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Digital Transformation – How many bits are needed?

The Digital Transformation gets rid of the need to work with (part of) the atoms, replacing them by bits. These bits are used along with the remaining atoms, flanking them.

I made a point to observe that the Digital Transformation is moving parts of the present economy of scarcity in the economy of abundance by flanking bits to atoms. Notice once more the “flanking”.

We still need atoms and the question is how many atoms, how many bits? Well, the general recipe is to reduce as much as possible the atoms in favour of bits. The percentage of ones over the others depends first on the kind of business and secondly by the availability of technologies. The increased capability of technologies can increase the bits percentage correspondently decreasing the atoms percentage. As one is planning for a Digital Transformation one should aim at the greatest possible shift from atoms to bits.

Now, let’s clarify what is meant by percentage and number of atoms vs bits. Clearly, we are not counting the atoms, like estimating the number of atoms making up a product, nor we are counting the bytes representing a product during its life cycle. Rather, we are estimating the overall value of the value chain as it is today when operating on atoms, through the product life cycle, from design to use, and we then look at the value remaining in the atoms parts as we move as much as possible to the realm of bits.

One point to notice is that whilst the overall functionality is kept by the Digital Transition the overall economic value of the parts involving atoms plus the parts involving bits is … lower than the original value! This is the reason why there is a drive to move from the former to the latter. The lower value compares to the increased efficiency of the value chain(s) involved in that product life cycle. Since the increased efficiency translates first into higher competitive advantage and potential higher margins the players in the value chain are eager in pursuing it. Eventually, this increased efficiency translates into lower price to the end consumer increasing the market interest, pulling along the value chain and steering the transformation.

There are businesses where this shift in value can be very high, others where it is lower. As mentioned this depends on the specific product/sector.

Take music: you still need to have atoms for the recording part, and then you will need atoms to listen the music. Everything else, however, can be done using bits. It is not surprising that the price of music to the consumer has approached “zero”!

Take cars: there are lots of atoms that need to be managed through the value chain. Some parts have been converted into bits, namely the design phases, part of retailing and customisation (largely using the web) and a small part of the maintenance (where remote maintenance, using sensing and data analytics, can take place). However, most of the value chain is still tied to atoms.  In the future, and this is what industry 4.0 is all about, new technology will allow for a different manufacturing process, as an example using 3D printing, hence more bits can be used to replace atoms.

Are cars going to be just marginally affected by the Digital Transformation since the value chain will have to remain mostly rooted on atoms? Not quite, as I am going to explain in the next post.

About Roberto Saracco

Roberto Saracco fell in love with technology and its implications long time ago. His background is in math and computer science. Until April 2017 he led the EIT Digital Italian Node and then was head of the Industrial Doctoral School of EIT Digital up to September 2018. Previously, up to December 2011 he was the Director of the Telecom Italia Future Centre in Venice, looking at the interplay of technology evolution, economics and society. At the turn of the century he led a World Bank-Infodev project to stimulate entrepreneurship in Latin America. He is a senior member of IEEE where he leads the New Initiative Committee and co-chairs the Digital Reality Initiative. He is a member of the IEEE in 2050 Ad Hoc Committee. He teaches a Master course on Technology Forecasting and Market impact at the University of Trento. He has published over 100 papers in journals and magazines and 14 books.