On May 2018, an interesting new book was published on the exciting topic of digital transformation: “What’s Your Digital Business Model? Six Questions to Help You Build the Next-Generation Enterprise.” The authors are two researchers from MIT’s CISR (Center of Information Systems Research): Prof. Peter Weill and Dr. Stephanie Woerner.
On the innovation@work blog of the MIT Management Executive Education, Prof. Weil presents the six questions, detailed in the book.
Raz Heiferman & Prof. Yesha Sivan present the six questions shortly – issues discussed quite in detail in their Hebrew e-book “Doing Digital.”
Question #1: How big is the digital threat and opportunity? Prof. Weill explains that organizations should ask themselves what percent of revenue would they lose if the organization didn’t change anything in the next five years. MIT CISR recent research showed the average loss of revenue for most companies would be 28%—jumping to 46% for companies in the $7 billion-and-up revenue range. To illustrate, Prof. Weill shared the example of WeChat, a digitized social platform used frequently in China to perform daily activities (like buying food, banking, travel, renting an apartment) and how it’s challenging conventional banks. Prof. Weill pointed out that these types of digitally-born companies are a “massive threat to the financial services industry” and could force the bank to become a commodity back-end service provider while WeChat and others capture the relationship with the customer.
In their e-book Heiferman and Sivan discuss, quite heavily, the risk of disruption and present the concept of Digital Darwinism (Chapter 3). Like in Biology, organizations which are digital immigrants (companies born before the digital era), will face strong competition from companies named digital natives (companies born in the digital era). MIT’s research shows how significant this risk will become if digital immigrants organizations don’t embark quickly on the digital journey and start to transform themselves into digital businesses.
Question #2: Which business model is best for your enterprise? To illustrate this question, Prof. Weill told the Aetna story. The insurance giant has made a strategic, broad shift in its business model, changing from insurance provider to a company that “helps build a healthier world.” Aetna’s goal is to create an Amazon-like experience and become a destination for its customers.
In their e-book Heiferman and Sivan discuss (Chapters 3 and 5) the concept of the need to transform the business models due to the risk of disruption. Chapter 6 in the book “Doing Digital” is fully devoted to the topic of business models, digital business models and business model innovation (BMI). They emphasize the need of organizations to create their future by using digital technologies to rethink their business models and transform them into innovative digital business models suited for the digital era.
Question #3: What is your digital competitive advantage? Prof. Weill posits that there are three sources of competitive advantage: content (what is consumed by customer), experience (how it is packaged), and platform (how it is delivered). To discover its competitive advantage an organization should determine if they are great—relative to all competitors—at one, two, or all three of these capabilities. Prof. Weill adds most companies that were “born” pre-digital may be great at only one of the three and should start digitally transforming that one capability, and then tackle the other two. However, he says, some companies (say who answered 50% or above to question #1) can’t wait and need to act quickly on all three. “The more you need to be world class, the higher the risk for your transformation not working. Or, the more organizational change and partnering you’ll need to do to create a competitive advantage.”
In their e-book Heiferman & Sivan discuss, in Chapter 6, the topic of digital business models and provide a detailed description of the three sources of competitive advantage. This chapter is based on their previous article “Optimizing Your Digital Business Model” published in 2012. Those three new sources of competitive advantage in the digital era should be discussed and extended to meet the customer’s expectations.
Question #4: How do we use the technology we have to connect all of the other technologies? Digital technology is fundamentally about connectivity – linking the customer and the company to meet more of the customer’s needs. For example, providers are battling to become the GoTo source of added value services to the home – whether it is digital lighting, cameras, locks, entertainment, environmental, or all of these together. Weill says the big question is: Who are you going to trust with your data and to help you to manage your home? The goal of these providers is to be the single GoTo entity that manages all the others.
In Chapter 2 of their e-book, Heiferman & Sivan provide examples of some innovative digital technologies that organizations must consider to implement. Some of these technologies can improve the customer experience dramatically (e.g., artificial intelligence, big data analytics, chatbots, RPA, and much more). Organizations must understand that their current digital state (what we call digital transformation 1.0) will not be enough to compete in the new era. They must move to digital transformation 2.0, as explained in Chapter 2.
Question #5: Do you have the crucial capabilities to reinvent your enterprise? Prof. Weill says this is a difficult question to answer and shares the example of DBS, a Singapore-based bank, which has made a remarkable digital transformation. By focusing on the three capabilities in question #3, DBS was able to improve the customer experience significantly and was awarded “the best bank in the world for 2018” by Global Finance magazine. “DBS is becoming digital to the core. It has automated many processes, encouraged and enabled people to innovate, and moved heavily into the cloud.” Prof. Weill says the bank’s goal is to make banking more fun for customers. DBS has made it much easier for customers to conduct business with the bank, saving more than 250 million customer hours and one million employee hours. DBS has also embraced new ways of digitally inspired thinking, including a partnership that offers banking services at cafés throughout India attracting more than 1 million customers in the first year.
In their e-book, Heiferman & Sivan devote Chapter 5 to innovation and they stress the importance of companies to implement innovation as a new organizational skill. The companies have to introduce innovation processes and make sure that innovation becomes part of their DNA. This chapter discusses Design Thinking and Blue Ocean as vehicles to promote innovation.
Question #6: Do you have the leadership to make transformation happen? This is perhaps the most difficult question, says Weill. As an example, he mentions BBVA, a Spanish-based bank that operates globally. By answering and acting on these six questions, the bank has made a massive digital transformation with strong results. Today, it is #1 in customer experience in its eight-core markets and digital accounts for 36% of all products and services sold. Digital transformation requires a strong vision with leadership often making hard decisions. The leaders must get the entire organization, including every person, onboard. Every employee has to play a role in the new digitally transformed enterprise. Most important, they need to feel like part of the team and believe that their contributions matter.
In their e-book, Heiferman & Sivan devoted several chapters to discuss this important issue (Chapters 13, 14 and 15). The question of leadership is one of the most important questions and challenges of digital transformation. There is no one model of who should lead the journey and what are her or his skills and characteristics. At the end of the day, the transformation challenge is an issue of people and not a technological one. The examples given by Prof. Weill are indeed examples of organizations that the CEOs understood the challenge and the importance and were heavily involved in defining the vision, leading the journey and making sure that this transformation is one of the most critical challenges of the organization for future success. And they did it! DBS and BBVA are a showcase of digital transformation.
We hope that your organization understands the above six questions and have the right answers. Good luck!