MNA1098 Week 1 Introduction to Digital PDF

Week 1: Introduction to Digital Fabrizio Amarilli [email protected] 2024 - Managing Change & Digital Transformation 1  (Sept 2024) https://commission.europa.eu/ 2024 - Managing Change & Digital...

Week 1: Introduction to Digital Fabrizio Amarilli [email protected] 2024 - Managing Change & Digital Transformation 1  (Sept 2024) https://commission.europa.eu/ 2024 - Managing Change & Digital Transformation 2 https://commission.europa.eu/ 2024 - Managing Change & Digital Transformation 5 2024 - Managing Change & Digital Transformation 6 What shall we see? What is digital What is the value of digital and the different perspectives through which organizations can evaluate digital initiatives What are the dimensions of a digital transformation initiative 2024 - Managing Change & Digital Transformation 7 What is digital? 2024 - Managing Change & Digital Transformation 8 What is digital? Oxford English Dictionary In the context of Information Technology, “digital" refers to information that is represented in a binary format (0s and 1s) and can be easily processed by computers. Digital technologies encompass a wide range of tools and systems that facilitate the creation, storage, and transmission of digital information 2024 - Managing Change & Digital Transformation 9 What is digital? Key characteristics of digital: Rapid Duplication and Distribution Storage Flexibility Automated Creation and Communication Discoverability Permanence and Retrievability Remote Access 2024 - Managing Change & Digital Transformation 10  Lexicon: IT, ICT, & IS Information Technology (IT) refers to computers, software, networks, and other physical devices to create, process, store, secure, and Information Technology: exchange digital data. It encompasses a wide range of technologies and systems that facilitate the management and communication of information, primarily in a business context. Information & Communication Technology (ICT) encompasses all technologies that facilitate communication, including both hardware Information & Communication and software. It includes IT and telecommunications technologies, Technology: such as the internet, mobile devices, and broadcasting technologies, that enable users to access, store, transmit, and manipulate information. Information Systems (IS) refer to a coordinated set of components that collect, store, process, and disseminate information in an Information Systems: organization. An IS integrates IT with the processes and people involved in managing and analysing data to execute transactions and decision-making. 2024 - Managing Change & Digital Transformation 11 What is the value of digital? 2024 - Managing Change & Digital Transformation 12 The Digital Paradox “We see the computer age everywhere, except in the productivity statistics” -- Robert Solow, 1987 2024 - Managing Change & Digital Transformation 13 The Digital Paradox (Robert Solow) Also known as the productivity paradox, it refers to the slowdown in productivity growth in the United States in the 1970s and 1980s despite rapid development in the field of information technology (IT) over the same period. 2024 - Managing Change & Digital Transformation 14 Does IT matter? IT and the Corrosion of the Competitive Advantage (2004) 2024 - Managing Change & Digital Transformation 15 Technology as a Competitive Advantage Proprietary Technology – Defined as a technology that can be owned actually or effectively by one company. Example: Pharmaceutical Company, Patent on Compound. Infrastructural Technology – Defined as technology that cannot be protected and in contrast to proprietary technology is worth more to the economy as a whole when shared. Example: Railroad, Electricity. IT can be considered as an infrastructural technology. 2024 - Managing Change & Digital Transformation 16 Vanishing Advantage - The Phases of Infrastructural Technology Buildout Early Phase – advantage takes the form of proprietary technology and enable new more efficient operating methods. Physical limitations to technology, intellectual property rights, high costs, lack of standards, etc. Market Changes – in addition to improving operations dramatic broad market changes occur due to infrastructural technology. Example: Railroads in the mid-1800s The Trap – Executives make a mistake and assume that these advantages are sustainable when they are brief due to the technology becoming broadly adopted. 