The Rise of Digital Experiences
In the era of digitalization, physical and digital components are seamlessly integrated to create interactive products and services. Value propositions no longer come from what products are, but from the experiences they create.
We are in the midst of the fourth industrial revolution—the digital revolution—and we need to regain perspective on the importance of the human experience. The successful digitization of products, services, and business models is, ultimately, not about mastery of new technologies, but about offering value to the digital consumers, customers or business users. A common denominator of innovation, product design, business design, and organizational strategy in the digital era is the creation of value during consumption of the good or service—that is what we identify as a core tenet of creating digital experiences.
The World Economic Forum and Accenture estimate that by 2025, the digital transformation will have a $12.7 trillion impact on society and an $8.4 trillion impact on automotive, consumer, electricity, and logistics (World Economic Forum, 2016). Companies are embracing digital technologies, increasing their efforts to transform digitally, and devising strategies to remain competitive as they face off with the Digital Titans (Alphabet, Amazon, Apple, Facebook, Baidu, Alibaba, and Tencent) in every sector. Technology is successfully mediating the link between the physical and the digital worlds, vanishing in front of our eyes, leaving us with new forms of social interaction, business models, and innovation mechanisms. The modularity, composability, convergence, and coalescence of emerging technologies are changing the process of innovation, the role of the user, and the source of competitive advantage. Future digital success will not be for those who master the technologies, but for those who offer the most attractive digital experiences that combine economic, social, and environmental value propositions.
The Digital Experience Technology Stack
“Six decades into the computer revolution, four decades since the invention of the microprocessor, and two decades into the rise of the modern Internet, all of the technology required to transform industries through software finally works and can be widely delivered at global scale.”
– Mark Andreessen (2011), Why Software is Eating the World
In the past two decades, a number of digital technologies have emerged, independently promising to disrupt numerous business verticals. The technologies mentioned are accelerating digital innovation regimes. As with other technologies, they are being organized into stacks to deliver customer experiences. Some of the most important technologies are:
- Digital interface layer – means of interacting with the digital data. In increasing order of complexity: screen, touch, gestures, chat bots, voice, augmented (mixed) reality, and brain-computer interfaces
- Software Layer – contains the logic and methods to manipulate data and present results to the digital customer
- Artificial intelligence – the processing of complex tasks by computer systems, such as speech, image, and emotion recognition
- Operating System Layer – contains reusable functions that control the hardware components that have many systems of use
- Cloud computing – the use of remote servers to store, manage, and process (analyze) data (including infrastructure-as-a-service, software-as-a-service, and process-as-a-service)
- Hardware Layer – physical devices that operate in the user environment and help manipulate the environment and gather data
- Internet of things – the connection of physical devices to the Internet, enabling them to sense and communicate
- Blockchain technology – a distributed digital ledger to record transactions that cannot be altered. Blockchain technology favors disintermediation and supports trust without a need for the transacting parts to know and trust each other
- Robotics – the conception of computer-guided devices that can interact with the physical world
Some characteristics of these technologies facilitate innovation and development: modularity, composability, and recombination. Ultimately, we are observing the convergence and coalescence of these technologies, with numerous strategic implications.
Digital innovation refers to the practical implementation of an idea into a new device or process with digital components (definition adapted from Schilling, 2013). Modularity of digital technologies, a hierarchical structure of systems and subsystems, enables their recombination into new solutions, and their composability the reusing of digital components (e.g., modules of code or algorithms packaged into services and access through APIs), which accelerates the innovation process.
Digital convergence refers to the independent evolution (innovation) of technologies resulting in overlapping functionality (e.g., the case of mobile phones and personal computers), while the coalescence of digital technologies leads to new technologies that incorporate several older technological solutions. Both digital convergence and coalescence result in technologies with increasing levels of sophistication.
The Role of Data and Algorithms
Since ENIAC was turned on in 1946, we have experienced an exponential growth in the amount of digital data and computer processing power. The digitization of products and processes, social media, and the increase in the number of Internet-connected devices (i.e., IoT, mobile) have led to the doubling of the amount of data in the digital universe every two years. By 2020, 44 zettabytes of data will be created annually (IDC, 2014). These data are increasingly linked to the particular users. At the core of the digital experience, we have the customer data, including these captured from the usage of digital products and services. The digital revolution, after all, was launched by the willingness of customers to share their data with organizations and to contribute data for the social good.
Aside from data and technology, the third crucial element to digital experiences are algorithms and the models they contain. Autonomous vehicles, manufacturing robots, recommendation services, and digital assistants are driven by algorithms – encoded rules of operation guiding how customers interact with products and services. In the era of digital customer experiences, algorithms are strategic organizational assets accumulating organizational learning, perfected through experimentation. When technologies collect and manage data to build digital experiences, the algorithms and models supporting the experience are structured into digital representations of the physical world we identify as digital replicas.
Competing on Digital Experiences
The characteristics and evolution of the digital technologies used to build digital experiences and the emergence of digital replicas of products and customers are resulting in new business dynamics, which we research in Babson’s Digital Experience Initiative and will cover in future posts:
- Digital innovation process – The innovation process is changing, and the skills and traits of the digital innovator are different of those of the traditional (i.e., analog) innovator.
- New product development – In close relation to the digital innovation process, new product development is affected by the characteristics of digital technologies. In particular, the bridging of the gap between the physical and the digital (e.g., through VR and digital replicas) are enabling new methods of product design and development
- Digital strategy – The digital strategies followed by the Digital Titans, new competitive dynamics faced by incumbent firms, different nature of the customer (i.e., every customer is now a digital customer), and new approaches to product development enabled by digital technologies call for different strategies
- Sustainability, digital privacy, and security – Those challenges faced by the organizations and society as companies innovate with digital technologies, technologies converge and coalesce, and digital experiences become more pervasive.
A key point to remember is that digital experiences should be aligned with the current brand experience. Take the case of Disney. Most people expect to have a wonderful experience at the theme parks and leave them feeling very good and positive about things. This state of mind is dubbed the “Disney Magic.” Disney aims to deliver it with every customer experience. The digital experience at Disney is made of a comprehensive follow-through of the customer, enabled by different technologies and models of the ideal interaction.
Once you have made reservations, Disney sends you tags to launch your Disney Magic experience. Before boarding your flight, your luggage is tagged using the tags that Disney sends out to you. This initiates your experience with Disney.
Once at the airport luggage claim, Disney staff can identify your baggage and direct it to your hotel room at the Disney park. The tags that you wear on your hands, along with apps, help you plan your day at the park, reducing wait times during lunch and on popular rides. This magical experience is created by Disney using technology, models, and seamless sharing of customer data. Inside every company resides the opportunity to create such magic.
What digital experiences will you create for your customers?
To learn about new posts by the Digital Experience Initiative, follow it on Twitter @BabsondXi
IDC (2014). The Digital Universe of Opportunities: Rich Data and the Increasing Value of the Internet of Things. Available at https://www.emc.com/leadership/digital-universe/2014iview/executive-summary.htm
Schilling, M.A. (2013). Strategic Management of Technological Innovation (4th ed.). New York, NY: McGraw-Hill/Irwin.
World Economic Forum Digital Transformation Initiative: In collaboration with Accenture (2016). Societal implications: can digital create value for industry and society? June 2016. Available at http://reports.weforum.org/digital-transformation/wp-content/blogs.dir/94/mp/files/pages/files/dti-societal-implications-slideshare.pdf