What is a social value proposition

Business models - the grail of digitization

Even if some may no longer hear the word: Digitization has rapidly developed from a battle term to a strategic competitive factor. Even if the digital transformation affects all industries at different speeds, no industry can escape this development - especially not the media industry. In order to remain competitive, companies must actively shape digital change and take advantage of the opportunities that arise. There is nothing to be shaken about. The key to success is actively managing your business models. in the IT channel from buchreport.de business development pioneers demonstrate the tools to do this.

The following article is an excerpt from the book "Shaping Digital Transformation in Companies" (Chapter 2). In it, leading authors from science and business practice use conceptual-strategic contributions and case studies to show how the digital transformation can be successfully designed and implemented. You can find more information about the book at the end of the article.

 

Business model as the grail of digitization

OfRoman Sauer, Martina Dopfer, Jessica Schmeiss, Oliver Gassmann

Digitization - more than bits and bytes

Digitization is changing our customer behavior. It is the driver of the fourth industrial revolution and is changing the way people, organizations and industries act and function. Digitization is becoming the inner engine of a far-reaching transformation, the extent of which can be predicted technologically, but the socio-systemic effects on the economy and society are nowhere near to be understood.

Some industries like music were already going through a digital revolution. Such a breakthrough is yet to come in many industries such as medical technology, manufacturing and the automotive industry. The question arises as to why the time for digitization has come now in so many industries.

IT basics and technologies of the future

You can read more about IT and digitization in IT channel by buchreport and the channel partners knk and Rhenus. More here ...

The number of Internet users and Internet-enabled devices per private household is growing disproportionately. Ultimately, mobile devices and the networking technologies that can be used with them, such as Bluetooth, NFC or QR codes, are increasingly becoming the standard in the private sphere. Customers' living environments are extensively digitized, and the desire for more digitization, for example in the area of ​​services, is becoming apparent on the end customer side (B2C) in particular (Deloitte 2013).

This trend can also be observed in corporate relationships (B2B). After initial hesitation, digital affinity increases significantly here (Roland Berger, BDI 2015). This opens up completely new fields of application, especially for the exponential performance development of technologies with simultaneous cost reduction. Sensors are becoming smaller, cheaper, more integrated, multifunctional and can communicate with one another. At the same time, a continuous and very fast analysis of large volumes of data as well as inexpensive, demand-oriented access to computing power, storage or application are possible. Physical objects of any kind can be identified and localized in their material flow. Even more: Permanently installed machines and systems acquire the capability of decentralized control.

For many companies, the question of why is not a question of why, but rather of how. How do I take digitization into account in my company? How do I approach digitization? How do I implement digital potential in my company? Due to the increasing standards and the maturity of digital technologies, the challenge is not to adapt them. Rather, the focus is on developing the right business model. Although more and more companies are able to offer technologies and new products, the big winners are often not the product innovators, but the business model innovators: Apple became the largest music distributor without selling a single CD. Airbnb is the largest hotel without owning a building. Over revolutionized the taxi industry without owning a taxi or hiring a taxi driver. Skype became the largest cross-border communications provider without its own network infrastructure. eBay, Amazon and now Alibaba revolutionized trade. What they all have in common is the focus on new business models, driven by digitization.

We have arrived in the age of business model competition, and the success of a company depends on its ability to digitize the business model or even to innovate digitally. So wanted loud Ernst & Young In 2015, companies invested an average of around 29 million euros - one percent of their turnover - in the digitization of their business model. However, such companies have often been building on existing business models for years. You have established relationships with suppliers and sales partners based on well-established logistical process chains. Similar, routine processes are also reflected in the business model within a company: employees have developed in corresponding structures, managers have adapted their leadership styles accordingly. Over time, this has resulted in a tacit understanding of the business model.

