For decades the deployment of information and communication technology (ICT) in business contexts and the subsequent exploitation of its efficiency-driving capabilities have transformed and sometimes revolutionised business models.[1] ICT has driven completely new products and services into the market, as well as enabling increasingly automated operating models. Enterprises have greatly leveraged ICT to gain a competitive advantage.[2]
In recent years, the notion of a digital business has emerged.[3]
Radically game-changing developments have enabled the digitalisation of businesses, usually creating nothing less than their comprehensive transformation.
Powerful ICT has become available to a broad range of individuals and enterprises at dramatically reduced cost, as highlighted by the uptake of access to the Internet, personal computers, mobile connectivity and smartphones across geographies and segments of society.[4]
The digital revolution has driven ‘New Thinking’ in customers, partners and employees; it has also brought about the need for enterprises to embrace such New Thinking, offering significant market advantages to those that embrace it. We only need to look at how we plan and book our travel these days, how we handle our banking needs, communicate with family members, order taxis, or get our news. Similarly, look at how quickly new enterprises can be established nowadays, consider the revolution in logistics and delivery services, and the fine-grain division of travel industry and financial services value chains.
This pervasive availability of powerful and easily accessible technology drives new products and subsequently new business models.
In addition, these developments have changed the very rules of doing business:
- Scale effects are enormous, leading to a ‘winner-takes-all’ effect.[5]
- Barriers to enter a market and compete with incumbents are vanishing.
- Businesses are becoming inherently globalised from the outset.
- Radically novel ecosystems of enterprises are appearing, as are powerful communities of customers.
Furthermore, the speed of innovation among businesses, mirroring that of technology, has transcended everything we have experienced in the past. In such a context, enterprises are forced to develop the ability to rapidly transform themselves so as to stay competitive. Organisational flexibility and the proverbial lifelong learning of employees are just two of the necessary capabilities that need to be developed in such a fast-paced environment. The new technologies help businesses automate existing internal processes and augment products and services with new online features, an extension of the historic development of ICT-enabled business models.
The sheer speed and comprehensiveness of technological advances are, however, on their own insufficient to drive the fundamental change of business models we can observe today.
Something else has happened and continues to happen: the fact that access to new ICT solutions in society at large, as well as in business, has become ubiquitous, with their usability significantly enhanced. This development creates a fundamentally new context in which enterprises can transform their business models with the effective use of ICT. The digitalisation of business becomes a reality.
Broad segments of society can now master new (digital) technologies. And beyond this, customers now even expect businesses to adapt the way they interact with them so that they can benefit from the enhanced functionality offered by ICT and a new convenience of interaction. Businesses have to adapt to become customer-centric, responding to the seismic shift in customers’ expectations. Historically, enterprises have designed products and services based upon their understanding of the customer and then driven such new offerings into the markets.
Now, in reverse, customers design the product by specifying its features and then look for enterprises that can fulfil their needs. Technology has truly empowered customers.
As a consequence, the enterprise’s innovation of products and services must even more radically focus on the customer. To grasp the true innovation potential, businesses have to abstract the customers’ wants to arrive at their needs, and derive ways of meeting those needs at higher satisfaction levels. Design Thinking is an approach to assure this.[6]
Enterprises must face up to this challenge and strive to meet their customers’ new expectations. Meeting this challenge is not a ‘nice-to-have’ – enterprises are fighting for their very survival: ‘If you don’t disrupt yourself, someone else will.’
All of the above holds for B2C (business to consumer) as well as B2B (business to business) business models. B2B enterprises must understand their customers’ moves towards becoming digital in order to successfully shape their own digitalisation moves.
As a final remark, it is important to understand that business digitalisation can take place at various scales. We can define a range of approaches to digitalisation, from the provision of digitally enhanced but typically classical products and services – a ‘digitalised as-is business model’ – all the way up to a fully digital transformation of the business, supporting radically new products and services. The latter, of course, requires a comprehensive transformation of the enterprise’s business model.
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[1] Kramer, W. J., Jenkins, B., Katz, R. S.: ‘The Role of the Information and Communications Technology Sector in Expanding Economic Opportunity’, The Fellows of Harvard College, 2007.
[2] Bughin, J., Chui, M., Manyika, J.: ‘An executive’s guide to the Internet of Things’, McKinsey Quarterly, 2015.
[3] Dörner, K., Edelmann, D.: ‘What “digital” really means’, McKinsey, 2015.
[4] Wirtz, B. W.: ‘Electronic Business’, 5th ed., Springer Gabler, 2016.
[5] Campbell, D., Hulme, R.: ‘The winner-takes-all economy’, McKinsey Quarterly, No.1, pp. 82-93, 2001.
[6] Uebernickel, F., Brenner, W., Naef, T., Pukall, B., Schindlholzer, B.: ‘Design Thinking – Das Handbuch’, Frankfurter Allgemeine Buch, 2015.
