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					HOW DIGITAL IS YOUR BUSINESS?
Creating The Company Of The Future
ADRIAN SLYWOTZKY and DAVID MORRISON

ADRIAN SLYWOTZKY is a vice president and member of the board of directors of Mercer Management Consulting, a strategy consulting firm specializing in the development of growth strategies. He is the co-author of Profit Patterns, The Profit Zone and Value Migration. Mr. Slywotzky is a frequent speaker at business forums and an experienced consultant. He is a graduate of Harvard College, Harvard Law School and Harvard Business School. DAVID MORRISON is vice chairman of Mercer Management Consulting. He has 20 years experience as a business consultant, speaker and columnist with The Wall Street Journal. Mr. Morrison is also the co-author of The Profit Zone and Profit Patterns. He is a graduate of the U.S. Naval Academy, Princeton and the Harvard Business School. The Web site for this book is at http://www.howdigitalisyourbusiness.com

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MAIN IDEA The arrival of digital technologies provides every business with a window of opportunity to fundamentally reinvent itself to serve its customers better in the future. The challenge now facing every business is how to design and build a digital business model which harnesses new technology (including the Internet) productively. This is much more than building a good Web site, keeping in touch with customers via e-mail or handling procurement over the Internet. Instead, this is the process of completely rethinking everything the business does taking into account the new realities of the digital business era: • It’s now possible for a business to get customer information in real time rather than lag time. • With an electronic interface, a business can know rather than guess what customers want. • More and more, customers should be able to order products configured just the way they want them. • Technology can handle low-value repetitive work – so people can do other tasks that take advantage of their talents. In total, there are seven key points to remember in designing and building a digital business model: Designing and Building a Digital Business Model 1 2 3 4 5 6 7 Stop, observe, think and then get started. Offer choiceboards – highly flexible customer options. Develop a new business which boosts productivity 10x. Consider the availability of hybrid business designs. Anticipate all your customers will become highly active. Overcome the obstacles and roadblocks along the way. Take the process to its logical conclusion – be unique.

1. Stop, observe, think and then get started . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 2 The true objective of developing a digital business model is not to use the latest technology but to expand the organization’s strategic options and opportunities to serve customers in ways that are both better and unique. 2. Offer choiceboards – highly flexible customer options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 3 Historically, companies have created fixed product lines from which consumers were forced to choose. With a digital business model, customers describe exactly what they want and the business then supplies precisely what’s ordered. This is a much better way of doing business. 3. Develop a new business which boosts productivity 10x . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 4 When moving to a digital business model, don’t look for incremental improvements. Instead, watch out for fundamental ways digital technology can change the way you actually do business. This is an ideal time to rethink and improve everything your business does. 4. Consider the availability of hybrid business designs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 5 Contrary to popular thought, the best digital businesses today are not solely Internet based. The really smart companies are hybrids – they offer customers a wide choice of ways to do business with them. If possible, build a hybrid digital business model. 5. Anticipate all your customers will become highly active. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 6 Consumers today are active rather than passive – they like to get involved in configuring products and services just the way they want them. Smart businesses realize that and so they are developing business models which allow customers to participate in the creation of added value. 6. Overcome the obstacles and roadblocks along the way . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pages 6 - 7 When shifting to a digital business model, obstacles usually come in two main varieties: • A lack of insight about fundamental business issues. • An unwillingness to endure the inevitable pains that will arise during the implementation process. The lesson is simple. Develop more insight and the courage to endure short-term pain for long-term gains and the digital transformation will be relatively easy. 7. Take the process to its logical conclusion – be unique. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pages 7 - 8 At the end of the day, adopting a digital business model is all about building a business which will be able to compete successfully in tomorrow’s economy rather than yesterdays’. A good digital business will always be unique in the way it serves its customers.

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Stop, observe, think and then get started.

Main Idea The true objective of developing a digital business model is not to use the latest technology but to expand the organization’s strategic options and opportunities to serve customers in ways that are both better and unique. Supporting Ideas Historically, businesses have always tended to be run slightly inefficiently. For example: n Guesses about future sales have dictated production volumes, meaning if the projections are wrong, companies are forced to offer rebates to make way for new stock.
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Note that these shifts to a digital business model effectively represent a totally new way of doing business that is: • Customer focused and centered. • Using the talents of employees to maximum effect. • Profit-focused. And therefore, the key issue for every business is not whether or not the digital innovators and dot-coms have already staked out a strong position in your own marketplace. If you stop and observe some of them, you may note they have succeeded in digitizing business processes that are irrelevant or add only low value from the customer’s perspective. Instead, every business should focus on developing an action plan around the answers to five key questions: 1 2 3 4 5 What are the most important issues we face? What’s the smartest business design for responding to those issues? Which of our key business processes involve moving physical assets and which move information? How can we increase the information processes? How can we use digital technology to improve our ability to manage information better?

