Digital Business Models & Strategy
G. Shainesh
Professor – Marketing
Indian Institute of Management Bangalore
[email protected]
Digital Transformation
Business Model
Coverage Business Model & Strategy
Digital Business Model
Digital Transformation
Every digital transformation is going to
Digital begin and end with the customer
Transformation
Marc Benioff,
Founder, Chairman & CEO - Salesforce
Digital Transformation
• Process of using digital technologies to create new — or modify existing
— business processes, culture, and customer experiences to meet
changing business and market requirements.
• Reimagining of business in the digital age
• Begins and ends with how you think about, and engage with, customers.
Source: https://www.salesforce.com/in/products/platform/what-is-digital-transformation/
Digitisation, Digitalisation, and Digital Transformation
• Digitisation
• the process of converting information from analog to digital.
• Digitalisation
• using digitised information to make established ways of working simpler and more
efficient.
• isn’t about changing how you do business, or creating new types of businesses.
• It’s about keeping on, but faster and better now that your data is instantly accessible and
not trapped in a file cabinet somewhere in a dusty archive.
• Digital transformation
• adds value to every customer interaction.
• Changes the way business gets done and, in some cases, creating entirely new classes of
businesses.
• change processes in a way that will enable better decision-making, game-changing
efficiencies, or a better customer experience with more personalisation
Source: https://www.salesforce.com/in/products/platform/what-is-digital-transformation/
Netflix - Digitisation, Digitalisation, and Digital Transformation
Source: https://www.le-vpn.com/netflix-10-innovations-changed-world/
Organizations in the top third in terms of
digital customer experience had
- 8.5% higher net margins and
Digital Business - 7.8% higher revenue growth than their
peers
Source: Weill, P. and Woerner, S.L., 2013. Optimizing Your Digital Business Model. MIT Sloan Management Review, 54(3), p.71.
Business Model
Business Model – Bharti Airtel
Mobile Services (2004 – 2010)…
What is sold & delivered to the market:
Value Low-cost, reliable, life-long mobile
Proposition services
Business How is it created & delivered to the market
Model Supply Chain Outsourcing of network and IT backbone
Target To whom it is delivered
Customer People who would never have dreamed
of owing a mobile
Business Model – Aravind Eye Hospital
• Mission : Eliminate Needless Blindness
• How?: Make Cataract Surgery easily accessible at low cost
• Standardization & assembly line inspired by McDonald’s
• One doctor, two beds, two nurses per patient
• 25-30 surgeries per doctor in 6 hours!
• Paramedical staff chosen carefully
• Emphasis on self-motivated
• In-house manufacture of intraocular lens (world market share:10%) at a fraction of
price
• Patients paying market price subsidize poor patients
• 500,000 surgeries / year
• 68 million outpatient visits and >8.2 million surgeries till date.
Source: Munshi 2009 & AECS 2021
Business Model
Virtuous Cycle of Performance at Arvind
Source: Kasturi Rangan & Thulasiraj,”Making Sight Affordable,” Innovations, Vol.2, No.4, 2007.
What are the key elements of Purple Innovation’s Business
Model?
Business Model - Elements
What H
&
Why O
W
Source: Christensen, Clayton M., Thomas Bartman, and Derek van Bever. "The hard truth about business model innovation." (2016). MIT Sloan Management Review, 58(1), p.31-40.
Strategy
The company’s distinctive A good competitive
approach to competing strategy is one that
and the competitive creates unique value for a
advantages on which it particular set of
will be based. customers.
Source: Porter (1986)
Purple Innovation – Strategy?
The company’s distinctive A good competitive
approach to competing strategy is one that
and the competitive creates unique value for a
advantages on which it particular set of
will be based. customers.
Strategy – Key Concepts
UNIQUENESS
Strategy is the creation of a unique and valuable position, involving a different set of
activities.
MAKING TRADE-OFFS
Strategy requires you to make trade-offs in competing – choosing what not to do.
FIT ACROSS THE VALUE CHAIN
Strategy involves creating “fit” among a company’s activities.
Source: Porter (1986)
Strategy – Purple Innovation
UNIQUENESS ?
Strategy is the creation of a unique and valuable position, involving a different set of
activities.
MAKING TRADE-OFFS?
Strategy requires you to make trade-offs in competing – choosing what not to do.
FIT ACROSS THE VALUE CHAIN?
Strategy involves creating “fit” among a company’s activities.
Source: Porter (1986)
Strategy, Business Models, Tactics
• Business Model: the logic of the
firm, the way it operates and how it
creates value for its stakeholders;
• Strategy: the choice of business
model through which the firm will
compete in the marketplace;
• Tactics: the residual choices open
to a firm by virtue of the business
model it chooses to employ.
Source: Casadesus-Masanell, R. and Ricart, J.E., 2010. From strategy to business models and onto tactics. Long Range Planning, 43(2-3), pp.195-215.
Business Model
• Stories that explain how enterprises work
• A good business model answers the following
• Who is the customer and what does the costumer value?’ and
• ‘What is the underlying economic logic that explains how we can deliver value
to customers at an appropriate cost?’
• How an organization earns money by addressing two fundamental
issues –
• how it identifies and creates value for customers, and
• how it captures some of this value as its profit in the process.
Source: Casadesus-Masanell, R. and Ricart, J.E., 2010. From strategy to business models and onto tactics. Long Range Planning, 43(2-3), pp.195-215.
Strategy.
Choosing a particular business model means choosing a particular
• way to compete,
• logic of the firm,
• to operate and to
• create value for the firm’s stakeholders
• Ryanair 90s - at the brink of bankruptcy
• Three alternative business models:
(1) Southwest of Europe - choice
(2) Add business class,
(3) Become a ‘feeder’ airline operating from Shannon airport,
(Or)
EXIT THE INDUSTRY.
