PHOTO: Elena Mozhvilo on Unsplash
The digital economy has steadily asserted itself in recent decades. Reserves of technology experts and well-connected millionaires, automation and artificial intelligence (AI) have supposedly opened up the internet to all business owners.
Recognized by the World Economic Forum as the driving force behind the fourth industrial revolution, digital transformation is driving economic change at an unprecedented pace. But not all industries benefit from this. Still.
What are the advantages and opportunities of the digital economy – and how can you adapt and use the digital transformation for success?
What is the digital economy?
According to Walter Brenner, Professor at the University of St. Gallen in Switzerland, “The aggressive use of data is transforming business models, enabling new products and services, creating new processes, generating more value and ushering in a new culture of leadership. ”
Brenner made that statement back in 2017, and a lot has happened since then. COVID-19, for example, acted as a catalyst for economic change and spurred digital-first initiatives. Today, the digital economy exists alongside the traditional marketplace, leveraging automation, machine learning, and interconnectivity to continually refine and improve operations.
However, the transition to a digital-first economy is far from complete and will not be painless. Inequalities in labor markets and slow government reforms will lead to stagnation and prevent business leaders from embracing change.
Zia Qureshi of the Brookings Institutions said: “Across all economies there is uneven participation in the new opportunities created by digital transformation. Many are being left behind, in all industries and companies, in the workforce and in different parts of society.”
Businesses that don’t want to be left behind need to educate themselves and their teams about the internet economy. They also need to update and refine processes based on data-driven insights. But the rest is up to politics.
Considerations on joining the digital economy
Brands looking to adapt and thrive in the digital-first economy must consider both the pros and cons.
Access to more data
Data is the lifeblood of the digital economy. Businesses have always relied on data for marketing, forecasting and performance analysis, and today’s digital platforms are increasing the amount of data available exponentially.
Businesses can be extremely specific about who they target and how, gathering information about customer interests and preferences. Algorithms sort, catalog, and prioritize data to predict future behavior.
Businesses can buy data, but they can also generate it themselves using apps, websites, contact forms, surveys, and more. This information drives marketing campaigns, product development, strategy, and customer and employee experiences.
More mobility options
Brands once considered hardware, property and machines far more important than design, technology and branding. With the spread of social media, consumer preferences, among other things, have come to the fore. The mobilization of tangible to intangible assets as the core engines of economic growth is a key feature of the digital economy.
In a truly connected world, trading across borders is easier than ever. Businesses can expand into international territories without incurring the expense of a physical location abroad. The ability to hire in this way is also game-changing on an individual and global level. Check out companies like Uber and Grubhub to see the potential in action.
Other considerations:
Some other factors that brands should pay attention to are:
- Omnichannel communication: Rather than relying on employees in a physical workplace, digital businesses are leveraging technology and remote work to improve communications between businesses and consumers.
- Multi-sided market: Like Google, companies can offer free content to consumers thanks to the two-way nature of e-platforms.
- Energy: Today’s technology requires a lot of electricity to function, which could have a negative impact on the environment if not addressed.
- Currency: New forms of currency now exist exclusively online and are not prone to the same weaknesses as physical currencies. Cryptocurrency, NFTs and virtual real estate are revolutionary concepts in the digital landscape.
The transformation of the digital economy to platform companies
One of the biggest changes being driven by the digital revolution is the shift from physical companies to platform companies, brands that build technologies that other organizations rely on.
Not all brick-and-mortar businesses should be selling their buildings and shift operations online. But going digital as much as possible seems like a sensible move. Platform companies are following new rules that allow them to innovate faster and achieve greater market value than traditional competitors with fewer employers.
Data from the World Economic Forum 2018 shows a clear comparison between traditional and digital companies:
- Traditional: Founded in 1916, BMW has 131,000 employees and a market capitalization of $51 billion.
- Digital: Founded in 2009, Uber has 16,000 employees and a market capitalization of $76 billion.
- Traditional: Founded in 1923, Walt Disney has 199,000 employees and a market capitalization of $163 billion.
- Digital: Founded in 2004, Facebook has 35,000 employees and a market capitalization of $473 billion.
Not all companies will enjoy the extraordinary success of Uber and Facebook. But the digital landscape is undeniably driving economic growth.
If more evidence is needed, look at the proliferation of so-called unicorn companies, private start-ups with valuations in excess of $1 billion. According to Bloomberg, there were 39 when the term was coined in 2013. There are now over 1,000.
Elements of successful digitally managed companies
Technology is the main reason why startups can grow quickly with few employees, but not the only one. Below we will look at other components of successful digitally managed companies.
customer experience
Whether in the B2B or B2C space, features that facilitate customization — like omnichannel sales, live chat, and algorithms — drive success, according to research from McKinsey & Company. Digital transformation enables brands to interact with consumers in a more convenient, direct and personalized way.
Data and analytics mean decision makers can pinpoint areas that spur growth and pinpoint pain points. With an attitude of continuous improvement and refinement at every level, a company can drive growth and success like never before.
The Internet of Things (IoT)
All in all, the digital revolution really seems to be underway. The workforce, the global economy and people’s lives are becoming more connected through technologies such as AI, big data, robotics and cloud computing.
Perhaps one of the most exciting and life-changing ways technology is connected to everyday life is the Internet of Things, which includes devices such as:
- Voice assistants (Alexa, Siri)
- Smart thermostats
- smart watches
- Sensors connected to the Internet
- fitness tracker
- Data-connected vehicles
These devices collect and transmit data while monitoring processes. Organizations can use this data to take the guesswork out of decision-making, increase efficiency, and improve the customer experience.
According to McKinsey & Company, by 2030, IoT can generate between $5.5 trillion and $12.6 trillion in value worldwide. The manufacturing and wellness sectors are expected to benefit the most, with B2B apps being the main focus of growth.
Digital supply networks
Digital Utility Networks (DSNs) actively collect insights from distributed sensors and connected assets to enable continuous improvement. As a result, companies are exchanging traditional supply chains for dynamic management protocols that enable competitive differentiation.
Digital supply chains run like a red thread through physical and digital worlds and connect supply and production. Deloitte outlines three main ways in which this happens:
- Digital-to-Physical: The efficient, automated transfer of information from the digital to the physical, such as B. 3D printing.
- Physical-to-Digital: Capture data from the physical world and record it digitally like IoT.
- Digital-to-Digital: Leverage technologies like machine learning (ML), AI and advanced analytics to deliver actionable insights, e.g. B. tracking user preferences or using data to retarget ads.
Is the digital economy thriving?
The digital economy thrives on those at the intersection of technology and business. While the benefits of a digital-first approach have yet to be fully transferred to the general public, this is poised for change.
Executives need to increase their understanding of the digital economy to identify opportunities for improvement, which includes training all employees, not just IT teams.
As organizations update the way their systems work—and governments refine their policies—there will be more positive impacts from the digital economy.
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