2024 - Managing Change & Digital Transformation 17 Commoditization of IT IT has all the characteristics of an infrastructural technology. IT is a transport mechanism – carries digital information. IT has more value when shared than when used in isolation. Standardization – each stage in the evolution of IT has increased the standardization and homogenization. Highly replicable – the purest commodity – bytes of data. Perfect Delivery Channel – third party purchases are similar to electric power by purchasing fee-based services “the grid.” Subject to rapid price deflation – Moore’s Law. The value of IT increases as the number of users grow – Metcalfe’s Law 2024 - Managing Change & Digital Transformation 18  Sprint to Commoditization of IT Railway Growth 350 300 railroad tracks in 1000s of kilometers 250 200 150 100 50 0 1841 1846 1851 1856 1861 1866 1871 1876 Year 2024 - Digital Transformation & Sustainable Change 19 Sprint to Commoditization of IT  Sprint to Commoditization of IT Electric Power Growth 14000 12000 US generating capacity, in megawatts 10000 8000 6000 4000 2000 0 1889 1899 1902 1907 1912 1917 1920 Year 2024 - Digital Transformation & Sustainable Change 20 Sprint to Commoditization of IT  Sprint to Commoditization of IT Information Technology 160 140 Number of Host Computers on the Internet (in millions) 120 100 80 60 40 20 0 1990 1992 1994 1996 1998 2000 2002 Year 2024 - Digital Transformation & Sustainable Change 21 Sprint to Commoditization of IT Why Caring about IT? From offence to defence “When a resource becomes essential to competition but inconsequential to strategy, the risks it creates become more important than the advantages it provides” -- Nicholas G. Carr, 2004 2024 - Managing Change & Digital Transformation 22 Digital “Darwinism” 2024 - Managing Change & Digital Transformation 23 ICT and Productivity (USA) Productivity (relative to industry average) IT Stock (relative to industry average) 2024 - Managing Change & Digital Transformation Source: E. Brynjolfsson, A. Mcafee, 2010 24 Corporate Performance Spread has Grown IT-Intensive Non IT-Intensive 1970 1990 2010 Source: E. Brynjolfsson, A. Mcafee, 2010 2024 - Managing Change & Digital Transformation 25 Digital technologies and firm performance: Evidence from Europe (2020) Source: EIB, 2020 26 ‘Paradox Lost’ “We now see computers everywhere, including in the productivity statistics.” -- Erik Brynjolfsson 2024 - Managing Change & Digital Transformation 27 Top firms by market capitalization (Sept 2024) 2024 - Managing Change & Digital Transformation Source: https://companiesmarketcap.com/ 28  (2010) (2014) Source: https://money.cnn.com/magazines Source: Bloomberg and PwC analysis 2024 - Managing Change & Digital Transformation 29 The New Business Logic: Scalability In search for business that scales (marginal return wrt. resources increases) Services - do not scale Products - scale according to logistics Products + service - scale according to logistics Digital services & products, hyper-scalable according to Metcalfe’s law 2024 - Managing Change & Digital Transformation 30 The New Business Logic: Scalability VS VS VS 2024 - Managing Change & Digital Transformation 31 The New Business Logic: Scalability Year founded: 2015 Year founded: 2019 Year founded: 2016 5-year search growth: 531% 5-year search growth: 2300% 5-year search growth: 9100% Business: platform used to Business: smart bassinets with Business: community platform deploy and maintain secure built-in baby monitors. with crowdsourcing funding peer-to-peer networks. that goes to creators). 2024 - Managing Change & Digital Transformation 32 Source: https://explodingtopics.com/blog/fast-growing-companies Characteristics of Hyper-scalable Business ”The winner takes it really all” Revenues and profit order of magnitude more than in the traditional ”scalable” business (>10 M€ vs. >1M€/a/person) Creations of global (natural) monopolies Quicker rise and fall Instigating the people, Heart-to-Heart business, Memes Technology Regulation and legal framework for digital economy still missing Digital single market 2024 - Managing Change & Digital Transformation 33 The Emergence of New Business Models 2024 - Managing Change & Digital Transformation 34 A higher level perspective https://commission.europa.eu/ 2024 - Managing Change & Digital Transformation 35 What did we learn? The value of digital Commoditization perspective: Reduce risk Productivity perspective: Improve efficiency and competitive position Growth perspective: Scalability Entrepreneurial perspective: New business models 2024 - Managing Change & Digital Transformation 36 What is a Digital Transformation? 