But what is a business model? In short, it is the strategy a company uses to generate value and make money in the process. To Gassmann, Frankenberger and Csik (2014), a business model is the integral answer to four questions (see Figure 2.1):

  • Who are our target customers? The customer is at the center of every business model - always and without exception. The business model describes customer segments, wishes, needs and the channels through which these are established. (Dimension: Who?)
  • What do we offer to customers? The value proposition ties in seamlessly with the first dimension and primarily defines how a company creates added value and benefits for the customer. Required products and services are secondary and means to an end. (Dimension: What?)
  • How do we provide the service and how do we produce it? The value chain is the backbone of a business model and maps the processes and activities that are required on the basis of the resources, skills and partners involved in order to deliver the value proposition. (Dimension: how?)
  • How is value achieved? Every business model logic includes questions about the earnings mechanics and how value is achieved for the company. Aspects of the cost structure and the revenue mechanics have to answer the central question of how profit is achieved. (Dimension: value?)

If at least two dimensions of a business model change significantly, one speaks of a business model innovation (Gassmann, Frankenberger, Csik 2014). In order to take advantage of the opportunities offered by digital change, all stakeholders need to develop an understanding of what the terms “digitization” and “business model” mean in their context. In this regard, the following explanations aim at the following key questions: What distinguishes a digitized business model? And: What will change in the transition from “analog” to digital models?

Four forms of digitization

Digitization today encompasses almost everything and is based on four basic elements:

  1. E-business,
  2. internet-based value propositions,
  3. intelligent value chain,
  4. digital business model.

The beginning of any digitization activity was and is e-business (1.) E-business is a key requirement for a far-reaching digital change. In many companies, however, IT is much more than the supporting element "e-business". The two thrusts "Internet-based value proposition" (2nd) and "intelligent value chain" (3rd) show how digitization on the one hand the product / service logic (2nd) and on the other hand the process logic of companies (3rd). ) radically changed. Internet-based value propositions imply profound changes to the customer. The intelligent value chain, on the other hand, encompasses the computerization of production and logistics through machine-to-machine communication, on which the value chain is concentrated and with which far-reaching changes in the inter- and intra-organizational context are associated. In the German-speaking area this is known primarily as "Industry 4.0", in the Anglo-Saxon area as "Industrial IoT". The fourth element integrates e-business, internet-based value propositions and intelligent value chains in the digital business model (4th).

E-business to increase efficiency along the value chain.

Companies are information processing entities. The use of IT is a logical consequence. In the past, the use of IT was rather supportive, which can be seen in the early days of digitization - so-called e-business. In e-business, all existing processes and products are mapped in electronic form. E-business thus creates the opportunity for complete reflection along the value chain to increase the efficiency of the entire company. This topic has led many practitioners to analyze new business practices with the help of the Internet, especially in the early 1990s:

The use of e-technologies in R&D (CAD tools, global networking of virtual teams) enabled electronic, internet-based coordination and the exchange of information worldwide. E-business has already brought about a streamlining of process chains and changed innovation structures and processes within the company. The German medium-sized company Elabo GmbH has, for example, developed a modular information management system that networks all workplaces and enables virtual data management in real time. Development departments save laborious paper documentation and avoid redundancies in development. At the same time, employees are becoming more flexible; you can work from anywhere and get faster customer feedback on product iteration.

The so-called e-supply chain also uses e-technologies to optimize existing structures with electronic communication media. E-commerce, on the other hand, focuses on the transfer of commercial processes to the online world. Marketing channels like Google AdWords, YouTube and blogs advertise digital sales channels and reach customers faster. Firstly, marketing is becoming cheaper, secondly, customers can be addressed more specifically using analytics systems, e-pricing and e-payment, and thirdly, orders can be processed more quickly thanks to electronic standardization.

Founded in Berlin in 2008 Zalando a classic e-commerce company that successfully uses digital technologies along the entire value chain. Based on the hypothesis that customers would also order their shoes or clothes online to save time, Zalando has developed into the largest online clothing retailer. In 2015 the former start-up was listed in the MDAX. Zalando's business model is now used worldwide (for example Dafiti, Brazil).

The profit from e-business therefore lies in the optimization of costs, time and quality.

  1. Costs: by reducing process costs through electronic support;
  2. Time: by reducing process times;
  3. Quality: about the timeliness of data, global reach and improved collaboration conditions.

