5. Digital business models Flashcards
“RUNNING THE FIRST MILE”
„First Mile“= Basic preliminary internal set
of activities that firms must complete
when responding to a change in external
environment.
Early adopters:
* establish customer expectations
* establish themselves as innovators
* set the standards
Slow firms:
* have to react to the offerings of fast
movers
* Risk of loosing their customers
Why is strategy important?
- Formulating new strategies is a critical step of making a fast transformation, but can also be a source of delay
- Need to reconsider the purpose of their firms
- All layers are interrelated
- A great digital strategy provides direction, enabling executives to lead digital initiatives,
gauge their progress, and then redirect those efforts as needed
What are the strategy levels?
- Corporate - what business are we in?
- Business - how do we compete?
- Functional - how do we deliver?
What is digital transformation strategy?
Source: Vial (2019)
- DEFINITION: Is a blueprint that supports companies
in governing the transformations that arise owing to
the integration of digital technologies, as well as in
their operations after a transformation - focus on the transformation of products, processes
and organizational aspects owing to new
technologies - separate from IT strategies and all other
organizational and functional strategies - emphasizes the transformational process through
which a firm leverages digital technologies to
redefine its business model.
What is digital business strategy?
Source: Vial (2019)
- DEFINITION: Organizational strategy formulated
and executed by leveraging digital resources to
create differential value - fusion between organizational strategy and IS
strategy rather than their alignment - competition among firms increasingly rests upon
their ability to leverage digital technologies to
accomplish their vision and that separating the two
concepts may diminish their potential for synergies
What is in the layers of firm strategy?
- Corporate - what business are we in?
- business model –>
1-4 different strategy options based degree of ”connectedness” - Business - how do we compete?
- Competitive differentiation –>
Strategic choices: Constant change in customers and partners, differentiation - Functional - how do we deliver?
- Internal capabilities
Do we have capability to deliver the chosen business model? How do we allocate internal ressources?
What is a business model?
”What business are you in?
* Main deliverable generated by the firm’s
corporate strategy effort is the firm’s business
model”
* Understanding the mission and value
proposition èspecification of intended value
of the firm to the market
* defining the customer groups the firm will serve
both now and in the future.
What are the business model strategy options?
Option 1: Remain unconnected and supply connected companies
Option 2: Offer a fully connected experience to your customers
Option 3: Offer a connected experience and build a two-sided platform business
Option 4: Service-only and aggregated services platform for connected experiences
What is Option 1: Remain unconnected and supply connected companies
- Executive choice, not necessary abilities or
failure to compelling service offering - Choosing to remain unconnected likely
means accepting to not have a deep
relationship with the end user or customer - Probably become a B2B supplier to
companies that offer a connected
experience (white label capacity)
What is Option 2: Offer a fully connected experience to your customers
Effective Babysteps:
Talk to your product: When your product could talk
about itself when it is being used, what would it say?
Who would be interested in listening? What value
would that be?
Listen to your product: If the product could listen,
what information would it most seek and why? If your
service could learn from its environment, which things
would it talk to?
- One-sided connected Business Model
- Firms need to offer products that can sense
how they are being used and performing è
connected experience - Products as platforms that can dynamically
react to input of the consumer, the
environment, the brand - Value needs to be derived from the users
- Option to build symbiotic partnerships
between brands that offer related products
What is Option 3: Offer a connected experience and build a two-sided platform business
- Side 1: User can pay as subscription, use-fee or with
access to their information about how they use a
product - Side 2: different types of third-party users that find
value in the information generated by side 1 users - The combined control of both the core data service
(side 1) and the second-order service (side 2) creates
the full economic potential of the two-sided platform
model. - Two-sided platforms will likely become the default
corporate strategy option for most firms
Examples: Appstore, facebook
What is Option 4: Service-only and aggregated services platform for connected experiences
- Generating revenue almost exclusively from services and
the enablement of connected experiences - If they no longer generate revenue from products, but only
use products as a platform to generate service revenue,
they should review whether to fully outsource the
manufacturing of the product - Modified version of symbiotic partnership model: will
compete on being the easiest to do business with and
being able to drive significant value for the users, the
product companies, and third-party customers - Most difficult model to build out
Business strategy - how do we compete?
- The seamlessness of the experience will emerge as
one of the key business strategies in the connected
world - Levers of business strategy will remain more or less the
same, but opportunity for differentiation will increase - Cross-industry connections will drive a relevant and
seamless experience èa similar level of experience. - A crucial business strategy issue will be maintaining
control over the choice among the inter- and
intrabrand relationships èchoice has to be aligned
with the ecosystem at large - Interdependency in ecosystem influences products,
services, prices, trade the value of user information
Functional strategy - how do we deliver?
- Functional strategy is about delivery
implementations –> internally focused - Output: Portfolio of internal and some
controlled external capabilities necessary to
deliver the output of the organization - Magnitude of the capability gap defines the
magnitude of the internal transformation
necessary to realize - It is imperative for companies to become clear
on their corporate and business strategies for
the connected world before they begin
determining the impact on their functional
strategy
What are the four business models for the digital era?
- Omichannel business
- Ecosystem driver
- Supplier
- Modular producer
What is the supplier model?
- Sells through another company
- Partial knowledge of their end consumer
- Operate in a value chain of another
powerful company - Are likely to lose power, pressure to
reduce prices, resulting in industry
consolidations
What is the omnichannel model?
