What's in a Word? Digitalization?

"Good governance practices have focused on and strengthened audit oversight and risk oversight. But there's an IT tsunami coming and that spotlight should now shift to IT oversight". 

David Beatty

Smart words from the erudite and articulate David Beatty, Conway Director of the Clarkson Centre for Business Ethics and Board Effectiveness at the Rotman School of Management at University of Toronto (what a mouthful!). David made the comment during an excellent Board Governance Day co-hosted by Stanford's Rock Center for Corporate Governance. And he got me thinking.

I wholeheartedly agreed with his point, but was uncomfortable about the term IT. Since David thinks words are as important as I do, we had a stimulating conversation about what the right word was.  

The term IT primarily connotes back office systems to manage and track a business - particularly to the typical silver-haired denizen of a board room*. Granted, these systems have been the scene of many a corporate debacle featuring functional mismatches, missed deadlines, budget overruns and staggering security breaches. As such, they deserve deep board oversight.

But there's something much more important to worry about. Today, digital information infuses every single product. Nicholas Negroponte foresaw this evolution almost two decades ago, when he said "The change from atoms to bits is irrevocable and unstoppable." He was considered a futurist at the time. The future is here now. 

Companies can serve customers better by embedding smarts and connectivity into their products: think smart thermostats or driverless cars. For some products the smarts and connectivity actually are the product. Companies also need to consider a seismic shift in consumer digital behaviour: think the generation that has 'grown up digital' watching video over the web rather than cable.

Companies need to widen their vision beyond traditional competitors: Garmin has to think about Apple, not just Tom Tom, while trucking companies have to think not just about the other trucking companies but what happens when trucks don't need drivers. And they need to think about disruptive entrants with new business models who could displace them: think AirBnB or Uber.

Boards have a duty to exercise insight, oversight and foresight about all this. So question is whether IT suggests all these things to a typical director.

David is a great communicator and he's worked hard to improve corporate governance in Canada. So he sought a word that would have all the right connotations and raise awareness of this important issue with directors. We bandied about several terms, and finally settled on 'digitalization'. It suggests how every product has gone digital (not just been digitized) and it also makes an implicit reference to to the fact that people  have gone digital too. What do you think?

* A friend has pointed out that, as a silver-haired director myself (albeit one who spent her career in the field of information technology) perhaps I suffer from an outdated view of the term information technology.

The Second Economy

I've just read a fascinating article in McKinsey Quaretly, describing the Second Economy.  The author considers the 'underground' economy acting underneath the economy we see above ground, an economy that consists of hundreds of machines which go into co-ordinated action when we begin a transaction.   He uses a clever example of checking in at an airport kiosk which sets off a string of interactions with other machines, from those which predict total check-ins and adjust load placement on the airline, to updating frequent flyer programs, to checking security lists - probably numbering in the hundreds. And this computerized neural network is doing tasks that used to be done in the physical world by humans. In this article, Brian Arthur argues that by 2025, this digital second economy could be as big as the physical one.

What I loved about this article was his analogy of this underground economy to the root system that links aspen trees.  (I hadn't known that a stand of aspens would all share an underground root system.  I will go and look up more about this).  What an elegant analogy.

I often use another forest analogy to explain seemingly sudden explosions in innovation adoption.  When a forest fire is raging through a forest, it will sometimes appear to have faltered, only to have trees a short distance away burst into flame.  The fire had been carried forward through the underground root system of the trees.  (At least that's what somebody told me ages ago).  I think of innovation like that sometimes.  You may have heard of the novelist Gibson's remark "The future is here; it's just unevenly distributed".   So an innovative technology may pop up in one place and seem to lie dormant for a long time, only to flare up slightly differently.  For those who haven't been watching closely, this new flare-up looks like the start date for the technology, but really the innovation has been incubating underground for a long time.

Check out the full article at the McKinsey Quarterly site.