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Samenvatting - Digital Business (B3102)
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IntroductionVideo 1.1: digital trends
What are the current digital trends and how have they emerged over the last decades? To
understand these, we need to look at the evolution of technology through the prism of the four
industrial revolutions. This allows us to uncover how the industries are getting disrupted.
We often think of innovation or progress through a lens of emerging technologies. In the second half
of the 18th century, the arrival of the industrial revolution drastically shifted the rate of progress. This
revolution was triggered by the invention of the steam engine, which enabled human civilization to
overcome the limitations of animal power and generate massive amounts of useful energy. The
invention of electric power generation and transmission in the late 19th century and the use of
electricity in the early 20th century in assembly line processes ushered in the second industrial
revolution
In the mid 20th century, electronics and computer technology led the third industrial revolution which
had a major impact on manufacturing through computer-aided design, computer aided manufacturing
and automation through robots.
Today, digital technology is leading the Fourth Industrial Revolution, which allows the convergence of
digital and physical products. Industry 4.0 (or the Fourth Industrial Revolution) represents a paradigm
shift from centralized to decentralized production, where a machine no longer simply processes a
product, but where the product communicates with a machine to tell it exactly what to do. Through
machine and machine communication, problems can be diagnosed and autonomous decisions can be
made.
We have to understand why all of this is unfolding now and what it means for humans as employees,
as business owners, as consumers, etc. To do so, we need to understand the nature of technological
progress in the era of digital hardware, software and networks in particular. We need to understand
its three key characteristics. The first driver is exponential growth: human brains do not understand
the nature of exponential growth, and this is also how technological progress looks like. To
understand how exponential growth translates into technological progress, we go to Moore’s law:
technology doubles in power about every 18 to 24 months while its cost halves. This law became
less accurate when physical restrictions were introduced.
The second driver of technological progress is digitization of products. Rival goods are those goods
that some other consumer in the market cannot fully consume if you fully consume them. Digitized
products are non-rival: goods made of digital bits can be replicated perfectly and sent across the
planet instantaneously and essentially without economic costs. Digital products have three main
characteristics:
1. Indestructability: there is no wear and tear associated with the use of digital products -> the
number of uses does not reduce the quality of the product. Two strategies here are licensing
or updating the product so that the value of an earlier version is reduced
, 2. Transmutability: digital products are easily perceptible to change. This allows for customized
and personalized products to be created and delivered to the customer
3. Replicability: the ease with which copies of digital products may be reproduced, stored and
transferred at low and constant costs -> most noteworthy characteristic as it has
consequences for pricing digital products: after the initial investment costs, the marginal cost
of production approaches zero
The third driver of technological progress is combinations. When goods and services can be shared
with others freely and virtually instantly, it enables the mixing of ideas.
Companies are bombarded with digital technologies -> SMACIT: social, mobile, analytics, cloud and
Internet of Things. However, this is just the beginning. New technologies include biometrics, robotics,
artificial intelligence, blockchain, 3D printing and edge computing. SMACIT is intended as a
shorthand for the entire set of powerful, readily accessible digital technologies. These technologies
deliver three capabilities: ubiquitous data, unlimited connectivity and massive processing power.
These capabilities are changing how we live and how we do business.
There are three digital trends that have emerged:
1. From retail to market place: firms shift from being a retailers who sell products to customers
to become a marketplace where they match sellers and buyers -> move from buying and
selling to orchestrating
2. From product to service: moving from selling what the product is to selling what it does
3. From ownership to access
Video 1.2: hype cycle for emerging technologies
Gartner’s hype cycle for emerging technologies provides a graphical representation of the maturity
and adoption of technologies and how they are potentially relevant to solving real business problems
and exploiting new opportunities.
