What’s your digital business model?

A new book by Peter Weill and Stephanie Woerner will challenge the thinking of CIOs and CEOs equally.

The CIOs that I talk to regularly say they believe technology is not the biggest obstacle to crossing the digital chasm. They believe the limiters to success come down to culture, resources, and analog thinking on the part of business leaders.

They stress that CEOs need to understand that someone is out there trying to eat their lunch and that their inaction can lead to business obsolescence. Clearly, disruption is uncomfortable. Real leaders, however, accept the discomfort, questioning old ideas, filter out those based upon internal orthodoxy, and let new ideas blossom. CIOs believe that it is difficult for legacy businesses to reimagine themselves through the lens of market needs, customer experience, competing with analytics, leveraging emerging technology, and driving a collaborative, smarter, and faster organizations. 

In the new book by Peter Weill and Stephanie Woerner entitled “What is Your Digital Business Model”, they claim that no longer can CIOs merely be responsible for back office systems or simply be an ‘order taker’. Success at transformation, they say, depends on a CIO ability to drive their enterprise’s capability to integrate, create a multiproduct, multichannel experience, or a single view of customer or services that couple products with data. This importantly means CIOs need to spend more time with external customers, become obsessive about innovation, and deeply engaged with their executives and counterparts. CIOs, for example, need firsthand knowledge of customer pains so they can determine the integration initiatives that will create a better customer experience.

Digital transformation is about change

Weill and Woerner say that “digital transformation is not about technology—it’s about change. And it is not a matter of if, but a question of when and how. They say that it is time to think of new business models. From the digital economy that’s now upon us, Weill and Woerner claim, many enterprises won’t succeed by merely tweaking the management practices that led to past success. Ian Mitroff said in his book, Crisis Management, that past success often has the seeds of future failure.

Weill and Woerner claim that startups which have different business models and digital capabilities are finding increasingly that they can enter an existing industry with an exciting and new value proposition. For this reason, existing players need to evaluate digital threats, understand the opportunities, and start creating new business options for the future

How big is the risk anyway?

Weill and Woerner share in their book MIT-CISR’s research. It finds that CEOs are estimating that 28 percent of their company’s revenue will be under threat from digital disruption in the next five years—the number is 40% for larger, legacy enterprises. These numbers are scary especially for organizations that are at the later portion of their product lifecycle curves.

According to Weill and Woerner, without a compelling vision for success in a digital economy, “your enterprise will suffer a death of a thousand cuts—a slow and agonizing descent into a world of automation and cost competition while someone else captures the relationship with your customers."

Technology is just the vehicle

Digital transformation, according to Weill and Woerner, is not about digital. Technology is just the vehicle. Their research suggests that digitization is compelling companies to move their business models along two dimensions—1) from controlled value chains to more-complex, network systems, and 2) less familiarity with customer needs and life events to better, closer understanding of them, resulting in superior customer engagement.

They say that CIOs and other business leaders need to answer six questions:

  • Threat: How strong is the digital threat to your business model?
  • Model: Which business model is best for your firm’s future?
  • Advantage: What is your go forward competitive advantages?
  • Connection: How will you use mobile and IoT?
  • Capabilities: Are you buying options for the future or preparing for organizational surgery?
  • Leadership: Do you have the leadership at all levels to make transformation happen?

Your digital business model?

Fundamentally, Weill and Woerner, say digitization is the vehicle for enterprises to create a strong connection with end customers and with other companies and suppliers that you partner with to meet more customer’s needs. With this said, they suggest that you need to select a Digital Business Model (DBM)—a way to play in the language of PWC—in order to move forward.

digital business model Peter Weill and Stephanie Woerner

Supplier

Suppliers compete for prominence with similar products. To win, they must have true product differentiation. They offer the best products for customer needs at a point in time. Products like Tide by Proctor and Gamble win in the marketplace because they are continually improved and are simply better. But in the digital marketing place, these suppliers need, according to Weill and Woerner, great digital content, warranties, and automated ways of updating operating systems.

Omnichannel

These organizations are focused on meeting customers life-event needs and do so by creating real customer intimacy. They are about providing great customer experiences. MIT-CISR research has found that enterprises in the top 1/3 of customer experience had 8.5% higher net profit margins and 7.8% higher revenue growth. Omnichannel companies win on their customer experience. This is clearly a direction forward for healthcare providers.

Ecosystems drivers

Ecosystem Drivers compete by becoming an end-to-end destination. For this reason, they foster relationships with complementary and sometimes even competitive product makers. To do this, they create the ability to plug and play between their products and other products. A great example of this is Microsoft which competes with RedHat as a product vendor but provides end-to-end support for Azure customers choosing RedHat as part of their Azure implementation. Typically, ecosystem drivers use APIs link their internal enterprise systems to the external world. The goal is to be a first-choice destination.

Part of doing this involves creating a customer experience that is best in class and constantly improving. Ecosystem drivers deliver this by using the great data that they collect. These firms need to be world class at all three competitive levers of the digital age. These include winning on content, on customer experience, and on platforms.

Establishing world class platforms requires them to fix the spaghetti like arrangement between systems that hold other legacy businesses back. It is essential that they eliminate expensive and fragile and systems that do not scale. Here, connectivity is the major thing that must be solved.

Modular producer

Modular producers win by their ability to plug and play into everyone else’s digital ecosystem.  They use APIs to make it easy to connect to other enterprises’ digital platforms. A great example of a modular producer is PayPal which has established itself as a payment option across a very large number of ecommerce platforms.

Impacts of mobile and IoT

Weill and Woerner claim that connectivity is the essence of digitization opportunity because it enables new business models. As my friend, Vijay Gurbaxani, says without the iPhone much of our digital innovation would have not have transpired. Weill and Woerner assert mobility promises a level of knowledge sharing that we cannot yet fully begin to fathom and creates new ways to connect enterprises and their customers. They say that mobility innovation falls into four categories.

  1. Brand enhancement: Increasing customer engagement with free services with your brand
  2. Multichannel: Seamless cross-channel experience, better than physical and digital channels alone
  3. Targeted segmentation: Creating unique offering for digital natives
  4. Mobile first: Launch all innovations on the mobile channel

Meanwhile, they assert that IoT changes everything. IoT promises a connected world and new ways to delight customers and make money—engaging customers, suppliers, and partners.

Digital reinvention

The digital economy requires some level of reinvention. Reinvention, say Weill and Woerner, requires a compelling vision that enables an enterprise to offer the best customer experience while also being agile, efficient, innovative, and great places to work for and to do business with. So, what are the capabilities that move a digital business model forward. These include the following:

  • To gather and use great information about customer’s life events
  • To amplify the customer’s voice inside the enterprise—make customer central to what you do
  • To create a culture of evidence based decision making (using customer, operational, market, and social data)
  • To provide integrated, multiproduct, multichannel customer experience
  • To be distinctive and the first-place customers go when a need arise
  • To identify and develop great partnerships and acquisitions
  • To service enable what makes you great via exposed APIs—API enabled business capabilities
  • To take what capabilities make you great—your crown jewels and turn them into digitized services
  • To develop efficiency, security, and compliance competencies

Parting remarks

It seems clear, according to Peter Weill and Stephanie Woerner, that digital transformation in the age of disruption depends on multiple business leaders not just the CIO. There is much to fix in the digital age especially how applications share data and business processes are put together. By fixing these, however, businesses will establish the basis for a continuing right to win.

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