Digital business & Transformation book summary
Chapter 1: Five domains of digital transformation – customers, competition, data,
innovation, value
Many companies born before the arrival of the internet have been disrupted – wiped out by
the irrefutable logic of the digital revolution.
- Old business models become invalidated.
- The “dinosaur” business gets wiped out because it is inflexible and unable to adapt.
Encyclopaedia Britannica (the definitive reference resource in English before the rise of the
internet), however, understood that customers’ behaviours were changing dramatically with
the adaption of new technologies.
- Instead of trying to defend the old business model, they sought to understand the
needs of their core customers (home users and educational institutions).
- Britannica maintained a focus on its core mission: editorial quality and educational
service.
• They not only changed to a purely online subscription model, but also developed
new and related product offerings to meet the evolving needs for classroom
curricula and learning.
→ When they stopped publishing the original copied encyclopaedia, the sales of it
represented only about 1% of their business.
Overcoming your digital blind spots
- Both digital-born businesses and digital adopters (like Britannica) should recognise
the possibilities created by digital technologies.
- Both should see that the constraints of the pre-digital era have vanished, making new
business models, new revenue streams, and new sources of competitive advantage
not only possible but also cheaper, faster, and more customer-centric than ever
before.
• Just like how electrification was transformative because it changed the
fundamental constraints of manufacturing (such as location-bound constraints
due to the necessity of water for waterwheels for instance).
Five domains of strategy that digital is changing
The impact of digital is even bigger than the impact of electricity, because it changes the
constraints under which practically every domain of business operates.
1) Customers:
- Previously
• Customers were seen as aggregate actors to be marketed to and to be persuaded
to buy.
• Focus on achieving efficiencies of scale through mass production (make one
product to serve as many customers as possible) and mass communication
(consistent message and medium to reach and persuade as many customers as
possible).
,- In the digital age
• Customer networks instead of mass markets: customers are dynamically
connected and interacting in ways that are changing their relationship to business
and to each other.
• Digital tools change how they discover, evaluate, purchase, and use products and
how they share, interact, and stay connected with brand.
- This forces businesses to rethink their traditional marketing strategies. Rather than
seeing customers only as targets for selling, businesses need to recognise that a
dynamic, networked customer may just be the best focus group/innovation partner.
2) Competition
- Traditionally: Businesses competed with rival businesses that looked very much like
themselves, and they cooperated with supply chain partners who distributed their
goods or provided inputs.
- In the digital age
• A world of fluid industry boundaries, where our biggest challenger might be
asymmetric competitors – companies from outside our industry that look
nothing like us but that offer competing value to our customers.
• Digital disintermediation: our long-time business partner may become our
biggest competitor if that partner starts serving our customers directly.
• At the same time, we may need to cooperate with a direct rival due to
interdependent business models or mutual challenges from outside our industry.
- So, rather than a zero-sum battle between similar rivals, competition is a jockeying
for influence between firms with different business models, each seeking to gain
more leverage in serving the ultimate consumer.
3) Data
- Compared to before, data is no longer generated through systematic planning like a
market survey.
- Instead, due to social media, mobile devices, and sensors on every object in a
company’s supply chain, there is now access to a river of unstructured data that is
generated without planning and that can increasingly be utilised with new analytical
tools.
• Big data: allows firms to make new kinds of predictions, uncover unexpected
patterns, and unlock new sources of value.
- Data is a vital part of how every business operates, differentiates itself in the market,
and generates new value.
4) Innovation: the process by which new ideas are developed, tested, and brought to
the market by businesses.
- Traditionally
• Innovation managed with a singular focus on the finished product.
• Most decisions on new innovations were based on the analysis and intuition of
managers because market testing was difficult and costly.
• Cost of failure was high, so avoiding failure was paramount
, - In the digital age
• Digital technologies can enable a very different approach to innovation, based on
continuous learning through rapid experimentation.
• Digital technologies make it easier and faster than ever to test ideas → market
feedback from the beginning of the innovation process all the way through to
after the market launch.
5) Value: the value a business delivers to its customers is given in its value proposition
- Traditionally
• Value proposition was seen as constant: basic value a business offered to its
customers was assumed to be constant and defined by its industry.
➢ E.g., car companies offer transportation, status, comfort, and safety.
• A successful business had a clear value proposition, found a point of market
differentiation (e.g., price or branding), and delivered the best version of the
same value proposition to its customers year after year.
- In the digital age
• Relying on an unchanging value proposition is inviting challenge and eventual
disruption by new competitors.
• The only sure response to a shifting business environment is constant evolution
to improve our value proposition to our customers.
• Don’t wait to adapt when change becomes a matter. Rather, seize emerging
opportunities and adapt early to stay ahead of the curve of change.
A playbook for digital transformation
- Digital transformation playbook = the five strategic themes related to the five
domains described above can guide you by revealing how the constraints of your
traditional strategy are changing and how opportunities are opening up to build your
business in new ways.
Domains Strategic themes Key concepts
• Reinvented marketing funnel
1.Customers (Ch.2) Harness customer networks • Path to purchase
• Core behaviours of customer
networks
• Platform business models
2.Competition (Ch. 3) Build platforms, not just products • (in)direct network effects
• (dis)intermediation
• Competitive value trains
• Templates of data value
3.Data (Ch. 4) Turn data into assets • Drivers of big data
• Data-driven decision-making
• Divergent experimentation
4.Innovation (Ch. 5) Innovate by rapid experimentation • Convergent experimentation
• Minimum variable prototype
, • Paths to scaling up
• Concepts of market value
5.Value (Ch. 6) Adapt your value proposition • Paths out of a declining market
• Steps to value proposition
evolution
Getting started on your own digital transformation
- Challenges of launching a blank-state, digital-first business are quite different from
those of adapting an established firm that already has infrastructure, sales channels,
employees, and an organisational culture to contend with.
- Both centuries-old multinationals and today’s digital titans and brand-new start-ups
face very different challenges.
• The same strategic principles – customers, competition, data, innovation, and
value – apply, but the path to implementing these principles is different,
depending on the point from where one starts.
→ Therefore, this book focuses primarily on enterprises that were established before the
birth of the internet and looks at how they are successfully transforming themselves to
operate by the principles of the digital age.
In addition to frameworks, analysis, and numerous cases, the book includes a set of nine
strategic planning tools:
9 Tools for digital transformation
1. Customer network strategy generator (Ch. 2)
2. Platform business model map (Ch. 3)
3. Competitive value train (Ch. 3)
4. Data value generator (Ch. 4)
5. Convergent experimental method (Ch. 5)
6. Divergent experimental method (Ch. 5)
7. Value proposition roadmap (Ch. 6)
8. Disruptive business model map (Ch. 7)
9. Disruptive response planner (Ch. 7)
→ These tools can be categorised:
Strategic ideation tools = tools for generating a new solution to a defined challenge by
exploring different facets of a strategic phenomenon
- Customer network strategy generator, data value generator.
Strategy maps = visual tools that can be used to analyse an existing business model or
strategy or to assess and explore a new one.
- Platform business model map, competitive value train, disruptive business model
map.