These optimizations are based on the use of e-technologies in largely existing processes and structures.

But not all companies are able to create the electronic mapping of the business model - the basic requirement for digitization. This is especially true for medium-sized companies, the backbone of the German economy. A look at leading studies on digital change shows that only 39 percent of German medium-sized companies are aware of the importance of digitization. Only 85 percent of German SMEs have a website (Eurostat 2014). Also, only 43 percent of these companies consider the lack of digital marketing and sales skills to be an obstacle (IW Future Panel 2013). In the overall European context, on the other hand, 64 percent of macroeconomic decision-makers see ICT (= Information and Communication Technology) as the basis of digital business models (Google survey of ICT decision-makers 2015).

Internet-based value propositions change the logic of the product

The basic motivation for digitized products is not new. It is based on increasing service orientation and consumer friendliness. With the emergence of social, mobile, analytics and cloud technologies (see excursus 1), this topic is getting a further boost. Because it creates new potential to radically change the logic of the value proposition.

A recurring, simple pattern can be observed here: First, the focus is on the actual hardware. This is encased with extended sensors and actuators that are connected to the Internet and thus maintain connectivity. Intelligence is now made possible by analytically evaluating data streams from the networked product. This knowledge is necessary for the extended, internet-based services (Fleisch 2014). This not only creates direct customer benefit. The companies also learn how their products are used (or functionalities not used) in real time under real conditions. As a result, numerous B2B companies have the opportunity to establish direct contact with end customers, opening up new business models in the B2B2C area.

However, the expansion of products is not limited to hardware alone. With software products, too, an increasing service orientation can be observed in the wake of digitization. The use of Software-as-a-Service (SaaS) in the field of cloud computing is increasing particularly strongly in the high-turnover market of medium-sized companies (2013: plus 30 percent compared to 2012). Statista predicts the fivefold increase in the market volume of SaaS solutions in Germany to almost eight billion euros in 2017. Furthermore, the SaaS market is growing six times faster than the overall software market, as the products offered cover customer needs much more directly.

From the end customer's point of view, digital customer proximity and advice, for example via video chats or booking portals, is becoming increasingly important. In particular, the much-cited Generation Y, who grew up with digital media, would like to be advised from anywhere at any time using all Internet-enabled devices. Today's service provider - for example insurance, the bank or the fitness center - must be able to provide this digital advice that is always ready.

The German start-up founded in 2004 purpleview operates in this market. It offers a white label solution for video advice that banks that are already established on the market can use. Particularly important when offering such a solution is, in addition to ease of use for the customer, for example in all common browsers, the guarantee of secure, encrypted online communication. If this is the case, a software-as-a-service solution for online customer service can profitably complement offline consultations, such as the one at the bank counter, increase customer proximity and lead to completely new peer-to-peer network structures .

Internet-based and digital value propositions enable a far-reaching service orientation of products, services and business processes. This results in benefits such as more transparency and more direct customer interaction and integration.


Excursus 1: Mastering SMAC, winning digital competition

Social: Social platforms like Facebook, Instagram, Twitter or LinkedIn offer a variety of opportunities to facilitate communication and to build networks. Up the value chain, closed social networks offer the opportunity to network employees and teams across time zones and locations. A well-functioning internal social network (intranet) can serve as a knowledge management system and innovation source at the same time, since information is collected centrally and intuitively. Down the value chain, social networks offer a variety of marketing and sales opportunities to get in direct contact with customers and to form a community around a specific product or service. A distinction must be made between: Firstly, paid social media, for example paid ads on Facebook or Twitter, which reach a specific target group with a controlled message. Second, active customer communication, for example in complaint management. A successful social marketing presence - up and down the value chain - should become a central component of every digitization strategy.

Mobile: Thanks to the success of platforms such as iTunes or Google Play Store has long been of great importance. The number of app downloads worldwide will more than double by the end of 2017 (Statista 2016). In e-business, especially in e-commerce, marketing is the primary role of the mobile app.Because with their own app, many providers create lasting customer loyalty. Amazon For example, it helps its customers to find products quickly and easily using the app and to send them to the address stored in their profile with one click. In the last three years alone, the consumption of in-app products and services has increased by 30 percent (Statista 2015). Mobile apps are also diverse and can be used for all digitalization options along the entire value chain, for example in Industry 4.0 to control logistics or production chains.

