It is 2022, and US government is ripe for adopting digitization for two main reasons: the benefits (cost, security, ease just to name a few) are significant and the touchpoint are numerous (331 million citizens and counting).
When most people think of government, they do not consider it a first mover for adopting innovative technology, but the desire is there. According to an Accenture survey, more than 65% of public service leaders have cited creating a personalized citizen experience as a priority. More than a mere preference for policy makers, digitization in government is now being adopted at a faster pace than ever before. There are plenty of good examples of implementation to mention.
Here is one to start: Nearly all US citizens must file a US federal individual income tax return each year. If you submit your return online, you are the beneficiary of this digital government process. E-filing is a huge improvement on completing form 1040 by hand. It also saves the time spent mailing the return at the post office and the cost to send it to the IRS. Best of all, because of the digital process, the tax refund arrives more quickly. Citizens are not the only ones to benefit from this simplified process, so too does the Internal Revenue Service. Between 2010 and 2015, the IRS budget decreased in part due to increased electronic filing. It is no surprise that converting a paper return into a machine-readable format is costly! The more user-friendly digital process also means government resources are freed up for more important things. Customer engagement and satisfaction are also improving; in 2020, 94% of all individual tax returns were filed electronically! Mother nature is equally pleased about this change. Electronically submitting an income tax return is an environmentally friendly alternative to printing and mailing.
Sadly, not all government processes have transformed like this one though, and there is far from broad-based support for digital government by key decision makers. It is the reason many government agencies at the federal and state level still employ legacy and paper-based processes using mainframes or cloud-based systems to process transactions.
Take the Department of Motor Vehicles, a government agency that many adults in this country have interacted with whether it was to apply for or renew a driver’s license or title a new car upon sale. Citizens know all too well that these processes are cumbersome and paper-based: long lines and wait times at the DMV office, piles of paper to manually fill in, and the result: a paper license or title mailed home weeks later. For the DMV, these paper-based processes are costly, inefficient, and prone to human error and unnecessary delay. Even moderately sized states use an estimated 18 million sheets of paper per year to process car titles!
A digital solution for DMVs would be one that modernizes their title and registration systems. For citizens, a digital vehicle title would be profoundly better than what they experience today, lowering costs, increasing security, easing the transfer of ownership, and improving customer satisfaction. As was the case with electronic tax filing, digitization is seamless for citizens and innovative for government. Digital systems replace legacy ones for a fraction of the price, which is a direct savings to taxpayers. A digital process is also more secure for government, and the time efficiencies and cost savings realized by this transformation allow them to pursue other priorities.
The DMV is just one interesting example of the future of digital government, but the good news is interest in this idea of digitization is on the rise. We, as citizens, eagerly await the simplification and savings of all these once onerous and costly government processes.
The old adage goes, “What you put into things is what you get out of them.”. It turns out this is not just guidance for personal effort. In fact, it holds true for technology too. More data is being collected and stored than ever before so the quality of that data as the input must be the highest priority, and no business can claim functionality when data is bad.
The bad news is that bad data is a reality. A Harvard Business Review from 2017 found that “on average, 47% of newly-created data records have at least one critical (e.g., work-impacting) error.” But what is the reality of bad data?
In a best-case scenario, bad data out means a redo, which is still not necessarily a quick and easy fix. Opportunities, time, money, resources, and potentially customers are lost when the process must be repeated to correct the mistake. Clarifying bad information that was entered, troubleshooting the problems that result from delivering on the bad data, and responding to dissatisfied clients who did not get the outcome they were looking for is inefficient.
In a worst-case scenario, bad data out could mean an incorrect medical diagnosis, assets titled in the wrong name, money missing from a bank account, and the list goes on. Imagine any undesirable outcome and know that it could result from bad data. In addition to the harm done to the end user, it is hard for any company to come back from a data blunder. A company’s reputation is at risk if they become known for getting it wrong.
