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Rethinking Business Models for Digital Transformation


To keep pace with the swiftly changing digital ecosystem, organizations can’t afford to stand still. It’s vital for organizations to continually assess their business models as part of their digital transformation. Organizations must walk a difficult line between maintaining their core competencies while successfully anticipating what is ahead.

The oft-cited Silicon Valley startup mantra of “fail fast and fail often” may not apply across the board. Still, when it comes to examining the digital future, an intelligent business model incorporates the fact that you may not get it right the first time.

Innovation fueled by data is the way forward.

4 Elements of Innovation

Any business model has four elements:

  • Customer value — how does your model support the customer’s goals?
  • Profit formula — How does your model demonstrate value
  • Key resources
  • Key processes — Resources and processes describe your model’s systems to support your customer value proposition.

Of course, these elements are interconnected. As an organization shifts during a digital transformation, these four elements will stretch, evolve and reorder. However, customer value should remain at the top of the list. The customer value proposition is more important during your digital transformation.

Why?

Because the digital world has given the consumer more choices than ever. If the user doesn’t like your site’s options, it only takes a click to get to your competitor’s site. This seems obvious, but in reality, many businesses don’t consider how easy it is for customers to become ex-customers. In this new era, brand loyalty does not mean as much as price, website experience, quality and other factors.

This means putting your customers first. It also means avoiding falling into the trap that all you need to do is put your processes and products online. We’ll discuss why in the next section.

Digital: Not the Answer By Itself

Many companies, however, behave as if going digital is the answer. On the contrary, going digital is only the first step in the process. The reward comes when a company leverages digital business practices to enhance their customer’s experiences.

This also requires encouraging innovation in the organization. The most cutting-edge digital business model will provide little benefit to a company that fails to develop the tools, talent and culture to support it. Many well-meaning organizations talk the talk about digital innovation but then are unable to follow through for whatever reason.

It is easy to discuss the necessary changes; however, altering the business model is challenging for an established company. An organization must understand what makes its present model successful or unsuccessful. This involves analyzing each element separately and as a unit.

Next, study the marketplace to identify any signs and data that suggest your model needs to change. These include large customer segments whose needs aren’t being met, a customer goal that’s gone unrecognized, a new technology whose capabilities aren’t being fully leveraged, a challenge from existing or emerging competitors and the marketplace redefining your target market or your core solution.

Any of these signs may be enough to dictate a change in your business model. However, the next step is to evaluate your model’s digital business components, including the content, the platform and the user experience.

Content describes the product you are offering the customer over your digital platform. It could be content that matches your physical content. Or it could be uniquely digital content, such as streaming video.

Part of this assessment is finding out how much revenue your existing content generates. This may be difficult to precisely quantify, as some content may be necessary or brand-building?

Platform describes how you deliver your content (website, a network, streaming, or other channels). How good are your internal platforms? How can you expose more of them to customers to improve their experience?

The user experience describes how the customer accesses your content over your platform. How good is your customer’s experience? Who provides a better one and how does it differ from yours? These questions help you evaluate the value being created by the digital business components of your model.

Evolution

Evolution rather than revolution is often enough if done thoughtfully and strategically. Small changes in a business model can yield significant results. Merely updating the assumptions of your value proposition can open up fresh business avenues to pursue. It is crucial to rethink the economic model behind your products and services as you’re reviewing your business model.

Are you identifying and capitalizing on the actual value you provide your customers? Pinpoint the customer value you generate and trace it back through your processes, identifying your economic model’s components as you do. Then, flip it. Start with your processes and trace a path from them to the customer.

By carefully analyzing what you have, who wants it, and what it’s worth, you may open up new revenue streams. The digital marketplace can also be challenging to navigate legally and organizations should involve legal teams to survey the regulatory landscape before committing too many resources.

Ultimately, successful businesses increasingly depend on a deep understanding of online behaviors, internet-based network effects and the distinctive forms of business modeling that apply in the digital space. Organizations must foster a culture that embraces change, isn’t afraid to take calculated risks and has the appetite for learning new approaches and technologies continuously.

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