Dirk Riehle's Industry and Research Publications

The Meaning of “Digitalization” 1/2

My engineering colleagues are sometimes sarcastic about the (many) on-going “digitalization” initiatives: “Didn’t we do this 20-30 years ago, when we switched from analog to digital?” I guess, they are talking about digitization, not about what is currently meant with “digitalization”.

Different from digitization, today’s “digitalization” initiatives are about giving software an equal seat at the table, in the line of business, whatever the application domain. In the past, for many products, software was a cost center, today it is (at least should be) a profit center, because many interesting new products can only be thought of and realized with software as a key part of the innovation process.

The following figure illustrates the old and the new. In the past, product innovation viewed software as a support service and a cost center. Today, product innovation critically relies on software. Thus, the required capabilities should be managed by and integrated into the line-of-business.

An example can help illustrate: An insurance manager recently told me about short-term insurance they are offering, specifically geared at music festival lovers. In the past, to buy insurance, you had to go to an agent, sign paperwork, and eventually get your long-running insurance. Today, you fire up your app on the way to the festival and purchase a weekend festival insurance. This would not have been possible, technically, not would this product innovation even have been conceived, without software being an integral part of the product innovation process.

Next (2018-07-17): Contractions and expansions in organizing software development

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