Analytics: Using digital technologies for data analysis, sales and marketing processes in particular can be controlled and optimized. These technologies are anchored in the B2C area, where sales are generated through direct customer contact. Data analysis tools are also increasingly being used in the B2B area for researching and analyzing negotiation processes. By collecting, aggregating, structuring and evaluating data on customer behavior, purchase profiles, contact histories, etc., detailed customer profiles can be created and the effectiveness of sales and marketing measured. Google Analytics is an example of an effective marketing optimization technology. This enables sales and conversions on websites to be analyzed and linked to specific marketing measures. An example of sales optimization is Salesforce, an internet-based software that offers digital customer relationship systems (customer relationship systems) that can be customized for the respective company. This allows detailed customer information to be collected and used to effectively control sales teams.

Cloud services: Cloud services provide internet-based software (SaaS), infrastructures (IaaS) and platforms (PaaS) via technical interfaces between various data sources and platforms. Processes for data processing and-storage along the entire value chain is accelerated and high costs for local IT solutions are often reduced. The central factor for the successful implementation of a cloud service is always the security of data and data interfaces. In the IaaS area Amazon Web Services a leading provider of computing, database and analytics services. In the SaaS area, solutions such as Microsoft Office 365 enables direct communication and collaboration between teams across locations and time zones.


Intelligent value chain leads to a change in the process logic through the digitization of intra- and inter-organizational processes

If one directs the focus of digitization on companies, the question arises to what extent research, development and production processes within the company are also fundamentally changing in the wake of digitization and are not simply mapped digitally. Industry 4.0 has become a buzzword here that not only large companies like Cisco, but also the German federal government and the EU have written on the agenda. As a result, the self-regulating factory should soon become a reality. However, this means that existing processes within a company structure have to be radically redesigned. Only then can work processes - for example in production - be decentralized and optimized using robotics or products that control their own production.

The mechanical engineering company Trump card from Ditzingen has taken on this challenge. The central idea of ​​intelligent value chains - the comprehensive networking of systems - was previously not possible due to different standards and systems in production. Trumpf's solution here was a standardized, open operating system for intelligent value chains, similar to Android from Googleto build up. The focus of Trumpf's activities is the newly founded company Axoom that was named Business Model Innovation of the Year. The software solution, which is similar to an operating system for Industry 4.0, enables continuous order processing in production operations, data transport, and the storage and analysis of data down to the depths of individual production applications. At the same time, Axoom offers an open platform, similar to an app store, for the manufacturing world as well as applications for evaluating sensor data for process improvement. This also offers software providers and app developers a sales channel.

The networked company of the future can therefore use solutions for intelligent value chains to control not only internal but also intra-organizational processes in a more flexible, decentralized and efficient manner. The creation of models such as the Axoom operating system for intelligent value chains creates radically new development environments as well as innovative innovation structures and processes.

The digital business model as a logical network

The explanations show that digitized business processes strengthen the presence and loyalty of a company to the outside world. By using digital technologies, the company can also act, cooperate and react faster internally and intra-organizationally. If the aim is to fully digitize the business model, value proposition and value chain must be digitally adapted, penetrated or even revolutionized in equal parts. Only when digitization takes place radically up and down the value chain can one speak of a digital business model innovation that has the following central characteristics:

Convenience, the central buzzword in digitization, indicates a high degree of service orientation within digital business models. Services depend more on the integration of an external factor (e.g. the customer) and thus vary more in terms of their quality (heterogeneity). Production and consumption coincide in time, as there is a closer interlinking of the service in the customer's value chain. Furthermore, the intangibility of services, i.e. the non-maturability of the service, is essential for digitized business models.

The high customer orientation of digital business models also allows a much faster and more cost-effective measurability than many analog business models. During the entire interaction with the customer (before, during and after the purchase), data points can be collected that provide information about the demand, the quality and the effectiveness of the product. In this way, innovations can be tested and optimized quickly and often without major investments.

