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.

Contents

Busting some myths around digital distribution
Dynamic thinking and dynamic markets
Mastering the key customers’ key behaviors
Digital business models
Platform business models
Digital distribution channels
Digital platforms business models
The upcoming era of Superplatforms
Business model innovation
Connected Business Phenomena
- Related

Busting some myths around digital distribution

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.

In the FourWeekMBA interview to David L. Rogers, he explained how:

Across all different industries and across, really about fifteen years or so of the digital era. And what I found was that five 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.

In the FourWeekMBA interview to IBM’s Jerry Cuomo highlighted:

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.

Read Next: Business Model Innovation

In this process of business model innovation, some macro-trends and business forces have been taking place.

Connected Business Phenomena

Vertical vs. Horizontal Integration

Horizontal integration refers to the process of increasing market shares or expanding by integrating at the same level of the supply chain, and within the same industry. Vertical integration happens when a company takes control of more parts of the supply chain, thus covering more parts of it.

Supply Chain

A classic supply chain moves from upstream to downstream, where the raw material is transformed into products, moved through logistics and distributed to final customers. A data supply chain moves in the opposite direction. The raw data is “sourced” from the customer/user. As it moves downstream, it gets processed and refined by proprietary algorithms and stored in data centers.

AI Supply Chain

An AI supply chain starts with the sourcing of data, which is produced by consumers. As this data gets stored on hardware, it goes through a first refinement process via software. Then it’s further refined, and repackaged by algorithms, and stored in data centers, which work as the fulfillment centers.

Backward Chaining

Backward chaining, also called backward integration, describes a process where a company expands to fulfill roles previously held by other businesses further up the supply chain. It is a form of vertical integration where a company owns or controls its suppliers, distributors, or retail locations.

Decoupling

According to the book, Unlocking The Value Chain, Harvard professor Thales Teixeira identified three waves of disruption (unbundling, disintermediation, and decoupling). Decoupling is the third wave (2006-still ongoing) where companies break apart the customer value chain to deliver part of the value, without bearing the costs to sustain the whole value chain.

Entry Strategies

When entering the market, as a startup you can use different approaches. Some of them can be based on the product, distribution, or value. A product approach takes existing alternatives and it offers only the most valuable part of that product. A distribution approach cuts out intermediaries from the market. A value approach offers only the most valuable part of the experience.

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.

Reintermediation

Reintermediation consists in the process of introducing again an intermediary that had previously been cut out from the supply chain. Or perhaps by creating a new intermediary that once didn’t exist. Usually, as a market is redefined, old players get cut out, and new players within the supply chain are born as a result.

Scientific Management

Scientific Management Theory was created by Frederick Winslow Taylor in 1911 as a means of encouraging industrial companies to switch to mass production. With a background in mechanical engineering, he applied engineering principles to workplace productivity on the factory floor. Scientific Management Theory seeks to find the most efficient way of performing a job in the workplace.

Poka-Yoke

Poka-yoke is a Japanese quality control technique developed by former Toyota engineer Shigeo Shingo. Translated as “mistake-proofing”, poka-yoke aims to prevent defects in the manufacturing process that are the result of human error. Poka-yoke is a lean manufacturing technique that ensures that the right conditions exist before a step in the process is executed. This makes it a preventative form of quality control since errors are detected and then rectified before they occur.

Gemba Walk

A Gemba Walk is a fundamental component of lean management. It describes the personal observation of work to learn more about it. Gemba is a Japanese word that loosely translates as “the real place”, or in business, “the place where value is created”. The Gemba Walk as a concept was created by Taiichi Ohno, the father of the Toyota Production System of lean manufacturing. Ohno wanted to encourage management executives to leave their offices and see where the real work happened. This, he hoped, would build relationships between employees with vastly different skillsets and build trust.

Dual Track Agile

Product discovery is a critical part of agile methodologies, as its aim is to ensure that products customers love are built. Product discovery involves learning through a raft of methods, including design thinking, lean start-up, and A/B testing to name a few. Dual Track Agile is an agile methodology containing two separate tracks: the “discovery” track and the “delivery” track.

Scaled Agile

Scaled Agile Lean Development (ScALeD) helps businesses discover a balanced approach to agile transition and scaling questions. The ScALed approach helps businesses successfully respond to change. Inspired by a combination of lean and agile values, ScALed is practitioner-based and can be completed through various agile frameworks and practices.

Kanban Framework

Kanban is a lean manufacturing framework first developed by Toyota in the late 1940s. The Kanban framework is a means of visualizing work as it moves through identifying potential bottlenecks. It does that through a process called just-in-time (JIT) manufacturing to optimize engineering processes, speed up manufacturing products, and improve the go-to-market strategy.

Toyota Production System

The Toyota Production System (TPS) is an early form of lean manufacturing created by auto-manufacturer Toyota. Created by the Toyota Motor Corporation in the 1940s and 50s, the Toyota Production System seeks to manufacture vehicles ordered by customers most quickly and efficiently possible.

Six Sigma

Six Sigma is a data-driven approach and methodology for eliminating errors or defects in a product, service, or process. Six Sigma was developed by Motorola as a management approach based on quality fundamentals in the early 1980s. A decade later, it was popularized by General Electric who estimated that the methodology saved them $12 billion in the first five years of operation.

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