Digital Transformation in business and society

196 Pages·2016·8.99 MB·English

Digital Transformation in business
and society

(Photo: Photopress-Archiv / Keystone)
By Sylvain Cottong, strategybuilders.eu
October 2016
Version 1.00

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Table of contents
TABLE OF CONTENTS ............................................................................................................................... 2
FOREWORD BY THE CHAMBER OF COMMERCE ................................................................................... 6
INTRODUCTION .......................................................................................................................................... 7
WHICH REVOLUTION ? .............................................................................................................................. 8
BOX 1: THE COGNITIVE REVOLUTION .................................................................................. 14
THE CURRENT STATE OF THE WORLD - FROM STABILITY AND PREDICTABILITY TO
UNCERTAINTY AND AMBIGUITY ............................................................................................................ 14
BOX 2: THE GLOBAL RISK REPORT - WORLD ECONOMIC FORUM ................................... 20
NEW ECONOMICS .................................................................................................................................... 21
ABOUT DIGITAL TRANSFORMATION ..................................................................................................... 24
THE ESSENCE OF DIGITAL TRANSFORMATION ............................................................................................... 25
DIGITAL TRANSFORMATION’S UNDERLYING MAIN TECHNOLOGIES AND CONCEPTS .............................................. 26
BOX 3: CLOUD COMPUTING................................................................................................... 28
Definition ............................................................................................................................... 28
The cloud stack ....................................................................................................................... 28
Cloud characteristics ............................................................................................................... 29
Cloud Pros and Cons ................................................................................................................ 29
The cloud market .................................................................................................................... 30
Everything smart ................................................................................................................................ 32
Smart cities & smart mobility .......................................................................................................... 32
Smart grids .................................................................................................................................... 35
Smart factories (Industry 4.0) ......................................................................................................... 36
Smart homes & smart buildings ..................................................................................................... 36
Smart clothes and wearable technology ........................................................................................ 37
Human augmentation (Bionics) ...................................................................................................... 37
Smart contracts and the blockchain ............................................................................................... 39
BOX 4: BLOCKCHAIN TECHNOLOGY ..................................................................................... 41
BOX 5: AUTONOMOUS VEHICLES ......................................................................................... 45
The Internet of (Every)thing(s) ........................................................................................................... 47
Big data .............................................................................................................................................. 51
BOX 6: OPEN DATA ................................................................................................................. 56
Artificial intelligence ............................................................................................................................ 58
Virtual and Augmented Reality ........................................................................................................... 63
3D Printing (Additive Manufacturing) .................................................................................................. 66
BOX 7: INDUSTRIE 4.0 ............................................................................................................. 69
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Additional technologies ...................................................................................................................... 73
BUSINESS ASPECTS OF DIGITAL TRANSFORMATION ...................................................................................... 74
Dematerialization of the entire value-chain: Towards the economy 4.0 ............................................. 75
New management models .................................................................................................................. 76
Innovation Management ................................................................................................................ 77
Marketing & Value Proposition ....................................................................................................... 89
BOX 8: The Attention Economy ................................................................................................. 92
Customer Knowledge ..................................................................................................................... 92
Customer Experience Management............................................................................................... 93
Servitization ................................................................................................................................... 98
Organizational design .................................................................................................................... 99
BOX 9: Self-organization ......................................................................................................... 106
New economic models ..................................................................................................................... 106
The Access (On-Demand) Economy and the Sharing Economy ................................................. 107
The Circular Economy ................................................................................................................. 111
The App Economy ....................................................................................................................... 113
The Platform Economy ................................................................................................................ 115
The Data Economy ...................................................................................................................... 119
THE FUTURE OF JOBS AND WORK ............................................................................................................. 120
Skills ................................................................................................................................................. 121
Jobmarket ........................................................................................................................................ 124
SECURITY AND PRIVACY ISSUES................................................................................................................ 130
Security ............................................................................................................................................ 130
Privacy ............................................................................................................................................. 132
REGULATORY ASPECTS OF DIGITAL TRANSFORMATION ................................................................................ 133
CULTURAL DIMENSIONS OF DIGITAL TRANSFORMATION ................................................................................ 134
GOVERNANCE IN THE DIGITAL AGE ............................................................................................................ 139
ETHICAL AND SOCIETAL CHALLENGES ......................................................................................................... 142
THE SITUATION IN LUXEMBOURG ....................................................................................................... 147
SOME GENERAL ECONOMIC FACTS ABOUT LUXEMBOURG ............................................................................. 147
ECONOMIC POLICY & DIVERSIFICATION ....................................................................................................... 148
DIGITAL INFRASTRUCTURE ........................................................................................................................ 149
THE EUROPEAN DIGITAL ECONOMY AND SOCIETY INDEX (DESI) 2016 ......................................................... 150
E-SKILLS AND THE JOBMARKET .................................................................................................................. 153
E-COMMERCE ......................................................................................................................................... 156
BOX 11: What is an Innovation Ecosystem ? .......................................................................... 158
Innovation subsystems ........................................................................................................ 158
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System dynamics ................................................................................................................ 159
Innovation policy ................................................................................................................. 159
Open Innovation .................................................................................................................. 160
THE LUXEMBOURG ECOSYSTEM ................................................................................................................ 162
Research and Development ............................................................................................................. 162
The Luxembourg Cluster Initiative .................................................................................................... 164
Initiatives & programs ....................................................................................................................... 165
Fit for Innovation .......................................................................................................................... 165
Fit for digital ................................................................................................................................. 165
Fit for circularity............................................................................................................................ 165
Club Innovation ............................................................................................................................ 165
Luxembourg Open Innovation Club (LOIC) .................................................................................. 165
Fit for start .................................................................................................................................... 165
Fit4Entrepreneurship ................................................................................................................... 165
House of Entrepreneurship .......................................................................................................... 166
Hello Future ................................................................................................................................. 166
Digital(4)Eductaion....................................................................................................................... 166
Funding opportunities ....................................................................................................................... 166
National funding ........................................................................................................................... 166
Digital Tech Fund ......................................................................................................................... 167
Luxembourg Future Fund ............................................................................................................ 167
Financial Centre ........................................................................................................................... 167
Start-up accelerators, incubators and co-working spaces ................................................................ 167
Makerspaces .................................................................................................................................... 168
Representative bodies ...................................................................................................................... 168
Regulators and governance bodies .................................................................................................. 170
The media ........................................................................................................................................ 172
Other activities ................................................................................................................................. 172
Bold projects .................................................................................................................................... 172
Digital Lëtzebuerg ........................................................................................................................ 173
The Third Industrial Revolution (Rifkin-process) .......................................................................... 173
High Performance Computing (HPC) ........................................................................................... 173
Space Mining ............................................................................................................................... 174
Luxembourg Automotive Campus ................................................................................................ 175
CHALLENGES & OPPORTUNITIES ............................................................................................................... 175
General challenges .......................................................................................................................... 175
Innovation efficiency ......................................................................................................................... 176
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Financial incentives for entrepreneurship and business investment ................................................ 177
SMEs ................................................................................................................................................ 177
Public services ................................................................................................................................. 178
Regulation ........................................................................................................................................ 179
Fintech & Regtech ............................................................................................................................ 179
Reinforcing existing economic priorities and other assets ................................................................ 182
Big Data ........................................................................................................................................... 183
Security and trust ............................................................................................................................. 183
E-identity .......................................................................................................................................... 183
Luxembourg as a laboratory ............................................................................................................. 184
Sustainable development ................................................................................................................. 185
Culture & identity .............................................................................................................................. 186
(Smart) Governance ......................................................................................................................... 186
BOX 12: Building community resilience ................................................................................... 188
FINAL REMARKS .................................................................................................................................... 190
Appendice I: Ressources on Organization Design in Transition .............................................. 192

