An Ideas-Based Online Magazine of the Global Network for Advanced Management

Decoding Digital

Blue Ropes

Recently, I had a conversation with a CEO of a well-known company about digital and digital transformation. The conversation moved to his company’s digital strategy and he volunteered that it was centered on the letters S-M-A-C (he pronounced them as spelled, like the drug), almost smugly reeling off what this acronym stands for: social media, mobile, analytics, and the cloud.

His reply is one that I constantly hear: executives equating technology with their digital strategy. Without doubt technology is needed for digital, but technology is not a strategy. The real challenge is figuring out from the myriad of technological options and capabilities available today how to, for example, reduce costs, build market share, improve the customer experience, create new services, or devise new business models.

From my experience, this CEO’s response reflects the fact that many executives don’t have a language or frame of reference to talk about digital. Perhaps understandably, technology seems to overwhelm their thinking.

Digital can actually be considered as an umbrella term for both technology and its application to problems and opportunities. These have traditionally be referred to as IT or “information technology” and IS or “information systems,” respectively—or simply, “supply” and “demand.”

Information technologies are essentially the technical artifacts: the hardware, the software, and the telecommunications infrastructure. This includes devices of all kinds, sensors, servers, PCs, routers, network cables, and, yes, the internet. As a digital technology, IT essentially facilitates the acquisition, processing, storing, delivery, sharing, and presentation of information and other digital content.

Information systems (IS), on the other hand, are the means by which people and organizations, increasingly utilizing technology, gather, process, store, use, and disseminate information. However, IS have actually existed long before the advent of IT. For example, Luca Pacioli gave the world the double-entry bookkeeping system way back in 1494. Even today, there are still many “systems” present in organizations with technology nowhere in sight.

Some information systems are fully automated by IT, or to use the modern term “totally digital.” For example, Dell Computers has a system where no human intervention is required, from taking customer orders to ordering and delivery of components to the factory for assembly, through to shipping and billing. At the ordering stage, a system even checks for the optimum configuration of selected components.

Many tech startups have figured out the potential to harness information in ways that are typically overlooked by industry incumbents. They have essentially envisioned a new information system that is enabled by technology. Just look at the raft of new innovations form Fintech companies and how they are challenging dominant assumptions in the financial services industry.

The real challenge in embracing the internet of things (IoT) is about harnessing information collected from “things” of all types, generating new insights and creating new service offerings. For example, real-time digital information signaling the health of its engines has enabled aerospace engine manufacturer Rolls Royce to create a new business model that offers customers a value proposition based on availability of an engine rather than outright purchase. Armed with this information, engineers have visibility of engine performance and can make maintenance decisions so as not to impact this availability proposition, but it also makes it a commercially viable proposition for Rolls Royce.

Although technology is the immediate enabler of information systems, IS is really part of the much wider domain of human language, cognition, behavior, and communication. So when we get into executing the digital strategy—the actual digital transformation itself—we are effectively dealing with the requirement to manage IT-enabled change. In organizations, this can mean new processes, new ways of working, and new ways of using information, all impacting employees. Indeed, with a new business model, a traditional product company moving into services can require a significant cultural shift as well as a fundamental different operating model. History has taught us that making all these changes is not going to be easy.

So here is the crux—technology is not the digital strategy. The strategic challenge of digital is figuring out how IT (that is, the supply side) is going to be used for the management and exploitation of information and systems, both operationally and strategically. To do this requires first addressing this demand side as information systems are the purposeful utilization of IT. In short, having a digital strategy requires a strategy for both demand and supply.

ESMT Berlin Germany