,The hype cycle is based on two dimensions:
1. Time (horizontal axis): a single innovation will progress as time passes
2. Expectations (vertical axis): shows how expectations move over time as the technology
progresses
Each hype cycle consists of five key phases of the technology’s lifecycle:
1. Innovation trigger: when a breakthrough, public demonstration or a product launch generates
press and industry interest in IT technology innovation
2. Peak of inflated expectations: the expectations for the innovation rise above the current reality
of its capabilities
3. Trough of disillusionment: impatience for results begins to replace the original excitement
about the potential value. Problems with performance, a slower than expected adoption or a
failure to deliver financial returns in the time anticipated all might lead to missed expectations
4. Slope of enlightenment: some early adopters overcome the initial hurdles and begin to
experience benefits and recommit efforts to move forward
5. Plateau of productivity: growing numbers of organizations feel comfortable with now greatly
reduced levels of risk. A sharp rise in adoption begins and penetration accelerates rapidly as a
result of productive and useful value
Each hype cycle shows two stages of increasing expectations: the rise up to the peak of inflated
expectations and the rise up to the slope of enlightenment. The first rise is due to the excitement
about the new opportunities the technology will bring, driven mostly by market hype. Excitement
occurs in a rush, rises to its peak and dies down when early expectations are not met rapidly enough.
The reason that expectations are not met is that the innovations maturities usually are still low when
excitement is peaking. High expectations and low maturity leads to the drop into the trial of
disillusionment. The second rise of increasing expectations is driven by the increased immaturity of
the innovation, which leads to real value unfulfilled expectations.
All different technologies do not move at the same speed through the hype cycle. Each technology is
classified differently depending on how long it is expected to take to reach the plateau of productivity.
The main value of these hype cycles is that they allow firms to:
1. Separate hype from the real drivers of technology commercial promise
2. Reduce the risk of technology investment decisions
3. Time the adoption of each technology to optimize its value
4. Anticipate the tendencies of suppliers,
investors, competitors or any other
stakeholders at each stage of the hype cycle
Further, the hype cycle allows firms to identify traps in
technology investments. One trap is adopting too
early and giving up too soon: many firms adopt
innovations just because they are at the peak of
inflated expectations and automatically abandon
, them when expectations are deflated. The hype cycle is most useful in explaining why the
expectations of some technologies may be different from what organizations are hearing or reading in
the media to avoid this trap. Another trap is adopting too late: firms often only pay attention to a
technology if it exceeds a certain threshold of expectations. However, during the early sloping
enlightenment, such a filter creates a blindspot that may cause an organization to miss some urgent
and important opportunities.
Although the hype cycles have received some criticism about their lack of scientific basis, their
usefulness in mapping out the expected value of many technologies is evident over the years.
Video 1.3: digital disruption
The idea of disruption has grown in relevance as every industry faces increasingly unpredictable
threats. A proposed definition of digital disruption is the following: “business disruption happens
when an existing industry faces a challenger that offers far greater value to the customer in a way
that existing firms cannot compete with directly”. Business disruption includes here disruption in the
context of business.
Disruption is caused by asymmetric competitive threats, and a disruptive challenger is not selling a
different version of the same product -> it meets the customer’s needs with a product, service or
business model that the existing industry does not and cannot immediately offer.
Christensen’s business model theory of disruption shows how disruptive challenges can unseat long
standing incumbents. The disrupter always starts with selling to buyers in a new market. That is,
buyers who are outside the markets of customers currently served by the incumbent. This new
market disruptor offers an innovative product that is inferior in terms of performance and features, but
it is cheaper or otherwise more accessible to those who cannot make use of the incumbent's offering.
The pattern that follows is predictable: the incumbent ignores the challenger’s inferior product,
because its own customers are not interested and instead continues to improve the performance of its
higher priced products. Over time, though, performance of the challenger innovation gets gradually
better while it remains much cheaper/accessible.
When looking at digital disruptors nowadays, many of them are not introducing a new fundamental
technology to the market. Instead, they are applying an established technology to the design of a
new business model. Digital disruption is, at its core, a clash of asymmetric business models.
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