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Workers have tended to be used over and over to replicate solutions to problems that have already been solved. As companies grow, they tend to invest more capital in distribution and support systems meaning they become less and less nimble when new products are required.

In practical terms, that meant the long-term success (or failure) of any business was dependent solely on the quality of its business design. However, in the current business environment, having a high quality business design alone isn’t enough. Long-term success will also depend on the degree of digitization achieved. Or, to put that another way, the most successful companies today have a sound business design utilizing a high degree of digitization. Thus, developing a digital business model or digital business design is not about trying to conduct all your business online. Nor is it concerned with how many employees have computers, or how attractive your Web site is. Instead, digital business design focuses on a deeper level of effectiveness. It’s about how successfully you transform the way you do business to take advantage of all of the new options made possible by digital technologies. Specifically, there are eight benefits that digital business models enjoy: 1. Decisions can start to be made on the basis of real-time information which is continually updated rather than guesswork. 2. The firm’s basic value proposition will become a perfect match for each customer rather than an average for the entire customer pool. 3. Customer information will flow throughout the organization in real time rather than waiting for reports to be compiled. 4. Customer service models will switch from being supplier provided to customer self-service. 5. Employees will move from working on projects that add only marginal value to new projects that maximize their talents and add much more value. 6. Internal processes will change emphasis from fixing errors to preventing errors occurring in the first place. 7. Productivity growth targets will grow from 10-percent improvements to finding fundamentally new ways of doing things resulting in 10x productivity enhancements. 8. Your business organization as a whole will shift from being a collection of separate silos into an integrated system where information, new ideas and better solutions are shared seamlessly to encourage collaboration.

Key Thoughts “We define a digital business as one in which strategic options have been transformed – and significantly broadened – by the use of digital technologies. Under this definition, it’s not enough to have a great Web site or a wired workforce or neat software that helps run a factory. A digital business uses digital technologies to devise entirely new value propositions for customers and for the company’s own talent; to invent new methods of creating and capturing profits; and, ultimately, to pursue the true goal of strategic differentiation: uniqueness.” – Adrian Slywotzky and David Morrison “Consider the people for whom you’re responsible: your customers, your employees, your partners. Within the next three years, it simply won’t be possible to do a world-class job of serving them, and the other stakeholders who rely on you, without becoming digital. But if you begin today the process of transforming your company through Digital Business Design, you’ll be able to offer them benefits no other company can match – the unique value propositions that are the ultimate reward of digitization.” – Adrian Slywotzky and David Morrison “In many cases, 100-percent digital is not what your customers want. Take selling, for example. The corporate customers of a large Wall Street law firm demand face-to-face contact with a partner; on-line selling would be inappropriate and ineffective. But the same customers might value on-line billing and even on-line delivery of a part of the product (for example, electronic transmission of draft proxy statements for rapid review and correction by the client). The goal is not (necessarily) to be 100-percent digital, but rather to offer the right solutions for your customers. The ideal formula will probably change over time; so should your company’s profile.” – Adrian Slywotzky and David Morrison “If you take a business that is a bad business and put it on-line, it’s still a bad business. It’s just an on-line bad business.” – Michael Dell, president, Dell Computers

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Offer choiceboards – highly flexible customer options.

Main Idea Historically, companies have created fixed product lines from which consumers were forced to choose. With a digital business model, customers describe exactly what they want and the business then supplies precisely what’s ordered. This is a much better way of doing business. Supporting Ideas When a business focuses on moving information rather than physical goods and products, it becomes much easier to manufacture to demand. The key lies in finding out exactly what it is the customer wants. The mechanism by which customer choices are made is by use of a “choiceboard” or “configuration engine”. A choiceboard or configuration engine is, quite simply, an interactive online ordering system which allows customers to choose the features and components they want from a menu. That way, customers design their own products and services. Once their selection is made, the business then manufactures and delivers exactly what has been ordered. The benefits of choiceboards are:
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Logically, the necessary supply systems also need to be put in place before the choiceboard approach will work. Unless the business is able to restructure its entire supply and support chain to deliver individual products efficiently, merely having a choiceboard based interface with the customer won’t serve any purpose at all. Businesses which offer choiceboards to their customers:
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Enjoy a significant strategic advantage over any competitors who are unable to do so themselves. Are positioned to provide greater value to the customer. Can add other features over time – such as sophisticated recommendation engines which can offer additional products and services based on customer preferences. Gather data not only about what customers actually want to buy but what they would like to buy in the future. Have continual feedback from their customers to use in ongoing product development programs. Can operate more cost effectively because manufacturing will only take place once orders have been received.

