Tag: Digitalisation

Untangling digitisation, digitalisation and digital transformation

I was recently invited by the Reconomy Programme and the Helvetas working group on Market Systems Development to address practitioners working on economic development in the Balkan region. I was specifically asked to untangle the concepts of digitisation, digitalisation and digital transformation in the context of international development cooperation.

The remainder of this post are the notes that I prepared for this call.

We are increasingly using the words digitisation and digitalisation to refer to certain kinds of economic development and changes to how work is done. These words are often used incorrectly as synonyms to refer to the increased use of software and other electronic gadgetry in everyday life. Every now and then the term digital transformation is also used.

Even though these words sound and look very similar, they are different concepts that are all somehow related. Let me try to explain what these three concepts are about.

Digitisation is the process of converting analogue information into digital information. An example of digitisation is when you convert your old vinyl records to MP3 format, or when you scan your old, printed photos so that you can store them in digital format on your computer. 

Digitisation has slowly crept into our lives over the past several decades. It started with measuring changes in natural phenomena, for instance measuring speed, distance, temperature, vibration, time or altitude. Analog information was simply converted into data points represented by blinking warning lights, alarm bells and bright red digits. Slowly the focus shifted to using digital instructions to control mechanical objects. Consider how vehicle dashboards and instrument panels of aircraft have changed over the past thirty years. 

The digitising process often combines mechanical and electrical/electronic systems, in other words, it combines different knowledge and technology domains into an integrated solution.  As more diverse knowledge domains were integrated, so the reliance on processors and logical operations increased. Initially coding was limited to logic programming of chips, but over time the complexity of coding has increased as the cost and size of chips came down, while the processing power increased. 

Digitalisation is different from digitisation. It describes the use of digital technologies and digitised data to change how we get things done. For instance, emails have replaced (most) physical post, and social media is increasingly replacing phone calls. We buy and rent music from an audio library service instead of buying music CDs.

Our attention shifts from using a digital device, or manipulating digital data. Often different people can use the same digital content for different purposes. For instance, various engineering teams can simultaneously design separate components of an integrated system, such as a car or an aircraft. A the same time another team could be using software to test the performance of digital designs to ensure that they meet performance specifications before they are approved for manufacturing, while another team is working on new materials.

Digitalisation is not only about using physical technologies, data files, software and expertise. It describes the creation of new social arrangements where different people, experts or organisations can cooperate in new ways by sharing digital information. The interoperability of data between different physical technologies and social technologies is what connects digital systems and blurs the lines between traditional industries. Digitalisation makes new arrangements possible that are very difficult or expensive to accomplish in conventional ways. An everyday example of digitalisation is how a photo captured on your smartphone can be synchronised to your computer, posted to your friends via social media and combined with the photos of other people in a digital album stored on a server in another country. 

Digital transformation goes further than simply gadgets, software, geeks and data. It describes an evolutionary process where the social relations between individuals, groups, organisations and social institutions are transformed over time because of the exploitation of new capabilities afforded by digital technologies. The emphasis shifts from the application of digital technology or the exchange of data to creating new ways for people to interact and cooperate towards shared goals. Over time new norms and social institutions evolve that supersede conventional paradigms.

In digital transformation, the traditional boundaries between different knowledge or technology domains shift or disappear. Existing scientific knowledge is creatively combined with new technological capabilities that are reinforced by the emergence of new social institutions like norms or new organisations. 

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Transformations are essential because conventional paradigms, politics and socioeconomic arrangements are interlocked and re-inforcing a robust construct that only permits incremental changes. This conventional interlocking system makes it hard for radically new ideas and arrangements to get any traction; it often takes an almost fanatic effort to get something new to start in domains where tradition, institutions and older norms have become fossilised.

Transformations often originate in niches that are off to one side where the established leaders and ideas don’t mind (too much). In these niches, an idea or a movement slowly gains momentum as it creates new routines, norms, where new arrangements or combinations can be tried and where confidence can be built.

Social media has made it possible for different niche champions to be connected internationally, even if they feel oddly disconnected from their local realities. In these (global) communities, ideas are exchanged, courage is strengthened and collaborations developed.

As I mentioned before, digital transformation is about far more than making changes to the system by adding digital front-ends, digital services or a search box. A collegue working in public sector reform told me that once communities understand that they can hold public officials and political representatives accountable, the whole initiative got a life of its own. What started off as a way to improve transparency and accountability through digitalisation, ended up being about democracy, governance, public service quality and managing public resources better. Of course, it is also much easier to design and improve public services and impact when communities are keen to be involved.