Source: Casadesus-Masanell, R. and Ricart, J.E., 2010. From strategy to business models and onto tactics. Long Range Planning, 43(2-3), pp.195-215.
Ryanair’s Business model:
To offer cheap air transportation to fare-conscious customers.
Source: Casadesus-Masanell, R. and Ricart, J.E., 2010. From strategy to business models and onto tactics. Long Range Planning, 43(2-3), pp.195-215.
Ryanair - Business Model
• Underlined elements - Choices
• Non-underlined elements - Consequences.
• Consequences in boxes - ‘rigid,’ Others
‘flexible’.
Flexible consequence à highly sensitive to the
choice
‘large sales volume’ is a consequence of the policy
choice ‘low prices’
Rigid consequence à that does not change rapidly
with the choices that generate it;
Example: ‘reputation for ‘‘fair’’ fares’ is a
consequence that changes only slowly with
changes in the choices that generate it
Source: Casadesus-Masanell, R. and Ricart, J.E., 2010. From strategy to business models and onto tactics. Long Range Planning, 43(2-3), pp.195-215.
Ryanair - Simplified Business Model
Source: Casadesus-Masanell, R. and Ricart, J.E., 2010. From strategy to business models and onto tactics. Long Range Planning, 43(2-3), pp.195-215.
RyanAir - Virtuous Cycles
Feedback loops that strengthen some components of the model at every iteration
Source: Casadesus-Masanell, R. and Ricart, J.E., 2010. From strategy to business models and onto tactics. Long Range Planning, 43(2-3), pp.195-215.
Tactics
• Crucial in determining firms’
value creation and capture
• Different business models
give rise to different tactics
available for competition
and/or cooperation.
Discount retailer Vs. ‘mom-and-pop’ store – Tactical pricing battle
Source: Casadesus-Masanell, R. and Ricart, J.E., 2010. From strategy to business models and onto tactics. Long Range Planning, 43(2-3), pp.195-215.
Strategy, Business Model, Tactics
Source: Casadesus-Masanell, R. and Ricart, J.E., 2010. From strategy to business models and onto tactics. Long Range Planning, 43(2-3), pp.195-215.
Digital Business Model
- Business increasingly moving from “place”
to “space,”
companies need to strengthen their
digital business models.
Developing an - A successful digital business model must
offer good
effective digital - content,
business model - customer experience and
- platforms.
- However, each company doesn’t necessarily
need to be a leader in all three areas.
Source: Weill, P. and Woerner, S.L., 2013. Optimizing Your Digital Business Model. MIT Sloan Management Review, 54(3), p.71.
• Internal power,
- Owner of customer experience shifts
from product groups to the unit that
Digital vs Physical manages the multiproduct customer
experience;
model - • Business processes
Challenges - require re- thinking to be seamless across
channels
• Customer data,
- an enterprise-wide resource rather than
hidden in one area.
Source: Weill, P. and Woerner, S.L., 2013. Optimizing Your Digital Business Model. MIT Sloan Management Review, 54(3), p.71.
Source: Weill and Woerner (2013) MIT Sloan Management Review.
Effectiveness
of Content
Experience
and Platform
by Industry
Effectiveness was measured on a 10-point scale, from 1 = not effective to 10 = very effective.
Source: Weill and Woerner (2013) MIT Sloan Management Review.
ASSESSING YOUR DIGITAL BUSINESS MODEL
TODAY: THREE YEARS FROM NOW:
Rate your business today in each of the Given the issues, rank (1, 2 or 3, with
three areas on a scale of 1 to 10, 1 being most important) the
where 1=“Does not create business importance of each of the three
value,” and 10 = “creates significant areas for success in your business in
business value.” three years.
Content:
What is consumed?
Experience:
How is it packaged?
Platform:
How is it delivered?
Source: Weill and Woerner (2013) MIT Sloan Management Review.
ASSESSING YOUR DIGITAL BUSINESS MODEL
Content
• How much of your revenue is generated online?
• Of the content you provide today, what do your customers find most
valuable?
• What other content could you provide that customers (or channel
partners) would value or pay for?
• Who has responsibility for content in your enterprise?
• Is responsibility for digital products and information about physical
products held by different groups? Should it be?
Source: Weill and Woerner (2013) MIT Sloan Management Review.
ASSESSING YOUR DIGITAL BUSINESS MODEL
Experience
•Do you know how good your customer experience is? Who owns it?
•What aspects of your digital customer experience do customers like?
What aspects do they find frustrating?
•Who has the best customer experience in your industry? (Consider both
traditional competitors and new entrants.)
Source: Weill and Woerner (2013) MIT Sloan Management Review.
ASSESSING YOUR DIGITAL BUSINESS MODEL
Platform
•How good are your internal digital platforms? Who owns them?
•How can you expose more of your internal digital platforms to your
customers to improve their experience?
•How can you better leverage the market for your platforms — for
example, the cloud, software as a service, partners, external data?
•How good are your partners’ platforms?
Source: Weill and Woerner (2013) MIT Sloan Management Review.
Communication Plan : 6 M’s Framework
Mission: What is the objective of the campaign?
Market: For whom is the campaign intended?
Message: What content needs to be communicated?
Media: Which vehicles should be used?
Money: How much funding / allocated to each medium?
Measurement: How will the impact be assessed?
Source: Elie Ofek & Nakisha Williams (2020) Purple Innovation, HBSP
Summary
- Business Model
- Business Model & Strategy
- Digital Business Model