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Key Thoughts “The Choiceboard is one of the most powerful bit engines in the digital economy.” – Adrian Slywotzky and David Morrison “By providing an easier, faster and more satisfying buying experience, the Choiceboard increases the likelihood that customers will upgrade their choices to more attractive, sophisticated and high-value products. Remember, the self-designed product contains no features that the individual customer hasn’t selected. The money saved on unwanted features (which traditional buyer-seller relationships once forced customers to buy) is now available to spend on accessories, upgrades or extra products.” – Adrian Slywotzky and David Morrison “The nondigital business system produces products and services, then sells (some of) them. The digital business sells first, then produces. As a result, in the digital value chain, far less information and value are lost. The customer’s precise needs and wants are transmitted through the marketing, sales and distribution channels, which define exactly the offering desired and the acceptable price. Only the inputs that are necessary are ordered. At every stage in this new value chain, guesswork is replaced by precise information and every cent invested is based on real demand.” – Adrian Slywotzky and David Morrison “Before long, in many industries, having a Choiceboard will represent merely the price of entry – not a strategic advantage but a necessary starting point for doing business. When that happens, the companies that seize the lead now will be in the forefront of evolving their Chioceboards. They will be able to provide greater customer value and to seize a portion of that value for themselves.” – Adrian Slywotzky and David Morrison “Not every industry lends itself to the Choiceboard approach, but a surprising number do, and more will in the future. Many opportunities for creating enormous new businesses are being opened up by the advent of the Choiceboard.” – Adrian Slywotzky and David Morrison

Customers segment themselves – so the business can market to them in the future more effectively. Customers participate in the design process – allowing companies to learn more accurately which features are desirable and which features add only marginal value for future generations of products and services. Profitability is enhanced – since the choiceboard will allow numerous upselling and cross-selling opportunities to arise in the future as future visits can be personalized to reflect the customer’s preferences. The need for inventory is eliminated – allowing companies to offer products at lower prices. Greater information is generated – about what customers really want rather than what they will settle for. Guesswork is eliminated – since companies will not be forced to manufacture products in anticipation they might sell. The need for rebates and other sales incentives will be removed – since there will be no inventory that will need to be cleared before the next generation product comes along.

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Overall, a compelling and attractive business case can be made for the more widespread use of choiceboards because they reverse and optimize the value chain: Traditional value chain Assets Inputs Products Channels Customer Choiceboard driven digital value chain Customer Channels Products Inputs Assets

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Develop a new business which boosts productivity 10x.

Main Idea When moving to a digital business model, don’t look for incremental improvements. Instead, watch out for fundamental ways digital technology can change the way you actually do business. This is an ideal time to rethink and improve everything your business does. Supporting Ideas By definition, productivity is the ratio of value created to the resources applied. In industry after industry, as companies have moved to a digital business model, huge gains in productivity have resulted. There are several reasons for these leaps in productivity: 1. It’s always cheaper to move information about products and services than it is to move the actual physical goods themselves. Thus, when information is circulated electronically, many costs are reduced. 2. Electronic ordering systems makes it possible for orders to be collected before the goods are actually produced. That reduces waste – inventory, unused factory capacity and so forth. Businesses need less working capital, and therefore their products cost less to make. 3. Companies can begin to offer customers enhanced services made possible by digital technology. And because customers have better tools to configure products exactly the way they want them, service and support requirements are reduced. Again, this has the flow-on effect of making business transactions more efficient. When moving to a digital business design, there are three main areas in which order-of-magnitude (10x) productivity gains can be generated: Capital Potential productivity gains Costs Cycle time 1. Capital Digital business models can reduce the amount of working capital a firm will require. This may be achieved by: • Reducing inventory levels. • Making it feasible for customers to pay with their order. • Reducing the need for expensive retail storefronts. 2. Costs Smart business design harnessing the advantages of digital technology can reduce costs right throughout the entire value chain. For example: • Services can be delivered electronically cheaper. • Support may be provided on a self-service basis. • Order processing can be done automatically. • Order entry will be handled by the customer themselves. 3. Cycle Time Digital powered businesses can respond to customers faster because they understand customer needs in more detail. And that, in turn, means there’s better utilization of people and equipment. When developing a digital business model, its probable one of these three areas will stand out as the area which will be most

