The phrase “digital transformation” has been heard for many years, but 2020 and the needed acceleration of digital change in companies have made it even louder. The market is evolving faster than ever, and customer expectations are rising with it. The digitization of business models must not only be adapted to current realities, but must also anticipate even more accurately what they will be like in the future.
When planning a strategy for the digital transformation of your business, you do not have to – nor should you – invent everything from scratch. It’s best to learn from the mistakes and successes of others, draw conclusions and implement the best solutions in your business. Below are five, at least in my opinion, of the most interesting digital transformation models. In the upcoming series of articles “Digital Transformation Playbook” I will share the advantages and provide examples of their implementation in various industries.
Idea 1: From Product to Service – Transforming your inner core
A very interesting and increasingly popular business model is Product-as-a-Service (PaaS). It allows customers to obtain (purchase) the desired result, rather than the hardware or software that will help them achieve it.
It benefits the customer, who converts large capital expenditures into smaller operating expenses, allowing the cost of a product to be amortized over its life cycle. In addition, the customer does not bear the risk of product failure or responsibility for maintenance, as these elements are usually covered by the service. The service also covers upgrades, so the customer doesn’t have to worry about having outdated hardware somewhere down the line. An example of this is the smartphone market, where as part of a subscription, users have their hardware replaced with the next generation device every year.
PaaS for a manufacturer is essentially a steady stream of revenue that is a much more sustainable business model than larger but less frequent and more uncertain revenue. Additionally, having frequent and regular contact with the customer, the manufacturer has an insight into how their product is used. This allows them to draw conclusions from its operation and more accurately modify and improve the service. Obviously, this brings mutual benefits – the manufacturer has a better and better product, and the customer is even more satisfied with it.
Idea 2: Platform Economy – Disrupting at scale
For many, the Platform Economy, which is used by more and more companies every year, may be the ideal solution. Here, activity is focused on online platforms where independent sellers can offer their goods or services. Firstly, in the last decade we have seen a huge increase in these platforms offered by the world’s largest tycoons. Starting with platforms providing services (e.g. Uber or Airbnb), through products (Amazon) and ending with software (Apple, Google, Microsoft). The platform itself is a powerful distribution tool that allows you to reach a huge number of new and potential customers. This is a great advantage, especially for smaller companies and manufacturers, who previously would not have had enough clout on the market to be able to offer their product or service to, for example, customers on the other side of the world.
In addition to the advantage of distribution, the ability to collect and analyze data is also very important. This allows you to better identify customer needs and improve your product by using data-driven algorithms to achieve better matches between buyer and seller.
Idea 3: Matchmaking Business Model – Fewer Assets, More Profit
The matchmaking model is an ideal solution for medium-sized enterprises whose biggest concern is acquiring an investor, and more specifically their capital. This model allows the company to grow using the customer’s cash, without any form of external financing. It connects buyers with sellers who very often don’t even own what they sell. Thanks to this, they do not have to keep large amounts of cash. Additionally, the model may even give the company what accountants call negative working capital. To a great extent, this means that the company has customers’ cash on hand before it has to produce or pay for the goods or service sold.
Ideal examples of companies based on this business model would be the already mentioned Uber or Airbnb. Airbnb brings together travelers who need a place to stay, with hosts who own a property for rent. The customer can book and pay in advance, but Airbnb does not pay the host until the guest has checked in. During this period, they have the client’s money that they can use for development.
By using client funds and negative equity, you can avoid some early pitfalls of relying on investor money to grow your business. However, it is important to remember that not every business idea can be supported by this model. The connection between the buyer and the seller must be fragmentary. It is important that they do not already have an easy way to connect, so that our company can solve a strong need for both of them.
Idea 4: Connected everything – getting closer to your customers
It is almost impossible not to have heard of the term the Internet of Things (IoT) . Unfortunately, the term has become almost as popular as “digital transformation”. It says everything and nothing at the same time, because most often we don’t focus on the real benefits it brings. What is needed is a broader view of the issue, which the Internet of Everything concept can help with. IoE connects people, processes, data and things to make network connections more relevant and valuable than ever before, turning information into action. This aims to bring customers and businesses even closer together.
In the traditional business model, manufacturers focused on making goods and transferring ownership to the customer, through a sales transaction. The new owner then bore all service and other utility costs. At the same time, he or she bore the risk of product failures and defects not covered under warranty, resulting in costs and operational downtime.
Smart, connected products make it possible to change this long-standing business model. The manufacturer, with access to product data and the ability to predict, mitigate and fix failures, has an unprecedented ability to influence product performance and optimize service. As you can see, this can tie into the PaaS model mentioned earlier.
Idea 5: Cloud Computing – Lowering entry barriers
“Cloud” is another buzzword that comes up when we hear about digital transformation. Cloud computing primarily facilitates cheaper and faster commissioning of the most modern IT architectures in a company. It also allows smaller player for the access to the most advanced systems and solutions which back in the old days were available only for the big companies. Cloud allows for the pay-as-you-grow model which lowers the prior investment and gives a chance to validate business model before major cash spent.
Companies benefit from more scalable resources, while users get a better experience with services or products. Very popular here is the Software as a service (SaaS) model, i.e. delivery of software over the Internet on a subscription basis. With cloud computing, which developers can quickly access and analyze, services are updated and improved more frequently. Of course, users receive these updates as soon as they are released, without having to wait or pay for them.
The cloud-based model has essentially been a game changer when it comes to enterprise software delivery. SaaS providers not only connect users with developers, but also connect employees, partners, customers and devices to a common network – all in real time, giving potentially unlimited data resources.
Moving their services to the cloud, and using cloud solutions from their vendors, is already being embraced by most companies. Last year, the total revenue of cloud services exceeded $250 billion.
As you can see from the ideas above, they all have one thing in common: creating the best possible product/service. The issues presented are of course much more fascinating and complex. In upcoming months, I will focus on each of the ideas separately, digging deeper into their advantages and disadvantages, as well as providing examples of our customers and other companies that have successfully applied them in their businesses.