The targeted use of technologies across all stages of the value chain enables sustainable change and comprehensive integration of business processes both on an external level - for example customer interaction - and on an internal level - for example employee communication. The drivers are SMAC and IoT technologies; the fields of application vary depending on the depth of digitization.

Figure 2.2 summarizes the possibilities of digitizing a company and its business model using the dimensions “value chain” and “value proposition”. For e-business we find that a company's product does not have to change significantly. Since the company can build on existing structures, the process landscape only changes incrementally and one can speak of a digitized business model. At the same time, however, e-business is a core requirement for all further digitization activities. The internet-based value proposition calls for a more extensive use of digital technologies and fundamentally changes the product logic of the business model. If a company ultimately strives for digitization in the sense of intelligent value chains, it is faced with an overall change in the process chains. The core product remains largely unaffected by the process changes. Ultimately, the digital business model brings all the threads together.

The way to the digital business model

Whether business model digitization or radical digital business model innovation, both address all four questions of a business model: Who? What? How? Value? The business model thus captures the customer, the value proposition, the product, the suppliers, the employees, the management and the corporate environment. Based on this, Figure 2.3 summarizes the potential of the two digitization focuses: up and down the value chain. A digital business model innovation encompasses the advantages of both directions.

Picture 2.3 Potential through internal and external digitization focus. Image: Gassmann / Sutter, digital transformation. Hanser 2016

Due to the increased measurability and service orientation, resources that are decisive for competition are stored differently in the digital business model (see Figure 2.4). In the course of digitization, the ability to translate existing resources such as processes, employees or products into digital worlds is therefore of central importance. The identification of relevant resources for digital change and the knowledge of how existing resources are affected by digitization ultimately determine the success or failure of a digital business model innovation.

The ability of a company to change and thus respond to digital change is coming to the fore. Even more: A digital business model innovation requires that companies develop the ability to internally recognize which strategic resources are relevant in their previous field of activity and how these must change in the digital environment. Furthermore, an outward look at the needs of the customer is central. It shows which resources are missing and how to deal with them. A reaction to the outward and inward look will fundamentally change the weight ratio of the central resources towards the digital business model. As a result, a company will have to prove its adaptability by declining the knowledge it has gained company-wide, that is, resources are changed, added or disposed of, which can even lead to the sale of entire business areas.

The path from the analog to the digital business model and the associated renewal of the resource base are the dynamic capabilities of a company to adapt flexibly to high-tech environments and to change according to their resource base. This renewal process relates to organizational learning, dynamic leadership behavior, flexible adaptation of product development, rapid adaptation of process chains and appropriate reactions to competitors. By developing and integrating these dynamic skills, a company can secure a long-term competitive advantage (Teece 2007).

Figure 2.4 picks up on characteristic examples of the paradigm shift from analog to digital and particularly addresses the competitive change in the resource base. Specifically, this means:

  • In the digital age, companies are increasingly concerned with the tension between size and agility. Because through the innovative strength of new, agile players, established companies are faced with the challenge of offering customers added value in a radically new form. Often, however, there is a lack of willingness to change. Even if competitive advantages such as size and resource base are still central to investment projects, the question arises as to how companies can make better use of these resources.
  • Contact management to customers in physical form remains a central resource regardless of the industry. In the course of digitization, however, customer channels are also cannibalized. The Deutsche Bank reported, for example, the closure of hundreds of branches and, at the same time, the launch of their smart banking app for the Apple Watch.
  • Producing excellent technological solutions and products is no longer sufficient for sustainable success. Apple shows that high-quality products remain central, but that competition takes place on the basis of service ecosystems. Apple's sales are still characterized by the hardware business (low vertical integration and premium price positioning) (87 percent of sales, 96 percent of EBITDA) Percent of sales, four percent EBITDA).
  • In the past, companies have focused on technologically superior products that have been protected as a central resource. Using the example of platform models such as Googles However, Android shows that interfaces are deliberately kept open. This allows new applications to be programmed and external innovators to be integrated. Dealing with the central resource technology is changing fundamentally.