critical for customers. Start looking in that area for opportunities to integrate digital technology. Further along in the process, you can then start working in advances in the other areas as well. Remember, true gains in productivity are always measured and evaluated from the perspective of the customer, not that of the business. If the business does something different which actually ends up irritating customers instead, there is no productivity gain. The whole objective in moving to a digital business model is not to generate incremental gains but order-of-magnitude gains. These are the leaps in productivity which result from finding a new and better way to serve customers. When a 10x leap in productivity occurs, resources can be liberated and it will become easier to leverage the talent the business has available. This is a great way to grow the business. Note that an order-of-magnitude increase in productivity will have significant flow-on effects right throughout the business. In effect, the old business will evolve or morph into an entirely different kind of company. At the same time, the company will have much more control over its own future simply because many resources which were previously tied up can be liberated and applied to different areas of the business. In addition, the company will be much better positioned to fund new strategic initiatives which will impact on future operations. In total, the more 10x productivity enhancements that can be made, the greater the strategic options the business will have. Key Thoughts “Understand your economics first, then build your strategy.” – Michael Dell, president, Dell Computers “When an organization is able to create more value while using fewer resources, productivity grows. The Industrial Revolutions of 1780 - 1820 (driven by the harnessing of steam) and 1880 1920 (driven by electricity) produced phenomenal leaps in productivity because the creative power of existing resources was multiplied. Digitization (the ‘substituting of bits for atoms’ revolution) is now beginning to yield productivity improvements on a similar scale – although, as was the case with the last two productivity revolutions, there has been a lag between the introduction of the new technology and the realization of its full benefits.” – Adrian Slywotzky and David Morrison “Although 10x productivity is very impressive, the goal is big improvements, not a literal reading of 10x. Digital business design (DBD) has changed the definition of big: instead of 10-percent or 20-percent, DBD enables 10x or even 20x improvements. Many digital productivity gains will fall short of the 10x level: that’s OK. It’s important to redefine your standards for the magnitudes of productivity improvement that are possible. But don’t base your digitization decisions on magnitude alone. Rather, ask which 10x improvements are most important, given the unique business issues facing your company, and invest to make those improvements happen first. For most businesses, improvements in all three areas – capital, costs and cycle time – are not equally important or equally attainable.” – Adrian Slywotzky and David Morrison “How do you decide which business functions to focus on, and in what sequence? The specific economics of your business and the needs of your customers should be the controlling factors.” – Adrian Slywotzky and David Morrison

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Consider the availability of hybrid business designs.

Main Idea Contrary to popular thought, the best digital businesses today are not solely Internet based. The really smart companies are hybrids – they offer customers a wide choice of ways to do business with them. If possible, build a hybrid digital business model. Supporting Ideas Hybrid businesses combine the Internet presence of a dot-com with the advantages of a bricks-and-mortar storefront. Hybrids are better than pure Internet businesses because: n A hybrid business can reach more potential customers. Hybrids have the ability to analyze how people act online and in-person – giving them more insights. n Hybrids have the advantages of online business (speed, convenience, accuracy and flexibility) as well as the bricks-and-mortar benefits (personal contact, the ability to touch products, reliability). n Hybrids have more customization options. n Hybrids can leverage existing brands and enhance asset efficiency. So, how do you go about building a hybrid business model? There are no hard and fast rules, but the way forward may become clearer as you develop the answers to four key questions:
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Not all hybrids are mixes of bricks-and-mortar and online commerce. A second type of hybrid evolves when businesses blend communication types – conventional and electronic. For example, there might be the option to do business with the company via a telephone call, with a sales representative or online through a Web site. Or customer service calls may be handled through an Internet based service first, with customers then being able to request a support manager to call them to provide the help they need. This second type of hybrid has become very popular already, and a wide variety of experiments are underway to fine-tune and optimize this model. Some Web sites now offer the ability to speak online with a live person if required. This allows the customer to have their questions answered immediately, enhancing their level of satisfaction. Whatever type of hybrid business model is used, there is one clear fact. In building a hybrid, the incumbent business is better positioned to succeed than a dot-com start-up because:
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Incumbents understand what their customers want. Incumbents have a number of resources which are difficult to copy – an established product range, a customer base, physical plants, bricks-and-mortar storefronts, a company history which inspires confidence and an established brand.

