For business enterprises, the economy, and society, digital transformation involves change
In Germany, more and more people are using the term Economy 4.0 in the current debate about increasing levels of digitalization. Dr. Michael Ortiz, head of innovation and transfer management research at the Ferdinand-Steinbeis-Institute, now calls for the term to be extended – as part of a model concept called Economy X.0. His angle on key aspects of this highly complex concept is to consciously see Economy X.0 not as something that only encompasses technological and economic factors, but also societal, organizational, and environmental aspects.
Economy X.0 describes a process, as well as the target outcome of the changes that are currently sweeping through companies, business, and society. These changes are driven first and foremost by digital transformation, the intensifying prevalence of networking, and converging structures, systems, and technologies. But other aspects that should also be considered essential drivers of these changes include elementary structural changes on a societal, demographic, global-political, and ecological level. Not only is this affecting core areas of industry, key sectors within industry, and the public sector and services, ultimately it also impacts the political and statutory system, civil society, and every individual.
DECISIVE FACTORS: DIGITAL TRANSFORMATION AND CONVERGENCE
Digital transformation plays a key role on the journey to Economy X.0 as a process of continual and comprehensive digitalization and ‘autonomization’ in the economy, society, and organizations. On the one hand, this process is about continually enhancing the quantity, quality, and intensity of digital technology use, but on the other it is about communication and manufacturing processes, not just in the service sector but also in information processing.
An essential feature of digital transformation is the growing importance of data as a driver of these processes. The ability to gather, collect, and analyze relevant information and data from communication, everyday activities, production, and services – and then translate this into social, economic, or organizational action, simultaneously accessing huge volumes of information (big data) – is extremely important when it comes to competition.
For many companies, these processes entail a challenge to continually redefine and develop their business capabilities, and they need to consciously rise above the constraints of traditional value chains in order to exploit the diverse potential of digitalization, the data-driven economy, and networking. While established business models may lose their disruptive impact on markets, the opportunities to extend the reach of new business models – beyond implementing digital and smart technologies – will first need to be developed and then implemented, in most cases within a similar time frame.
But another feature of digital transformation is that through the internet, it promotes an ongoing multiplication of networks both within and between further social subsystems, economic sectors, technology fields, and organizational functions. A consequence of this is increasing convergence between sections of society and the economy, areas that were previously separate on a logical, structural, and procedural level, and increasingly, the traditional logic of action, function, and systems coalesces as a result of this convergence –managing interfaces and dealing with interdisciplinary action become completely new and connected fields of action. Digital solutions and convergence make it implicitly necessary to form networks on several levels, beyond the traditional boundaries of organizations and business enterprises. Key requirements in this respect are flexibility, agility, and an openness to possibility. The ability to work in networks with heterogeneous partners and increasingly form entrepreneurial business models on and through business platforms will become a core competence of business.
In almost all market economies of the western world, digital transformation, the increased use of databases, autonomization, disruption, and networking impinge on societies with increasingly older demographic structures, with the often-discussed associated impacts and potential conflict in terms of innovative capabilities, people’s ability to adapt, and the availability of skilled workers. The world of work is changing dramatically as work environments and the private world we live in start to converge, and the cut-off between our professional lives, leisure time, and our home lives becomes more and more blurred.
The completely new degrees of freedom enjoyed by individuals also entail new pressures, which will need redefining and renegotiating. In many sectors of the economy, the familiar interplay between producers and consumers is disappearing and making way for a relationship between system administrators and users, and this could lead to an adjustment – the old roles could be turned on their heads and make way for completely new roles and rules. Optimized, inherited, and completely new skills will be required to manage the digitalized, networked, and autonomous workplace, and these will at first need to be reflected across the board in education, training, and qualifications. Important issues regarding productivity, assessment, and remuneration for performance have every potential to create conflict. In addition, far-reaching questions arise regarding the future definition of value creation. There are already substantial areas of production and service provision where aspects such as IT applications, automation, and autonomization have marginalized product and service costs. These will be joined by essential questions regarding the distribution of value creation. And then there are business models which deviate entirely from familiar proprietary solutions and increasingly span distributed and usage-based offers. Finally, environmental considerations will shape interactions between the economy, society, and technology – much more so than until now.
Dr. Michael Ortiz (author)
Senior Research Fellow