Digital/digital business

The term “digital” is a victim of its own success; it is increasingly amorphous as it's use becomes more popular. Much like the term “cloud,” “digital” has too often been co-opted by legacy IT leaders and vendors to brand what are fundamentally traditional IT initiatives and products as something differentiated. It’s understandable that IT leaders have done this rebranding, mixing in terms like "AI" and "Big Data" to cloak an essential operational project, modernize aging systems, or address differed maintenance as a strategic investment, significantly increasing the odds of getting it funded. “Digital” gets misused and overused because, as Ade McCormack writes, the “lack of common understanding as to what digital means is resulting in thousands of meetings taking place daily, where nobody in the room shares the same definition.” In the absence of clarity, “digital” ends up meaning whatever is convenient for the user at the time.

If “digital” isn’t a project or a product, what is it, and why should you care? Understanding what digital is and the language around it can help organizations move from reacting to technology change—that is, constantly chasing what others have done or the state of the industry—to proactively embracing technology change and leveraging it for competitive advantage. However, as acknowledged above, digital terminology is confusing. The related (but distinct) terms “digital business” and “digital transformation” show up in equal measure in a search for either one. More recently, “digitalization” and “digitization” have entered the lexicon in greater volume, adding to the uncertainty. To understand the digital lingo, you must understand the most central term, “digital,” especially as it occurs in the language of digital business. While it’s the least specific, the “digital” of digital business sets the tone, context, and, really, the ethos behind this new, overall redefinition of digital. Furthermore, digital business is really the progenitor from which the other new digital terminology is derived.

In an early and influential piece on digital business, Jorge Lopez of Gartner wrote in Forbes:

“Digital business is about the creation of new business designs by blurring the physical and digital world. It is about the interaction and negotiations between, business, and things [sic]. It is when things start to negotiate amongst themselves as well as people and business that we start to see how we have entered an entirely new and disruptive world.”

The ongoing proliferation of smart devices was top of mind in 2014 when Lopez wrote his definition. While Lopez attempts to differentiate the things of digital business from the Internet of Things (IoT) in his article, his "things"-centric argument about the digital has not stood the test of time. Things just no longer play as significant a role in the rhetoric of the digital, as made clear by the fact that no definitions of digital business created after this initial example include a reference to things.

McKinsey has a slightly more cogent and recent explanation of digital/digital business which declares, “we believe that digital should be seen less as a thing and more a way of doing things,” and he further articulates that the digital is about creating value in new frontiers and transforming the way traditional business is done. I support McKinsey’s concept that digital is a mindset/culture and collection of capabilities that can create value in new and existing aspects of the enterprise. This notion of digital as a more abstract state of thinking and way of doing things captures the usage of the term in practice.

Abbie Lundberg of LundbergMedia originally contributed her own broad definition for digital: “the transformation of business models, products and/or operations from the use of information and communications technologies.” While this definition is more succinct than most others, the author later revised it to simply state that the digital is “the ability to exploit information at speed.” The elements of pace and specificity around the key role of information included in this definition are, in my opinion, a valuable addition to the discourse.

Each of the above definitions contributes to the overarching concept of digital business, give or take the “things” aspect. For my purposes, I consider digital business to be the mindset, commitment, and capabilities necessary to create value by leveraging information and technology at pace. When I talk about “value,” I mean value gained by re-engineering current business but also value from wholly new ventures only accessible to those with the foresight to envision them and the capability to capture them.

Digital transformation . . . with a hint of digital disruption and strategy

Digital transformation is distinct from digital business and more outcome focused. Gartner offers us a definition, stating, “digital business transformation is the process of exploiting digital technologies and supporting capabilities to create a robust new digital business model.” From Gartner, we start to get the sense that transformation refers to the act of becoming digital, but there is much more to it than simply that. The Harvard Business Review and Red Hat through The Enterprisers Project describe digital transformation as “the integration of digital technology into all areas of a business, fundamentally changing how you operate and deliver value to customers.” The Enterprisers’ definition expands on Gartner’s by giving a sense of what the outcome of digital transformation is: the reimagining of the business through technology. This is an important contribution to our understanding because it gives us a sense of how digital can and should impact the business.