5
Foreword by the Chamber of Commerce
Just as in the previous industrial revolutions where the steam engine or electrification revolutionized entire
industries and tohne tshoec wiehtyo le, so will the digital revolution transform companies and condition
our ways to conduct business as well as our social and cultural norms. There is a widespread recognition
among most actors in industry and societvye t hdaigt itthael teemchenrogleongcies o mf daiys rupti
fundamentally alter our perception of how we interact, communicate and exchange services, goods and
knowle dge.
Although the process of digitalisation is an omnipresent topic in news and media, a large majority still lacks
a prooufnd understanding of how the current technologies may affect human behaviour, businesses and
management. The disruptive power should not be underestimated and their progressive development is
happening quick and swiftly uncoverihnagt an eneudm bbee ra opfp crehhaellenndgeeds a tnd
understood but offering at the same time unparal leled opportunities for value creation.
Becoming a digital enterprise or even a digital nation requires far more substantial changes than purely
devoting resourcesi gtoit athl tee clahtneostlo dgies or building up digital infrastructures. Digital
transformation will push traditional stakeholders to fundamentally question their current strategies,
operating and business models and underlying ceu lotuf rteh ein s ohridftes rt htoa ts tand firm in the fac
progress at a sheer e xponential rate.
The disruptive nature of digitalisation and the implications it may have on business and society is the
primary reason why the Chamber of Commerce took theis decision to get engaged in this topic. T
document covers a wide array of topics linked to the process of digitalisation and aims to raise awareness
among actors in economy and society by outlining the main digital artefacts and assessing, amongst
others, th-ee csooncoiomic implicantsioenqsu aendce cso. It is for the first time that such a
comprehensive document has been published by the Chamber of Commerce for the broader public in
Luxembourg and the Chamber of Commerce aspires to step up its efforts to become an active partner in
the con otfe dxitgital transformation. This document offers a first introduction into the world of digital
artefacts. For actors who are less acquainted with the ramifications of digitalisation, this is a very
comprehensive guide to get a fisrs lte gfte unpe rtaol tohvee rrevaiedwe.r Itto i reflect on the various
digital trends and the possible implications they might have on its environment. The document can be
considered as a toolbox and used as guidance to take the necessary actions that may help to keep up with
the pace of digital transformation or e ven to move a step ahead.
This is the gen-seerta tlh mati nsdhould inspire the decision makers in society, politics and economy as
Luxembourg has no choice other than becoming ar wino orlrdd eclra tsos digital adopter and creato
remain competitive and attractive on the global stage. This can only happen if all the major stakeholders in
Luxembourg embrace digital technologies and perceive them as a formidable opportunity for growth and
not as an incessanmt bthorueragt .o Lffuexres numerous advantages to be a great playground for testing
new innovations and enabling technologies. While Luxembourg’s innovation ecosystem seems to be well
set-up, several hurdles still need to be redressed in order to be fully able to engage the path towards a
digitally integrated economy and society. Solutions supported by partnerships between government
agencies and private companies (PPPs) will be key to drive the success of the country’s digitization
initiatives as they offer the opportunity to forge collaboration and to identify the right inspiring questions
that are fundamental for future policies, practices and strategy recommendations.
Moreover, the document displays a clear link with the project “Third Industrial Revolution” that the
Chamber of Commerce launched in cooperation with the Ministry of Economy and IMS Luxembourg. It is
an ongoing initiative that focuses to encourage a greater number of companies to strengthen their capacity
to adapt to future megatrends by capitalising on the digitalized communication internet which is converging
with the energy internet and a digitalized automated transportation and logistics network. Those key
enabling technologies are supposed to unleash new productivity gains and render the economy and
society on the whole more sustainable and prepare the path for future quality growth and assure the long-
term competitiveness of the Luxembourg economy, and hence the continuation of its unparalleled social
welfare model.
The report was prepared in collaboration with Sylvain Cottong from strategybuilders.eu, whom we would
like to thank for his support and his invaluable expertise. We are confident that the findings and
recommendations will contribute to improve the awareness about digital transformation in business and
society.
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Introduction
Digital transformation is definite ly a topical issue today.
Indeed, the way we live, work, and relate to each other has fundamentally changed since the advent of the
Internuentd, oubte bdliyg gtheest innovationnic iant icoonm sminuce the invention of the book press. At the
same time, the pace at which network technologies and computing has evolved ever since is currently
disrupting at an almost daily basis manbye hoaf voi uworuh krislneo hwena sviylys tgceh masll eanngdi n
existing business models and governance processes. We may experience that evolution like an unknown
and sometimes mysterious-f icatniodn f rweotfruldl s acpiepnroceaching us but also we feel like passionate
pioneering creators of the ciqouem chpanlecet feorl syo lvnineg twhe, w aor ldu’sn most pressing problems
and a high potential for creating a whole new era of economic growth and prosperity. Therefore, our
society is at an inflection point: are we becoming a dystopian control society or a human-centred
knowledge society?
Lengthy philosophical discussions could be held about how fast and how selective we want to digitally
transform our society and our economy but the fact is that digital transformation happens anyway, with or
without Luxembourg. As a small country and open economy centrally located in Europe with an already
very dense, open and connected economic activity and a considerable proportion of technology intensive
economic sectors we simply have no choice other than becoming a world class digital adopter and creator
in most areas to keep pace with our partners and the rest of the world in the globally hyper-connected
marketplace. This requires that the role of the ICT sector has to be strengthened in its own right, but also
as a partner and an enabler of digital transformation. At the same time, we must carefully tackle the
challenges and threats of this super-fast evolution and develop innovative policies and regulation without
falling into the trap of killing innovation through over regulation. Luxembourg’s success has often been built
on such an attitude, by making a business case out of pioneering regulation, such as in the financial
sector, in intellectual property management and more recently in space mining. But digital transformation
goes deeper than merely creating something new: It also questions our existing culture and way of
thinking, and thus the management models that we embraced over the last 200 years.
The Chamber of Commerce believes that digital transformation is a key ingredient, next to a more
sustainable way of relating to resources, of the future socio-economic state of Luxembourg. Therefore, the
objective of this document is twofold: first of all, we would like to raise awareness regarding the process of
digital transformation, taking stock of its main artefacts and ramifications. Second, we touch upon the
socio-economic consequences of digital transformation - both in macroeconomic and in microeconomic
terms - with a clear focus on providing a first set of proposals and public policy conclusions as a way to
leverage digital transformation as an opportunity, rather than a threat.
More formally, in this document, first we situate the so called 3rd or 4th Industrial Revolution in more long-
term economic history1.
We then draw a short picture of the current state of the world, as any evolution always has also to be seen
in the broader context in which it happens.
As digital transformation transcends many different areas of our economy, society, environment and
personal lives 2, we will then identify the most important ones and give a brief overview on current states,
practices and expected near future evolution for each of them.