This explains why a digital transformation in a system is not only about the “digital” or the “system”, but how these interact within a broader socioeconomic context. We have to figure out which higher-order questions to ask.

Can you imagine what it would take to digitally transform a system in your economy? For instance, what would it take to digitally transform an education system in a country? Which combinations of norms, knowledge domains, governance, institutions and technologies would have to be tried to enable such a transformation? It is not possible to design this kind of system upfront. And it is not merely an IT problem. It requires many innovations in different areas such as regulations, processes, systems, organisations, subjects, management and delivery. For digital transformation some solutions would be digital, several would be political, and most would certainly be contested by those already in power.

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The phenomena of digitisation, digitalisation and digital transformation are fuelled by faster processing, smaller components enabled by new materials, improved energy consumption and reliable and fast connectivity. 

However, digitalisation requires more than advances in hardware and coding; it also requires the integration of different systems and a re-imagination of what is possible with data. It asks of us to combine scientific knowledge with an understanding of how people can work together in new ways. Digitalisation pulls our vision to create new ways of doing things, it asks of us to let go of trying to optimise what we already have in place.

Digital transformation goes even further that digitalisation, as it requires that conventional arrangements, institutions and norms be challenged by entrepreneurs, scientists, engineers and change makers who want to use digital technologies to challenge existing dominant paradigms that are no longer effective.

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It would be a mistake to think of digitalisation and digital transformation too narrowly from the perspective of ICT, software development or known digital solutions. Of course, it goes without saying that computer programmers, coders and ICT start-ups are still important. Yet digitalisation more often draws on a fundamental understanding of the underlying natural sciences used in a society and how these existing systems could be re-imagined in combination with digital technologies. It requires the ability to integrate systems that are now separate to achieve a specific goal. It asks us to set aside the ambition to incrementally improve different systems and re-think solutions and challenges in a more integrated and holistic way. 

Development projects can support digitalisation by helping developing countries to figure out where conventional processes and social arrangements are too cumbersome or completely lacking to encourage economic growth and investment. Development organisations should remember that the focus of digitalisation is not only on digital skills, technologies and imported solutions, but on how these are combined with other knowledge and scientific domains. Lastly, for digital transformation to occur, diverse stakeholders must work together to re-imagine new ways of doing things in areas where conventional solutions are no longer effective. This requires facilitation and a technology-neutral facilitator that can encourage local stakeholders to experiment with new solutions that combine existing knowledge in new combinations with digital technologies. 

Both digitalisation and digital transformation take much longer to accomplish than a typical development project, and both often need to be nurtured despite resistance from the established interest groups affected by the emergence of a different paradigm. It may be necessary to assist the stakeholders to develop action plans that show results both in the short as well as the long term, otherwise some stakeholders might run out of energy before sufficient gains have been made. 

Lastly, transformations are evolutionary processes. It is not possible to design the ideal end-state and then develop a plan of how to get there. The path from the present to the future is not straight or easy to plan. At best we may be able to figure out a few steps or concurrent processes.

Transformations often start with dissatisfaction with the status quo and a desire to cause a variation of the current trajectory. Or it can sometimes be sparked by a crazy idea starting with “what if we tried this instead?” Often the initiators of transformations are quite naïve about what it would take to see the transformations through. We must therefore step up beside them and help them to build their case for change, to encourage them when they face resistance or when experiments don’t work, and to help them balance the short-term and the longer-term priorities. 

Further reading.

I have benefitted immensely from the publications by Frank Geels and Johan Schot, to name two authors. Searching for deep transitions, socio-technical change or multi-level change will also yield great results.

If there is sufficient interest I can also write a follow-up article about some of the literature that I have found most relevant.

Image by Gerd Altmann from Pixabay

Why are digital technologies absorbed so rapidly in many developing countries?

Globalisation-weary politicians and advocates of local capability developments and geeks or technology promoters have one theme in common: technologies developed in the First World not only disrupt domestic companies, but upset whole sociotechnical regimes in developing countries.  While the benefits of digital technologies are not disputed, what is disputed is how to solve this problem.  This is where the two groups of lobbyists part ways.

One argument is that if local companies had some protection, better incentives, more support and everything else on their wish lists, then local entrepreneurs would be able to come up with similar digital technologies. How long this is likely to take and whether it will succeed is usually not discussed to any real extent.

