How do you design a digital business model? This is a big question for many companies that want to become digital enterprises.
SAP employees Uwe Riss, senior researcher, and Marco Cigaina, Service Innovation program manager, set up a systematic approach that focuses on the power of digital technology to generate value.
Q: Digitalization is the key in 2016 for companies to stay state of the art. Why is it so important to digitize companies?
Cigaina: Digitalization is increasingly important for the economy and society at large. There are recent studies showing that companies that are more mature in their adoption of digital computing technologies have better performance in revenue, profitability, and market capitalization. An even more severe implication is that entire industries might be disrupted because industry boundaries are getting blurred or digital industry absorbs other industries. That was one of the starting points for us to focus on digitalization.
Q: What is new?
Riss: We have done digitization for many decades at SAP. The past technology was more a driver for internal business process optimization, but didn’t fundamentally affect the business model as a whole, such as customer experience. Now we see a profound change in how customers interact with companies through technology, for example, using social media. Technology has become an integral part of everybody’s daily life and is pushing the front line of business towards the customer.
Q: What are major implications of digitalization for a company today?
Cigaina: We can start from the classical value disciplines: solution leadership, customer intimacy, and operational excellence. Digitalization affects solution leadership because it gives you the opportunity to move products to services; it affects customer intimacy by connecting you to your customer; and it makes information the core of operational excellence.
Q: What does Digital Business Modeling mean?
Cigaina: It is the ability to represent, analyze, and design the way an organization creates, delivers, and captures value based on digital computing technologies. On the business side, there are established approaches to describe the business model, such as the Business Model Canvas. On the technological side, we wanted to create a similar minimalistic but semantically rich approach to describe digital capabilities, called digital key elements. We gave a special meaning for each of these key elements: people, cloud, business, data, and things.
We created a unified model, combining the two dimensions: the business model components and the digital key elements. For each combination, which we called a digital value driver, we described the impact and value of individual digital key elements on each business model component.
This leads to a structured design space for digital business that allows you to systematically explore how your company can leverage digitalization to create business value. We explained each digital value driver by characterization, examples, and key questions.
Q: How can this actually be applied in practice?
Riss: The approach helps technical and business experts to carry on a meaningful conversation about the value of digitalization for business innovation. It establishes a common language required in design thinking workshops for digital transformation. At SAP we have a proven approach for business model innovation, called BMDI: You start with an analysis of the current business model, continue with an ideation phase where you come up with new ideas, test, and validate assumptions – which finally leads to an innovative business model design. The digital business model approach adds the digital dimension to BMDI and points to a variety of directions to digitalize business. This creates a spectrum of opportunities from which one can choose.
Q: Is there a difference in digitization for SMEs in contrast to larger companies?
Riss: Our approach works for both, but the opportunities might be different. Leveraging digitalization, SMEs can make better use of their flexibility, enter markets more easily, and compete globally. Large companies gain new opportunities in terms of coordinating and integrating heterogeneous ecosystems of business partners.
Q: Does it affect various industries differently?
Cigaina: Basically, all industries are affected; some have better preconditions because information processing already plays an important role in their business. Nevertheless, our approach reveals the common principles across all industries.
Q: When you look at the benefits – what are the main benefits of digitalization for customers?
Riss: Digitalization takes customer-centricity to the next level. If you see the new opportunities the individual customer gets – using Internet services such as Uber or search services provided by Google – you realize that they get more information to make faster and better choices, and get better integrated and more convenient solutions.
To learn more, download the whitepaper: Digital Business Modeling.
For more information about Digital Business Canvas, visit www.businessmodelgeneration.com.
Top image via Shutterstock