1 For simplicity and clarity, we will use « 3rd industrial revolution », as defined by Jeremy Rifkin, as an
expression for describing the current transformation processes that our economies experience
worldwide throughout this report, given the fact that different authors use either expression but
meaning the same phenomena.
2 Disruptive technologies: Advances that will transform life, business, and the global economy,
http://www.mckinsey.com/business-functions/business-technology/our-insights/disruptive-
technologies & full report under
http://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Business%20Technology/Our
%20Insights/Disruptive%20technologies/MGI_Disruptive_technologies_Full_report_May2013.ashx
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We then draw a general picture of the current situation in Luxembourg in terms of digital transformation
(economy and society) and identify challenges and opportunities at different levels.
While it is clear that this document is a mere introduction to a very broad topic, it aims to open the debate
and to contribute to embark and guide Luxembourg on the path of its digital transformation.
The future is already here — it's just not very evenly distributed. » -
3
William Gibson .
Which revolution?
According to Klaus Schwab, the founder and chairman of the World Economic Forum, the current
industrial revolution is triggered by the confluence of electronics, IT and automated production starting
around 1969. Today, we witness a second phase in the 3rd industrial revolution which is the emergence of
cognitive task automation via artificial intelligence and learning machines. That’s the reason why Schwab
talks about a 4th industrial revolution whilst being a vivid proponent of the disruptive character and
reminder of the challenges of digital transformation which he qualifies as the current emergence and
evolving dominance of « cyber-physical systems » 4.

