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Internet giants collect and trade our data; smartphones know us better than our friends and partners; cities monitor themselves using big data analytics – digitalization is everywhere. But is it the end-all and be-all? Key Pousttchi, Professor of Business Informatics and Digitalization, studies the impact of digitalization on the economy as well as how companies should respond to it and which IT systems they need. According to Pousttchi, we have only seen 10% of the change: All the more reason to develop strategies to actively shape this change instead of being controlled by it.
Digitalization is not coming; it has long since been a reality. For years, technical developments have brought about continuous transformation to the economy. The digitalization of customer data on a large scale and the ability to evaluate it has opened unprecedented advertising opportunities. Credit card company Mastercard can already make relatively accurate forecasts by analyzing customer payment behavior, says Pousttchi. This is a valuable asset, because knowing how your customers tick allows for more targeted and successful advertising. “Mastercard is able to use patterns to predict who in the US will get divorced within five years better than the individuals themselves," says the researcher. "This does not surprise me. What does surprise me is how little information is needed to make these predictions.”
There is still no end in sight for this development. The unbridled triumph of smartphones, tablets, and, more recently, smartwatches and other “wearables” – labeled a new digital revolution – is catapulting mobile business, i.e. economic processes using and surrounding mobile devices, from the operational to the strategic level. “The smartphone is the key,” says Pousttchi. "It connects the end-user’s real and virtual worlds.” Mobile computers are involved in almost every sphere of life and gather an endless supply of information that can be virtually evaluated in real time. “The huge amounts of data from end-users represent enormous market power,” the business IT specialist explains. The information business is currently dominated and driven by four large companies – Google, Apple, Facebook and, some way behind, Amazon.
“Many industries will be undergoing fundamental changes, because entire business models will be absorbed into new value-added networks. It is quite possible that a company will suddenly offer a free service that others have long charged for, such as a payment method, because the company’s goal – advertising-relevant customer data – is different.” It can be used for more than just predicting buying behavior. Advertising perfectly tailored to the customer can influence their behavior. “Those who have enough data on their customers know how to convince them,” says Pousttchi. Some only want cheap products; others want brand quality. A third wants good service, and a fourth is an impulse buyer. You are even able to consider when someone usually makes a purchase decision. Retailers that know what their customers need better than the customers themselves – and when –, will always be more persuasive. Network giants like Google are also resolutely working towards wedging themselves between retailer and customer, in order to make the retailer pay a steep price for information brokerage, which may result in the retailer sacrificing its profit completely.
These shifts affect everyone: end-users, companies, and even entire economies. Anyone who manufactures or sells end-user products has to examine exactly how digitalization is affecting its business model, explains Pousttchi. “Many industries have already gone belly up, and figures show that half of large companies will suffer the same fate if they overlook digitalization.” According to Pousttchi, two market strategies are prevailing. While some are rather disoriented or are still on the fence, others immensely overestimate their capabilities and try to wield their own all-in-one solutions, like an in-house payment system, against global intermediaries. “Neither approach is geared towards the future,” says Pousttchi. “They must realize the new rules of engagement, analyze their own business models, and then purposefully develop them for the future based on their strengths,” by creative destruction, if necessary.
This is where one of Pousttchi’s primary research fields comes into play, because the scientific analysis in this area is still in its infancy. “Everyone talks about digitalization, but no one really investigates it systematically. The role of research is to analyze these developments systematically and help individuals, companies, and society shape digital change.”
Markus Humpert is currently studying how the data power of internet companies affects the real world in his Master’s thesis – the first supervised by Pousttchi at the University of Potsdam. Humpert is closely examining certain sectors, such as retail, banking, and insurance. Which companies or sectors are particularly affected? What are the causes? What can they do to keep up with the market power of new competitors? How can they even benefit from the development?
“Our goal is to develop an analytical tool to analyze how using big data technologies for end-user data shifts market power,” says Humpert, whose work is part of the chair’s research. Such an analytical tool is only the first step. Pousttchi is certain that “all significant innovation in the next 20 years will be based on data; this is inevitable. The motto has to be: be a part of shaping this development so it is to our benefit. This applies to economic and technical aspects alike. I'm not willing to be dictated by a machine. Technological development should serve the people, not the other way around.”
He is not pessimistic about digitalization in Germany but thinks that a lot has yet to be done. His credo is that Germany as an engineering nation is actually made for the challenges of digitalization. “We need to reflect on our strengths, and students have to learn again to keep their nose to the grindstone instead of rushing from credit point to credit point,” says Pousttchi. In his office, he has a big picture of a Zeppelin over Los Angeles from the 1920s. “There were times when people on the US West coast looked up at the sky and said, ‘Wow, the Germans’. This is what we have to get back to. My job is to build Zeppelins again – in the digital world “
Pousttchi himself is by no means digital “through and through” – deliberately so. His phone is not a 6th-generation smartphone. He no longer has a tablet. "I have tested out many things but then consciously set many aside. We should all carefully decide what to digitalize. A hamster wheel that rotates faster and faster is not necessarily more productive,” he says. “I have a good laptop and took a lot of time to fit it out.” Part of his work is staying abreast of technical developments, which also requires maintaining contact with actors in the field, but “as a scientist, my analyses have to be in-depth. For this, a pencil and a sheet of paper are sometimes more important than the technology I research,” he says. “And books,” he adds, “My students will still be reading books in 10 years!”
Prof. Dr. Key Pousttchi studied economics and organizational sciences with an emphasis on business informatics at the University of the Federal Armed Forces Munich. From 2001-2014, he was head of the research group wi-mobile at the University of Augsburg. Since 2015, he has been the SAP Professor of Business Informatics and Digitalization, especially IT Strategy and IT Business Value, at the University of Potsdam.
Wirtschafts- und Sozialwissenschaftliche Fakultät
August-Bebel-Straße 89, 14482 Potsdam
Text: Matthias Zimmermann
Translation: Susanne Voigt
Published by: Daniela Großmann
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