Organizations at the 1X scale have very little digital leverage. In other words, if they use digital tools, it is only as a substitute for things that were previously done through analog tools. For example, the use of fax machines instead of the postal system is a 1X strategy—while it increases speed a bit, it is still essentially a channel for moving static documents from a sender to a recipient. It's faster and more convenient but it's not enough to create a competitive advantage or transform your business.

Examples:

• A medical office which faxes claims to an insurance company rather than mailing them
• A property management company who started corresponding via email instead of postal mail
• A mining company which uses video conferencing to show mineral deposits to investors prior to conducting in-person tours

Digital organizations that are operating at 3-4X have achieved some network effects inside their organization through the pervasive use of digital technologies. They are starting to produce digital value at scale, through interconnected systems with live data and teams who understand data-centric products and services. While direct revenue is coming from digital offerings or products, the mindset for operations and value exchange still comes from an analog business model. At this stage, applied digital thinking may begin to cause exponential results—but only in specific parts of the business—and digital initiatives have to overcome significant analog inertia to achieve any scale.

Examples:

• A bank which is still focused primarily on providing service through physical locations or phone-based financial advising, but which has a small ‘algorithmic trading’ department where machines manage investments under close supervision by humans
• An automaker who still makes and sells cars but is also starting to venture into a few digital subscription services for their vehicles, like mobile data or apps

A company that's reached an 8-10X level of digital fluency may look more like science fiction than business as usual. They leverage conversational digital colleagues, strong AI programs, and highly predictive approaches to value creation which are still quite rare. This all requires significant investment to conceive of, build and make sustainable—but it also often creates a major "first to market" advantage. It's very hard to catch up with a company this far along an exponential curve.

Everyone in an 8-10X company is a technologist of some kind or another, even if they don't have a digitally-focused job. Employees, customers and partners all contribute to technology planning and development, bridging the distance between users and designers.

These companies have 'software-defined everything.' For example, nearly all value created by Google is a function of software. Even the hardware they create is valuable primarily because of the applications and algorithms which define how the hardware works, and new features can be downloaded as an update. Software-defined value is a hallmark of digital companies because it enables razor-thin margins for competitive cost advantages, rapid scaling, and pivots based on prediction models.

Examples:

• Tesla’s software-defined vehicles can receive significant new features ‘over the air’ with nightly updates. Some downloadable upgrades cost as much as $10,000, like their much-discussed ‘autopilot’ driver assistance features. While the majority of Tesla's revenue is still from selling physical things, all of those physical goods have required software components to deliver on their value proposition.
• The Amazon marketplace and other platform-based web services by Amazon are examples of offerings that originally enabled Amazon’s own business lines but now have expanded to be huge businesses in their own right. Almost every part of Amazon is software-defined—including the work of independent contractors like delivery drivers—allowing Amazon to promise reliability and speed which is difficult for competitors to match.