Varun Grover, Distinguished Professor and David D. Glass Endowed Chair in Information Systems at Walton College, shares “Is Digital IT?” An original article for the Walton MBA newsletter.
We are in a digital world and, if there is any silver lining with the current Coronavirus crisis, thankfully so. As the virus cannot be transmitted through digital media, educational institutions and businesses can partially function while we physically distance ourselves in the social world. Imagine the same crisis in a world that lacked the digital infrastructure, and high speed access to digital resources. If the only coordination mechanism is through physical interaction, then not only would the complete economy shut down – but we’d go even more batty. It is this ubiquitous and pervasive aspect of the digital world that has such profound implications that I want to focus on.
So, what is it about “digital” that merits the term. For many years the “IT” acronym was prevalent – reflecting its technological manifestation. We routinely used terms like IT companies, IT innovation, IT strategy, IT networks, IT systems and more. We still do, but it seems like increasingly the term “digital” is being used, reflecting the more contemporary nomenclature to go along with these terms – digital companies, digital innovation, digital strategy, digital networks. Is there a qualitative difference in these terms or are we simply packaging old wine in new bottles? Below, I argue that digital is different in meaningful ways, and this difference needs to be the basis for a new mindset in people and companies, in order to foster innovation. Let’s explore.
Terminology evolves over the year as it reflects the changing tendencies of the central constructs of interest. In the early years of computing, the computer departments were called EDP (Electronic Data Processing), reflecting the mainframe technologies that were largely used as number crunchers for large scale transactions. Later, these departments were called MIS (Management Information Systems) as their most important role was to provide information reports to managers. Subsequently with the advent of PCs, ERP, and the Internet, departmental names ascribed to technology groups were Information Centers, Information Systems, Enterprise Systems, Information Technology, E-Commerce, among many others reflecting broader and changing foci. However, throughout this period, the term IT was generically used to reflect the “boxes” of hardware and software that catalyzed these changes. This was the IT journey.
Over the last decade, with the advent of newer IT like mobile, social, analytics, cloud and internet of things, I can see a fundamental qualitative discontinuity occurring that is reflective of the move from IT to digital. Two terms are noteworthy here that are often used interchangeably: digitization and digitalization. Digitization is the conversion of all forms of information (data, video, text, images) to binary form. All IT essentially has a digital depiction (e.g., streaming on Netflix, or apps on a mobile platform). So, digitization is not new and was part of the IT journey. However, headlines from practice based articles that discuss digital organizations, reflect themes like new ways of engaging customers, outward facing companies, connecting people, objects and devices, data-driven decisions, test and learn culture, rapid experimentation, consumerization of technology, mobile commerce, platform eco-systems, agile real-time organizations, networked entities, digital culture, intelligent automation and many others. These themes are indicative of digitalization — the interaction of digitization with the social enterprise, reflecting the transformative effects of digitization. While digitalization did not occur overnight, but over the last few years, it reflects a fundamental change from the themes involving the IT journey.
So what are the basic assumptions we can make about the qualitative differences between IT and digital? The basic notion of digital that is different is that unlike IT, it is not restricted to named units of hardware and software. These units will not go away, but they will be part of a broader infrastructural system. Digital is infrastructural. It is in the fabric of and organization’s products, processes, interactions – so that they are all turbocharged with storage, processing and communication capabilities. This unleashes tremendous data onto networks that can be analyzed to deliver value at various points in the system at low marginal cost.
The infrastructural nature of digital encompasses three factors. There could be more, but I’d like to emphasize three: embeddedness, decoupling and representation. Embeddedness is the integration of the physical with digital in order to create options for the expansion of affordances. So, physical objects and processes can be programmed, addressed, sensed and connected. This indicates that functionality is not constrained by form, and can be continually enhanced – rendering, for instance, value of the product at the point of sale to be only a fraction of its eventual value. Decoupling involves breaking of the tight linkage between the digital content and the container of that content. A Sony Walkman could only play a certain format and form of music. TVs could only receive certain kinds of signals through the air or on wire. However, this linkage in the digital world is not tight and will increasingly become looser. Digital content can play on any container (or platform), as long as the container runs the right software application. So, playing video on a refrigerator or accessing temperature on a small screen on an umbrella reflects the delinking of content from the delivery mechanism. This allows a variety of content to be accessible or syndicated on a variety of containers. Couple with other technologies like Cloud, this allows ubiquitous delivery of the same content on multiple containers and raises the potential for all kinds of digital innovation. Thirdly, in the digital world, space, time, sensory and social connects can all be represented in digital form. So, if a person goes into a restaurant, the physical path taken, the table reserved, the orders off the menu, the time for each event, the interaction with the waiter, the temperature of the food, etc. can all be represented in digits as a trace of the complete digital experience. Any evaluation of this experience, can allow holders of the digital trace (e.g., the restaurant) to replicate positive experiences and rectify negative ones. So, with increasing granularity of digital representation, the power of manipulating these experiences can offer tremendous opportunities to improve them.
The reason digital offers powerful value creation potential is because embeddedness, decoupling and representation, as described above, can individually be the basis of digital innovation. For example, embeddedness can create smart products and services; decoupling can allow combinations of different data to populate and integrate on platforms; representation can allow customer feedback to set up diagnostic systems that could spawn new kinds of products. Consider an innovation: software in a car (embeddedness) that can track driving behavior (representation) and deliver a dashboard to the insurance company (decoupling). Collectively, there are further opportunities to leverage data flows and connectivity that can exponentially compound the potential value. Extending the example above, combining driving habits of its customers with sensor information on potholes on the road (noted by sensors) can yield new products for customers that can incorporate “drivability” of roads into their GPS system.
Companies that truly generate ongoing value from digital create the infrastructure that allows for strong embeddedness, decoupling, representation, and can leverage the corresponding data and connectivity to generate innovations through human or digital agency or a combination of both. This can transform the business model. Sharing economy companies (like Airbnb) are good examples of tech companies that transformed well established business models.
So, yes, the digital (infrastructural) world is indeed qualitatively and substantively different from the world of IT boxes. Companies that can identify their customer’s value proposition, codify it in software, and deliver it efficiently and effectively through their digital infrastructure, are likely at the forefront of innovation and value creation.
Like I said, if there is a small silver lining in the current crisis it would be the capability of contemporary digital infrastructures to allow people to coordinate and reduce the spread of a biological virus. The caveat is that we may be more susceptible to other viruses lurking in our digital world.
For questions and more information contact vgrover@uark.edu or visit http://varungrover.com/.