Do you recall NASA’s launch of the Mars Climate Orbiter in 1998? It was designed to study the Martian climate and atmosphere. Communication with the spacecraft was lost because the probe went off track and disintegrated in the atmosphere of Mars. The navigation error was due to a measurement mismatch; the software failed to convert data from English units to metric, a mistake in standardization that cost $193 million.
Another example of a bad data input was the design of the Citicorp Center in 1978. An architecture student who was writing her senior thesis on the 59-story Manhattan skyscraper, which was unique because of its raised base and diagonal bracing, uncovered a structural flaw: the potential wind loads for the building were incorrectly computed by the chief architect. Her calculation of the building’s stresses led to a welding repair process that secured the building and saved it from toppling.
We can agree that we need good data. There is no question that it has to be accurate, reliable, relevant, consistent, and complete. Even the most innovative technology will not revolutionize the world if it operates on bad data.
We can ensure the quality of data in a number of ways. It starts with improving data collection. How is it collected? Who is collecting it? What are the sources? The next step is improving data organization. Once you have it, what is the method for storing and managing it? Then, the data needs to be standardized. How can multiple sources be made consistent? What is the standard for “good”? After that, it is about data entry. If it is done by machine, are there broken paths? If it is done by humans, are there bad actors or is attention to detail lacking? Does training need to improve?
According to some projections, 74 zettabytes (that is 74 trillion gigabytes!) of data will be created in 2021! That quantity of data is huge, but the quality of data is hugely important. The good news is that those companies who are able to master good data will have a competitive edge and be poised for success in the future.
In today’s rapidly transforming environment, organizations are pressured to accelerate their investments in the creation and conversion of content, assets, and data to scale services and products across a multitude of digital channels. Despite the move towards digital, many organizations continue to operate using 20th century, analog processes and capabilities. So, while the final asset or experience might be digital, many companies have yet to become truly digitally enabled enterprises. To become a truly digital, companies must embrace three changes. First, companies must actualize digitalization; the adoption and integration of technologies, processes, data and analytics designed for digital work. Second, companies must take advantage of digitization opportunities by converting physical assets into digital assets. Third, companies must normalize around the development of content, assets, data, and information in a digital format.
Digitalization is the adoption and integration of the technologies, processes / workflows, and data / analytics required to optimize value from being digital.
Digitization is the process of converting a physical asset into a digital version so a computer can store, process and transmit its information.
Digital commonly describes content, data, information, or systems that are created, managed, or stored electronically on a computerized database.
Marketing organizations are notably prone to pursuing digital output using 20th century, analog processes. We see marketers face significant operating and performance challenges today due to manual and disconnected ways of working, common of physical world processes. Some examples of this include planning and budgeting across multiple spreadsheets, or intaking content requests via email communications or manually generating data insights across disparate systems. In particular, digital content is an area that creates the major challenge for marketers as the processes used for creation and management are decidedly physical world. As integral as content marketing is to the success of marketing today, many firms have yet to embrace digitalization of the content value chain.
Digitalization of Your Content Value Chain
Marketers tend to believe the development of digital content, by default, means they have a digitally enabled content value chain. Unfortunately, this is often not the case. At the highest level, the digitalization of your content value chain must occur across each of the six value chain stages.
The Content Value Chain
Frequently, the creation, distribution and management processes marketers use for digital content is eerily similar to processes used for physical content. So, while the final content is digitally formatted and stored, the process activities, inputs and outputs are not. Some key characteristics of the physical content processes include:
Content is developed from scratch for one-time use in a dedicated channel, with limited opportunities for customization or localization
Lengthy content development cycle times due to manual review and approval workflows and need for extensive agency involvement
Lack of coordination and clear pipeline visibility between marketers and agencies, resulting in the creation of duplicative content
Push distribution of content to users regardless of content’s relevancy and consumer’s need/ability to utilize which results from analog’s inability to provide timely, contextual data to guide content distribution
Limited accessibility or findability of content as it is stored in unrelated storage systems across different marketing groups and agencies
Physical-world content processes lack the frameworks and capabilities for organizations to automate, scale, measure, and govern required to be competitive in today’s digital marketplace. Marketing organizations that prioritize the digitalization of their content value chain are able to both improve the effectiveness of their digital content, while driving efficiencies in operating cost and time.
