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On Becoming Digital, Pt. 1: The Business Models

On Becoming Digital, Pt. 1: The Business Models

The digital revolution fuelled by rapidly changing technologies and customer behaviour is disrupting virtually every industry. We discuss the successes and challenges across three categories of businesses ranging from digital natives to legacy enterprises.

Firstly, we are seeing new entrants disrupting traditional businesses with new business models and enabling technologies (e.g. Airbnb, Amazon, Uber, etc.). Secondly, we see traditional businesses leveraging new technologies to differentiate what they do and how they do it. And thirdly, we are witnessing an increase in industries from one business domain using digital capabilities to move into other domains.

Becoming “digital” is no longer a choice, it is mandatory. The question is how and when. This is being driven by the sea change in customer behaviour which is in turn driven by the rapidly changing technology landscape. Becoming digital is however not about just adopting new technologies but embracing transformation driven by a need to offer customers a breakthrough customer experience.

Digital transformation is not simply about technology. Technologies like mobile, online, social, etc. enable change but it is each business that determines how such technology enablers can be leveraged to gain competitive advantage. The key is to integrate these technology enablers into the business model to offer the customer a compelling value proposition. The ultimate game is all about knowing the customer and engaging the customer.

Figure 1: The Magic Quadrant
Becoming Digital Figure 1

The Magic Quadrant was created using “Knowledge about Customers” as the x-axis and “Ability to Engage Customers” as the Y-axis. This is a simple framework to understand where we are today and what can be done using technology enablers to transform any business.

Quadrant 1: General Suppliers
These businesses sell through specific channels and operate in price-sensitive markets. Managing the cost of production and distribution is the key to survival. These businesses often operate via indirect channels (e.g. white goods manufacturers via retailers or home loan finance via brokers) and accordingly generally have poor knowledge of their end customers

Quadrant 2: Specialist Suppliers
These are businesses that sell through many channels and have technologies to onboard new channels rapidly while operating in price-sensitive markets. Specialisation and continuous innovation are the keys to survival. Well-developed ecosystems and plug-and-play platforms (e.g. payment gateways like Paypal, SMS marketers like VidCorp, and Loyalty Systems like BingBuy) ensure that the market for such companies as huge as they can work through any reseller channel.

Quadrant 3: Value Chains
These are businesses that offer customers a single integrated value chain with multiple channels of access. The focus is on owning the customer and the product/services. These businesses focus on delivering multiple products and services while providing the customer with a choice from a menu card (e.g. financial institutions, large retailers, and utilities).

Quadrant 4: Ecosystems
These are businesses that become “destinations” for regular engagement with the customers as they deliver great customer experiences driven by a comprehensive range of products and services. Such businesses obtain customer data from every engagement and deploy technologies that match their customer needs with the most appropriate products or services (e.g. Amazon, Facebook, Google, Netflix, WeChat, etc.).

Technologies provide the necessary capabilities in two dimensions. They harness and analyse data to facilitate knowledge-based businesses in the first dimension and improve the quality of end-customer engagement in the second dimension. As a result, even businesses that sell through intermediaries can transform from plain B2B business into an innovative knowledge-based business that can harness the potential of B2B2C business models.

Therefore, to gain a competitive advantage through effective digital transformation all businesses should endeavour to position themselves to the right and above their competitors. Continuous digital transformation is required to create, develop, and maintain strong connections with end customers (moving up). Partnerships with other businesses offering complementary products and services are required to expand markets and maintain profitability (moving right). Three capabilities will define the winners:

  • Ability to create and deliver engaging content;
  • Ability to monitor and track customer experience; and
  • Capabilities and flexibility of digital platforms employed.

In the remainder of this series, we will showcase how businesses in various sectors can leverage digitization to gain a competitive advantage.

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