The next era of digital change

How are the huge advances in Artificial Intelligence (AI) technology changing the business world? For the last year and a half, we have obsessed over Generative AI, primarily as a tool for helping knowledge workers become more efficient and effective. But this just scratches the surface of the wider changes underway – mostly behind the scenes – in how businesses are looking to harness AI for competitive success.

Taking a long-term perspective, AI is simply the latest chapter in the story of digital innovation, with each chapter opening up new ways of working for business enterprises. The mainframe computer era of the 1970s was dominated by large centrally-managed businesses; the personal computer era of the 1980s spawned greater decentralisation as employees got hold of their own machines; the networked computer era starting in the1990s allowed interoperability between computers and much greater levels of information sharing across society; and the cloud computing era starting in the 2000s enabled the huge platform-based businesses we see today. 

How exactly the AI era plays out, in terms of new business strategies and new ways of working, is still an open question. We are already hearing about leading tech companies experimenting with new products and services that seek to harness AI’s potential. And for the most part, it is the usual suspects – Microsoft, Google, Amazon, Facebook and Elon Musk.

But these west-coast titans don’t have a monopoly on digital innovation. Sometimes it’s useful to cast our eyes further afield to get a perspective on where the business world might be heading.

In this article, I share some insights from the company Digital China (DC) and its longstanding CEO, Mr Guo Wei. Most western audiences are familiar with China’s B2C digital giants such as Alibaba, Tencent, and ByteDance (owner of TikTok). DC doesn’t sell anything directly to consumers – it is a digital services provider, broadly comparable to companies like Accenture, Infosys or CapGemini. It was formed more than twenty years ago as a spin-out from what is now Lenovo, the computer manufacturer. It is one of China’s leading digital services companies, selling bundles of hardware, software and solutions to big banks, industrials, consumer product companies and retailers. In terms of scale, DC has some 20,000 employees and revenues of $20 billion. 

Mr Guo is a legendary figure within the Chinese IT industry, CEO of DC for more than twenty years and with several bestselling books to his name including The Power of Digitalization and The Power of Time. He is on Fortune China’s top 50 business leaders list. I recently finished writing a London Business School teaching case on the company. As I put it together, Mr Guo shared some of the innovative work DC is doing with Chinese companies, and some of his ideas about the next wave of AI-driven change. 

Mr Guo separates informationisation from datafication. The former is simply about improving enterprise efficiency – using information in a structured way to do things more quickly and reliably. The latter is more strategic – it’s about reconceptualising the firm as a set of digital assets. Some of these assets are traditional codifiable pieces of data, some are unstructured and fragmented, some are in the form of know-how.

Datafication therefore involves defining these digital assets clearly and in a modularised way, so that they can be configured and recombined in new ways to create value. And the best way to do this is to put them in the “cloud”, on a platform that transcends specific locations or operations. Mr Guo calls this Data Cloud Integration. 

Of course, this isn’t a new concept. The phenomenal success of Amazon Web Services can be attributed in large part to their early investment in cloud-based services for small and medium sized businesses. But Data Cloud Integration has been pushed hard by a range of companies in China. WeChat is a great example of an integrated service built on digital-native principles. One factor in its success was its seamless integration of services from thousands of independent businesses in one easy-to-use customer interface. Another example is the Jiangnan shipbuilding company, which according to China Daily “did not use a single piece of paper” during the design and construction of the ship HaiXun 160, which went into service in 2019 – and made possible only through careful orchestration of digital assets across multiple businesses.

Digital China, likewise, has been proactive in developing integrated cloud services, along with the innovative infrastructure products on which they operate. From 2018 to 2022 it saw a seven-fold growth in sales in these areas.

Another key pillar in Mr Guo’s digital worldview is the middle platform, which is a set of central hub activities sitting between the back-end and customer-facing parts of the DC organisation. The concept was first introduced in China in 2015 by Alibaba, and Mr Guo adopted it as a way of structuring DC’s activities. In his words, this middle platform “helps connect and make sense of multiple different bodies of data, and it allows different applications and tools to communicate, making sure data can flow smoothly from one place to another”. Much of the datafication work noted above, whereby digital assets are codified and turned into commercial propositions, happens within this middle platform.

Then we get to AI, and specifically what Mr Guo refers to as Artificial Intelligence Generated Content. Over the last couple of years DC has been using AI to help companies pull together and make sense of their vast pools of unstructured data from reports, customer feedback and internal documents. One example is a white goods company which constructed an AI model to integrate all the proprietary information across its operations. Employees could then consult this model to make more informed and faster decisions. DC’s AI product is called SmartVision (Shen Zhou Wen Xue in Chinese), designed “to build capability among users so they can take responsibility for building future-oriented business scenarios and develop creative ideas.”

Looking across everything DC has built over the years, from a service back in 2006 called e-bridge (for sharing information with vendors), through its cloud computing, innovative infrastructure (its own computing, storage and networking products) and AI offerings, the consistent theme has been to liberate information (through datafication) so that it can be utilised more effectively within and across organisations. Mr Guo talks a lot about boundarylessness, a concept that was first in vogue in the 1990s but whose time has now come, thanks to digital innovation.

To return to the question I asked at the outset, what will the AI era bring in terms of new ways of working? We don’t know for sure, but the changes Mr Guo is talking about suggest it should allow greater fluidity and agility in how companies operate, as data is more modular and accessible than before. It should also put a greater premium on insight and judgement, as these are the human qualities that seem unassailable by even the smartest AIs. Which means a proliferation of smaller firms coexisting with larger ones in ecosystem-like formations.

To conclude, here are a few of the reflections on the Digital China case study that I share with my students.

The digital revolution is never over.
Every wave of digital innovation brings new tools and technologies, and it triggers a wave of further changes in how companies operate and how they create and capture value. The most successful companies are therefore the ones who are constantly on their toes, looking to rethink their approach to digital technology. And if you are saddled with legacy IT systems, you need to unburden yourself quickly, otherwise new competitors will run rings round you.

Digital innovation doesn’t happen exclusively on the US west coast.
There is an interesting competitive dynamic among Chinese companies: they are incredibly growth oriented and data-hungry, they don’t have legacy IT problems to the same degree as western firms, and there is a big fear of missing out. So there are quite a lot of interesting digital innovations coming from China on the service /application end of the spectrum. I have touched on a few of them here, through the services DC provides, and some of the others, from the likes of WeChat, TikTok and Shein, are readily observable. 

Don’t lose the human touch.
Some observers look at the inexorable rise of AI and picture a rather gloomy workplace of automated operations and algorithm-driven decision making. My view is closer to Mr Guo’s, who says that the purpose of digital intelligence is to “maximise human creativity and value.” Business leaders today have a moral imperative to harness technology in a way that makes work more fulfilling. In the words of the original futurist, John Naisbitt: “Whenever a new technology is introduced into society, there must be a counterbalancing human response – that is high touch – or the technology is rejected. We must learn to balance the material wonders of technology with the spiritual demands of our human nature.”

Julian Birkinshaw (centre) is Vice Dean and Professor of Strategy and Entrepreneurship at London Business School

Guo Wei (left) is Chairman and CEO of Digital China Group

Dickie Liang-Hong Ke (right) is Sloan Fellow and Programme Director at London Business School, and CEO of NetAdd Technology Ltd.