Incumbents already have a customer base. In total, incumbent businesses have many competitive advantages over the pure dot-coms. The question is whether the incumbents know how to use those advantages to best effect.
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Who are our customers and how can both digital and physical assets be combined to serve them? How can we enhance profitability by combining our physical assets and an e-commerce infrastructure? For example, how can we generate an initial sale with our physical assets and deliver additional products and services electronically? How can we build entry barriers for future potential competitors by utilizing a hybrid business approach? Which other companies could we quickly become aligned with to build a hybrid business model?

Key Thoughts “People thought the Internet was self-serve, like a gas station. But there are some things you cannot program a computer to provide. People will still have questions, and what you get are much higher-level questions.” – Bill Bass, head of e-commerce, Lands’ End “Despite the initial advantage of the dot-coms, bricks-and-mortar incumbents are well positioned to win in a hybrid world. Internet businesses are easy to start and expand rapidly because of their virtual nature and low capital requirements, but they are also easy to replicate and commoditize. E-commerce copycats who flooded markets with the same basic, low-price value propositions, are already going bankrupt or failing to find new financing. By contrast, most industries have a handful of traditional manufacturers, distributors and retailers that have painstakingly built competitive barriers through investments in physical assets and infrastructure, brand building, organizational expertise and patent and distribution rights. These barriers, if harnessed to the right hybrid business design, can provide some initial protection against dot-com upstarts.” – Adrian Slywotzky and David Morrison “Every successful hybrid represents a unique business model, one designed to integrate the management of bits with the management of atoms in a way that is most advantageous to a particular set of customers. As always, the right design decisions will emerge from a deep understanding of what your customers want.” – Adrian Slywotzky and David Morrison “There are few purely digital plays in business today – appropriately so. Not all customers are ready to transact all, or even most, of their business online.” – Adrian Slywotzky and David Morrison

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For an existing business, building a hybrid may involve establishing a new and separate e-commerce division. Positioning this new division correctly may be a management challenge. In essence, there are four possibilities, each having distinct advantages and disadvantages: 1. Make the e-commerce division a standalone company – which will make it easier to value and attract a management team for the online business. 2. Have a shared resources approach – where the online division uses the parent company’s capital, infrastructure, brand or intellectual property. 3. Become an incubator – meaning the parent company provides the resources the online division needs until the online division is large enough to be merged back with the parent company. 4. Create an internal business – where the parent company sets up an internal online business which can offer online products and services alongside the existing product line-up. This allows for close links to be fostered between existing customers and online customers.

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Anticipate all your customers will become highly active.

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Overcome the obstacles and roadblocks along the way.

Main Idea Consumers today are active rather than passive – they like to get involved in configuring products and services just the way they want them. Smart businesses realize that and so they are developing business models which allow customers to participate in the creation of added value. Supporting Ideas The role of the customer is rapidly evolving within the current economic system in three specific areas: 1. Power – today the balance of power is firmly with the customer. A buyers market exists for almost every product as supply far exceeds demand. 2. Specificity – today’s consumers are increasingly unwilling to compromise when choosing products. They are less willing to accept generic products and more keenly interested in choosing niche products that have the features and benefits they want. 3. Activity – customers prefer being informed and participating in commercial transactions rather than simply being forced to accept limited choices. If possible, they even want to become involved in the design process. When developing a digital business model, these three trends need to be taken into account. Specifically, smart businesses will assemble and integrate the digital tools active customers will need. Effectively, digital businesses take many of the activities previously performed by the company (to one level of competence or another) and build tools which will let the customer do those things for themselves. Not only will the customers love it, but doing that also lowers costs. Some guidelines in this area:
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Main Idea When shifting to a digital business model, obstacles usually come in two main varieties: n A lack of insight about fundamental business issues.
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An unwillingness to endure the inevitable pains that will arise during the implementation process.

