In a VUCA world, how do we find a direction to focus our digitalization efforts? Which actions will set us in the driver's seat on the innovation train? And which ones will enable us to keep pace with the train?
This post answers these questions and provides a simple tool to direct or navigate your digitalization efforts.
Digital Renovation vs. Digital Future Shaping
Digitalization. What association comes first to your mind? For many, it will be Cloud, AI, Blockchain, and Big Data. What do all these terms have in common? They are tools and trends. They answer the question: “How to digitalize?”. This question follows the question “What to digitalize?”. But the primary question is: “Why digitalize?”. We are shaping the future in our heads by answering this question and getting closer to the driver's seat. By integrating new digital tools and following modern trends without answering the „Why“ question, we perform the digital renovation. It gets us better shoes to run behind the train. Still, it doesn’t get us closer to the driver's seat. So, let’s answer the primary question.
Why digitalize?
My answer to this question is: to create transformation waves and enable positive changes in the industries and society. It sounds similar to disruptive innovation. However, I prefer the term transformation over disruption to highlight the positive impact of the desired changes.
Not every innovative product is necessarily transformative. As Steve Jobs pulled the first MacBook Air out of the envelope, it was indeed a “Wow!”. However, despite being a novel product, MacBook Air was still a laptop - a representative of a mature product category in an established market. It didn’t transform the market. On the other side, another Apple product - iPod/iTunes, restructured the media industry and allowed individuals to sell their creative work directly to consumers. iPod/iTunes has democratized the industry and increased diversity on the offering side. iPod/iTunes has created a wave of transformation.
Sidenote: my favorite transformative innovation happened long before iPod/iTunes. It was money. Money is one of the first platforms in human history. It drastically democratized trade by liberating people from the constraints of barter exchange.
Now, after answering the “Why?” question, we can have a more profound look at the following question: when do transformation waves happen?
Value-adding model
Meet the Value-adding Model. This section provides a simple navigator tool explaining the nature of transformation waves. This tool can help you to find a direction towards future-shaping digitalization. Here is an idea in brief. Services and products overcome several maturity stages in how they are offered and consumed.
In the first stage, products and services are customer-specific. Some examples are legal/strategy/medical consulting, tailored clothes, and individual transport. At this stage, the products and services are highly specialized and fit the customer's needs well. On the other side, such products and services are not scalable and often are not affordable or accessible to everyone.
In the second stage, the services and products are customizable. Examples: fast food, school system, medical treatments, public transport. At this stage, the products and services are highly standardized. Being designed for scale, they don’t fit perfectly the needs of every customer. For example, a train can transport thousands of people at once. But not door to door, as individual transport can. There is a natural trade-off between fit and scale: if something has to be done more accessible and affordable, then it has to be generalized and standardized. The third stage can partially relax this trade-off.
In the third stage, value chains behind products and services are disintegrated and restructured to facilitate diversity on the offering side. Examples are primarily platforms. Android/iOS enable thousands of developers to create and sell apps. Airbnb enables thousands of hosts to offer their real estate. And Uber/Lyft facilitates door-to-door transportation provided by a pool of independent drivers. With such a rich and diverse offer, customers' needs can be better met than in the second stage while preserving the scale of the second stage.
Our economy is organized into domains such as medicine, education, transportation, industries, etc. Any economic domain can be partitioned into sub-domains. For example, on a very high level, the transportation domain can be partitioned into individual transport(cars, bicycles), public transport (trains, buses), and combinations of both (taxis). Sub-domains can occupy different maturity stages. Cars(first stage), trains(second stage), and Taxi/Uber/Lyft(third stage) co-exist with each other. The relationship between transformation waves and the value-adding model is simple. The movement of a domain or sub-domain to the next maturity stage triggers a transformation wave.
For example, let’s follow the domain of education on its journey across multiple maturity stages over several thousand years.
Three-four thousand years ago, education was in the first stage. Wise men conveyed their unstructured wisdom and knowledge to a couple of dozens of students. It was a highly customized learning that addressed individual students' interests and skills. And, yet, only a tiny part of the population had access to education. The school system has moved education to the second stage and triggered a transformation wave of mass education. First, the knowledge domains, such as mathematics and chemistry, were structured. Second, schools and universities came up with standardized programs. Education has gained scale. Nowadays, it is accessible and affordable for most of the population in most countries. However, if you recall your school years, you will undoubtedly conclude that the school wasn’t built to match your interests and abilities. A typical mismatch between value proposition and customer needs in the second stage. Finally, many online education providers have resolved this issue and brought education to the third stage. Everyone can upload educational content on the services like Coursera, Udemy, Udacity, YouTube, etc. These services triggered a transformation wave that facilitated a multitude and diversity of educational value propositions to match the learning needs and interests of almost every student.
Now, let’s answer the final question. How can Value-Adding Model help you navigate the complex challenge of finding the digitalization roadmap for future-shaping? The approach is straightforward. Analyze your domain and sub-domains. In which maturity stages are they? First, second, third? Which constraints do the current stage induce? Maybe there is a minimal opportunity to scale in the first stage. Perhaps the fit between scalable offers in the second stage and customer needs is poor. What would be the next stage for your domain or subdomain? What needs to be done to resolve the constraints? You will automatically build a roadmap for future-shaping innovation and digitalization by answering these questions.
I hope you have learned something new today. If you want to learn more about moving along value-adding stages, follow this blog or arrange a Complexity Navigator service for customer support.
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