- Provide customer access to their products
across multiple channels, including physical and
digital channels, giving them greater choice
and a seamless experience - Integrated value-chain
- “own” the customer relationship
- Use data to fully understand their customer (e.g.,
life events)
What is the modular producer model?
- Provide plug-and-play products and
services that can adopt to a variety of
ecosystems - Must be among their best in their category
–> constant innovation - Hypercompetitive environment
- Don’t get to see all the customer data,
limited to transaction they process
Example: Paypal
* Paypal is hard-ware agnostic, mobileenabled
and cloud-based ècan operate in
any ecosystem
* Operates worldwide
* A modular producer needs to be able to
plug into any enterprise’s platform to
succeed and investing in partnerships
* Only a few players make significant profits
while the others struggle to survive
What is the ecosystem driver model?
- Establish an ecosystem by creating relationships
with other providers that offer complementary
(or sometimes competing) services. - Provide platform for the participants to conduct
business, which can be more or less open - Use brand strength to attract participants, ensure
a great customer experience and ensure onestop
shopping - “own” customer relationship in one domain
- Charge rents from participants in their ecosystem
Example: Amazon
* Aim to be the most customer-centric
company in the world
* E-commerce platform with two-sided
network effects
* Connect customers and sellers
* Strong branding
* Amazon subscription business
* Amazon Advertising Services
How do you prepare for the future?
Learn more about your customers
1. Use digital capabilities to obtain information about
customers’ goals and life events.
2. Amplify the customer voice inside the company.
3. Emphasize evidence-based decision making.
4. Develop an integrated, multiproduct channel
customer experience.
Build an Ecosystem
1. Become the first choice in your space.
2. Become great at building partnerships.
3. Create service-enabled interfaces that others can
use
4. Treat efficiency and compliance as a competence.
Iceberg example
What the customer sees
(Digital)
What makes it possible
(Digitized)
What is the difference between digitized and digital?
Digitized ≠ Digital
Digitizing with Digital Technologies: : Enhancing business
processes and operations (operational excellence)
Digitalizing with Digital Technologies: Expanding and
accelerating innovation to create profitable digital offerings
(customer value proposition)
–> Operational excellence has shifted from being a good idea
to a “Must Have”, a prerequisite to digital transformation
–> Companies need to replace their dysfunctional systems
and processes with an operational backbone
WHAT IS AN OPERATIONAL BACKBONE?
= coherent set of enterprise systems, data,
and processes supporting a company’s core
operations. Consists of standardized shared
systems, processes and data –> reliable,
secure operations
4 Main Functions:
1. Supports seamless end-to-end
transaction
2. Provides reliable accessible master data
3. Provides visibility to transactions and
other core processes
4. Automates repetitive business processes
Operational backbone - what does it involve?
Business transformation
Main challenges:
-Big vague Goals
-Bad Data
-Resistance to enterprise standards
-Messy legacy systems
-Misaligned power structures
Building operational backbone
-Reduce Business Complexity
-Narrow the Scope of Digitization
-Lower your standards
What is the difference between operational backbone and digital platform?
Digital Platform: Provides easy access to the
data, business, and technology components
that make up a digital offering
Operational Backbone: provides a tightly
integrated, bulletproof production environment
ensuring the reliability and security of business
processes
What are the different technology requirements between operational backbone (digitized) and digital platform (digital)
Operational backbone:
* Stable, scalable, secure operational systems, automation of repetitive processes
* Examples: ERP, CRM, PLM systems
* SMACIT (e.g. cloud-based software, AI for repetitive businesses)
* OUTCOME: Reduce time, cost, errors
Digital platform:
* Repositories of API-enabled business, data, and infrastrucuture components
* SMACIT
* OUTCOME: Configure and commercialize digital offerings
What is the targeted outcome of design requirements between operational backbone (digitized) and digital platform (digital)
Operational backbone:
* Supports core business processes and provides a tightly integrated production environment –> reliability and security of business processes
* Process efficiencies, predictability, and reliability leading –> increased profitability
* OUTCOME: Efficiency and customer satisfaction by reliability and transparancy
Digital platform
* Provides easy access to the data, business, and technology components that make up a digital offering
* Rapid innovation of digital offerings –> revenue growth
* Customer engagement and solving customer problems
* OUTCOME: Revenue growth and customer satisfaction by innovation, of digital offerings
What are the different data requirements between operational backbone (digitized) and digital platform (digital)
Operational backbone:
* Supports collection, storage and provision of most transaction and master data
* Sometimes uses data from digital platform
* OUTCOME: evidencebased decision making in firm operations
Digital platform:
* Flexible repositories of big data (from sources like sensors, social media etc.) for analysis and insights about digital offerings
* Sometimes uses data from operational backbone
* OUTCOME: improve digital offerings
What are the different process requirements between operational backbone (digitized) and digital platform (digital)
Operational backbone:
* Define as many systems and process requirements as possile before setting up operational backbone
* OUTCOME: Standardized processes
Digital platform:
* Iterative design, development, configuration and commercialization of digital offerings (e.g. MVP)
* OUTCOME: Experimentation
What are the different people requirements between operational backbone (digitized) and digital platform (digital
Operational backbone:
* Data architects and process owners; project leaders for large projects
* OUTCOME: architects define a „target state“ for creating roadmaps
Digital platform:
* Platform architects and component owners who can hypothesize, test, and manage functionality of components
* OUTCOME: decide which coponents are re-used, design standards for API interfaces