For successful digitalization of the content value chain, marketers must:
Leverage new digital asset management technology
Adopting a digital asset management (DAM) system is critical to access, manage, and store digital content. It centralizes and maintains digital assets in their complete and component parts, reducing the need to recreate net new and instances of duplication. A DAM system allows marketers to quickly access, find, and update digital assets by enriching assets with custom metadata and tags. Marketing organizations that prioritize the digitalization of their content value chain integrate the use of their digital asset management (DAM) technology across the organization, allowing for greater time and cost efficiencies through automation and self-service solutions.
Improve existing processes and workflows
Moving existing processes managed across manual documents (e.g. Excel spreadsheets and PowerPoints) into digital workflow management tools enables efficient, streamlined processes and data transparency. A workflow management tool allows for the real-time visibility, orchestration, and automation of the entire content process across the value chain. Automated, digital workflows can achieve cross-functional alignment, faster cycle times and approvals, streamlined tracking, and reduced risk. A workflow management tool can be leveraged to centralize tasks, reviews, and automate alerts to allow for the transparent and seamless communication of content feedback and approval across stakeholder groups.
Effectively leverage digitized data to measure performance
Existing content processes and performance can be enhanced by integrating and leveraging digitized data in reporting tools. The process of digitizing your content assets means that information and data associated with those assets will also be digitally stored. Building a digital foundation for managing digitized data enables the capabilities to automatically capture key information and insights to more effectively distribute and measure digital content. Establishing a solid digital data foundation starts with identifying the right KPIs and consolidating the right data to measure content effectiveness and operational performance. It also requires that data be ported into established reporting mechanisms to allow for marketers to integrate and generate data into comprehensive reports and insights.
Adopt new ways of operating and digital-first mindsets
As marketing organizations start establishing digital processes and capabilities across the content value chain, they must embrace the shift in how work is getting done, how technology is utilized, and how data is captured and reported. Marketing organizations must solidify digital foundational structures, adopt new ways of operating, and instill digital-first cultural mindsets. A digital-first cultural mindset: seeks opportunities for digitization; shifts from prioritizing the creation of net new to, encouraging the coordination, re-creation, transcreation, and repurposing of content; makes full use of power digitalization has brought to content value chain processes. These mind shifts, ultimately, improve utilization and cost value of content across the organization. Without a solid operating framework in place and a shift in mindset and behaviors, organizations will face challenges in full digitalization of content processes.
While taking these four key actions may seem considerable, the benefits realized are more than worth the effort. The chart below illustrates how digitalization across the content value chain can come to life and some of the benefits realized.
Hallmarks of Digitalization
-Centralized, automated calendaring capabilities to improve pipeline visibility and coordinate alignment on priorities
-Integrated operations -Increased flexibility and organizational alignment
-Digital assets with metadata tags which are easily searchable in a centralized repository for reuse -Digitally signed agency agreements ease onboarding and management across the content lifecycle
-Reduction in marketing spend -Increase in content reuse
-Centralized markup and annotation functionality to easily accommodate asset changes and versioning -Online coauthoring capabilities facilitate collaboration -Content translation is automated and localized for various regions -Content creation is automated through the use of templates and modularization
-Increased capacity / throughput -Reduction in errors -Reduction in direct labor costs -Faster response times
-Automated content distribution capabilities to scale campaigns to targeted audiences and testing strategies across multiple channels
-Reduction in waste (unused content)
-Digitized assets are archived and governed in a single, central digital asset repository making archiving, managing and governing assets easy -Automated content categorization to scale content management and recognition
-Centralized cross-channel data is updated real-time to provide accurate and reliable insights on content performance
-Increase effectiveness -Improved data transparency
Getting Started with Content Operations Digitalization
Producing digital assets / content does not mean your organization has fully embraced being digital.
