How a great Business Model is superior to technology for digital transformation


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Smart company leaders learn from their mistakes. Winning company leaders learn from the mistakes of others. It would definitely be worth your time to take a step back right now and get some perspective on what digital transformation is doing to the industry around you and review what kind of strategies have worked for companies facing similar challenges. One thing that hasn’t worked is simply relying too heavily on digital technology itself to ensure business continuity, such as “What we need is a new app,” or “Let’s make a new website!”

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The coolness factor of new technology can blind you to the reality that your company’s core business models are outdated. In that case, there’s a fair chance that you could join the club of many other companies that watched in perplexed silence as their market share seeped away into new entrants with more modern, agile business models.

To see why, let’s look at the numbers.

The Danger of Caution

MIT Sloan review published a survey of thousands of C-Suite executives about how they responded to digital transformation in their industries. The researchers concluded “Winners tend to respond to digitization by changing their corporate strategies significantly. This makes intuitive sense: many digital disruptions require fundamental changes to business models.”

Laggards and those who lost market share under pressure from digitization, were those who tended to shy away from making any big changes, like reviewing the solvency of their business models against new digital-first competitors. It’s understandable why this unfortunate company leaders reacted cautiously when share of digital revenues was below 40 percent in any given industry, but they badly misjudged how close they were to their industry’s tipping point. Less than 10 percent of incumbent industry leaders took the time to reevaluate aging business models before more agile players had already taken 15 percent of the market.

It’s worth noting here that you don’t have to be first to be a market winner. Fast followers ranked in the top 25 percent of their industries and exposed the company to lower risks, with correspondingly lower revenues. Within the category of fast followers, excellence in execution became the differentiator of success.

A Stationary Business Model in a Mobile World

The underlying reason why these numbers line up is because life for buyers has changed dramatically over the past decade or so. If your business is more than 10 years old, your market analysis was designed before smartphones and ubiquitous connectivity redefined how people make decisions and purchases. If your business is more than five years old, you couldn’t have factored in a world where IBM develops blockchain as a service (BaaS) and half of all US consumers have voice assistants.

Harvard Business Review’s analysis of successful digital transformers found that they shared a few essential characteristics. The key takeaway here was, “A digital platform, or a digital solution, may enable a new epoch of transformative growth, but when you get under a company’s hood and look to see what’s really driving it, the engine of transformation turns out to be its business model.”

What that means is that any successful digital transformation project begins with a clean slate investigation of what customers need now. This includes new research on:

-Your customer value proposition (CVP) – this is how help customers succeed what they need to get done. Your CVP grows as you address a greater pain point, solve it more completely than competitors, and do it with lower costs.

-Your profit formula – the breakdown of where value is created for your company as you build your CVP. Take a closer look at turning the dials on revenues, supply chain costs, margins, and time to market. Partnerships and digital ecosystems matter most here because no one company can excel at everything.

-Your key resources – this is all of everything you have in your control to make the above happen. Do a thorough inventory of the skills, technologies, channels and brand assets you bring to the job.

-Your key processes – this is the where you take a closer look at productive capacity vs. realization and examine if you have the best management style to achieve your objectives. Each type of innovative project thrives under a different style of management and collaborative environment. Test and benchmark how you are doing what you are doing to see better performance results.

The Garden of Forking Paths

Recognizing the need for digital transformation to stay competitive is the first step. The fact that you are already there puts you ahead of many competitors who won’t be competitors for long. The next step is to get a better view of the two paths that lie ahead – one where you can see companies that tried to digital transform too late (see Borders Books, Compaq, and ToysRUs) and the other where there are companies that made it through (like PayPal, YouTube, and Phillips) by upgrading their business model in response to an entirely different business landscape. It takes just the right blend of strategy, design, and technology services to innovate, grow and delight the next generation of customers. Unfortunately, that’s not something your company will be able to find in the app store.

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