An Economic Perspective on Digital Transformation!

The following article comes from the Essay on Grasshopper Innovation, written by Guo Zhaohui

By emphasizing the economics of digital transformation, we essentially mean that we should not overemphasize the novelty of the technology, but rather look at the opportunities presented by changing economic conditions. With the opportunity, the technology that was otherwise not valuable becomes valuable. When new technologies have value, they often arise naturally.

- Article Information -

The author of this article, Mr. Guo Zhaohui, is the chief scientist of Youye, the former chief researcher of Baosteel Research Institute, an authoritative expert in the field of industrial intelligence in China, and an official name of the Grasshopper Innovation Essay. He is the author of "Zhi Xing: The Digital Evolution of Industrial Genes".

PART.01

The adolescent son longs for unfettered freedom. I told him: What is the essence of freedom? It's a choice! But what is the basis for the right to choose? It's based on the economy! For example, if you want to eat something you like, you need money to wear nice clothes, and you need money to travel...... Some people even divide freedom into several grades: the freedom to buy vegetables in the vegetable market, the freedom to eat cherries, the freedom to go to restaurants to eat, the freedom to buy a car, and the freedom to buy a house. These differences in "freedom" are actually differences in economic conditions......

If you don't even have a choice, what's the freedom? If you don't work hard now, you won't have the ability to make money in the future, and you won't have much freedom. Therefore, the current effort is precisely for freedom...... Of course, there are people who only know how to earn money, give up the right to choose, and become a slave to money, which is not what Dad wants. The essence of freedom is the economy, and the essence of digital transformation is also the economy.

PART.02

In the afternoon, someone said to me that when he talks about digital transformation to others, he often gets feedback like this: this is the same as the integration of industrialization and industrialization (lean, 6 sigma...) Almost? I said to him: From a technical point of view, there is a lot of similarity between digital technology and the terminology of the past. For this reason, some people are constantly inventing new terms to reflect the difference in new technologies. In my opinion, it is completely unnecessary. However, from an economic point of view, many jobs today may be fundamentally different from those of the past: they may have lost money in the past, but they may have made money now. The key for businesses is to learn to look at things from an economic perspective: because we care about whether something can make money, not whether there are new technical principles or ideas.

In the age of digitalization, we see many cases: machines working instead of people, people working remotely, and simulations to determine the next step....... In some areas, similar scenarios have been around for a long time, and they are really not new. But why is digitalization being emphasized now? The key is not the difference in technology, but the difference in economy. For example, the cost and performance of digital technology are different, the labor cost is different, the quality requirements are different, and the products produced are different. In digital transformation, completely new technologies are rare, and sometimes even negligible. However, when digital technology is widely used, it will change from quantitative to qualitative.

PART.03

Speaking of this, I am reminded of what happened 40 years ago. At that time, there were very few households with telephones. Many people don't bother to put up a phone: Who am I calling? When more people install phones, more calls will be made, which will motivate people to install phones. After the installation of telephones in most households, more services are provided through telephones, and more services are available to people through telephones, and telephones become indispensable.

In the same way, if only a small amount of information enters the computer, the information required for computer decision-making is incomplete, and the computer cannot make automatic decisions, so human participation is required. When the information is complete, not only can decisions be made through computers, but also the decision-making results can be optimized through repeated iterations, and decisions can be made immediately when an event occurs. In this way, computer decision-making may be more scientific and economical than human decision-making. As a result, people's jobs will be replaced by computers.

For enterprises, machine substitution is a new technology, but this new technology uses mature technology. In other words: the results are new, but the means are mature. It's like when Sony made the Walkman, it was a new product: from now on, people can carry a tape recorder with them and listen to music while walking. However, from a technical point of view, the Walkman used transistor technology, which was already mature at the time, instead of heavy tubes, and made the weight of the tape recorder lighter, making it easy to carry. From a functional point of view, the Walkman is new; But in terms of implementation technology, there is not much new in the Walkman.

For example, for many companies, customized production is a very troublesome thing. Because the user's order is different, the raw materials that need to be purchased are different. As a result, procurement costs can be high, production cycles can be slow, and inventory can be high. As a result, many companies are not suitable for customized production. However, if many businesses can sell directly online, or even automate transactions, purchasing becomes very convenient. At this time, the enterprise may not need inventory and can also support customized production. On the contrary, there are more enterprises engaged in customized production, which will promote the digitalization of the sales process of enterprises. Customized production may further bring market segmentation and innovation.

Another example is that if there is no industrial Internet platform, data needs to be re-collected every time an industrial APP is developed. The process of collecting data may affect normal production. In this way, it may take several months to develop an app, and the cost is very high. On the contrary, if there is an industrial Internet platform and tools for rapid development of industrial APP, an APP may be developed in one afternoon. Suppose an industrial APP can bring 30,000 yuan in benefits. In this way, a company with a platform is worth developing, and a company without a platform may not be worth developing.

PART.04

By emphasizing the economics of digital transformation, we essentially mean that we should not overemphasize the novelty of the technology, but rather look at the opportunities presented by changing economic conditions. With the opportunity, the technology that was otherwise not valuable becomes valuable. When new technologies have value, they often arise naturally.

After the emergence of new technologies, there will be two kinds of changes. One is that the content and way of people's work has changed. For example, the work of several people is now done by one person; What used to need to be done on-site can now be done remotely; I used to work with people, but now I operate directly on the machine. The other is the birth of new enterprises, such as using new business models to provide new products or services to society. This will drive social progress, which in turn will lead to a new round of opportunities. In this way, quantitative change leads to qualitative change.

This is the economic perspective of digital transformation.