Digital transformation requires business model innovation (1 of 3)


2017-12-20, 15:41 Posted by: Peter Tyreholt

 have spent the last five years helping companies on their journey in digital transformation and before that I spent 15 years in scaling start-up's which tried to change their industry with digital (even though we did not call it that then ;-)). In this I see two big failures by companies today:

  1. Not creating room for the new and in that not changing culture and way of working
  2. Doing the same but with digital and not really innovating their business model and market position

In this first blog post I will cover the first part of number two, the front stage of the business model.

When I look at digital transformation I see the need for companies to reinventing themselves and revisit the market position, value proposition, technology strategy and the complete operating model. In short you need to innovate your business model and it must be done to stay competitive and secure future growth. I often refer to the research by Larry Keeley and the 10 types of innovation which shows the importance of innovating more than the value proposition (product performance) and actually innovate in more than 3 parts of the business model. In this blog series I will use the business model canvas (BMC) by Alexander Osterwalder to illustrate some of the effects that can be used to innovate the business model in digital transformation.

 

I start with the front stage of the business model canvas which are the customer segments, value proposition, customer relationship, channels and revenue streams.

Customer segment

This is the most difficult part while it will depend so much on the industry and in many cases the new value will be for a different customer. I will leave this to a later blog post.

Value proposition

Most companies use digital transformation to introduce new services but are not rethinking their position in the market! And if you are a product company your new services are often centred around your current product and not the jobs (refers to jobs-to-be-done by Clayton Christensen) of the customer.

  • Solving the job (of the customer) - here you see one of the biggest challenges for many companies to reinvent themselves while they are so focused on their current solution (it is their complete identity) and not the customer problem which they are a part of solving. Here companies must switch perspective and empathise with the customer situation and desired outcome / job to find the new value to deliver to the customer (which also could be a new customer).
  • Superior user experience - Anything that needs a manual is too complicated, it should be like Steve Jobs used to say - "it should just work". On one level most companies know this today but very few companies I have worked with understand the effort and the changed way of working that is required to reach a superior user experience.
  • Anywhere, anytime when I need - this is the expectation of most people today that they can pick up their phone or something else and just solve or carry out their idea when they are thinking it.

Customer relationship

I often use this part of the business model canvas slightly different than I think it was intended.

  • Personalized - as customers we expect an increased personalization in our relationship with a brand or company so our time is not wasted. However this require that a brand knows their customers on an individual level and that often requires lots of data which can be creepy. This require the companies to work on the transparency and trust towards the customer around what data they gather and how they are using it.
  • Self-serve - Here is a big opportunity which many of the B2C companies already take advantage of but very few traditional B2B companies do. You give the tools to the customer to solve their tasks by themselves. This will make most people more satisfied with the relationship while they feel in-control.
  • Interactive - We are expecting to have a dialog with the brands and companies today in a completely different level then for just some years ago.

Channels

There are so many ways the channels are changing; from the number of actors in a value chain (more direct) to the traditional purchase journey becoming completely changed and less linear.

  • Seamless between physical & digital - this is probably one of the most important aspects and some B2C companies do it really well but most B2C and all of the B2B companies are really bad at this. The focus is more to keep their current business or organisation parts then actually deliver the best value to the customers just think why should I get the clothes ordered online to a store?
  • Reduced delivery time - This is one of the things that Amazon is really focusing on while they realize that this is the biggest barrier for online shopping. However I think the biggest potential here is actually around the change of ownership. If I always can get the thing I need within a short period of time, why own things I seldom use just so it is their waiting for me?
  • Loyalty loop - This is all about how you can create a shortcut in the purchase journey by going directly from usage to repurchase without giving the customer the opportunity to challenging the brand by evaluating alternative solutions the repurchase is offered so convenient to avoid the evaluation.

 

Revenue streams

When people talk about business models they often mean the revenue model, but that is only one of nine parts in the business model. In digital transformation it has a big impact while the nice thing with digital or software is that it is only the first copy that cost (but could have a high cost) and for all other copies the cost goes to zero. With that characteristic you have much more freedom to innovate around the revenue stream.

  • Free (data as payment) - in the consumer space we have seen many models around free where the payment is data, time or user generated content and where that is packaged to sell a value to a paying group of customers. We often think about ads here but you also have other examples like the app analytics companies that gives developers a free tool and use the aggregated analytics data to create reports to a paying customer group.
  • Monthly recurring revenue - Subscriptions are something that has existed before but are increasingly being used with one example being software as a service.
  • Frictionless micro payments - This is something that maybe have the biggest impact where you can do business often and with small amounts automatically. This will only increase over time and enables markets which were not addressable before due to the high cost of the sales process.

 

The above is just some example of effects that can be used to innovate the front stage of the business model, which are you using? Which important effects do you think are missing?

 

Peter Tyreholt

Head of advisory services

Cybercom Göteborg


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