Unlock Digital Business Value With Digital Economics

October 06, 2016

Contributor: Christy Pettey

Digitalization calls for a reformation of business values.

Digital business is leading CIOs, chief data officers and data and analytic leaders to review their understanding of "value." For most organizations today, "economic value" is related to creating and selling a traditional product or service. Digitalization and the rise of digital business is compelling organizations to reinvent their business and operating models.

“Digitalization uses digital technologies to transform a business model and create and exploit new revenue and value-producing opportunities,” said Saul Judah, research director at Gartner. “But, as organizations accelerate these changes, it’s increasingly clear that traditional ideas about the business value of IT are inadequate for understanding the true value that digital now offers.”

“ Unfortunately, most IT leaders focus value creation more narrowly, with the result that most digital initiatives are aimed at operational improvements, rather than value transformation.”

Economic value will increasingly derive from the interplay of participants, data, algorithms and connections in a digital mesh. Each "node" in this ecosystem (or network of ecosystems) is an economic agent, a contributor or "actor" that creates, consumes or controls digital value within the ecosystem.

“For many companies, this economic value is largely untapped, but for a few leaders - such as Uber, Airbnb, Google and Netflix — it has become the means to differentiate, create and capture their markets,” said Mr. Judah. “They have grasped that the framework for exploiting the value of digital business is digital economics.”

“Digital economics examines the creation, consumption and control of value associated with digital products, services and assets in organizations. It creates a framework for organizations to understand, and account for, how much of their organization's business value is digital value, complementing traditional value derived from products and services.”

Unfortunately, most IT leaders focus value creation more narrowly, with the result that most digital initiatives are aimed at operational improvements, rather than value transformation.

This tactical approach to digital value can result in real process and financial improvements. However, the greatest potential for digital value lies in more strategic initiatives, such as creating new markets, empowering employees, changing the basis of competition and crossing industry boundaries. This distinction between tactical and strategic is not a binary decision though; IT leaders should pursue both in digital projects.

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