Digital, digital, digital! Ugh! It seems you just can’t get away from the drumbeat:
- A McKinsey study indicates that the most successful companies are the ones who have embraced digital transformation.
- A Russell Reynolds survey tells us which industries are being disrupted the most by digital.
- Headlines scream: “The Digital Economy Will Steamroll Your Business if You Don’t Adapt”.
- Finally, Marc Andreessen, founder of Netscape and a leading venture capitalist, warns us all: “Software is eating the world”. Now, what does that mean?
Did you ever feel like you can’t quite get your arms around what all these buzzwords, studies and surveys really mean? What do they mean to you in your everyday business? You’re not in some high tech industry. You make boxes or furniture. You are an exec for office supplies or maybe a steel distributor. What has all this stuff about “being digital” got to do with you?
Let’s see if we can make the terms digital and digitization more concrete first. PWC paints digitization this way:
“… companies across industries are racing to migrate “analog” approaches to customers, products, services, and operating models to an always-on, real-time, and information rich marketplace”.
That’s much clearer now, isn’t it? No? That’s the trouble – we can’t seem to explain the concepts except with more buzz. But there is hope – ever hear of Henry Schein? Henry is not a who but a what. It is a $10Billion company you have probably never run across unless you are a dentist. It sits almost smack dab in the middle of the Fortune 500 list at number 268. Recently, Alan Murray wrote a great article for Fortune: “Every Company is Now a Technology Company”. In it he succinctly captures what digital transformation means.
Henry Schein is an 84-year-old dental supply wholesaler. It used to market its supplies through a 1000 page catalog common in most dentists’ offices. Here is how Alan Murray tells us its world has changed:
“Have you ever had a crown put on your teeth?
Here’s the standard process at most dental offices around the country. The dentist puts you in a chair and inserts gag-inducing goop into your mouth to make an impression of your teeth. The goop is then shipped to a lab, where it’s turned into a mold used to make your crown. Artisans apply a white enamel powder to the crown in an attempt to match the color of your teeth. The whole process is very labor-intensive—and hasn’t changed much in a century (except, perhaps, for the recent “innovation” of moving some of the lab work to China).
At the charity-run dental clinic adjacent to Henry Schein’s offices south of Salt Lake City, however, the experience is dramatically different. There is no goop. The dental assistant uses an imaging rod that can quickly make a 3D computer image of the affected teeth. The assistant then designs the crown on the same screen and sends it to a nearby drilling machine that’s about the size of a large toaster oven. Thirty minutes later the crown is done. The entire design and manufacturing process takes less than an hour—and the dental chair provides a back rub while you’re waiting.”
Notice how most of the original “analog” steps are changed. First, the needed shape of the tooth is captured with a scanner, driven by software, as information, not as a physical analogy in a mold. Then it is transmitted – not physically shipped (we’re moving bits not atoms). Lastly, the information is turned into the physically needed product on the spot by being “read” and rendered by a computer driven tool. The time, labor and expense of the original process have been squeezed out. Which version would you prefer to experience?
This is what digital transformation means. Henry Schein no longer sells the goop, or the original hand tools. Instead it has taken over the entire value chain. It now sells the whole process embodied in digital software and digitally driven tools. In doing so it has generated annualized returns since its IPO in 1995 of 16%. Not bad, eh? I wonder what is happening to its competitors or those artisans who used to make the crowns?