Marketing, organizations need to strategize and plan for a future that adopts digitalization, if they wish to realize the full value of digital content. KPMG’s Marketing Consulting team can help you identify the opportunities for digitization and build the capabilities and technical solutions for true content digitalization. If you are interested in transforming your content operating model, KPMG is interested in partnering with you. Let’s start the conversation.
Digitization is the process of creating a digital representation of an asset. You can read more about that in our earlier post here.
Blockchain technologies are well suited to be the system of record for these digital representations. They have the potential to improve asset security, efficiency of the processes involving the asset, and trust among the parties using the asset.
The blockchain structure can be thought of as entries in a book (or ledger). Each entry represents a transaction which includes creating, modifying, and destroying the digital representation. Due to the structure of a blockchain, an entry itself cannot be altered or removed. The only way to modify the state of an asset is through a new transaction. With this additional security, users of the blockchain are more inclined to trust the authenticity of the data on the ledger.
If you imagine that the entries in the ledger are about an asset (perhaps medical records) being shared or exchanged between two parties, then you can use the ledger to understand who has modified or transferred which assets. This provides built-in trust to the system due to the transparent nature of how the ledger stores data. A third-party auditor could easily look at the ledger and follow the flow of data to construct a timeline of which parties own or have edited which assets. This transparency will help to reduce fraud and eliminate disputes arising from two parties having differing information.
Another feature of blockchain data storage is that the ledger can be held in multiple locations. This way, the data is no longer siloed in one location, so it is more secure from cyberattacks that attempt to hold the data hostage until a ransom is paid or corrupt it in some way.
With this inherent trust between users of the blockchain system, the concept of programmable logic called smart contracts can be introduced. In the blockchain system, these smart contracts can be written in such a way that they automatically execute when certain conditions are met. For example, let us assume the asset is an eBook where Party A (Alice) owns the book and Party B (Bob) would like to purchase it. Alice has set a price of $20 for the book. Bob enters his payment information and creates an order to purchase the book up to a price of $50. Once the blockchain system recognizes that the book is available for purchase and someone has agreed to buy it for that price, the smart contract is automatically triggered and purchases the book for Bob from Alice for $20. The power of smart contracts is that they significantly improve efficiency. They can automate many of the processes, if not all, involving an asset.
Blockchain technologies enhance asset security, improve the efficiency of the transactions involving the asset, and increase trust among the involved parties. Blockchain may not be suited for all digitization efforts but is worth exploring and testing as a path for achieving digitization.
We have defined digitization and now understand what it means in theory, but what does it actually mean for you and me? It is not some futuristic intangible. You are likely benefiting from digitization right now, and you might not even realize it!
Let’s consider some examples of digitization in practice.
1. The most obvious one starts with the device on which you are reading this post. Before digitization, we would have printed this write-up on paper and mailed it to you. Now, once you subscribe to our blog, you can receive this content electronically by email. Everyone can agree this digital means of communication makes receiving and absorbing information much more immediate and convenient.
2. Remember the paper boarding pass? In 100 years of aviation, it evolved from a handwritten paper tag issued at the airport check-in desk to an electronic ticket in the 21st century. Then, a new technology by way of a barcode replaced a more expensive magnetic strip allowing passengers to check-in online and print their boarding pass at home. Today, boarding passes are sent to a mobile device, and that digital version is machine-readable. Soon biometric screening will be commonplace, accelerating boarding and more importantly improving security for all passengers.
3. Only in the last decade has a trip to the Emergency Room begun to digitize. For example, not long ago, a suspected fracture would require x-ray images captured on a physical plate to be rushed to image technicians who would develop the x-ray image onto a film before delivery to the medical staff for interpretation. Today, it is increasingly likely that the x-ray image is processed digitally at the radiographer’s workstation, providing accurate and instantaneous results. Of course, this saves expense in terms of materials and time – appreciated by the hospital and the patient.
