Digitalization phases

Digitalization is not coming in one go, it goes through 3 main steps. 

Some industries have been involved much earlier than others in the digitalization revolution. Capital markets have been involved in such a transformation more than 25 years ago when they became more and more electronic. This continuous process over 30 years supported by tremendous investments has been radically transforming this industry. This is not only true for capital markets, similar patterns apply to very different domains like airline, telco, … Later with the bloom of e-commerce, similar things started to happen in the brick and mortar world. Could some of the patterns we have seen from the digitization early adopters apply to the e-commerce world and to which extend?

When I first started in the Capital markets IT in 1988, digitization was the big thing just been introduced, we were moving from video terminals (already somehow electronic) to completely digital workstations connected to the various financial networks and exchanges. Quoting and trading were possible fully electronically which brought more speed and efficiency, it was great.
But after a while I clearly remember traders telling me: “this is great stuff but I cannot do much more than what I did in the past, I am still working the same way I was before, manually quoting those products even though I receive a huge lot of digital information”.
Then we started to use more the power of this new toy: quoting more products, trading electronically. In this phase we were going beyond the limits of the previous setup, we could go back any more to manual operation. 
Over the years the trades and product volumes increased so much that the traders were not able to manage the business the way they did. Quoting thousands of products is not possible individually for each product even if this is automated. The operator cannot follow those products individually and the bank cannot afford to increase the number of traders in proportion with the number of products traded.
This pushed us in another paradigm being able to manage all those products globally. We had to put together a model fitting the behavior of classes of products so that traders can concentrate on adjusting the model and analyzing the detected exceptions. In this last phase, digitalization completely disrupted the way products were elaborated and priced. This story illustrates the different phases of this digitalization process. 

To sum up those steps, first phase improves speed and efficiency of the same business. Second phase moves the business away from its original form up to a point where a new paradigm is needed. Third phase introduces the new paradigm that phase two was pushing for. At that stage the business has little in common with its original stage.

This concept can be extend to other industries even if they provide tangible goods: the matter is to cover all sorts of customer needs multiplying the number of products reaching ultimately a full customization.

One example, even if it is not coming from the a full customization is the airline industry: it is common to say that all customers in a plane are all paying a different price. Prices are adjusted almost real time based on a number of critical factors. Big teams are mobilized in each airline company to analyze and model the customer behavior in order to optimize pricing, trying to give to their companies a competitive advantage.

More recently, we have seen a huge attraction for a new technology called “Big Data” which purpose is to analyze huge data sets and perceive from there customers’ behaviors. This is clearly entering in this third phase were customization is so wide that no one can handle it any more without a proper model.