Greg Verdino asserts that “digital transformation closes the gap between what digital customers already expect and what analog businesses actually deliver,” further building out the idea that customer value is central to the outcome of digital transformations. International Data Group, Inc. (IDG) in their 2019 Digital Business Survey asked IT decision makers what their perception of “digital” is. The IT decision makers responses are highly focused on meeting customers’ expectations both external (52%) and internal with productivity improvements (49%).

This research suggests a reactive posture, where yet again IT is not meeting expectations at pace. Customers internally or externally expect their technology experience to be on their terms: modern, seamless, and intuitive. That’s just not happening, according to the survey data.

When customers' expectations are not met, the digital transformation conversation is often focused around responding to customers' demands reactively rather than investigating new frontiers proactively. This reactive nature evokes the concept of digital disruption. Business & Information Systems Engineering has a seminal piece on digital disruption, in which Skog offers this definition:

“The rapidly unfolding processes through which digital innovation comes to fundamentally alter historically sustainable logics for value creation and capture by unbundling and recombining linkages among resources or generating new ones.”

Digital disruption upends our traditional technology management strategies. A few institutions lead this disruption, customer expectations grow quickly to reflect the new leaders’ emergent capabilities, and then customers apply those new expectations to woefully unprepared traditional enterprises and are left highly dissatisfied. To me, digital disruption is often the impetus for digital transformation, and the evidence for that assertion is in IT decision makers’ perceptions that "digital" is about trying to meet customers' expectations. This suggests IT leaders are often seeing the nature of their digital challenge reactively, looking backwards, and trying to respond to customers’ expectations, which comes at the cost of never looking forward and proactively capturing an opportunity before customers realize its potential independently.

Regardless of whether you are seeking digital transformation to retroactively respond or proactively innovate, nearly all definitions agree that digital transformation is an enterprise-wide effort to fundamentally shift the way business operates, and to transform requires building a comprehensive strategy. Since digital transformation encompasses the entire enterprise, the strategy must be inclusive, with leaders building bridges across silos and articulating the what, why, how, and who. I-SCOOP has an article that offers a good jumping off point on building digital transformation strategy.

Digitalization: it’s a project, not a path

Yet another digi-word . . . "digitalization." Digitalization is a bit more comprehensible. While opinions differ even inside of Gartner, I favor the Gartner definition offered in a Brookings report, which reads that digitalization “is the process of employing digital technologies and information to transform business operations.” This definition is business process focused and is about moving processes to be digitally native, whether in terms of how people work or moving a process to an online system. Digitalization is distinct from transformation, and as Jason Bloomberg points out in Forbes, “an organization might undertake a series of digitalization projects, ranging from automating processes to retraining workers to use computers. Digital transformation, in contrast, is not something that enterprises can implement as projects.” Digitalization projects will be part of a transformation strategy, but they do not constitute a strategy or transformation within themselves. They're necessary but not sufficient. Transformation is about changing culture, vision, and approaches, not just finishing one of many projects.

Digitization: why are we talking about this here?

The definition of digitization is concrete, and as such does not belong with the others. It’s just too comprehensible to be on the same list. We can go to that old tired strategy and say that Merriam-Webster defines digitization as “the process of converting something to digital form.” Yep, that’s it. If you take a picture of a sheet of paper with your phone, you just digitized it, and often that's exactly how this term is used, in document imagining.

The digital Matryoshka doll, nesting, nesting, and nesting

To put this view of the digital into a quick example, your business could in an act of digitization convert paper into a digital format as part of a digitalization project nested within your digital transformation strategy to become a digital business, an imperative to stay relevant in a time of digital disruption. Silly examples aside, the takeaway should not be a perfect understanding of these terms, since no one has that; the terms are morphing daily. Rather, technology leaders should seek to understand the overarching ideas, especially that incorporating emerging technology to leverage information in all aspects of business can create new value, but to create this value, we have to build new capabilities and think differently about all aspects of what we do.