Businesses Are Struggling To Transition To The Digital Era
Not only are some generations find the digital era hard, but a number of businesses are struggling too.
According to a study by Christoph Kilger, a senior partner at Ernst & Young, businesses are struggling to adapt to the digital era.
The problem, as he sees it, is that they aren’t able to get their heads around the exponential nature of digital technologies.
Rather than things getting two or three percent better every year (which is what most businesses are used to), exponential digital technologies get two or three times better in the same period.
Businesses, he contends, do not have the technical capital to take advantage of such growth opportunities and so they are missing out.
Kilger blames concerns around IT. Web development has become an increasingly opaque topic for many companies, with some struggling to understand how it can help their businesses run better.
Topics such as machine learning and artificial intelligence are highly relevant to today’s businesses, but there is a lack of understanding on the ground about what these technologies actually mean in practice.
Part of the problem is that they are just so new, almost appearing to come out of nowhere. They are also hard to understand, meaning few companies can afford to hire experts to work on the problem.
Winners And Losers
Ernst & Young estimate that smart and connected products will produce an enormous change in the world economy by 2022, just five years from now.
They estimate that new services derived from the smart, digital economy will total more than $14 trillion, comprising more than 20 percent of the world economy.
The value won’t come from traditional twentieth-century methods, they say. It’ll come from new processes made possible by smart algorithms that can do the work of millions of people in a fraction of a second.
Kilger points out that these new developments aren’t entirely a win-win situation for global businesses. New digital technologies are going to result in many losers too.
Whatsapp is a good example of this process in action. The end-to-end encrypted messaging service has exploded in popularity over the last couple of years, garnering more than 400 million users worldwide.
By the end of the decade, it may have a billion. However, Whatsapp’s success is the traditional mobile network’s loss. Ernst & Young estimate that Whatsapp could cost mobile phone service providers upwards of $350 bn in lost text message revenue.
Integration Of Business Functions
The reason why separate companies operate in different parts of the supply chain is that coordination is difficult. We’ve moved from a situation where the majority of large corporations act as their own vertically integrated suppliers into a world of complex vendor relationships governed by price.
But according to Ernst & Young analysts, that’s about to change because of digital technology. Vertical and horizontal integration is set to get easier as better information becomes available to companies.
Already, we see moves by large enterprises to consolidate their supply chains following a recent spate of high-profile startup purchases. This trend is likely to accelerate.
As Bill Gates once famously said, we often overestimate the amount of change that will occur over the next two years but underestimate the change that will happen in the next ten.
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