With digitization in place, future enhancements can be layered on top creating further savings and improving outcomes. For example, we are seeing hospitals trial software that can offer a doctor preliminary medical diagnoses based on the library of similar digital images the computer has previously captured.
These three examples just begin to scratch the tip of the digitization iceberg. The list is vast and includes much more complex examples that we might not even realize are working behind the scenes to benefit our day-to-day lives, which we will cover in a future post. Still, we can look to these use cases to understand why digitization is so important and life-changing. Further, the story of IT evolution in communication, aviation, and radiography should and will be a model for all sorts of industries and businesses, many of which are ready for this kind of digital transformation, improving the experience, enhancing security, and reducing costs.
These days, it seems, everyone has a prediction about what life will look like in a post-quarantine world. In the past few months, the COVID-19 pandemic has taught Americans a lot, and there can be no doubt there are further learnings yet to come. Two things we have learned in my busy household: we are so grateful for all that can be done online, and so aware of that which remains stubbornly anchored in the physical world, dependent on personal interactions.
As it turns out, many of the routine tasks we used to carry out in person were ripe for migration into the digital realm – grocery shopping is one example to which many can relate. The rapid growth of virtual doctor visits is another remarkable adaptation during our troubled times. Some of these changes may become habits borne of heightened convenience, long after COVID-19’s stay-at-home policies are lifted.
However, there are many tasks that can still only be completed in-person. Many examples involve personal administrative work – tasks that rely on paper, pen, and another person present. Examples that spring to mind are those where we may need to visit a government department or another local authority: a visit to the DMV, a passport application, a home purchase, the execution of a will.
Of course, it is precisely these sensitive, even crucial, administrative tasks that have been most disrupted by the pandemic as offices have been closed, employees sent home, and no secure digital alternative exists.
To elaborate on just one of these examples, in nearly all of the United States you cannot complete a driving license application, ID application, or car retitling online today, nor is it possible to designate someone to visit the Department of Motor Vehicles on your behalf. A car trip cannot be replaced by a video-call transaction with a DMV representative. If a driver needs to register their newly purchased car with the local DMV, there is simply no alternative to travelling to the DMV, waiting in line, presenting ID, and signing on the dotted line. In the current moment, it is clear to see how such a visit unnecessarily risks public health and safety. It is worth noting that since the DMV is responsible for issuing IDs, as well as licenses, many who travel on public transit to reach these local DMV offices are disproportionately affected by not being able to acquire these standard government services. Unfortunately, the poorest in our communities or the ones most negatively effected in these circumstances.
In time, we hope that the public health and safety concerns which occupy us today will fade. However, in the interim, it is reasonable to assume that Americans will have become increasingly accustomed to shopping, communicating, and conducting their business online, securely and efficiently. In the wake of COVID-19, society will have become even more expectant of paperless, online, secure, and always-open services. In short, we will expect all services – both private and governmental – to be responsive to our needs as customers, taxpayers, and citizens.
How can we be so certain which changes taking place today will persist in the future? Will we not simply revert to the prior status quo in many aspects of life? Of all the predictions offered these days, those with the greatest likelihood of materializing fall into two categories. Firstly, those trends which were already underway before the pandemic and which have only been accelerated during it. Secondly, those trends which are being propelled by strong financial incentives.
For example, it is reasonable to imagine that working remotely will continue to be a feature of professional life long after COVID-19, because it promises real estate savings for employers and saves commuting costs, both in terms of time and money, for employees. These are strong financial incentives. Moreover, we know that many employees have long wanted to work remotely for lifestyle reasons. In other words, this trend was already well underway and has simply accelerated, particularly in light of recent announcements from major technology sector employers.
