Rethinking Digital: It’s Not Just About Tech, It’s About People

Digital transformation is creating a world where businesses must test new, exponential strategies while maintaining incremental business functions to keep the lights on. How can we manage this balance between old and new, and choose which path to modernization is right for us? To be prepared to lead our companies into the future, we need to increase our digital fluency. If we don’t, we risk becoming obsolete or worse, making critical mistakes which harm real people. So we have to be digitally fluent—so that we can speak and translate the language of the technologies—and technologists—shaping our livelihoods and organizations.

What is Digital Fluency?

Digital fluency is the combination of thinking and skills necessary to create value with digital technologies.

Most approaches to ‘going digital’ focus on only one or two elements of the larger equation of digital fluency. Maybe you'll start with finding out what tools are available, or get a briefing on terminology. But learning a few phrases in a foreign language while you are away on vacation is not the same as being able to have a conversation or lead the ‘disruptive’ movements so many clamor for. 

Fluency requires deeper understanding. It includes not only skills and knowledge but also culture, ways of thinking and a lot of practice. What makes effective approaches unique is that they bridge the gaps between human and technological elements of change.  We must decode the technical elements to help business leaders understand their tech counterparts. And we must help IT leaders and developers understand the changing world their business counterparts are facing by connecting the dots between emerging technologies and their impact on markets and organizations.

The Lowest Common Denominator

No matter where you start with digital fluency, you need to attend to the minimum level of fluency in the organization you are working with. If people have great thinking about social products or how to collaborate online, but have few software tools to do so, the software will be the lowest common denominator. The same is true if you have exponential technologies rich with useful features—if no one understands what the buttons in those apps mean, the organization won’t get very far.

For example, one of the first uses we had for electricity was lighting our buildings. Electric lighting was a breakthrough in its own right, but it was nowhere near the potential of electricity itself. We already had lighting, we just made it better. But we couldn’t conceive of what electricity makes possible today until people from many disciplines understood more about how it worked and discovered new ways of thinking about energy, light and information. In fact, advanced technologies can create as many problems as they solve while our thinking catches up with their potential. The language of “more, better, faster” lets us know when we are approaching technology within the limitations of an incremental, analog mindset—and indicates where we need to raise the minimum level of fluency so we can see what’s really possible.

Building a Network of Digital Fluency

Digital transformation is partly a function of network effects. Here, we mean network effects to be the exponentially-increasing value of a network as more nodes are added to it. For example, a telephone network with three members is exponentially more valuable than a telephone network with only two members; the same can be said for online social networks or transit networks. 

When raising the digital fluency of an organization, you want to attend to the size, quality and growth (or attrition) rate of your network. Some organizations find it helpful to determine key groups inside the organization. For example…

You want to measure the number of people in these groups, how well-connected they are to each other, and if you are gaining or losing members. As someone bringing digital fluency to your organization, it might be helpful to think of yourself as a matchmaker or outfitter to these various groups, or to find someone who can play that role.

Take the quiz to find out how digitally fluent you are

Thinking of digital as a multiplier

1X: Analog

Organizations at the 1X scale have very little digital leverage. In other words, if they use digital tools, it is only as a substitute for things that were previously done through analog tools. For example, the use of fax machines instead of the postal system is a 1X strategy—while it increases speed a bit, it is still essentially a channel for moving static documents from a sender to a recipient. It's faster and more convenient but it's not enough to create a competitive advantage or transform your business.

Examples:

• A medical office which faxes claims to an insurance company rather than mailing them

• A property management company who started corresponding via email instead of postal mail

• A mining company which uses video conferencing to show mineral deposits to investors prior to conducting in-person tours

2X: Digital Operations for an Analog Organization

At the 2X scale of digital fluency, organizations will use digitized versions of analog systems (like spreadsheets or PDFs of scanned paper documents) to increase data integrity, searchability and speed. They may have significant leverage over their fully-analog counterparts, but they aren't creating new value with digital tools. In these organizations, digital technologies are used mostly to streamline analog operations.

