Vikas Mujumdar, February 3, 2020
Being Digital is a non-fiction book by Nicholas Negroponte about digital technologies and their possible applications in the physical world. It was originally published in January 1995. Negroponte analyzes the advantages and disadvantages of the then-new technologies and tries to predict how they could evolve. Negroponte presents a strong belief that humanity is inevitably headed toward a future where everything that can be digitalized will be digitalized.
Negroponte discusses the differences between bits and atoms. Atoms make up physical information delivery objects such as CDs, newspapers and books. Digital information, on the other hand, is made up of bits, the smallest unit of information on a computer. He believes that all forms of information delivery that are now made of atoms will eventually be made into bits.
On an unrelated note, earlier, in the 1980s, Negroponte had originated an idea that came to be known as the "Negroponte Switch". He suggested that due to accidents in engineering history we had ended with static devices such as televisions receiving their content via signals travelling over the airways, while devices that should have been mobile and personal, such as telephones, were receiving their content over static cables. It was his idea that better use of available communication resources would result if information such as phone calls going through cables was to go through the air, and information now going through the air, such as television signals, was to be delivered over cables. Negroponte called this idea "trading places," but someone else called it the "Negroponte Switch" and the name stuck. And today, switched we have.
What is exciting about everything Negroponte predicted is that it has come true. What is not so exciting is that it has taken us two decades to really "be digital" as a way of life.
All of this begs several questions and a conundrum. One may argue we have been digital for a long time, since the advent of computers, or at least since their use in daily life. If that is true, what then is this digital transformation that we are all excited about today? If we are not yet digital, what is holding us back, certainly not technology?
I think it is therefore important to deconstruct Digital Transformation and get to the bottom of it all and understand what it means. Let's start at the very beginning.
Today etymology is becoming a challenging science. Words are being introduced like never before, in regular communication, in business communication, and most of all in technology. Google and Uber are now verbs and a Blog and a Tweet are now nouns. So we look at the etymology, or the definition, of these three words relevant to our discussion.
Digitization is the process of making information available and accessible in a digital format. In its truest sense, as long as something is not in a physical format it has been digitized. So, if you still read a broadsheet newspaper, still take notes on Post-its, and still maintain your financial accounts in a ledger book, then you are not digital, at least not in those aspects of your life.
Digitalization goes a step further and, presuming you have data in a digital format, defines how best can that data be used to simplify any task or operation. For example, if you now publish news in a digital format, then instead of everyone receiving the same content, you can deliver personalized content to each individual based on his or her profile and preferences. If you are digitally capturing performance data from your factory machines, you can use that to run algorithms to determine the health of the machine and schedule preventive maintenance. If you take notes digitally, you can have your device sound reminder alarms when a task is due. These examples should have made it clear that if you digitize but do not digitalize, you are wasting a tremendous opportunity and all you will probably save is trees (which is a great thing of course, but you get the point).
Digital Transformation, the ultimate goal in being digital, is when a whole new way of living or working is created because you now have digital data and networks of connected devices from computers to smartphones. There are many examples of digital transformation, both in our work lives and our personal lives.
A list of digital transformation examples would have to start with Amazon, Uber and Airbnb. All three have digitally transformed and created a whole new business model for shopping, commuting and vacationing. Stores that could never have imagined selling beyond a local market are now selling globally. People are buying fewer cars, preferring to call one at their doorstep when they need it, eliminating the effort and cost of driving in traffic, parking and maintenance. People who had houses or apartments sitting empty are now generating revenue from them by renting them to tourists in an organized and controlled manner that reduces risks of misappropriation or misuse.
In the entertainment industry, Over The Top (OTT) media services, which stream media directly to viewers over the Internet can now bypass cable and satellite television platforms that traditionally act as controllers or distributors of such content. Your classic cable TV is now getting replaced by Netflix, Amazon Prime, Hulu, Hotstar and many other such OTT providers. With content and user profile and preference data available to these service providers, content can be personalized and made available on-demand, rather than forcing the viewer to watch specific content at a particular time of the day. In the future, it is quite likely that even the content itself may be customized, delivering variations of the story that would appeal more to a particular viewer.
The payments industry has undergone significant digital transformation. Over the last decade or so, we have moved from physical banking to online and mobile banking, to digital wallets and now, in India, to UPI (Unified Payments Interface). UPI is an engine, a platform and a framework that allows banks and merchants to provide their customers with a mobile app that follows a consistent and simple payment mechanism. Bank accounts are abstracted into a handle, something similar to an email id, thus eliminating the need for a sender to know the beneficiary's bank account details. Customers and merchants can link any one of their bank accounts to the handle, and credits and debits will seamlessly happen into that account. You can have multiple handles and each handle can have a different bank account, maybe one for work, one for business or maybe one for each branch of your store. UPI provides a request mechanism, where the sender is notified by the merchant or the beneficiary about an amount due and only has to approve it to complete the transaction. UPI also supports peer-to-peer payments, so you can transfer money to friends and family as simply as if you were sending them an email or a chat message.
For banks and other financial service providers, the Know Your Customer (KYC) process, which is a mandatory and regulated process, handling and verifying paper copies of identification documents is an expensive, cumbersome and error-prone operation. With digital KYC, customer identities can be verified in an instant using a range of digital data including biometrics, facial recognition, and video analysis, bringing down operational costs by orders of magnitude while at the same time providing a great customer experience.
For many businesses, reaching the stage of Digitalization may be quite sufficient to derive great value for their operations, reducing costs, improving efficiency, delivering a better customer experience and improving both the top-line and bottom-line numbers, thereby seeing a high return on investment (ROI) on digitalization initiatives. Digital Transformation in terms of creating a new business model or revolutionizing the way they operate may not be for everyone, at least not in the short to medium term.
Hopefully, the CFO in you is now breathing easy and you can continue to explore what is relevant and useful for your business.