I propose that the digitization of administrative processes and transactions, such as those carried out at the DMV today, is another candidate for permanent change. Digitization has swept through innumerable industries and is a trend set to accelerate. With clear financial incentives in place for taxpayers, consumers, government, and private enterprise, we should all welcome this evolution.
We are pleased to report that numerous state governments, agencies, and businesses are collaborating in an effort to embrace the digitization of critical records and paper processes currently responsible for much cost, time, and inconvenience. Perhaps one day before long, your car title will no longer be filed away in a safety deposit box, or worse yet, exist as a crumpled piece of paper in your glove compartment, but will instead be a secure online record – always available to you, and always current, without a trip to the DMV.
As we tackle the issue of the day, perhaps digitization of vital records can even help securely and safely reopen the American economy. The more day-to-day business can be executed instantly, securely, and without long-lines, signatures, copy machines, mail, and face-to-face interactions, the more resilient our economy will be.
The good news is that investment in new ways of recording, storing, and sharing data is set to accelerate due to the stress on legacy systems during these uncertain times, and the growing awareness of the opportunity within reach. As interested citizens, we should demand from government the service level we have come to expect from our best service providers during these difficult times. As a technology and business community, we must continue to develop and implement secure, scalable, and efficient information systems that can win the trust of both government and private enterprise.
The prize is clear, and within reach: a world where taxing but vital offline processes are finally migrated into the digital world, unlocking vast efficiencies and benefits both predictable and unforeseeable.
When starting an initiative that has never been done before, there is a high level of risk and uncertainty. Since there is no precedent, the approach needs to be highly iterative and adaptable as new information is discovered. This applies to the process of digitization since creating a digital asset is usually breaking new ground. To then reduce the associated risk and uncertainty, it is crucial to be well versed in a standardized methodology for digitization. A common method consists of these five phases:
The goal of the first two phases (problem definition and discovery) is to answer four questions:
What is the problem?
Who is affected by the problem?
What is the solution?
How will the solution solve the problem?
Common risks in these phases include having a poorly defined problem, the wrong problem, or a problem that cannot be solved now. By taking the time to truly understand and then define the problem – the project’s why – these risks can be identified and managed. There are three core steps to this phase. First, use current knowledge to identify and describe all the pain points associated with the current paper asset including frequency, current cost (time/money), future cost, and so on. Second, write down a clear problem statement with a potential solution. Third, list out all the assumptions made for the chosen problem statement and solution.
To validate the problem, the first step of the discovery phase is to conduct primary and secondary research to prove or disprove the assumptions made and further detail the identified obstacles of the current state. This ranges from finding data online to interviewing stakeholders. Common assumptions are that the current regulatory environment of the paper process would support the digital asset and the competition does not pose an immediate threat. The output of this phase should be a business case for pursuing digitization that details all possible risks.
Based on the business case, a decision must be made to continue or end the project, which requires understanding the feasibility in terms of technology and regulatory environment and the amount of effort in terms of time and funding. If the project continues, then the implementation phase kicks off a solution pilot. Before that starts, certain success criteria should be defined so that the results can be measured in the testing phase. Testing will also validate the solution with customers and users to understand their reactions and solicit feedback. After testing is finished, the pilot is likely launched in a controlled environment and monitored to measure its effectiveness. Possible next steps include expanding upon the pilot, starting another pilot, or working to finalize a full solution.
For many, digitization is unchartered territory so following the method outlined above provides a road map while reducing the risk and uncertainty common to a brand-new initiative. Key milestones include having a clear problem definition backed up with data, a business case to pursue the digitization effort, and a pilot to validate the benefits of the solution. By using or adapting this methodology, the foreseen challenges can be anticipated, and the unforeseen ones can be managed to result in a greater chance for a successful digitization project.
A process can be evaluated from an environmental perspective by measuring the amount of non-reusable resources required. A more environmentally friendly process uses fewer resources. To understand the relationship between digitization and its environmental impact, let’s look into the number of resources consumed by a process pre and post digitization.
