A view on digital transformation and the need for creative construction.

Updated: Dec 7, 2019

The reason for writing this reflection is because the term ‘digital transformation’ is high on the hype cycle... and I hope that by sharing this, you also got some new inspiration, insights and resources. Summary keywords: Disruptive technologies, digital business models, big data, startups, corporate venturing and open innovation. Also available as short 🎧audiobook 🚘🚊:


The industrial revolution transformed the economy from agriculture and artisanship into mass production and industry. The world's population boomed. Scientific progress generated endless new technologies, the increase in productivity that followed led to an unprecedented wealth and economic globalisation. With the rise of computers and the internet, the digital economy was born. 20 years ago we saw the first portable phones, today the world leading R&D and innovation hub iMec is developing digestible nano sensors to monitor the health of our inner bodies. Things are moving fast and the pace is quickening.


The digital transformation of society is changing the way we learn, work, travel, shop and communicate with one another. EU research points out that almost 75% of the EU population think that digital technologies have a positive impact on their lives. More and more people are not only using tech, they are also building more technology. The digital market is estimated to create opportunities in the hundreds of trillions of euros. Data shows that there are over 5.5 million people in the EU alone that are employed as developers, with 350.000 open positions for technical experts at this very moment. Every year, more and more business executives make the jump from traditional non-tech companies to the digital space. On the other hand, predictions argue that because of the digital transformation, 25-45% of all jobs will be subject to automation by 2025.


Disruptive technologies


The digital transformation is fueled by a series of disruptive technologies that open the doors to new markets.


Think of artificial intelligence and robotics, virtual reality and entertainment, blockchain and trustless transactions, the internet of things and 5G. Driverless cars and intelligent home robots are no longer science fiction. Supercomputing, deep tech and the exploration of quantum computing holds huge promise. Cloud technologies allow everyone, anywhere to plug into a world class infrastructure in minutes. Many of the true functions of these technologies have yet to manifest themselves, just like the internet in the ‘80s: it is only in hindsight that we can understand the true impact of these innovations.


Digital business models


The cost of technology is dropping and the adoption of digital services becomes global.


This has led to a surge in technology-driven entrepreneurship and the emergence of startups, scaleups and unicorn companies with digital business models. Only recently a Chinese report came out stating that China is now the world leader in terms of the number of unicorns with a staggering 206 blockbusters that are valued over 1 billion euro after less than 10 years of operations. Sometimes, these techstars create a completely new market; like Apple did when they introduced the Macintosh, the iPhone and the app economy. At other times, the new generation takes on big corporations in existing markets: we all know the story of AirBnB which became more valuable than the Hilton hotels in a matter of years, without investing a single euro in real estate; and it was only a few weeks ago that we heard the news about the bankruptcy of the Thomas Cook travel agency, an industry leader since 1841. The travel agent missed the digital train. 


Creative destruction


The creative destruction brought upon older business models manifests itself in many forms. In the US, observers speak about a ‘retail apocalypse’.


With the rise of e-commerce and the success of companies like Amazon and Zalando, shopping streets become ghost streets. People buy less and less in physical retail stores because they prefer to buy it cheaper online. Old retailers with brick & mortar outlets seem to have two options: embrace digital, or go down. The successful online retailers are making the reverse movement: they started out with a digital-first strategy and are now opening brick & mortar service centers. It will be interesting to see how those ghost streets are repurposed over the next couple of years. In Schumpeter’s own words:

The old way of shopping is destroyed, only to give birth to a new one.  


Big Data


In the not-so-distant future, we will be interacting with a digital government that provides automated technology platforms to inform, service and consult its citizens for all its responsibilities.


Political leaders become experts in analysing big data to formulate political campaigns. Governments provide access to new sources of public and open data, allowing citizens to analyse societal problems and come up with innovative proposals for policymakers. Examples such as Estonia’s e-residency are leading the way.

Companies like Google and Facebook know a lot of really personal things about their users, and even the biggest fines in history do not stop them from sharing user data with third parties at a profit. Google and Facebook control the data, but also the money. Both companies are in the top 5 of highest capitalised companies in the history of the world. With the rise of blockchain, experts believe that we now have the technology to decentralise the ownership of mainstream applications. The truth however is that the adoption of decentralised applications is moving slowly, for now.



Networks


Business projects in the future can be sourced by networks, funded by crowds and insured with peer-to-peer models.


There has been a lot of emphasis on technology innovations for the past 20 years, but the concept of business model innovation might even become more powerful in the future. Eventually, all technology becomes a commodity. Once technology is cheap and available to everyone, the true value is in the user-generated content on these platforms. With the concept of ‘tokens’, every user can earn an income from sharing their knowledge, art or content in general technology platforms will no longer be VC-backed privately held companies, but blockchain-based applications owned by their users in the form of cooperatives, networks and crowds.


Startups


In this world with constantly changing paradigms, the old corporations are monuments of the golden years of capitalism.


In the 1950’s, the average lifespan of an S&P500 company was about 60 years. Today it’s under 20 years. The old bureaucratic corporations are slowly but steadily being unbundled and replaced by nimble technology entrepreneurs. Some corporations are rapidly changing course and adopting concepts like open innovation, whereby they build disruptors for their own business, team up with entrepreneurs or buy digital startups that are of strategic interest. Because the big corps have data and capital, they can move into new digital markets while building on their existing capabilities. The question corporates ask themselves is: what is the direction in which this ship needs to go? The market is changing fast and competitors pop up from unexpected corners.


New business paradigms


Over the past decennia, established corporates have launched massive digital transformation programmes.