2024 - Managing Change & Digital Transformation 37 What is a Digital Transformation? CIO: “Modernisation and process efficiency” Chief Marketing Officer: “Organization way to adapt to customers’ needs” CFO: “Implementing technologies and process changes to reduce organization’s overall costs base” Digital Transformation means transforming the entire organization so that it will be able to cope with current and future challenges caused by digital technologies. Solutions to challenges often involve digital technologies, but it’s not the main objective to become a digital company. 2024 - Managing Change & Digital Transformation 38  Types of Digital Transformation Value generation process New Digitalization Same as before Same as before New Value proposition 2024 - Managing Change & Digital Transformation 39 Digitalisation: Same value, new solution 40 Digitalisation: Same value, new solution 41 The “lipstick” effect "One worrying trend that we see is what I call the ‘lipstick on a pig’ phenomenon. This is where an organization gives the illusion of being digital. At first glance there may be some new and nice applications, but if we look deeper into the company, there is nothing there. Under the pretext of 'digital initiative' many things can happen, but the progress is only minimal. Digitalization can be exciting, but it's also hard to achieve" -- J. Peppard 2024 - Managing Change & Digital Transformation 42 Digital Transformation: New value Amazon began as an online bookstore but has since transformed into a multi-service digital platform. By incorporating technologies like cloud computing (AWS) and AI (for personalized recommendations), Amazon has expanded its value proposition beyond retail to include cloud services, smart devices (Alexa), and media streaming Spotify transformed how music is consumed by offering unlimited access to songs through a digital streaming platform. By leveraging AI for personalized playlists, it shifted the value proposition from ownership (buying music) to access (streaming), emphasizing convenience and customization 2024 - Managing Change & Digital Transformation 43 Digital Transformation: New value Originally a DVD rental company, Netflix used digital technologies to shift to an online streaming model. This transformation allowed the company to offer on-demand content globally, radically changing its value proposition from physical rentals to a digital, subscription-based service. The creation of the TV series House of Cards marked the transformation from a content distribution platform to a data-driven content creator. Unlike traditional television networks, which rely heavily on pilot episodes (episode 0) to gauge audience interest, Netflix leveraged its vast trove of user data and viewing patterns to make a calculated decision before production even began. By analysing customer preferences—such as which actors were most popular (Kevin Spacey), which directors drew the most views (David Fincher), and which types of political dramas were most watched—Netflix skipped the conventional pilot episode process. Instead, they committed to two full seasons of House of Cards. 2024 - Managing Change & Digital Transformation 44 Digital Transformation: New value Nike integrated digital technology into its physical products, such as the Nike+ platform, which connects sneakers to mobile apps, providing users with performance tracking and personalized fitness recommendations. This shift enhanced the value proposition by adding digital services to traditional products, creating a more engaging and data-driven customer experience. When Tesla entered the market, it didn’t just position itself as a traditional car manufacturer. Tesla redefined the value proposition by integrating digital and energy services into its business model. Initially, Tesla offered free access to its Supercharger network, allowing customers to recharge their electric vehicles at numerous stations, which shifted the focus from simply owning a car to having access to sustainable transportation infrastructure. 2024 - Managing Change & Digital Transformation 45  Types of Digital Transformation Value generation process New Digital Transformation Same as before Same as before New Value proposition 2024 - Managing Change & Digital Transformation 46 What did we learn? Types of Digital Transformation No unique definition of Digital Transformation Internal perspective: digital can be used to transform “how organizations work” External perspective: digital can be used to transform “the value that the organization is offering to the market and how this value is delivered” 2024 - Managing Change & Digital Transformation 47 Week 1: Introduction to Digital Fabrizio Amarilli [email protected] 2024 - Managing Change & Digital Transformation 48