Introduction to Digital Transformation: 2- The Why, What, and How of moving toward Modern Business Models
Realizing how to serve the customer in a better way through digital technologies for the purpose of digital transformation.
by Giandomenico Rivetti, Lars Dittmann
In our first article of this series, we discussed the difference between traditional and modern business models. In traditional set-ups producers are offering their assets to satisfy customer needs, while digitally enhanced models are designed starting from customer needs.
This article is intended for companies running on traditional models with centrally controlled hierarchies and a strong focus on EBITDA (profit) as their most important KPI. Why should they embark on a journey towards a modern business model? How can they go about it? And what tools make this business model come to life.
Why move toward a Modern Business Model?
Well, the answer is simple: the purpose is to grow faster and improve profitability.
When looking at the big Internet-Giants like Google, Apple, Facebook and Amazon, this answer seems like a no brainer. But let us be a somewhat careful as the popular saying goes: Cobbler, a shoemaker, stick to your trade. Meaning there is always someone richer and more successful. If the cobbler just follows his ambition and greed, he will lose his competencies. His chances to prevail are small. He should rather build on his shoemaking knowhow shoes and be happy within his market with its given size and profit. Well, most cobblers were pushed out of their market by industrial shoemakers.
So, the ostrich approach is not recommended. Looking at modern business models of the sub-type “usage model” is the most compelling. There we find companies like Ikea and Zara in the B2C, or Hilti in the B2B. These companies are directly competing with traditional ones who are not set-up around digital technologies.
As all successful changes start with the answer to the question “why”, we recommend looking at all your stakeholders to answer this pressing question. More growth and profit are compelling for top-management and shareholders, but for customers, employees and other stakeholders, you need to find answers which give purpose to their lives. Serving the customers better is a good reason to get up every morning.
What is the core of digital transformation?
Often, companies jump on a new technology like a new customer management system or an artificial intelligence forecast planning algorithm, announcing this is our digital transformation.
However, digital technology is just an enabler for the transformation. “Doing something digital” is a typical mistake companies make.
The “what” of digital transformation is to ask yourself how digital can help changing the way you are serving your customers.
Re-thinking your business model from your customer needs is essential
The core of digital transformation is the more modern business model, which implies asking yourself how digital can help your customers.
How to move toward a Modern Business Model?
An essential step is to define at what speed we want to transform the business. Using a disruptive approach is not recommended for traditional industrial companies. Rather, we recommend taking a step-by-step approach, maybe starting to involve parts of your organization.
The right speed depends on your level of ambition on the one hand and on the competences in your company on the other. If you are unsure, you are better of starting with a small and quickly implemented pilot.
What is truly clear, is that the tone for change must come from the top. Transformations are demanded from the top, but implementation is a joint effort of the entire organization. In today’scomplex business environment there is not just one master plan that everyone needs to follow, but a bundle of activities that lead to one shared vision. The distributed activities can absorb the
complexity of one’s environment far better than a master plan, and the governance of the transformation ensures that we stay on target.
The journey always starts from the customer and the highest quest of the organization is to understand its customers’ needs.
The journey starts with “why” and the answer to this question must give purpose to all stakeholders.
How to go about this is not just a task for the top management, but for the entire organization. Still, the tone must come from the top and a strong oversight must be in place. What one can see from the outside as change is usually the technology which is enabling tit.
But it is not the meaning of change. Embarking on the journey is a must for those who want to gain new growth and prosperity. We encourage you to start defining you own journey.
Voice of the expert : What are the points of attention to avoid failures in moving towards modern business models