SUMMARY ON DIGITAL TRANSFORMATION: CREATING NEW BUSINESS MODELS WHERE DIGITAL MEETS PHYSICAL

Introduction

Businesses in every industry are under intense pressure to rethink their customer value propositions and operations. Yet few, if any, offerings and operations will ever be entirely digitized: buildings and servers, as well as customers and employees, will always have physical requirements. Physical and digital processes need to be managed together without alienating customers and creating unnecessary levels of complexity. Integrating new and traditional operations will require evaluating the impact on customers of every business decision and every interaction (Saul and Ragna 2011).

Digital transformation, individuals and businesses alike are embracing the digital revolution. In fact, social networks and digital devices are being used to engage government, businesses and civil society, as well as friends and family. People are using mobile, interactive tools to determine who to trust, where to go and what to buy. At the same time, businesses are undertaking their own digital transformations, rethinking what customers value most and creating operating models that take advantage of what’s newly possible for competitive differentiation. The challenge for business is how fast and how far to go on the path to digital transformation.

The new digital age: In every industry, business leaders realize customer expectations have created tremendous pressure to change the way they set their strategies and run their organizations. Yet, because they have to manage existing, often traditional, offerings and operations, new requirements to incorporate information and interactivity quickly drive up costs and complexity. For example, the IBM 2010 Global Chief Executive Officer study found complexity, in fact, to be the biggest challenge facing Chief Executive Officers today.

However, the ability for technology to mitigate complexity was also clear: technology was second only to market factors as a force for change. This digital transformation study explores the opportunities and challenges arising when business and operating models that leverage information, customer and partner interactivity need to be integrated into existing organizational capabilities. Business leaders have long used information technology to improve productivity and efficiency, reach new markets and optimize supply chains. What is new is that customer expectations have also changed. People everywhere are using social networks to find jobs and restaurants, lost friends and new partners and, as citizens, to achieve common political goals. They are using the Internet for entertainment, shopping, socializing and household management.

Companies must have cohesive strategy for integrating digital and physical elements for successfully transform their business models and set new directions for entire industries. Those companies that will focus on two complementary activities: reshaping customer value propositions and transforming operating models using digital technologies for greater customer interaction and collaboration. To do so, they will build a new set of capabilities that will allow them to progress along both dimensions.

Shifting global connectivity and customer empowerment drive digital transformation:

The focus and impact of the Internet and global connectivity have shifted. In the 1990s, only organizations in select industries such as music, entertainment and electronics were exploring digital products and services. Infrastructure providers took the lead in building out the information backbone to improve efficiency and productivity across specific functions finance, supply chain, human resources. The Internet hype of the late 1990s ended with a crash in 2000.

Yet consumer demand for digital products and services continued to evolve. As customers became increasingly empowered based on pervasive access to online information, along with a multiplicity of choices and channels, their expectations ratcheted skyward. As a result, customers have now become the primary force behind digital transformation in all industries. While, in 2010’s Digital transformation of business models focus on: mobile revolution, social media, “hyper digitization” and Power of analytics (Saul and Ragna 2011).

Paths to digital transformation: Path 1, create and integrate digital operations first. Then address the customer value proposition to achieve full transformation. Path 2 enhances, extend or reshape the customer value proposition with digital content, insight and engagement. Then focus on integrating digital operations. Path 3, build a new set of capabilities around the transformed customer value proposition and operating model in lock-step.

Forces for business change, chief among forces for transformation are the surge in devices for mobile connectivity, such as smart phones and tablets, and the creation of social networks, such as Face book and Twitter. Both of these developments are creating an exponential explosion in data, which, in turn, requires business analytics to make sense of the information and take full advantage of it.

Social networking is growing up: With 2 billion people connected to the Internet, social media is quickly becoming the primary means for communication and collaboration.  Young people may have spearheaded the changes, but people of all ages have joined the virtual revolution: This shows that 89 percent of the millennial generations use social networking sites, but so do 72 percent of baby boomers. And the gap is closing (Saul and Ragna 2011).

The scale of social media impact can be staggering; real-time information amplifies the network effect. For example, when Michelle Obama makes a public appearance, her fashion choices are relayed instantaneously by fashion bloggers who compete to identify the sources of her shoes, dresses and accessories. These blogs include links to stores and designers that sell those items. The First Lady’s economic impact on the fashion industry has been calculated at 2 percent per day in stock valuations of clothing companies associated with her (Saul and Ragna 2011).

Over a year, stock appreciation came to $2.7 billion for the 29 companies tracked, or $14 million for each of her 189 public appearances. For today’s digital native, waiting by a phone for a call is as puzzling a concept as a rotary dialer. Conversely, a time traveller from the 1970’s would find it challenging to assimilate today’s continuous flow of digital activity and data. As much information is now being generated every two days, according to former Google Chief Executive Officer Eric Schmidt, as existed between the dawn of civilization and 2003.8 Demand for video, as well as constant connectivity, is expected to double the amount of mobile data traffic every year through 2014.

Value proposition focus

Conclusion, the path to digital transformation will vary by industry, as will customer adoption and an organization’s legacy environment. However, every industry is under pressure to change, and every organization needs to have a plan in place. Those that do not take advantage of the new digital age may drastically limit opportunities for future success. Those that are able to overcome the challenge of optimizing both physical and digital elements by implementing new business models based on customer demand can win first choice of talent, partners and resources. As industry leaders, they have the opportunity to distance themselves from new and existing competitors (Saul and Ragna 2011).

 ..........................................prepared by Syekeye Mathayo M .................................