What Matters More: "Digital" or "Transformation?"

What is the purpose of digital transformation? That often gets lost. Some say digital transformation is “the integration of digital technology into all areas of a business, fundamentally changing how you operate and deliver value to customers.”

Others might say it is “the process of using digital technologies to create new--or modify existing--business processes, culture, and customer experiences to meet changing business and market requirements.”

source: Avasant 

Others emphasize new business models and new revenue streams. The emphasis might vary based on a firm’s own existing business: customer experience for firms who sell solutions to improve CX; revenue enhancement by firms whose products are said to lead to revenue gains; new business models among the key objectives pushed by consulting firms who specialize in business strategy advice. 

The key concept, no matter who advances the idea, is tangible “transformation” in some way that benefits a business or organization. That can mean better processes, customer experience, ability to innovate, create new products, add new features, provide higher value, more efficient operations or the ability to enter new markets. 

Which should raise a question. Since applied digital technology is not the only possible lever to pull to improve performance and outcomes, are there cases where DX is not the best way to spend effort and money?

Perhaps there are cases where expanding operations into an ecosystem or value chain adjacency is a more-immediate or realizable goal than DX. On the other hand, there are times when DX might arguably be the best way to grow an existing business. 

And sometimes the two goals happen simultaneously, as when using DX (automation or “becoming a platform” enables movement into other parts of the ecosystem, or additional swaths of the existing ecosystem. 

For example, DX might allow one entity to sell products that do not actually exist on its own network and facilities or owned inventory. The example is any large e-commerce site that sells products owned by third parties. More generally, any retailer sells inventory created by third parties. The difference is that DX might allow an e-commerce platform to sell at much-higher volumes while offering a much-larger product selection. 

The point is that the larger business objectives are higher revenues, better profits, lower costs, new and improved products, happier and more-loyal customers. Sometimes DC helps achieve those outcomes, but sometimes it is only ancillary. The issue is “transformation.” 

“Digital is only an “adjective” modifying the noun. The noun is the thing desired. Digital is an aspect or support to that effort. Sometimes we forget that in our rush to embrace the “next big thing.” The outcome is “transformation.” We sometimes mistakenly think “digital” is the outcome. It is not.

People Don't Know What the Metaverse Is, and How Could They?

Steve Jobs, Apple founder, once said “ people don't know what they want until you show it to them,” he said. In other words, consumers cannot actually evaluate something intangible they have no experience with. 

Perhaps that applies to the still largely intangible metaverse as well. 

A survey conducted of 2,000 U.K. adults by Opinium on behalf of Studio Graphene found 89 percent of those polled had either never heard of Web3, while 84 percent had never heard about the metaverse,  or feel it is boring or over-hyped.

That should not come as any surprise. The full vision of a persistent, three-dimensional environment that supports real-time communication, commerce and interaction is at least a decade away. 

What gamers and some others might experience only hints at the future, which will feature much more realism than presently is possible. Other surveys show similar results. About six percent of U.S. respondents polled separately by Opinium reported they had  “engaged with the metaverse before.” About 18 percent of respondents said they “know a lot about it.” About 29 percent “have never heard about it before today.”

Leaving aside the issue that gamer experience today hints at a future metaverse, but is not yet fully formed, most consumers have not had even that limited amount of experience with what might be called “pre-metaverse” experiences. 

source: Opinium 

Will Recession Dent IT Spending?

C suite behavior never fails to change when recessions threaten. If they believe revenue will slow, in addition to revenue growth rates, then adjustments will be made on cost elements to preserve the expected or promised levels of firm earnings, even in the face of lower demand. 

The question always asked when such pullbacks occur is whether particular suppliers and areas of spending will be affected. Consider spending on information technology, capital investment or digital transformation. 

Some recent estimates suggest IT spending plans will be almost unaffected if recession emerges globally in 2023 or continues from 2022 (assuming recessions already have begun in some countries). On the other hand, a recent KPMG survey of chief executive officers in the United Kingdom already suggests significant action or planned action to slow spending on digital programs. 

First, the argument for sustained spending includes a forecast by Gartner that predicts worldwide IT spending will grow five percent to $4.6 trillion in 2023, despite the expected economic difficulties. Some even argue IT spending is unaffected by recessions. 

source: Gartner. 

The countervailing argument is that CEOs already seem to be preparing for slowdowns in digital spending. Some 36 percent of U.K. CEOs polled by KPMG have already paused or reduced their digital transformation efforts. 

Another 36 percent say they will do so in the next six months. 

CEOs in other regions are even more likely to have reconsidered their short-term strategy, KPMG says.

source: KPMG

 

By definition, recessions are periods of lower gross domestic output and lower business profits. Hence the need for businesses to reduce spending. And despite a secular trend of IT spending growth, recessions do slow the rate of growth, while leading to spending drops in some categories.  

Perhaps much hinges on expectations of how severe a recession is coming. The 2008 global recession led to sharply-lower spending. Other periods seem not to have affected spending as much. The Covid pandemic arguably led to an increase in spending, for example, even as output diminished in the wake of economy shutdowns. 

It would be unusual if some areas of IT were not affected by planning for a recession. The degree of impact might hinge on expectations about how severe the recession might be.

Metaverse Investments are Not Unusual

It is not hard to find critics of Meta’s metaverse spending. Meta’s third quarter 2022 earnings showed Meta’s Reality Labs division lost $3.7 billion during the third quarter on revenue of only $285 million. And, as always, expectations drove investor sentiment. 

Meta said “Reality Labs expenses will increase meaningfully again in 2023.” So, at least for the moment, Meta is betting the farm on the future of computing, which the company believes will be based on immersive, persistent and 3D worlds. 

Skeptics argue it might not happen. Some might argue it happens only in part. But it is reasonable to argue that some investment has to be made now in the use of augmented or virtual reality, as there is a reasonable chance such experiences become a standard part of content, commerce and communications experiences at some point over the next decade. 

It is not hard to find critics of Meta’s metaverse spending. But other major app, content and commerce providers are making investments in metaverse-type features as well, if on a more-measured pace. That matches expectations that metaverse might be a decade away from everyday use.  

Alphabet, for example, is working to apply artificial intelligence to immersive computing and search, for example, after dubbing in its own line of virtual reality goggles. 

Amazon applies virtual and augmented reality to support its e-commerce operations. Amazon’s Room Decorator feature allows shoppers to use their phones or tablets to see what furniture and other home décor will look like in their own living spaces. 

Warby Parker has a virtual try-on app used on the Amazon site  that allows customers and prospects to “try on” frames to see how they look on a particular face. 

Gaming platforms such as Decentraland, Epic Games, Roblox, Unity Software and Microsoft are widely expected to be early adopters as well. 

The point is that criticism of Meta’s spending on metaverse, simply referred to as applied augmented reality by others, should not negate the actual moves by other major firms to incorporate features based on augmented reality.