The digital economy will steamroll your business if you don't adapt

The digital economy is uprooting the industrial economy. Dion Hinchcliffe argues to be competitive, digital enterprises have to fully enable their networks to create value.

One hundred trillion dollars. That's the potential "dividend" to the global economy by 2025 from digitization trends rising in business and society, according to a statement last month from the World Economic Forum.

In the simplest terms, the digital economy is based on the production and use of digital computing technologies. But as an Oxford University research initiative points out, the distinction between the traditional economy and the new digital normal is increasingly harder to define.

Which means that in order for a company to compete in the growing digital economy it has to become a digital enterprise.

Great—what's that?

Leading IT blogger and 7Summits Chief Strategy Officer Dion Hinchcliffe has some thoughts on what what one looks like, and on the mental shifts in business design and digital strategy needed to be successful.

For Hinchcliffe, a digital enterprise is "an organization that thinks and operates like a contemporary high-tech organization in the way it a) engages with stakeholders, b) how it leads with technology innovation, c) the way it designs its business models, and d) the kind of culture and mindset it has," which, Hinchcliffe adds "are more opportunistic, welcoming of experimentation, and amenable to nearly continuous change."

Yet part of the growth and renewal process in becoming a digital organization, Hinchcliffe said, is embracing a contemporary business model that have would have run into a brick wall of C-suite incredulity just a few short years ago—you have give up control in order for your network do most of the work, and thus create most of the value, for your enterprise.

TechRepublic chatted by email with Mr. Hinchcliffe about his recent blog post "Designing for Loss of Control."

TechRepublic: In your blog post you say that one of the counter-intuitive lessons of social business is that the network does most the the work. Could you elaborate on this?

Dion Hinchcliffe: One of the big secrets of digital platforms is that they are outstanding at providing not only a foundation that others can build on, but as acting as an architecture of participation. Virtually all of the largest and most successful Internet startups got there by directly taking advantage of the fact that the vast majority of the intrinsic value of digital networks lies in network itself, not within your platform. Everyone is out there, and your business, no matter how large, is dwarfed by it. To respond to this challenge, what if you could plug the creative and productive powerful of a significant piece of that network right into your business? We see this being effective at almost any scale, and applicable to almost any kind of work, and is a major, sustainable, and highly cost-effective force multiplier. The network can and will, if you provide most of the motivation, provide content, ideas, work to make all this happen, if you only enable it.

TechRepublic: How would you respond to skepticism that digital transformation does not apply to all businesses and industries? What are some examples that support such change?

Dion Hinchcliffe: There is plenty of data available today to show now that virtually all industries are extensively impacted by digital transformation. The timing is just a bit different for some. The more regulated and distant you are from the technology industry, the more time you have to adapt, though time is increasingly short for most organizations as startups and so-called digirati enterprises jump in and create compelling new digital experiences, products, and services that the world is increasingly seeking. Deloitte, in their recent digital transformation survey, has an excellent breakdown by industry, with real data showing that the more mature an organization is around digital, the more it drives everything.

TechRepublic: You write that the "more control you give up and relinquish to the network, the more value comes back through peer production." How does this tie into the concept of an architecture of participation?

Dion Hinchcliffe: They are directly related. If you design your digital strategy not to include an architecture of participation in some way—which is often just a small but important tweak to how a system works, to make any contributions public by default, for example—then you are cutting off any ability of the network to do the work. Sites like YouTube, Facebook, and others diligently remove any barriers to participation, and in fact, provide little but external network contributions. Any business process can be enabled this way, and increasingly should, for reasons of competitive stance, cost, and innovation.

TechRepublic: If the digital economy is for real and it's here to stay, just how far along are we—say in North America—in shifting to the new normal?

Dion Hinchcliffe: As the famous saying goes, the future is already here. Organizations that have not already significantly invested are at significant risk. The mandate seems well-understood by business leaders: MIT's 2013 digital transformation survey showed that 85% of execs thought it was a top organization priority. In addition, recent data from the World Economic Forum indicated that the digital economy was close to 10% of all business activity in the United States, and climbing fast. That may seem like a small slice, but it's big compared to not having existed 15 years ago. At the current rate of growth it will 25% of the economy within 10 years, a huge shift, and where virtually all of the growth will be. No organization can avoid the digital economy.

TechRepublic: What if someone just stopped you mid-sentence and said "How do you know this is true? Prove it."

Dion Hinchcliffe: I look at this whole process from a data-driven point of view: Most of the digital world is open to view, and companies digital experiences and capabilities are relatively easy to compare. We can examine what Amazon and Nordstrom (digital leaders) are doing versus Walmart and Best Buy (digital laggards), look at their respective and very different performance in digital channels, and verify that the latter need much better realization of digital.

TechRepublic: What if a company is not a slick digital startup? How it would go about its own digital shift and what are the obstacles?

Dion Hinchcliffe: There are a number of strategies available for organizations that aren't digital natives to get started. An incubator approach, with a startup culture created in an innovation group within the company is one such way. Tapping into internal and external innovation using hackathons is another way. Some companies, like the industrial giant Bayer, are using reverse mentoring. There are a whole host of strategies that can help traditional organizations, but the biggest obstacle, ironically is not technology but people: As soon as reasonably possible, the mindset, culture, and skillset of the organization must shift towards a more focused digital stance.

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Brian Taylor is a contributing writer for TechRepublic. He covers the tech trends, solutions, risks, and research that IT leaders need to know about, from startups to the enterprise. Technology is creating a new world, and he loves to report on it.

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