Digitalization: What it really means! - An analysis

Hey Steemians,
I hope you are doing allright?! In this post i want to try to clearify to you what digitalization means.

Everybody is talking about digitalization using buzzwords like IOT (Internet of Things), Cloud Computing, Big Data, Smart Home, Connected Car, Blockchain, Virtual Reality and many more. People who are not familiar with those topics might be afraid of the future and believe that it will change our whole society. The impact can be that automation will make several jobs in a variety of industries redundant.

But what is digitalization?

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The definition of digitization in the original sense means the conversion of analog values into digital formats. These data can be processed by information technology. Often, however, the term digitization also stands for the digital revolution or digital transformation.

In this article I highlight what digitalization of companies, product and business models mean.

Digitization of companies

Digitalization is not new, companies have been doing the transformation of analog values into digital copies for decades. Automating business processes like saving, distributing and modifying sound recordings, videos, pictures and documents are examples for those processes. The ERP system for example enabled corporations to systematically plan capital, human resources, materials and information more efficiently on an enterprise level.

Taking human resources in an enterprise for an example, clerks managing the personal would have a giant task to do if the processes would still be analog. Considering the space and the time looking for employees files for such a big corporation.

The new buzzword Industry 4.0 is categorized in the same area since it is all about optimizing networks in logistics and production rationalizing processes and trying to improve them by making the value chain more efficient. The new thing about Industry 4.0 is that the process optimization is not only company internal but also affects the systems and processes of linked companies working in that network.

Digitization of products

When it comes to digitization of products a huge portion consists of the customer benefits created by software or digital content. Since nearly every western household has access to the internet, offline retail stores are asked to improve their services in order to maintain their revenue share. By simply demonstrating the product with only a few information consumers tend to purchase the desired good on the internet because online retailer can offer it cheaper because they have no expenses for local stores. In these times companies, industries and service provider have to offer additional value by developing a consumer centric experience to keep bound loyal customers.

In a modern car, a significant proportion of the customer benefit is generated digitally from the vehicle, e.g. in the form of assistance or safety functions, low-consumption engine management or navigation or entertainment systems. Modern stereo systems offer customers to choose their input device (e.g. mobile phone, MP3 player, tablet or personal computer) or offer a subscription of a streaming service to listen to their favorite music.

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Devices consisting of physical hardware, electronical components, uses a software control and can be linked to other devices (e.g. networks) are called cyber-physical devices. Moreover, there are products and services that are purely digital like streaming services (e.g. Spotify & Netflix), eBooks, PC software or exchanging portals.

Digitization of business models

The digitization of business models primarily refers to the fact that the benefits for which a customer pays are provided in ways made possible by digitization. By shifting their effort from only selling products to add additional services companies try to reinvent their business models to modern ones. An example would be Car2go / Drive Now, services provided by the prestigious car manufacturers BMW and Mercedes. Those companies realized that some customers do not want to own a personal car anymore especially people living in big cities. Therefore, they offer a platform to rent cars for a short period of time so the service taker can fulfill activities which need a car (e.g. transportation or shopping) without actually owning one.

A new business model would therefore consist of not selling the customer a car but, for example, charging him for the operating hours or, even better, the mileage driven or time spent (no problem for modern sensor technology). This business model is also labeled under “sharing exonomy” (e.g. Airbnb & Uber) which brings owners of “something” together with temporary users.

Purely digital business models can be found at Google or Apple, which offer several digital products to their customers. Examples would be their cloud storage to save personal files on an external device, the app store a marketplace for customer & seller to increase the value of manufacturer owned digital devices or Google Adwords – the sale of online advertising.

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In a nutshell digitization is nothing new considering the industry has been implementing automation of processes for several decades. Shifting customer benefits into the main focus by developing new products and services is due the fact that through the internet people have more chance to compare products of different manufacturers. New business models get created to push sales of companies since the improvement of devices and the innovation of new features get less radical at the moment.

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Greetz M.