Currently there’s a lot of chatter around “digitalization”. Whether talking to a consultant, analyst, academic or even a venture capitalist, one thing is agreed – digitalization creates a lot of data. I would argue that digitalization doesn’t just create data. I would argue that what is happening here is much more profound…
I’m often drawn to the analogy of a simple kitchen scale to illustrate this point: the traditional scale allowed you to understand roughly how much flour you used when baking bread, but only captured this data manually. The electronic scale provides much more precision – which is certainly progress – but it is still very hard to work with this data. The digital scale provides that same precision, but by connecting to other devices it enables much richer data sets. You can use it to see the nutritional value of the meal you are cooking; how many calories, proteins, grams of salt etc.
Furthermore, today all this information can be shared on social media, via your meal and fitness tracker application of choice. It is important to understand however, that the depth and richness of new data sets drives the digital revolution much more than just the volume of data that is being generated.
“The depth and richness of new data sets drives the digital revolution much more than just the volume of data that is being generated.”
Peter Drucker, the father of modern management once said “what gets measured, gets managed”. The cheap availability of vast, comprehensive and rich data on every aspect of the organization – and how it performs at any given time – is revolutionizing how companies are run today.
This will impact all areas of the modern corporation – to give a few examples:
- The CFO (whom everyone sees as the quintessential “numbers guy”) mostly relies on traditional data today: rows and columns coming out of Enterprise Resource Planning (ERP) and other operational systems. In the digital world the CFO will be able to understand the real cost of serving individual customers, handling individual products at the store level or how much labour is really needed for specific activities across the organization. With the rapid instrumentation of the enterprise, the CFO will be able to fully measure the cost of doing business and so truly understand the profitability of individual products, assets, customers and suppliers.
- On the product development and R&D front, access to data is revolutionizing how products are being conceived and taken to market. The connected car gives manufacturers access to detailed data on how cars are actually being used, leading to the development of new features. In the pharmaceutical industry the digitization of mass spectrometers and gene sequencers is revolutionizing not only the development of new drugs but also innovation that ensure drugs are matched to best fit patients for highest impact.
- In HR, we also see people analytics gaining ground; helping companies better understand the efficiency of recruitment operations, training programmes and helping organizations evaluate every role from entry level candidates, to the most senior managers.
The reality is that data is revolutionizing every aspect of organizational management and operations, whilst completely changing long held assumptions around best practice.
“Data is revolutionizing every aspect of organizational management and operations.”
In the short term, this will lead to increasing pressure on margins and revenue as organizations across all industries and geographies become ever more efficient at producing and delivering products to their customers. We will also see new products and services emerging, monetizing data in new and innovative ways.
In the longer term, we will experience more disruptive changes such as “pay per outcome” and “on demand” models emerging.
In any organization, whether private or public sector; for profit or non-profit; we are seeing the basis for competition shifting rapidly to the data and analytic space. Whether you operate in manufacturing, retail, finance and banking, insurance, utilities, distribution, supply chain, oil and gas, or even government, this is a topic you need to care about.
I recently read an article in which Peter Altmaier, German federal chancellery chief of staff and one of Angela Merkel’s senior advisors, was quoted as saying “In the future, 50 to 60 percent of the value of a car will consist of digital devices and tools, and 20 percent [will be] batteries. If we’re not careful, [German manufacturers will] only be responsible for the windows, seats, and wheels.”
Just as German automotive manufacturers wouldn’t be satisfied with simply manufacturing and selling ‘doors and wheels’, increasingly companies will need to follow the digitalization trend, or risk being left behind.