Digital transformation enables existing businesses to leverage digital technologies for business model innovation. The process of digital transformation is not just about new distribution channels. It starts by better serving key customers, and it completes by developing a new business mindset required to succeed in the digital era.
As any concept that successfully developed in the business world, digital transformation has been exaggerated and emphasized, and it has, in some contexts, lost meaning.
Digital distribution is not a digital transformation
Companies and practitioners might use the term “digital transformation” to mean that a traditional company advertises its products online. However, this is such a limited view that brings companies to talk about digital transformation when all they are doing is not even close to it.
Understanding digital distribution is the first step to digital transformation. But the process can’t be complete until the company hasn’t transformed its business model to those digital channels.
Technology does not imply digital transformation
While technology can be leveraged to have new insights about customers. Technology alone won’t help if a fundamental mindset shift won’t happen.
Therefore, technology, if properly used, it does help the process of digital transformation. Yet technology is an enhancer (which can also negatively affect your business), not the bonanza, or the primary driver of your business.
Digital transformation is not a side project
Many companies that approach the digital world are fooled to think that a little investment in time and resources will do. The problem with this approach is the lack of understanding of the core principles underlying digital business models.
Digital transformation is not digitalization alone
Imagine a successful printing publisher who starts publishing its content online. Even though the content is well adapted for physical printing and distribution, that is not thought for digital distribution.
The printing publisher comes to the conclusion that digital transformation won’t work because of that. Yet digitalization or digitizing something is not digital transformation!
Dynamic thinking and dynamic markets
Digital transformation implies a more dynamic thinking process. That’s because digital channels do add potential complexity to the mix. Thus, thinking about your business as a monolithic block might limit this process.
With digital channels and business models, it’s important to be aware of the core part of the business that needs to be controlled.
Mastering the key customers’ key behaviors
Digital transformation is really about evolving into a different way of operating as a business. So it’s not something that you run out of the project management office, with a sort of, three-year timeline. It involves understanding five key domains (customers, competition, data, innovation, and value). Companies need to be looking at customers and their interactions and their dynamic behaviors and how they shape the business.
Across all different industries and across, really about fifteen years or so of the digital era. And what I found was thatfive common behaviors kept driving when and where customers would bring their attention and their energy and their investment and spend their money:
Access
Engage
Customize
Connect
Collaborate
Digital business models
A digital business model might be defined as a model that leverages on digital technology to improve several aspects of an organization. From how customers interact, to how the value proposition is derived, or how monetization happens.
Digital businesses by nature have born as native digital companies. As such they took for granted the process of digitalization that instead organizations born before of the Internet era, could not understand. That doesn’t mean those companies are superior or follow better business models.
It only implies that they learned to master the digital landscape, which is highly scalable and prone to take advantage of network effects.
Platform business models
A platform business model generates value by enabling interactions between people, groups, and users by leveraging network effects. Platform business models usually comprise two sides: supply and demand. Kicking off the interactions between those two sides is one of the crucial elements for a platform business model success.
Digital distribution channels
A distribution channel is the set of steps it takes for a product to get in the hands of the key customer or consumer. Distribution channels can be direct or indirect. Distribution can also be physical or digital, depending on the kind of business and industry.
Digital platforms business models
Digital platforms are focused on creating ecosystems that enable interactions among key stakeholders. When those ecosystems thrive that is when you’ve built a successful business model.
The upcoming era of Superplatforms
As the digital world enables new business playgrounds (like Blockchain-driven businesses) the whole digital trasformation playbook evolves.
The big trick in the business playbook is to design business processes that can be worked across a team.
Business model innovation
Business modelinnovation is about increasing the success of an organization with existing products and technologies by crafting a compelling value proposition able to propel a new business model to scale up customers and create a lasting competitive advantage. And it all starts by mastering the key customers.
Business model innovation is about increasing the success of an organization with existing products and technologies by crafting a compelling value proposition able to propel a new business model to scale up customers and create a lasting competitive advantage. And it all starts by mastering the key customers.
The innovation loop is a methodology/framework derived from the Bell Labs, which produced innovation at scale throughout the 20th century. They learned how to leverage a hybrid innovation management model based on science, invention, engineering, and manufacturing at scale. By leveraging individual genius, creativity, and small/large groups.
According to how well defined is the problem and how well defined the domain, we have four main types of innovations: basic research (problem and domain or not well defined); breakthrough innovation (domain is not well defined, the problem is well defined); sustaining innovation (both problem and domain are well defined); and disruptive innovation (domain is well defined, the problem is not well defined).
That is a process that requires a continuous feedback loop to develop a valuable product and build a viable business model. Continuous innovation is a mindset where products and services are designed and delivered to tune them around the customers’ problem and not the technical solution of its founders.
Disruptive innovation as a term was first described by Clayton M. Christensen, an American academic and business consultant whom The Economist called “the most influential management thinker of his time.” Disruptive innovation describes the process by which a product or service takes hold at the bottom of a market and eventually displaces established competitors, products, firms, or alliances.
In a business world driven by technology and digitalization, competition is much more fluid, as innovation becomes a bottom-up approach that can come from anywhere. Thus, making it much harder to define the boundaries of existing markets. Therefore, a proper business competition analysis looks at customer, technology, distribution, and financial model overlaps. While at the same time looking at future potential intersections among industries that in the short-term seem unrelated.
Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the business model. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.
Sociologist E.M Rogers developed the Diffusion of Innovation Theory in 1962 with the premise that with enough time, tech products are adopted by wider society as a whole. People adopting those technologies are divided according to their psychologic profiles in five groups: innovators, early adopters, early majority, late majority, and laggards.
In the TED talk entitled “creative problem-solving in the face of extreme limits” Navi Radjou defined frugal innovation as “the ability to create more economic and social value using fewer resources. Frugal innovation is not about making do; it’s about making things better.” Indian people call it Jugaad, a Hindi word that means finding inexpensive solutions based on existing scarce resources to solve problems smartly.
A consumer brand company like Procter & Gamble (P&G) defines “Constructive Disruption” as: a willingness to change, adapt, and create new trends and technologies that will shape our industry for the future. According to P&G, it moves around four pillars: lean innovation, brand building, supply chain, and digitalization & data analytics.
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).
An innovation funnel is a tool or process ensuring only the best ideas are executed. In a metaphorical sense, the funnel screens innovative ideas for viability so that only the best products, processes, or business models are launched to the market. An innovation funnel provides a framework for the screening and testing of innovative ideas for viability.
Tim Brown, Executive Chair of IDEO, defined design thinking as “a human-centered approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success.” Therefore, desirability, feasibility, and viability are balanced to solve critical problems.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
