What Is Digital Transformation?

The Backstory

On the 1st of January 1970, computers were large machines that cost millions and required whole rooms for installation. They spent a lot of time beeping, flashing LEDs and making whirring sounds. But the economic potential of being able to run automated and mistake-free calculations was obvious. Large companies eagerly snapped up the latest models, and they set to work crunching numbers and filing records. But this was not the start of digital transformation.

The Mad Men meet the IBM 360
Mad Men meet the IBM360

Historically, these numbers were crunched by analysts and the company’s records kept by secretaries. The early mainframes were good at calculations and records. But they were rarely so much better than the staff they replaced that everyday life was completely changed. Mostly they were expensive corporate symbols whose real value to their owners was the ability to show them off to their clients. Unless you were in the typing pool – the bottom did not fall out of the business world in 1970.

An Age of Digitalization

Fast forward 1.5 quadrillion microseconds and our economy is in the grip of existential change. Every business has access to near-unlimited amounts of low-cost computing power from cloud providers like Amazon and Azure. No office space required. Every consumer has a 70s supercomputer in their pocket. Many are wearing them on their wrists in place of watches or watching them like they were televisions. And they are all connected, to each other and businesses all over the world.

We use these devices to talk with our friends, check our bank balances, do our work, to play games, watch sport, buy clothes, order food, hail a taxi… And lots, lots more. All these things that people formerly did in real life, by visiting physical places of business. Over fifty years the process of moving toward technology-based solutions can be viewed as two major phases. These phases overlapped each other in about 2010.

Merger & Aquisition

As the usefulness of business computing went up and the cost went down, technology solutions offered decisive advantages for adopters. Economies of scale initially favoured corporate businesses that could afford the investment and risk. Additionally, large businesses can benefit from rolling out a system over many territories. This contributed to consolidation through mergers and acquisitions over the 80s, 90s and 00s. It led to an economic landscape dominated by national public corporations.

Disruption & Transformation

As consumer technology (especially smartphones) became common in affluent areas, “disruptor” businesses like Amazon, Uber and Airbnb, launched and have grabbed a major share of many markets. They have done this not by absorbing less competitive firms, but by bypassing them and their customers altogether. 

The emergence of these disruptor businesses represents a turning point. The improvement of moving to a ‘digital’ product has exceeded the handicap of losing customers that only buy things offline. The digitalized products will continue to innovate with new features, and the number of offline-only customers will dwindle. Over time, the advantage enjoyed by the disruptors will accelerate.

National corporations can see this change. Each is now attempting a process of renewal designed to keep them competitive with the disruptors in their market. This involves replacing their products with online alternatives while managing the decline of their ‘legacy’ systems. It’s a difficult challenge. These businesses have massive investment in their existing setup. It’s hard to take a network of hundreds of premises and thousands of staff spread across a country and turn it all into an app. Some will succeed, and some will fail. The process is called “digital transformation”.

Digital transformation is the replacement of products, services and processes with business models capable of fully exploiting the benefits of online technology.

Why is Digital Transformation Important to SMEs?

Like the agricultural and industrial revolutions, the information revolution will be far reaching and is going to take decades to run to completion. It will have both positive and negative economic and social impacts and these will take time to become fully understood.

What we know is that the disruptive effects of digitalization have already been decisive in some areas of the economy. Usually, these are businesses that deal directly with data. News and media companies, banks, booksellers, travel agencies etc all deal directly in products that are data and can be delivered over the internet. Business failure and displacement in these sectors has been huge, especially in the developed economies and major cities. But most analysts agree that this is only the beginning.

Small and Medium Enterprises often provide real-world services and operate within a defined territory, such as a town. This gives them the advantage of local loyalty and the ability to concentrate efforts on marketing and reputation building within a concentrated area. Disruptive, online businesses are not typically localised. Because of this, they can acquire huge market share very quickly. Amazon or Netflix can launch across an entire continent simultaneously.

How Will Disruptors Affect Local Businesses?

Will AirService disrupt your local car servicing franchises?

By pooling capacity across local subcontractors, an app-business will have lower costs and will be able to undercut the established market. An app could enhance a car service ‘product’ by supplying the customer additional information about the vehicle, about problems common with its model, about what work has been done and when – and notifying them when the job is complete.

But the real difference is that the app-business will be able to use the data generated by the digitalization of the product to develop new revenue streams and create targeted sales opportunities.

The next wave of business-to-customer digital transformation will see the provision of physical services move online. This will progress in much the same way as Uber has been able to do for taxis. For example, while today a car servicing is usually done by a phone booking at the local garage, you can expect to see the proliferation of customers booking in their cars to app-based businesses. Bakeries, dry cleaners, gardening services – all can expect vigorous new competitors in the near future. 

Established businesses that hope to grow in the 2020s must take full advantage of digital channels to reach customers. They will need to improve their products and automate their processes. They will need to collect and use data to support their customers and make management decisions. Businesses that fail to adapt will be trading on time borrowed from historic goodwill and loyalty to their brand. Over time this currency will be depleted, and those brands will stand for “does not have an app”.

Why Should the Public Care About Digital Transformation?

Digital transformation is improving people’s lives by giving them better, cheaper alternatives to the goods and services that they can buy from traditional businesses. People are enthusiastically choosing online alternatives and in doing so changing the nature of our economy and society.

For example, Uber’s prices are usually lower than those offered by taxi firms – because the software enables drivers to spend more of their time on fares. The “transport” product is better – because it has been enriched by data. This means you can see where your ride is and can get a useful estimate of its arrival time. You can see information on the driver, and a full history of all the rides you’ve taken through the app.

Hospitality disruptor eats assorted travel agencies

Digital Transformation is a positive thing for consumers. But the process of transitioning to app-based businesses is having pernicious effects. Like the M&A era, the expense of technology adoption is resulting in market consolidation. This means less choice for us as customers. We are moving from a range of local, regional and national business to a handful of global brands. With less choice, there will be less pressure for the new businesses to compete with each other on quality and to keep prices affordable.

Further consolidation will also have an undesirable effect on wealth distribution. Fares paid to a local business will stay in town and circulate within the local economy. Fares paid to a global app-based business will result in concentrations of wealth among fewer business owners. These shareholders will live and spend in regions far remote from where the transaction occurred. 

What is Sealion Software doing to help?

The solution is to help local and regional businesses overcome the difficulties of digital transformation. Do this and they will remain competitive with global disruptors and national corporations. By coupling local loyalty with a sophisticated online platform, SMEs will prosper and grow in the digital age.

Affordable engagement models

SMEs may not be able to afford a big end of town technology consultancy. So, Sealion Software is offering a lean analysis and design process and bundling the cost with the delivery of online services.

Turnkey systems

SMEs with a small geographical territory do not need to develop multiple independent online platforms when the business models they use are very similar to each other. Sealion Software is building a range of low cost industry-specific white-label systems so that SMEs can get access to the technology they need at a fraction of the price of developing their own.

Managed services

Sealion Software not only design and build apps and staff systems specifically to the needs of your business, but will run and maintain your systems for you. We will take care of the technology so that you can focus on running your business.

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