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The many faces of Digital Transformation – Lights and Shadows II

The changing business environment is having a significant impacts on jobs. In the figure a few parameters that mark these changes: 60% of jobs in 2035 do not exist today, 47% of current jobs in US may disappear in the next 20 years because of the changing environment, 100 million white collars may see their current job disappear (worldwide) by 2025, 5-10% of current workers will need to find a new job in this decade because their current job gets automated or simply vanishes. Data source: World Economic Forum

After the last post considering the upsides of the Digital Transformation let’s take a loot at its downsides (as before, please comment and add):

  • The approach to Digital Transformation is often pursued through the addition of “computers”. This increases complexity (real or perceived) and does not reduce resource consumption, it actually adds cost. Achieving a real reduction in cost requires process re-engineering and this affects the status quo of companies, societal culture and often faces resistance from the inside;
  • The increase in process efficiency, resulting from process re-engineering, decreases the need of labour with consequent loss of jobs. Jobs created by the Digital Transformation usually requires skills and knowledge that is not available to those who lost their jobs;
  • The increased market efficiency (lower price to consumers) results in a decrease of market value. This is particularly felt in mature markets where the price decrease cannot be offset by the market size increase. Hence, the players operating in that market, value chain, will see their revenues being squeezed and a few of them may go bankrupt.
  • The increased offer, likewise, leads to more competition and price decrease, thus decreasing the overall market value. These two forces(market efficiency and increased offer) squeeze industry affecting both incumbents and newcomers. In the case of incumbents there is usually a greater capacity to buffer losses (but in the longer term their fall is making a bigger splash), in case of the newcomer competition is so harsh that often a zero price based business model is pursued (giving out the product for free and capitalizing on the market share);
  • The high competition and the low transaction cost squeezes margins and this has to be made up by increasing volumes. This tend to increase oligopolies;
  • The shift towards a service based offer requires different competencies and processes and most industries are not prepared to navigate this space. Small companies usually take the best-effort path, i.e. releasing their products as a series of releases, each being tested by the market with little or no customer support. Being free, consumers are willing to make up with this;
  • The culture of free is not good for fostering better, good quality, services and products (products suffer less from this since it cost more to fix products and therefore producers tend to be more quality-savvy);
  • The low cost of transactions follows from the availability of complex, and costly, digital infrastructures (data centres, sophisticated OS and application-creation support software) and this creates de-facto oligopolies;
  • The value is mostly tied to the correlation of data, hence having huge amount of data provides an enormous competitive advantage. This has been further emphasised by the need of large data sets to power artificial intelligence algorithms. The result is a concentration of power in the hand of very few companies (American and Chinese mostly). These companies are becoming so powerful that they can dictate their “price” to physical infrastructure providers (telecommunications infrastructures, distribution infrastructures, payment infrastructures…). Actually, they are beoming so large to the point that it becomes affordable, and convenient, to develop their own infrastructures replacing the ones of the incumbents;
  • Decreasing margins and the need of huge volumes tend to concentrate industrial/applicative research in the big players whilst at the same time the low transaction cost enabling a multiplicity of small players shift creativity and innovation to small players. Companies in the middle, like telecom companies that used to fuel research at the turn of the century, are no longer fostering technology evolution, nor impactful on the market in terms of creativity and innovation;
  • The explosion of knowledge is creating a widening gap between what a person/a company knows and what knowledge is available. Because of this the value shifts from knowledge to being able to get the needed knowledge right in time and in the most digestible form. A few observers are fearing a shift of knowledge “ownership” (in the sense of applicable, executable knowledge) from humans to machines and current research is looking more on how to capitalise from machine knowledge than how to transfer this knowledge to humans;
  • The creativity in the digital space is often blurring the boundaries between reality and artefact. From this to the blurring of truth and fake the distance is minimal. The issues of authentication, ownership control, trust, accountability are becoming more and more difficult to address as the Digital Transformation percolates in most human activities;
  • The shift of value to the cyberspace fuels the growth of malicious use of the cyberspace, in all possible forms (fake creation, denial of service, security breaches…). The effort to create e-citizens, motivated by more effective access to services, is also seen as potentially dangerous not just in terms of malicious attack but also in terms of the power of conditioning citizens to a higher degree than media have done in the last century. These issues are unlikely to be solved and will dominate this and the following decades;
  • The growing sense of reality provided by enhanced access and use of the cyberspace (virtual, augmented, mixed reality) fuels a new culture that some fears decreases the value of reality. Isolation and shifting one’s life in the cyberspace interacting with virtual characters, creating a sort of virtual autisms, may become an issue in the last part of this decades.

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.