What is Digital Business and Digital Transformation?

My first step in looking at an existing business through a digital lens is to ask two questions about how a startup might disrupt it by creating a competing digital business.  A startup does not have sunk investments, legacy thinking, and existing practices that need to transform so if you can "blue sky" what would a startup do you should get some insights on what you need to become through a digital transformation. Digital transformation are the steps an existing "analog" business must perform across multiple domains in order to be a more competitive "digital" business.

What is Digital Business?


Before looking at digital transformation, it's worth considering how some of the experts define digital business.  "Digital business is about the creation of new business designs by blurring the physical and digital world" says Jorge Lopez of Gartner. One thinks about digital supply chain management, context aware mobile experiences, and IoT using Gartner's definition.

"You must think of your company as part of a dynamic ecosystem of value that connects digital resources inside and outside the company to create value for customers" says Nigel Fenwick of Forrester. While this definition also conjures images of supply chain, Nigel's more critical point is that digital business must, "deliver a greater share of value to customers" in order to be competitive. In other words, customer experience and the value customers perceive through your channel must win a disproportionate market share versus direct and indirect alternatives.

Digital Business Disruption


This might be too abstract for some, so let's look at some example attributes of digital businesses
  • Digital businesses drives recurring revenue, often through subscription. Think Amazon Prime vs. buying goods/services through an ecommerce channel.
  • The most successful digital businesses are asset-light. Think Uber and AirBNB that market and sell services owned by individuals.
  • Algorithm driven experiences can "deliver a greater share of value". Think Waze with traffic routes based on traffic patterns and social clues delivered via your phone versus the Garmin GPS that we all had in our cars just a few years ago.
  • Digital disruptions can radically alter cost structures and price points. Think Etsy, Amazon Handmade, Craigslist, Zillow, LinkedIn, Monster, Autotrader, Cars.com and many other sites that decimated the newspaper classified ad business
  • Digital business leverage new digital tools to raise the competitive table stakes. They enhance multi-channel customer experiences, engage workers to capture ideas, and automate production steps to improve quality.
  • IoT Sensors integrated with cloud data capture platforms like Amazon IoT help connect the physical to digital worlds. Not only is this a new source of competitive real time data, it is also a channel to provide additional context and intelligence to customer experiences. MIT calls this "Digital Ubiquity".

These examples hopefully illustrate the need to transform businesses and analog products and services to digitally driven experiences. If you consider just these examples - and there are many others - traditional businesses will face mounting pressure when competitors leverage digital competitors to a strategic advantage. What's more is that it is likely that multiple competitors will emerge applying these digital capabilities in different innovative ways and when that happens it creates new industry dynamics.

Digital Transformation is an Evolution


So my conclusion is that Digital Transformation is a necessity to stay competitive. It's not a one time transformation but a continuous evolution with milestones leading to an unknown ending. It needs ongoing funding, new talent, time to think and learn, experimentation, new ways to work collaboratively, and a culture of questioning, measurement and prioritization.

So now that I've answered the What and Why, my next posts will go into the How.   




1 comment:

  1. Could you provide 3 pro's and 3 con's of a digital transformation strategy? In a general census and not a specific set of circumstances.
    From my research, no one wants to weigh in on the cons.

    ReplyDelete

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