The dream of all entrepreneurs is the generation of more and more – large quantities without additional effort, worldwide reach with almost no transport expenses, real-time transactions 24/7, subjectively determined prices at opaque costs. In the material world, this is only possible to a limited extent. A physical product consists of matter that needs to be procured, processed and assembled. In order to get the product to the customer, it has to be delivered by carriers. A contract is only concluded when the point-of-sales is open. The value is based on the raw materials and the processing steps as well as the premium that the customer is willing to pay for the item and the attached reputation. With 4.0, we are now in the age of digital transformation.
After steam power, electrical energy and the computer, the combination of digitization and interconnectedness into cyber-physical systems is now creating for the fourth time worldwide tectonic shifts in the economy and the society. The two pillars benefit from the tremendous progress of IT.
The conversion of analog signals into ones and zeros is one side of the new coin. Texts, images, sounds and soon fragrances are digitalized to binary data that can be duplicated, stored, searched, filtered, processed and transmitted. Anything that can be digitized will be directly affected by this change. For the rest of the physical things and individuals a virtual aura is created, the data cloud that makes everything and everyone trackable, assessable, and controllable.
The other side of the coin is the interconnectedness. It began with the cables that enabled telegraphy at the beginning of the nineteenth century. The foundation for the computer networks were laid later in the sixties of the last century. In 1993, only 1% of the data flowed through the telecommunication networks. In 2000 it reached 51%. Already in 2007, 97% of the bytes worldwide were exchanged over these networks.
Digitization and interconnectedness are creating a whole new ecosystem that offers multiple applications: Cloud Computing, Internet of Things (IoT), Augmented Reality (AR), Smart robots, Virtual Reality (VR), Grid computing, Big Data analytics, Artificial Intelligence (AI), Blockchain, 3D-Printing (see also). Some people will benefit more from these changes than others. In any case, answers to the following questions should be found.
- Which products and services, parts of value creation, and areas of the business model can be digitized?
- Do we have the right number of employees, the skills needed, the right infrastructure, and enough financial resources to make these changes happen?
- Are employees and management ready to commit to these changes?
- Does the environment (i.e. social, technological, economic, environmental, political, and legal factors) provide appropriate basic conditions?
If there are favorable answers to the questions, you do not have to immediately digitize by hook or crook the whole business. Where to start is determined on an individual basis. The processes will continuously be based on the needs of the customers and the working style of the employees. In any case, a plan for digital transformation should be developed and consistently implemented. The decisive factor is the earliest possible execution of value adding in the digital network. The earlier the digital transformation is realized in the value chain, the higher your benefit.
Bottom line: Digital transformation is based on two pillars: digitization and interconnectedness. Many aspects can not be replaced by digitized data. However, the informational aura that surrounds things and individuals becomes ever larger – even if the refrigerator still keeps physical products fresh with noticeable cold, some features can be added that let the refrigerator become a “thinking” part of the cyberspace by counting the stock, ordering things, and suggesting healthy food. The users should not plunge like the Lemmings into the digital abyss, but to consciously find their personal starting point. The foundations are the two pillars of the digital transformation: the digitization and the interconnectedness