An example to consider is a driver’s license. A paper driver’s license requires resources for its creation, transportation, and distribution. The industrial processes used to create the physical license consume water and fuel to run the machines and plastic for the license itself. Packaging the license uses paper or plastic and then more fuel is needed for the transport to state motor vehicle agencies. Paper may again be needed for envelopes to distribute licenses by mail. From the industrial processes to software applications used to manage the entire process, electricity will be consumed, which requires more fuel unless the generation of electricity is from a renewable source.
With a digital driver’s license, the paper version is eliminated, and with it, the resources needed to create, transport, and distribute it. However, there will likely be an increase in the number of software applications or features and internet-connected devices required. As a result, electricity usage will increase, which requires more fuel. To produce more devices, various metals and plastics will be consumed for the device itself. For the industrial manufacturing processes, packaging, and transportation of those devices, water, chemicals, paper, plastic, and fuel will be used.
Digitization reduces some of the non-reusable resources required by a paper process but also demands new ones, so there is a clear trade-off between the two. There must then be some sort of inflection point where the resource reduction is greater than the resource increase. Determining that point is highly process dependent and out of scope for this post, but we can look at current trends to predict its future.
Three of the biggest cloud providers have made significant environmental commitments:
In 2017, Google reached 100% renewable energy for their data centers and offices1
In 2018, IBM set the goal to purchase 55% percent of its global electricity demand from renewables by 20252
In 2019, Amazon committed to achieving net zero carbon emissions by 20403
On the smart device side, Apple aims to “transition to recycled or renewable materials in [their] products”4. In 2018, the company wanted to use 100 percent recycled aluminum and had to develop a new alloy for it to be 100 percent recyclable4.
No one process – digital or paper – is without any impact to the environment. Digitization saves trees and water, reduces pollution, and cuts down on fuel used by paper, but increases the demand for electricity and devices. The future date when a net positive environmental impact will be achieved from digitization has yet to be determined. Though with many technology companies taking greater action to reduce their environmental impact, there is hope that digitization will win out in the not-so-distant future.
There is no process with zero risk, only those with very little risk. When improving the security of a process, the goal is to minimize risk as much as possible. To do this, all potential risks are identified, prioritized, and then mitigated, reduced, or accepted. In a paper-based process, there are inherent risks including fraud and loss. When the process becomes digitized, these risks are nearly eliminated.
Fraud can occur in a paper process due to the time lag between when a transaction takes place and when the system of record is updated. Let’s look at a hypothetical situation to better understand how this could happen. We have three individuals: A, B, and C. Individual A sells an asset to individual B. B verifies the authenticity of the asset against a third-party system – it is authentic, so B purchases the asset. B then mails a paper document to an authorized individual to update the third-party system with the change in ownership. Now A sells a duplicate or forged copy of the asset to C. Individual C verifies the authenticity of the asset against the system – it is still authentic because B’s paper document has not yet been received, so C purchases the asset. This time lag has allowed A to commit fraud and receive two separate payments for selling the same asset.
In the digital world, real time communication eliminates the time lag for transactions. Returning to our hypothetical situation, the system of record is updated or flagged as soon as individual B purchases the asset. When individual A attempts to sell a duplicate or forged copy of the asset, the authentication test fails revealing the inauthenticity of the asset attempting to be sold.
Loss, damage, or theft can occur when a paper-based process has an associated physical asset. Let’s look at the example of paying for something. Cash or a credit card can be stolen and then used to make a purchase. Cash can always be used to transact, and a credit card can be used until it is deactivated by the owner, which takes time.
In the digital world, digital payment methods such as Apple Pay provide more security. Theft can still occur; a smart device with a mobile payment option can be stolen and then used to purchase something. However, more built-in security checks mean there is a lower chance of it happening. For example, Apple Pay requires a password to unlock the smart device and then another password to access the application. Multi-factor authentication can also be enabled to add yet another password.