The other argument is that disruption is good, and that the services of, say, Uber or Amazon disrupt local monopolies and save consumers millions while allowing “new” entrants into the markets. What happens when these global companies lose interest and withdraw suddenly, or when all local capacity to compete has been eroded is also not discussed.

I will steer clear of these and other flashpoints. For me the key differentiator that counts in favour of global digital technologies is that they create MARKET platforms. By market, I don’t just mean a space where sellers and buyers can meet. These platform technologies invest heavily in overcoming many market and institutional failures. For instance:

  • Many digital marketplaces carefully create trust systems where buyers and sellers can check each other out.
  • Most digital marketplaces give you lots of technical information, reviews from other users, and links to comparable products in higher and lower price brackets.
  • Most digital marketplaces coordinate logistics, customs, invoicing, tracking and customer support.
  • They accept numerous currencies and numerous payment methods.
  • Users can switch seamlessly between different platforms (add something to the shopping basket on your phone, complete the order on your computer).

This means that these global platforms overcome many of the market, coordination and government failures that keep developing country entrepreneurs so busy. Even though I have shifted my understanding of how economies evolve beyond market failures, I still see them everywhere. Maybe they are not as quantifiable as many economic theorists would make them sound, but their archetypes and characteristics still show up. I have made a note to explore these market failure archetypes in a next post. (other posts on 3D printing, IoT; tech push fallacy article over here)

The most disruptive digital technologies can be described as platform technologies, which means that they create marketplaces with their own institutions, rules, laws, recourse systems, fair play policies and competition between providers. These platforms crowd in both sellers and buyers. That is what makes them so easy to use, for both buyers and sellers. They personalise the options for market players. They integrate service providers and even regulatory requirements. So even if a better local digital technology may be available, consumers will go where there are more products, and sellers will go where there are more buyers. These platforms often displace or disrupt previous widespread platforms. The mobile phone has in many cases displaced several platforms, including newspapers. 

The only way developing countries can respond is to make sure that they create the right market-supporting institutions. The challenge is that while global platforms often start in one or two markets and then scale up, developing country governments have whole economies that are in need of interconnected and interdependent platforms. The challenge is to figure out which platforms would be the best learning places for rapid learning, adaptation and dissemination.

If you would like to keep informed of my progress on this topic, you can sign up in the box on the left of this post (or here) to receive a personal newsletter from me. I promise not to clog your inbox with junk mail. The sign-up form will help me to figure out what topics you are more interested in.

The difference between the terms Fourth Industrial Revolution and Industrie 4.0 matters

There are two terms that many of my clients use interchangeably, which really bothers me. The first is the term “the Fourth Industrial Revolution”, and the other is “Industrie 4.0”. What bothers me is that these two labels represent two concepts that only partially overlap. Sometimes they are conjoined with an “and” in a sweeping statement to emphasise just how pervasive and disruptive a specific technology is, and how utterly unprepared everybody is.

The Fourth Industrial Revolution is a concept that was popularised by Klaus Schwab and the World Economic Forum (although the name goes back almost 50 years). Many international consultancies have also developed instruments and advisory services around this theme (I admire their animations and graphics). The Fourth Industrial Revolution is a banner over many new technologies. Most of the technologies that are highlighted by the WEF are not new, e.g. 3D printing, sensors and artificial intelligence, whereas the narrative of the Fourth Industrial Revolution highlights the effects of the convergence of several scientific and technological domains (take a look at this link to read more about some of the technologies). Due to the reach of digital technologies, smartphones and global software platforms, new applications of technology are spreading very fast. It almost seems as though the rapidity of technological development is increasing, and that the depth and breadth of convergence and its impact on industries, firms, governments and whole societies is potentially disruptive. Hence the “revolution” part.

I must add that not everybody is convinced of this revolution. Some argue that we are still in the third revolution, albeit in a second or third extension. Others argue that we are already undergoing the fifth or sixth revolution. Then one might also argue that revolutions are usually not predictable, or that revolutions go hand-in-hand with massive social, political and institutional upheavals, which we have not yet really seen. Others, like Carlota Perez argue that these revolutions are unavoidable, and that governments have a key role to play in preparing for societies to cope with these wave of change. In fact, we have not seen massive employment displacement in Europe attributed to massive technological disruption, despite all the machines, robots and drones. I for one am also not convinced that the technologies and their convergence are revolutionary. What I find really eyebrow-raising is the immense interest of capital and political elites in technology, and all the hype around these technologies. I must also confess that I am impressed by how well the applications, use cases and adaptation paths of many of these technologies are described on the web. For instance, take a look at the Blockchain use cases on the WEF site here.

