Digital vs Analogue

After many discussions about “digital” with the CIO and members of their IT leadership team it was time to take the digital conversation to the next level. Today the CIO and I were meeting with the CEO to begin to discuss the need for the organisation to develop a “digital strategy”1 for the organisation.  After the initial introductions and pleasantries were complete we introduced the topic for the meeting – how does a traditional, mature “analogue” organisation successfully transition into a digital organisation.  At this point a slight grin crossed the CEOs face. “OK, that’s great but, before we get started with the discussion proper what is digital and a digital organisation anyway?”

“Yeah, that’s a great question and one which can be difficult to explain” I replied.  “Perhaps the best way to understand a digital organisation is to compare archetypes of a digital organisation to that of an analogue organisation”.  

I then proceeded to walk the CEO and CIO through this table.

You will notice there is very little in here about technology.  Yes the rise of new and ever more powerful technology tools make being digital possible but being digital is about a lot more than the technology.  Being digital is defined by how you view the world, how you operate and how you intend to create value. You can throw a lot a of money into technology at an analogue company and still not be digital because you still view the world through traditional lenses and you still operate through predominantly traditional ways of working with traditional products and channels and traditional interactions with customers, supplemented by technology.

Prototype digital companies are not traditional, plus they operate very differently.  Here are 8 dimensions where digital companies are very different from analogue companies.  Let’s examine the differences:

Availability of data.  Analogue organisations have data and often lots of data.  This data however tends to be transaction centric, that is, we record data about the business transactions we have undertaken or want to undertake and about the organisations that we have done or want to do business with. Digital organisations capture transaction information and everything else that they can. They capture as much data as they can, from everywhere, about everything and everyone. For example they use sensors in assets to track state and monitor changes in state, they track location of people and assets, they record every keystroke and every decision that their customers make.

Value creation.  Analogue organisations typically create value through leveraging money in the form of capital and assets and people’s time and creativity. Digital organisations also leverage money and people’s creativity, however they also explicitly leverage data as a means of creating value. For example Google leverages data to sell advertising and AirBnB leverages data to create an accommodation marketplace and Amazon leverages data to make targeted recommendations to their customers.

Decision making processes.  Traditional analogue organisations make the majority of their decisions through intuition and the experience of their key executives.  Yes they use data but if we are honest they use data primarily to support and justify their decisions. Digital organisations on the other hand are led by the data, led by the evidence.  Yes they will still make a limited number of strategic decisions through experience and intuition, their day to day decision making process is more akin to the scientific process where experiments and evidence show the way.

Assumptions about the environment.  Despite the rhetoric that change is occurring faster than ever, traditional analogue organisations operate as if the external environment is stable.  You can see this best in the way they manage business as usual (BAU) and change. BAU is continuous and relatively “flat line”, maybe with small incremental improvements.  This continues until the decision is made to make a quantum change. A project is established to create this quantum change and once (or if) successfully delivered the organisation goes back to BAU and flat line performance.  Digital organisations on the other hand assume / know that change is constant. As a result they manage change as business as usual. Change becomes constant and more iterative, a standard part of business as usual.

Business model.  The dominant business model of the of traditional business is the end to end value chain or “pipeline” business.  You’ll recognise it because in this business model you design and build your products and services, market and sell these products and services, deliver them and provide customer appropriate customer service.  The business model of choice in digital companies however is the platform or marketplace. Under this model the organisation does not define sell or provide service rather they provide a digital platform that makes it easy for buyers and sellers to interact.  Think Uber, AirBnB or the Amazon marketplace.

Customer service models.  In analogue organisations customer service is predominantly provided through physical customer service points.  This may be supplemented with a call centre or an online presence but the bulk of customer service occurs in the real world.  In digital businesses customer service is predominantly or perhaps exclusively online. If a customer wants service from a traditional retailer they will go to the store, however where does an Amazon customer go.  Virtually all the time they go virtual as there is no real world customer service point (or cost to sustain it).

Organisation design.  Traditional analogue organisations are organised in a classic industrial era fixed hierarchy.  Further, they tend to employ and reward specialists who can expertly execute on their defined tasks and they obsess about organisational efficiency.  Digital organisations tend to employ “T shaped” employees. T Shaped employees are specialists, who also have a large breath of skills in related and sometime unrelated areas.  Rather than organising strictly through fixed hierarchies they seek to form cross functional teams as a means of solving difficult problems and encouraging innovation.

Products and services.  Analogue organisations develop and deliver traditional or lightly digitised products and services.  Digital organisations on the other hand seek to deliver digitised products and services or highly information enriched products and services.  An example of this is how Roll Royce and GE no longer seek to sell jet engines rather they sell outcome contracts based on flying time and leverage information to drive the economics of the service (for more see this HBR article).  

Comparisons, such as this, tend to present an all or nothing view of the world.  You are either digital or you’re not. The world of course is much more subtle than that and the comparison of analogue vs digital is more of a continuum than it is a switch.  This is particularly true if you are part way through your “transformation2” journey or have tactically capitalised on digital related opportunities that presented themselves to you without a full transformation.

In the end however, the question is not whether you are digital or analogue but how digital do you need to be and how do you manage the transition from where you are today to that position?  The answer to this questions will vary from organisation to organisation. So:

• how digital do you need to be across all of these dimensions?
• how digital or analogue are you today?
• what needs to change in order for you to make the transition?

Start asking and answering these questions and you will begin to understand what’s required to successfully transition from analogue to digital and perhaps you’ll notice that the answers you get have surprisingly little to do with advanced technology.

1 Note:  I don’t really subscribe to the idea of a digital strategy as a separate stand alone document.  I generally prefer to talk about defining the digital perspective of the business strategy as it represents a more integrated view (you can read more about that here if you are interested).  Sometimes however, it’s just easier to use the shorthand!

2 I am not a fan of transformation.  It comes from the analogue world of large one off changes from an undesired present to a known preferred future.  The problem is this future likely doesn’t and won’t exist and all we actually know is that when or if we arrive at our preferred future things will have changed.  It’s a fascinating problem but one that will need to wait for another day!!