Help! The sky is falling. If businesses don’t already face the threat of bankruptcy they can expect massive losses if they don’t start preparing themselves for the big change. What big change, you may be asking yourself?
A few seconds on the internet are all it takes to realize that no business will be able to survive without embracing digitization. Ominous prognoses are pronounced over those companies that choose to evade it. But it turns out that over 70 percent of small and medium-sized companies consider their level of digitization to be “low”. In other words it is a growth market. 19 percent of SMEs feel threatened by digitization. Wow! So what should we do? Well, for starters, keep calm, it’s not that bad.
Digitization – a term with many meanings
There are many definitions of digitization and digital transformation. But the term is no longer only related to the digital revolution, i.e. the computerization or storage of analogue information in a digital medium. Digitization is a process that is bringing many different trends and developments to businesses that are changing the way B2B and B2C deals are being made. The “digitize your business” initiative is nothing more than an internet based network.
So far so good. Change is part of life, both privately and professionally. Expectations change companies over time which in turn have to adapt to and accelerate these changes through advertising and branding. Car manufacturers are permanently developing new cars with different engines and levels of sophistication. The food industry is always trying to develop better plants and websites offer flights, accommodation and car rental as an integrated service. And if you get a parking ticket overseas, you can pay the fine within five days online. Life has become digitized in many ways.
“Think like a start-up if you want to master digitization,” – this is the typical recommendation proclaimed in digital transformation circles. What is meant by “digital transformation” is the path that a company must take to successfully digitize. But hopefully this kind of recommendation won’t lead to panic. After all, if 19 percent of SMEs believe their livelihoods are at risk because of digitization then at least 79 percent do not.
A digitization – case study
Remember DVDs? What used to be normal 10 or 5 years ago has completely changed. The biggest winner in the digital transformation is the American company, Netflix Inc. It was founded in 1997 with a simple thought: Why should you have to go the store to rent a DVD, where it’s possible that the DVD you want has already been rented out? Never mind the hassle of having to stand in line, pay and finally return the next day. Netflix offered the possibility of ordering many different films by mail that would get sent with little effort. Then Netflix developed their business model.
They thought to themselves: Why should they send their customers films that will eventually have to be sent back? That’s when increasing bandwidth connections, ballooning storage capacity in servers and the world-wide reachability of the service allowed the company to begin streaming their films. Sending films by mail eventually became redundant. The payment model also changed. Instead of a “pay as you go” model, a monthly subscription was charged.
Since then streaming many other streaming service providers entered the market. How did the California company respond? It started producing its own content. Co-founders Reed Hastings and Marc Randolph probably hadn’t thought of that when they started 19 years ago. They probably never imagined they would be competing with film studios whose films they initially wanted to send to customers by snail mail. But business models change. That’s true for most companies, no matter the industry.
Digitization – the buzzword
Digitization is the flavor of the month. For many it has become a swear word or a term used by some to make money. As with other terms like “big data”, “machine to machine communication” or “crowdsourcing”, it elicits special responses. It is as alive in the consumer world as in the business world. Using a buzzword to grab attention is not necessarily bad, but it should not be allowed to lead to rash decisions in the company. Companies should think long and hard about their business models and take the time to identify risks, opportunities and goals. And they should peer three or five years into the future to determine how the business model should develop by then.
Digitization – concluding thoughts
At the turn of the millennium no-one thought it possible for a computer producer to become the largest cell-phone manufacturer in the world. Who would have imagined that a search engine would become the biggest competitor to car manufacturers? And very few film enthusiasts would have foreseen Netflix. Trying to predict the trajectory of digitization is clearly folly. What we do know however is that it will continue to progress and it will lead to changes in communication, projects and businesses. These changes are part of life. Business models are born and die along with the companies that thought them up. As a business owner it is important to question oneself and to listen to one’s clients, to keep a keen eye on disruptive ideas and possibly to develop business models oneself. All the while keeping calm.