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August 09, 2013
Defining digital, technology’s current tower of Babel
By: Mark McDonald

Terms form the currency of communication and understanding, particularly in times of transformation. What do you mean by … becomes the first question in many of these discussions as people seek differentiation by definition rather than creating value through greater clarity.

As the first post in the digital business blog it makes sense to provide some working definitions.

What do you mean by digital?

Digital is an adjective describing an increasing information intensity and connectedness of physical resources. Resources like facilities, processes, people, teams become digital through the application of technologies that extract information and connect resource and its information to other resources.

I thought digital referred to specific technologies?

Thinking of digital as a set of technologies (analytics, big data, mobile, cloud, social etc.) limits digital potential to the instrument rather than the application. A smartphone has information intensity and connectedness, but it requires applications to transform value and disrupt industries. The term application should be considered broad going well beyond ‘apps’ to the ecosystems we are able to build based on making things digital.

So how does digital work?

Technology extracts information from resources and creates new connections between resources. A mobile phone extracts your location, contacts, time, place as well as connecting you to others. Big data does much the same with structured and unstructured information. Sensors generate information about their environment, connecting with other sensors and the broader internet.

Digitizing is the verb describing a process of raising information intensity and connectedness via technology. Digitization is important as making things digital changes the performance, value and cost of resources. Digitization turns paper-based books into eBooks by changing their nature and performance.

Digitization turns atoms into bits. It is a start enabling companies to participate in the digital economy. Having an online channel, equipping the sales force with tablets, installing cloud based software digitizes aspects of your business, but these moves are easy to copy, encourage commoditization and lack the large scale impact to drive top line revenue. When all you do is digitize, then digital technology becomes just another means of IT based cost reduction rather than a transformative force – a digital business.

What is a digital business?

Digitalization is the transformative process for turning digitized resources into new sources of revenue, growth and operational results. Creating a competitive premium is the goal of a digital business. Digital businesses create competitive edges based on unique combinations of digital and physical resources. They do things that others cannot and in ways that build comparative advantage.

Digital businesses are not limited to the usual suspects: Facebook, Google, Apple, Amazon, Linked-in etc. Every business can be a digital business. Digitalization gives an organization a performance and profit premium as they innovate more, faster and to greater effect than their digitized peers.

Consider the Children’s Hospital of Los Angeles, detailed in the book The Digital Edge. CHLA created a digital business based on the goal of eliminating information as a source of patient harm. They digitized the hospital’s resources linking everything to a patient medical record. Then they digitalized the hospital’s clinical processes, raising the quality of care as well as creating a world leading set of medical data that attracts leading researchers and grants.

A digital business is an organization that incorporates digital technology to create revenue and results via innovative strategies, products, processes and experiences. They use digital resources to create new customer value, revenue and business results.

A company can have digital technology, but not be a digital business, a company that substitutes a smart phone order entry app for a web page as an example. It’s more efficient, but not necessarily transformative.

Why is being a digital business important?

Three things make becoming a digital business strategically important. A study of more than 600 publicly traded companies in 2011 found that companies who have above average digital revenues grow revenues faster, grow their margins and they use their capital more effectively than their less digital industry peers. That growth and performance premium coupled with the growing 'digital share' of the global economy makes the case for becoming a digital business.

Can any business become a digital business?

Every business is a digital business in the sense that digital transformation represents the next frontier of high performance. Everything is possible with digital technology but a digital business and digital leadership knows how to separate what is possible from what is profitable. That difference lends a premium to the business – a digital premium.

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