Source 5

3 William Ford Gibson (born 17 March 1948) is an American-Canadian writer who has been called the
"noir prophet" of the cyberpunk subgenre of science fiction. Gibson coined the term "cyberspace" in
his short story "Burning Chrome" and later popularized the concept in his debut novel, Neuromancer
(1984), https://en.wikiquote.org/wiki/William_Gibson
4 The Fourth Industrial Revolution: what it means, how to respond
https://www.weforum.org/agenda/2016/01/the-fourth-industrial-revolution-what-it-means-and-
how-to-respond
5 http://d27n205l7rookf.cloudfront.net/wp-content/uploads/2016/02/DUP_2898_Figure_1.jpg
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Schwab writes
There are three reasons why today’s transformations represent not
merely a prolongation of the Third Industrial Revolution but rather the
arrival of a Fourth and distinct one: velocity, scope, and systems impact.
The speed of current breakthroughs has no historical precedent. When
compared with previous industrial revolutions, the Fourth is evolving at
an exponential rather than a linear pace. Moreover, it is disrupting
almost every industry in every country. And the breadth and depth of
these changes herald the transformation of entire systems of production,
management, and governance.
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According to Schwab , since the turn of the century with its much more ubiquitous and mobile internet, the
digital acceleration is driven by smaller and more powerful sensors that have become cheaper combined
with artificial intelligence and machine learning.
And the big questio ns associated with that transformation turn arou nd empowerment: how governments
will relate to their citizens; how enterprises will relate to their employees, shareholders and customers; or
how superpowers will relate to smaller countries.
The fourth Industrial Revolution would have four main effects on business across industries:
- customer expectations are shifting
- products are being enhanced by data, which improves asset productivity
- new partnerships are being formed as companies learn the importance of new forms of
collaborative innovation,
- and opera ting models and organizational forms are being transformed into new digital
models.
Schwab also considers the two competing effects that technology exercises on employment: The fourth
Industrial Revolution seems to be creating fewer new jobs in new industr ies than previous revolutions.
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In his book , he summarizes 23 deep shifts in technology that fuel the current transformation:
1. Implantable Technologies
2. Our Digital Presence
3. Vision as the New Interface
4. Wearable Internet
5. Ubiquitous Computing

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The Fourth Industrial Revolution: what it means, how to respond
https://www.weforum.org/agenda/2016/01/the-fourth-industrial-revolution-what-it-means-and-
how-to-respond
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http://www.goodreads.com/book/show/28570175-the-fourth-industrial-revolution
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http://www.goodreads.com/book/show/28570175-the-fourth-industrial-revolution
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See also: Deep Shift - Technology Tipping Points and Societal
Impacthttp://www3.weforum.org/docs/WEF_GAC15_Technological_Tipping_Points_report_2015.pd
f
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