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2021 | OriginalPaper | Chapter

1. Digitalization and Digital Transformation

Author : Volker Lang

Published in: Digital Fluency

Publisher: Apress

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Abstract

Digitalization is a technological trend that is reshaping all sectors of our industry and society today. It is considered a major and inexorable driving force of innovation and disruption that challenges private and public organizations equally. With all economic and societal sectors being affected, digital economy is very dynamic and increasingly competitive. It empowers new startup ventures – backed by many billion dollars of venture capital – to create novel value propositions by leveraging digital technologies. Their highly scalable, data-driven, and software-centric operating models increasingly collide with incumbent companies and poise an existential threat to their business. Just think about Apple’s iOS and Google’s Android smartphones, for example. Built on a consistent digital platform, both companies attracted ever-expanding ecosystems of third-party app developers that ultimately caused Nokia to tumble from a position of phone industry dominance into irrelevance. This story is threatening to repeat everywhere across the economy: The cloud computing services of Amazon, Microsoft, and Google are challenging traditional software and hardware providers, the online marketplaces of Amazon and Alibaba are replacing traditional retailers and challenge companies like on-demand Walmart, and the video delivery services of Netflix and Hulu are about to disrupt traditional pay TV providers. Another very popular example is the online booking platforms Airbnb and Booking.com that leverage digital technologies to simplify booking and offer personalized and individually tailored travel experiences while disrupting the business of traditional hotel chains including Marriott, Hilton, and Hyatt. In order to capture the benefits of digital technologies, established organizations – independently of whether they operate in the public or private sector – are forced to incorporate them into their own ecosystem to advance their product and service portfolios through an organizational change process that is commonly referred to as digital transformation. This process of technology adaptation is particularly challenging for companies that were – in contrast to Amazon, Google, Microsoft, and others – not “born digital” since those companies need to undergo far-reaching business transitions that may well overturn established job designs and internal business processes and require novel ways of thinking and collaboration.

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Footnotes
1
Please note that those years are only a rough time indication. As with every new technology, transitions are continuous and cannot be specified accurately.
 
2
Henry Ford actually took the idea of mass production from a slaughterhouse in Chicago, where a series of pigs hung from conveyor belts at which each butcher only performed one specific part to butcher the animals.
 
3
The term “industry 4.0” or “4th industrial revolution” was actually first coined on the World Economic Forum in 2016 [6].
 
4
See BCG study entitled “Winning in IoT” for a detailed analysis of further use cases [7].
 
5
At a basic level, strategy generally refers to what a company wants to achieve and how it will get there.
 
6
Those are generally lower profit markets for incumbent players but attractive markets for new entrants. They are thus ideal for creating new growth opportunities as new entrants will usually try to move “upstream” to gain market share against incumbent players in more profitable market segments over time.
 
7
DRAMs or “Dynamic Random Access Memories” encode digital information in electric charges. Unlike flash memories, DRAMs therefore lose their data quickly if the power is switched off. This is also why DRAMs are sometimes called “volatile memories,” while flash memories are “nonvolatile.”
 
8
In economics, total cost is equal to the overall cost and the sum of fixed and variable costs being independent and dependent of the number of goods produced, respectively.
 
9
Marginal cost is equal to the change in the total cost that arises when the quantity produced is increased by one unit. Classical finance and economics suggests to evaluate alternative investments in terms of marginal costs and revenues, which is not suitable for evaluating strategic future investments.
 
11
Further definitions of those terms can be found in [20, 21], for example.
 
12
Ecosystem refers to a business network of organizations and individuals that exchange goods, services, and information to create a certain value for customers and other players in the market.
 
13
A nice illustration about the amount of data that is generated every day worldwide is available on, for example, www.domo.com/learn/data-never-sleeps-7/.
 
14
A fourth “V” that is sometimes added to characterize big data further is veracity, which describes how accurate, applicable, and trustworthy a given dataset is.
 
16
Such interfaces are technically called application programming interfaces and provide software modules, functionalities, and services that can be accessed and used across an entire organization.
 
17
The term data lake was first coined by James Dixon in 2010, the founder and former CTO of the American business intelligence software company Pentaho, who defined it as follows: “If you think of a datamart as a store of bottled water – cleansed and packaged and structured for easy consumption – the data lake is a large body of water in a more natural state. The contents of the data lake stream in from a source to fill the lake, and various users of the lake can come to examine, dive in, or take samples” [46].
 
18
This scaling effect is due to Amazon’s transformation toward a software- and data-centered organization that leverages artificial intelligence and machine learning algorithms among other digital technologies. Those technologies thrive on big data and get better as the amount of data they can learn from increases.
 
19
It turns out that this very simply encoding scheme is not very efficient, which is why other encoding schemes are used for grayscale images in practice. Their encoding principle is, however, comparable to this simple example.
 
20
The size of a transistor is typically measured in terms of the widths of its gate electrode as this defines the size of the active area of the field-effect transistor.
 
Metadata
Title
Digitalization and Digital Transformation
Author
Volker Lang
Copyright Year
2021
Publisher
Apress
DOI
https://doi.org/10.1007/978-1-4842-6774-5_1

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