How do we rethink digital transformation?
In 2016–17 Australian businesses invested around A$35 Billion in Information and Communications Technology (ICT) goods and services. This is up from around A$33 Billion invested in 2015–16, according to statistics released by the Australian Bureau of Statistics this week.
With these amounts, net investment in ICTs amounted to approximately 11% of total investment in the economy in 2016–17 as compared to around 10% in the previous year. Over the last decade or so, share of ICT investment to GDP increased, with ICT investment growth rates superseding the growth rates of per capita GDP — a measure that reflects the economic performance and wellbeing of the country’s population (Chart 1)! A rise in per capita GDP tends to reflect an increase in efficiency and productivity in an economy in the long-run.
How to improve returns from technology investment? Clearly, technology investment by itself is not enough to grow Australia’s digital economy. Previous research at PwC Chair in Digital Economy highlighted the issue. MORE needs to be done to leverage benefits from digital investment!
What is MORE?
I start explaining MORE by telling a story of a curve. By definition, a curve represents ‘a set of points which, near each of its points, looks like a line, up to a deformation’. Connecting these dots is important, but positioning them is the key!
Now, a growth curve in the context of going digitalcan be shaped in two different ways. They are ‘intensity of technology’ and ‘intensity of idea’. In a recent article, Marek Kowalkiewicz defined the concepts as digitisation vs. digitalisation. Digitisation, which started in the 20th century is a way to improve efficiency through process automation, while digitalisation is a new trend, using digital technologies to reimagine products and services, create new business models, and find new ways of generating revenue.
Essentially, a business can grow in two different ways: growing within a curve (its slope parameter) and leveling up the whole growth curve (the constant parameter). In order to keep momentum in the business, at least one of these two parameters needs to be changed. Each curve has an origin (similar for a business), but the way they move over time matters! Here is my simple graphical representation of the notions (Chart 2).
In Chart 2, the horizontal axis shows digital intensity (digital investment per unit of labour) and the vertical axis shows the efficiency and revenue gains from digital footprint. The shape of the curves is governed by the idea of diminishing return, which means that returns and gains from technology investment are not sustained. Therefore, firms need to find a new growth curve, which is essentially the outcome of a digitalisation process.
What makes up the ‘digitalisation’ process?
The ‘Digital Maturity’ model, recently developed by the PwC Chair in Digital Economy, provides explanation of the context. The model has been developed through an extensive literature review, industry and expert panel consultations. The model consists of three attributes, six digital capability/digitisation indicators and seven digital impact/digitalisation indicators (Figure 3).
In Figure 3, the three attributes of the maturity model are: 1) Technology and Data, 2) People and Management and 3) Product and Services. The two broad categories of the maturity model are: 1) digital capabilities, which consists of six elements; and 2) digital impacts, which consists of seven elements.
The Digital Impact Indicators measure how digital technologies are leveraged to respond to consumer demand and changes in the environment through improved/new product and service offerings. This includes seven indicators: Vision; Leadership; Governance; Innovation Culture; Shared Value; Business Agility and Revenue Resilience.
The Digital Capability Indicators measure the strength of the organisation’s digital foundation. This includes physical Technology Infrastructure as well as Strategy, Risk Management, Talent and Skills, Customer Experience Design and Technology Ecosystem Design.
To sum up, both digitisation and digitalisation are required for a business to thrive in the digital economy. Unfortunately, we have seen the trend of digitisation everywhere, but more focus is required on digitalisation!
