large amounts of information has given rise to a mental model of business seen as pure information. When looking as business like that we can see opportunities to streamline processing of information so as to avoid duplication, errors and interruptions of flow. We are therefore moving into a realm that is conceptually close to processes and flows of components and products in industry, which makes the leap evident from Toyota's Kaizen to modern tech's lean, agile, Scrum and Kanban. Much of today's talk about agility and flexibility is the results of a way of designing business as an uninterrupted flow of information. For example, when major players in financial services are implementing tailored versions of blockchain technology to facilitate traceable straight-through processing they are clearly aiming at bringing to market almost automated financial factories able to leverage the pooled resources of several institutions to replace their current mechanisms for recording transactions in a safe, secure and traceable way;
- when offline is no longer that and becomes connected instead - with the mass availability of functionally specialised components that have one or more sensing, processing, storage and networking capabilities, it becomes increasingly possible to add intelligence and interactivity to places and infrastructures previously considered to be part of the realm of offline. As a result buildings become "smart buildings", several functions of the consumers' homes can be operated remotely and even legacy hi-fi systems can access content from Spotify or Tidal. The consequence is that the traditional differentiation between online and offline is gradually becoming obsolete;
- the journey to evidence-based management - with digital technologies the promise of traceability and constant quantification comes nearer to reality. As all sorts of data become relatively easy to collect and process, the challenge become that of putting together the processes and tools required to control and exploit the data necessary to run business operations in a way that's evidence-based. For example, when Bridgewater Associates founder Ray Dallio decided his company's competitive advantage would be based on having a culture and methods designed to make the best ideas emerge, he created a specific form of evidence-based management in which they needed the tools and processes to rate ideas and individuals' performance in sessions where these ideas were discussed. It's well worth taking a look at his presentation at TED.