The second label is Industrie 4.0. It is usually spelled this way because the concept originated in Germany as the rallying cry of their new “High-Tech Strategy” which has emerged over the last ten years. The German high-tech strategy has a dual focus. The first and often overlooked emphasis is on continuing the incremental and export-oriented technological development that German manufacturers are known for. It builds on Germany’s current excellence and ability to innovate, especially at the level of product and process technologies.

The second and more frequently discussed drive of the German Industrie 4.0 strategy is all about digitalisation, knowledge intensification, trust building, dialogue and networking (some topical areas are described here). Digitalisation is not only about connecting things to the internet, but also about manufacturers being smart about integrating their suppliers, clients and internal processes. Improving the competitiveness of German manufacturing and making the society, workplaces and communities healthier and happier in the future are recurring themes. So are the environment, the circular economy and the importance of investing in longer-term technological platform and capability development. What only a few people in Germany would acknowledge is that this high-tech strategy was a response to the realisation that Germany was not as digitally savvy as one would have expected (to see the Tuft Universities renowned digital performance assessment of countries head over here). The Industrie 4.0 strategy in Germany (and now also in many other countries) is already quite mature, decentralised and, dare I say, pervasive. Also, Germany is very critical of its own performance. For instance, the Federal Ministry for Economic Affairs and Energy (BMWi), publishes an annual assessment (only in Germany) of the digital performance of Germany on their website at www.bmwi.de).

 

In Germany, and increasingly in other EU countries, it seems that every university, technology centre, industry association and consultancy is involved in cluster activities, Industrie 4.0 readiness assessments, technology demonstration, research and so on (look here to see a list of “testbeds” in Germany). The snowball is gaining momentum. Different ministries and spheres of government are coordinating around clearly described projects that are managed transparently and concurrently (look at the Platform Industrie 4.0 website to see the number and composition of initiatives). Many initiatives, such as industry mobilisation, making constructive policy inputs, developing standards for data integration, compatibility, etc. are being driven by private sector organisations, private sector representatives, science and engineering bodies or associations (Here is a link to the National Academy of Science and Engineering website).  Manufacturers in Germany are at this moment spoiled for choice when it comes to choosing which technology service provider to use to solve a problem or test a new solution (link to use cases, link to tech support centres). Both public and private service providers are striving to be relevant, at the cutting edge and valuable to the private sector.

Now this second label, Industrie 4.0, is something that the developing world should take note of. This industrial strategy is about much more than adding digital capability to existing products and processes. It is about a modern digital business model which is smart, has strong feedback loops within the organisation and beyond, and reaches out to suppliers, supporting institutions, clients and devices ( go here to assess your readiness and to see how wide this assessment is). It is not only a public strategy, but has now become a private sector strategy too. It is about deep integration, collaboration on long-term technology and capability development, co-funding, skills development and standards, and is globally focused.

I believe that this second label has the potential to disrupt the developing world far more than the Fourth Industrial Revolution notion can. If we do not respond, our developing country manufacturers may be left behind.

This is not about tweaking existing products, adding sensors or tracking data. It is about improving the ability of organisations to make sense of change, future possibilities and their performance within this fluid context. It means that those local companies that could be globally competitive would be under pressure if they were not able to tap into or track this gaining momentum in Europe and elsewhere.

Decision makers in business and government in developing countries often underestimate the funding and effort that go into building trust, collaboration and joint problem solving or policy making in Europe and beyond. Both Industrie 4.0 and the Fourth Industrial Revolution are not about products or process technologies, they are about new business models and new ways of collaborating, with the long-term intent of laying new foundations for the future.

If you are a supplier to European manufacturers, be alert, be proactive! Get involved.
If you are competing with European products and businesses, be awake!

This is not a project for your design team, your IT department or functional managers. This is a strategic re-think of your whole organisation and how it develops new capabilities, how it measures and interprets data and how it works with other organisations. This is not a quick fix, this requires a longer-term holistic re-think of your technological capability, of the new applications that may be possible and of new forms of collaboration, co-competition and integration all enabled by digital technologies.

So why do I argue we need to understand these terms? I see the Industrie 4.0 movement as a strategic and intentional approach to shaping the future. While the Fourth Industrial Revolution narrative of the WEF and others helps us to understand what has already changed. It helps us to respond better, while the other urges us to actively get involved in shaping the future. I know this difference is subtle, and I know that the WEF is also trying to shape the future, but the popular narrative about the revolution is unfortunately often about technologies and how we respond to them.