Examples:

• A mail-order company with a database for managing orders

• A neighborhood corner market which uses a Facebook Page instead of a paper newsletter

• A large retail company with a call center organized via a computerized ‘ticket management’ system for customer complaints

3-4X: Digitizing Value Despite the Circumstances

Digital organizations that are operating at 3-4X have achieved some network effects inside their organization through the pervasive use of digital technologies. They are starting to produce digital value at scale, through interconnected systems with live data and teams who understand data-centric products and services. While direct revenue is coming from digital offerings or products, the mindset for operations and value exchange still comes from an analog business model. At this stage, applied digital thinking may begin to cause exponential results—but only in specific parts of the business—and digital initiatives have to overcome significant analog inertia to achieve any scale.

Examples:

• A bank which is still focused primarily on providing service through physical locations or phone-based financial advising, but which has a small ‘algorithmic trading’ department where machines manage investments under close supervision by humans 

• An automaker who still makes and sells cars but is also starting to venture into a few digital subscription services for their vehicles, like mobile data or apps

5-7X: Significant Digital Momentum

Organizations at the 5-7X scale have reached a critical mass of digital fluency. A substantial amount of their revenue can be attributed to digital products or marketplaces, and the lowest common denominator of digital fluency is high enough that digital value can be created with relative ease across the organization. The location of employees, customers and partners becomes less relevant as advanced technologies enable remote collaboration and decision-making. Value is co-created by many people inside and outside the company. Externally, these organizations may be perceived as software companies—though there may be significant 'growing pains' or controversy about that.

Example:

• John Deere (which sells tractors and other agricultural equipment) now has software-enabled, subscription-based services in addition to its traditional products. Each individual tractor has a digital representation of itself in John Deere’s systems, where diagnostics, device usage, and other data are tracked and optimized. These digital twins enable the new business model of subscription-based services with much more predictable margins than leasing or renting of vehicles.

8-10X: Exponentially Digital

A company that's reached this level of digital fluency may look more like science fiction than business as usual. They leverage conversational digital colleagues, strong AI programs, and highly-predictive approaches to value creation which are still quite rare. This all requires significant investment to conceive of, build and make sustainable—but it also often creates a major "first to market" advantage. It's very hard to catch up with a company on an exponential curve.

Everyone in an 8-10X company is a technologist of some kind or another, even if they don't have a digitally-focused job. Employees, customers and partners all contribute to technology planning and development, bridging the distance between users and designers.

These companies have 'software-defined everything.' For example, nearly all value created by Google is a function of software. Even the hardware they create is valuable primarily because of the applications and algorithms which define how the hardware works, and new features can be downloaded as an update. Software-defined value is a hallmark of digital companies, because it enables razor-thin margins for competitive cost advantages, rapid scaling and pivots based on prediction models.

Examples:

• Tesla’s software-defined vehicles can receive significant new features ‘over the air’ with nightly updates. Some downloadable upgrades cost as much as $10,000, like their much-discussed ‘autopilot’ driver assistance features. While the majority of Tesla revenue is still from selling physical things, all of those physical goods have required software components to deliver on their value proposition.

• The Amazon marketplace and other platform-based web services by Amazon are examples of offerings which originally enabled Amazon’s own business lines but now have expanded to be huge businesses in their own right. Almost every part of Amazon is software-defined—including the work of independent contractors like delivery drivers—allowing Amazon to promise reliability and speed which is difficult for competitors to match.

Strategies for Increasing Digital Fluency: 

Digital transformation is creating a world where businesses must test new, exponential strategies while maintaining incremental business functions to keep the lights on. How can we manage this balance between old and new, and choose which path to modernization is right for us? To be prepared to lead our companies into the future, we need to improve our digital fluency. We can start by increasing the ‘lowest common denominator’ of the business in key areas, starting with the thinking inside the organization.