To be clear, digitizing a process does not make it completely secure, but it is infinitely more secure than a paper-based one because it eliminates the inherent risks that lead to fraud or loss. Digitization allows for real-time communication, which removes the time lag for transactions to be recorded and eliminates the chance an asset can be transacted upon twice. A digital asset in place of a physical asset allows for more security measures to be enabled to protect the owner from loss or theft. The relationship between digitization and enhanced security is appealing and further underscores the benefits of creating a digital asset. And still, there is one more to be addressed up next: the environmental benefits.
Creating a digital asset may seem foreign or technically challenging. Is it time-consuming to create, does it cost more, and is it safe from bad actors? If the current process works well enough, why change?
That last point is the crux of the issue here. There are so many processes that remain paper based simply because they work reasonably well. Here we will make the case for digitization, starting with an argument for efficiency.
Let’s look at three different ways to buy and then start reading a new book. In each scenario, the process becomes more efficient.
Method 1: Travel to a bookstore to buy a book in person and begin to read at home.
Method 2: Go online to a website to buy a book for delivery and begin to read when it arrives.
Method 3: Pick up an eBook reader to buy a book electronically and begin to read immediately.
Before we further analyze this example, we want to be clear that we are assuming the purchaser (new owner) of the book has no preference between a physical book and eBook.
For the customer, the biggest enhancement is the reduced time to transfer ownership of the asset (the book). The first method requires the buyer to leave home and perhaps not find the book in stock. The second method allows the buyer to stay home but requires them to wait days or weeks for the arrival of a book by mail. The third method allows the buyer to stay home, and the book is available to them immediately after purchase. The third method eliminates the transportation time to acquire the physical asset (a book) since the book is now a digital asset (an eBook). In this case, the time to transfer the asset is then instantaneous.
For the seller, the biggest enhancement is the reduced cost to transfer ownership of the asset. The first method requires the seller to rent a physical storefront to sell their books. The second method requires the seller to pay for a warehouse to store their books as well as the shipping and handling costs for each book. The third method only requires the seller to pay to build and then maintain the software/hardware used to access the eBook.
To better understand some of the potential cost savings, let’s look at some numbers. According to Statista.com1, there were 675 million physical books sold in the U.S. in 2017. Let’s assume half of those books (337.5 million) were bought online and require delivery. Amazon2 charges $3.99 for domestic standard shipping for each book. If we take that as the cost of shipping and multiply it by 337.5 million books, we arrive at about $1.35 billion spent on shipping annually! Of course, there were many assumptions made here, but even if the savings amounted to a fraction of what was calculated, that would be a substantial amount. And that is in addition to the money saved for the buyer on gas or public transportation and the seller on physical storefronts or distribution centers.
We have established that digitization reduces the time and cost to transfer ownership, but it is also more efficient due to the elimination of paper. After all, eBooks do not have to be printed! It costs $3 to print a book3 so printing all the 675 million physical books sold each year would cost about $2 billion. If half of those were sold as eBooks, that saves $1 billion on printing books! By eliminating paper in the process to create and then transfer an asset, the cost savings become very appealing.
There are costs for publishing in a digital format that are analogous to printing in a paper format. According to one eBook converter and distributer4, a 100,000-word book manuscript in Word costs a one-time fee of $249 to convert into an eBook format and $99 for eBook distribution. These fees add up to the cost to print 116 books. Therefore, the cost to digitize a book becomes insignificant when compared to printing large numbers of books. The general trend is that the costs of digitizing an asset remain the same no matter the number of transactions on the asset.
For digitization, the final piece of the efficiency puzzle is that it also reduces the time and cost to verify ownership. We will cover this in more detail in a future post.
In summary, a more digitized process generally leads to a more efficient process as we saw with the shift to eBooks. The close relationship between increased efficiency and reduced process time and costs may alone convince you that the benefits of digitization outweigh most costs and risks. Still, we continue forward in our next post with the impact of enhanced security.