The business model as the digital grail

The digital business model innovation presents the modern company with the challenge of innovating all business model dimensions along the entire value chain. The company must therefore develop the ability to innovate digitally. The development of a digitized business model begins minimally in e-business. Here, e-technologies such as e-sourcing and e-commerce are adapted along the value chain. However, the underlying business logic is retained. E-business can therefore also be seen as a fundamental prerequisite for far-reaching digitization.

A higher degree of digitization is achieved through the use of SMAC and IoT technologies up and down the value chain. In the intelligent value chain, these technologies are mainly used for production and logistics. Decision cycles are accelerated on the basis of real-time data and production systems are becoming more decentralized and networked, i.e. more flexible. In contrast, Internet-based services use technologies on the customer side. As a result, innovative and direct opportunities for interaction with the customer are created. Both approaches have the potential to fundamentally change business logic.

A digital business model transformation only becomes radical when all business model dimensions interact with one another and are included in business considerations. This results in the four central characteristics of a digital business model:

  • The “what” and “how” of the business model are fundamentally changed. Because mostly digitization requires an adjustment of the sales and marketing channels as well as the production processes.
  • A high service orientation results as a consequence of the stronger integration of direct customer contact into the value chain.
  • The consistent measurability of all four dimensions enables real-time adjustments to success-relevant processes.
  • SMAC and IoT technologies are used in a targeted manner to support internal and external digital change. Figure 2.5 shows the journey to digital business model innovation, which typically takes place in three steps.

At the beginning of a digital change there is “know why”: Digitization requires an awareness of current changes in the environment as well as a profound understanding of digital natives and interorganizational value chains. Then the "know what" decides on the problem solving with the targeted use of digital technologies. The “know how” answers the all-important question about the right approach, taking into account the four digitization dimensions of e-business, internet-based value proposition, intelligent value chains and digital business model.

  • We become “customer understanders” and develop a detailed understanding of the digital behavior of our customers and stakeholders.
  • We recognize the digital potential in the who, what, how and value of our business model and know exactly which technologies will support us.
  • We set budgets on the most important digital channels with the awareness that a digital business model also depends on targeted financial re-allocation.
  • We test, test, test. Because of the high measurability of digital activities, the digital business model can be iterated quickly in the innovation process and thus be geared even better to specific customer groups.

 

The publishers

  • Prof. Dr. Oliver Gassmann is professor for technology and innovation management at the University of St. Gallen and chairman of the board of directors at the Institute for Technology Management there. His research is carried out in close cooperation with industry on topics relating to the success factors of innovations.
  • Philipp Sutter is the managing director of Zühlke Engineering AG in Schlieren (Zurich) and as a partner member of Zühlke Group leader. He studied computer science at the ETH Zurich and on Worcester Polytechnic Institute, UNITED STATES.

 


Oliver Gassmann, Philipp Sutter (eds.):

Shaping digital transformation in the company

Business models Success factors Case studies Instructions for action
296 pages (with e-book inside), Hard cover, EUR 30,
ISBN: 978-3-446-44678-6,

E-Book (ePUB): EUR 23.99
ISBN: 978-3-446-45114-8

Book in the Hanser E-Library
Hanser Verlag,
1st edition October 2016

 

The design of the digital transformation does not only affect those responsible for IT, it is the responsibility of the entire company.The book Shaping Digital Transformation in Companies describes ways to actively model digital change, seize opportunities and master digital transformation profitably. Leading authors from science and business practice use conceptual-strategic contributions and case studies from all areas to show how this transformation can be successfully designed and implemented. Instructions, checklists, success factors, but also addressing hurdles facilitate the transfer into practice.

Focus:

  • Develop digital business models successfully and sustainably
  • Success factors, skills and potential in the management of digitization projects
  • Opportunities through intelligent, networked products and the Internet of Things
  • From big data to smart data

With a free e-book for every book owner.

© 2016 Carl Hanser Verlag GmbH & Co. KG Munich