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Digital Transformation: Definition, Mindset, And Principles
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 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.
In this process of business model innovation, some macro-trends and business forces have been taking place.
Disintermediation
Disintermediation is the process in which intermediaries are removed from the supply chain, so that the middlemen who get cut out, make the market overall more accessible and transparent to the final customers. Therefore, in theory, the supply chain gets more efficient and, all in all can produce products that customers want.
Unbundling
Unbundling is a business process where a series of products or blocks inside a value chain are broken down to provide better value by removing the parts of the value chain that are less valuable to consumers and keep those that in a period in time consumers value the most.
Customer obsession
Customer obsession goes beyond quantitative and qualitative data about customers, and it moves around customers’ feedback to gather valuable insights. Those insights start by the entrepreneur’s wandering process, driven by hunch, gut, intuition, curiosity, and a builder mindset. The product discovery moves around a building, reworking, experimenting, and iterating loop.
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