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What digital transformation really means

Galen Gruman | June 16, 2016
The periodically hot term is hot again, but most people don't understand where its real power lies.

When I put the "fungibility" notion to Dion Hinchcliffe, a technologist strategist well known for his focus on social technology and more recently digital transformation, he agreed it was core to real digital transformation:

I think you're on the right track. Digitization was "paving the cowpath," using digital tools to automate and improve the existing way of working without really altering it fundamentally or playing the new rules of the game. Transformation is a more caterpillar to butterfly process, moving gracefully from one way of working to an entirely new one, replacing corporate body parts and ways of functioning completely in some cases to capture far more value than was possible using low-scale, low-leverage legacy business.

If you look to past eras' books on digital transformation, you'll also see this fungibility notion, even if the term is not used. However, most people stopped at the digitization part of the definition and missed the transformation part.

Put digital transformation into practice

What does that mean in practice? It means you design items, so they can easily change; much of IT's digitization work has been to prevent change. There have been good reasons for that: You want honest, verifiable finances, orders, deliveries, payments, access logs, employment validation, and so on. ERP, CRM, MRP, SFA, and the late-1990s enterprise systems are systems of records, and their state needs to be assured. For security, identity is similarly something that needs to not be fungible.

But once you've digitized your products -- music, books, articles, order-taking services, courses, investment vehicles, social networks, and so on -- you've left the real world and entered a virtual one, à la "The Matrix." These products need not be strict analogs to their real-world forebears, and in fact seem to gain more value and engagement when they are not. The more fungible you make them, the more engaging they become.

That's been the case in the media industry, and it's the impetus for the augmented-reality and virtual-reality crazes now under way. It's what makes social networks so different from live ones like clubs. It's why all those disintermediation systems, from Uber to Amazon, have rocked the economics of their forebears -- fundamentally, the underlying systems don't care if they're matching people with restaurants, drives, storefronts, or dates; they can even mix those up in a way a traditional sales channel cannot. It promises to do the same for health care, research, and facilities management.

But digital transformation is about more than digital products and services; it's also about the processes that create, enable, manage, and deliver them. That's where IT comes in. Processes and the underlying technologies should be fungible as well. Not all processes and technologies, of course -- we still need reliable systems of records -- but more than most companies now have.


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