Their goal is to leverage new technologies to automate processes, improve existing services and take a piece of the new digital markets that are emerging with every profound technology revolution. Authors like Clayton Christensen, Steve Blank and Carlota Perez have created new business paradigms that are widely implemented by business consultants in strategy firms all over the world. These strategy firms are also adapting to the digital economy and changing how they work: many prominent design agencies and development studios are incorporated in business firms: rather than delivering strategic reports, they now build prototypes and run experiments to validate them in the market.


Stages of maturity


It’s interesting to see that the Digital Transformation on itself can be broken down into different stages of maturity.


At first, a digital strategy meant the adoption of ICT and selling some products online. Later, entire organisations and all processes were migrated to the cloud. In a third stage (that is happening or about to happen), companies realise that they have to compete with many many new smaller competitors in niche markets: so they have to organise themselves like networks of microservices and adopt a culture of ‘acting like a tech startup’: move fast and keep up with the competition or become irrelevant. One can argue that IBM, Intel and Hewlett Packard were disrupted by Amazon, Google and Alibaba. A digital transformation futurist might argue that we can expect that these tech giants will become unbundled and democratised by technology itself: the decentralisation of cloud services through blockchain technology is well underway. 


Sustainability


Ten years ago everybody was thinking about digital profit, today more and more organisations are also talking about a digital planet and digital people.


With the ongoing debates about climate change and the robotisation of the workforce, questions are asked about the sustainability of the assumptions of endless economic growth. All things equal, despite the democratisation of digital technologies and near worldwide internet access, there is still a lot of poverty and inequality in the world. Climate change predictions argue that by 2050, there will be global shortages of water and huge pieces of land will become uninhabitable. There are voices calling for change, such as the United Nations Sustainable Development Goals, aiming to provide new ways of thinking about innovation and corporate social responsibility. Today, on October 22nd of 2019, there are global warnings of a food shortage, water shortage and risk of a cholera outbreak for 17 million people in Jemen. Human technology, social innovation and data-driven action can save lives.


Looking ahead


Amidst all these societal developments there are individuals and companies that try to help other organisations and leaders in their journey towards digital transformation. Sometimes we are asked the big questions like: where is my industry going and what are the trends that I should pay attention to? At other times, we work with teams looking to learn about innovation and how to ‘think like a startup’. Over the years, many new methodologies and approaches to digital transformation have been introduced. If you google ‘digital transformation best practices’ you’ll find endless reports and testimonies. In what follows, I share ten of my favourite sources:


  1. World Economic Forum, Digital Transformation Initiative Why? This non-for-profit foundation brings an objective view on the topic. They started back in 2015 with a digital transformation initiative to support collaboration between public and private sector.

  2. Science Direct, Understanding digital transformation Why? Part of the Journal of Strategic Information Systems this research reviews 282 works in search to build a framework of digital transformation.

  3. Steve Blank, Why Companies Do “Innovation Theater” Why? As an adjunct professor at Stanford University and father of the customer development method that launched the lean startup movement, Steve Blank's insights continues to influence the business world.

  4. CB insights report, The History Of Corporate Venturing Capital Why? As a data driven market intelligence platform CB Insights is a go to place for strong reports on emerging technologies and corporate trends. 

  5. iNET, The New Feudalism Why? New Economic Thinking institute is in pursuit of innovative economic theories and methods that address society’s most pressing concerns. 

  6. MIT Digital, The Foundations of Corporate Innovation in the Digital Age Why? Supported by corporate sponsors the MIT Center for Digital Business is a great source for understanding the business value made possible by digital technologies.

  7. Rebel Wisdom: 'Humanity's Phase Shift', Daniel Schmachtenberger Why? Founded by BBC & Channel 4 journalist David Fuller, Youtube channel Rebel Wisdom offers rebellious wisdom to move forward.

  8. Megaregions Driving the Global Economy Why? Visual Capitalist uses data-driven, powerful visuals to help make this complex world a little easier to understand.

  9. AAAS, Historical Trends in Federal R&D Why? Insight by the world largest science non-profit organisation, active since 1848 and publisher of the journal 'Science'.

  10. The State of European Tech Why? Atomico, venture capital firm and Slush, Europe's biggest startup community bring a comprehensive report on the state of European Technology.


In conclusion



The reason for writing this reflection is because the term ‘digital transformation’ is high on the hype cycle, and many people are still figuring out the frameworks, tools, definitions and models to guide them.


I wanted to better understand myself, and hope that by sharing this, you also got some new inspiration and insights. Real ‘digital transformation’ within our organisations and society is not loud, but happens silently. When business as usual is getting ‘normal’ and slow, fast learners jump ship and a lot of people continue down the old path until the inevitable is there. In the meantime digital giants are building the global infrastructures of tomorrow and many fast companies are redefining industries. Slowly but surely, technologies such as artificial intelligence are climbing up the ladder of human capabilities. Humbleness is in place. Leaders can not look into the future, they can only bring clarity and vision, build structures that facilitate and support people, relocate energy of their highly skilled teams and bet boldly on the future. In my world we are still building the systems to be truly ‘open’ and ‘connected’, but after all those years humanity proved that there is a ‘science and art of entrepreneurship’ that can reduce risk and bring positivity in building towards the future. 


Side note: This last alinea is written with the help of Otter.ai, an AI-powered voice assistant.


❤️Thank you for spending time here and I hope you found some inspiration and insights. If you encourage this kind of content please like, share or follow for further deep dives. Or if you have some interesting sources or feedback, please connect. Kudos.


Appreciation


For generosity in time and mind: Kurt Janssen, Vonne Lea, Wim Tobback, Geert Desager, Davino van Hal and Pierre Maere. Tip of the hat to Gwen Vanhee for the use of his visual coding Cloudflare.

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