The lesson is simple. Develop more insight and the courage to endure short-term pain for long-term gains and the digital transformation will be relatively easy. Supporting Ideas As a rule-of-thumb, the transition to a digital business model will usually take about four years, and possibly longer. Why? n It will always take a long time to develop the new business plan and decide on the optimum mix between information and hard assets. You’ll need time to think this through carefully. n The digital business model will impact on every division, department and individual. It will take time to do some internal marketing and get everyone on the same page. Once the process of transforming personal and organizational habits begins, it will be quite a period of time before everyone in the organization can understand and make the changes required. All in all, never set a target date for adopting a digital business model which is less than four years in the future. And, even then, if you actually manage to meet your target, that will be a pretty impressive accomplishment. Think of that transition period as an investment in the future well being of your business. Further down the track, the time invested and the pain endured now will have some substantial payoffs.
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Customer self-service systems don’t have to be perfect. If you make it possible for 90-percent of the inquiries to be handled by the customers while the remaining 10-percent are handled by your in-house experts, customers will love it. (And so too will your support staff who will be able to focus on specialized problems rather than fixing routine problems over and over). The more information you embed within this system, the better informed customers will become meaning they will be empowered to make even better decisions in the future. The more analysis tools and information engines you can build in, the more productive your customers will become in performing their business tasks – and the greater the value they will place on your help. As you make more digital tools available which enhance productivity, customers will have a greater willingness to adopt other digital technologies which may become available in the future.

Also, keep in mind when you first make a start on moving to a digital business model, the obstacles will appear to be huge. You should be prepared to offset the most common complaints you will hear: n “Going digital might work elsewhere, but if it’s so good, how come nobody else in our industry has done that?” You should point out digitization affects fundamental business activities, and the opportunity may exist to generate some huge order-of-magnitude enhancements. Your business would be foolish to leave these possibilities for competitors to exploit.
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“Our profits are doing just fine at present. Why bother?” Explain that digitization significantly lowers market entry barriers. Thus, if you are complacent, you open the door for a more aggressive competitor to come in and access your profit pools. “We’ve already gone digital. We just spent $2 million buying laptops for everyone.” Point out the key to adopting a digital business model is not to see how much computer technology can be bought but to find better ways to serve customers. The point is to focus on the customer benefits of digitization, not the technology side. “We’re still busy with reengineering and six sigma. Our people just aren’t ready for something else to worry about.” This will always be true. Every company is busy. Explain that digitization supports and builds on what is already going on. Change will be difficult, but worthwhile, but that if you don’t move forward, your competition just might instead.

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Key Thoughts “The emergence of the active consumer isn’t simply a challenge to old ways of providing service or responding to problems. It’s an enormous opportunity to change the landscape of business by redefining the customer relationship in ways that will help both suppliers and their customers.” – Adrian Slywotzky and David Morrison “Make your customers active co-conspirators in your success.” – Adrian Slywotzky and David Morrison

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Fortunately, the experiences of some of the digital pioneers offer valuable lessons in how to address the challenges inherent in adopting a digital business model. They offer a great reality check. Some of the key lessons: n You must have a unique and robust online value preposition. The barriers to entry are exceptionally low for online competitors. The companies that are winning consistently deliver great value to their customers, preventing those customers from moving elsewhere at the click of their mouse.
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Take the process to its logical conclusion – be unique.

Main Idea At the end of the day, adopting a digital business model is all about building a business which will be able to compete successfully in tomorrow’s economy rather than yesterdays’. A good digital business will always be unique in the way it serves its customers. Supporting Ideas What does it take to build the digital business organization of the future?
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You must be able to capture part of the added-value created. Unless an online business can monetize the customer relationship, they will not survive, much less prosper. Many online businesses serve customers well, but the survivors also do so profitably. Advertising only works for niches or mass marketers. Thus, it will be too expensive to keep advertising to capture new customers indefinitely. At some point, the marketing vehicles have to become more cost effective and sustainable. Spending large amounts of money on advertising to attract new customers will only work in the short-term, not as a long-term business building vehicle. The business fundamentals are more important than ever. No matter how entertaining or smooth the Web experience may be, if the business cannot deliver on time as promised, customers will notice. And with the Internet, irate customers can circulate their experiences easily. Thus, all of the other systems need to function smoothly if the online business is to succeed. Be prepared to continue evolving or get left behind. In the digital business world, business models can become redundant overnight. Upstarts can come along with a new innovation at any time, taking all your customers. Digital innovators are always willing and prepared to abandon their existing business models at any time and move on whenever something better emerges.

A CEO who is business-centric, not technology centered. The most effective leaders focus on how technology can be used to serve customers better in new and original ways. A CIO who knows the principles of good business design. And who can work with the CEO to develop a clear vision and focus on the key business issues. Strong internal marketing. So the people within the organization can be taught how they need to think and act in the future. Unless a major change happens first in the minds of the people within the organization, nothing will ever be accomplished externally. You cannot succeed unless everyone is committed to the same goal. Organizational momentum. Energy and alignment create momentum for any organization. Great organizations excel at generating energy and focusing it in the right direction. This is the direct result of a robust, world-class internal marketing program. Great communication programs. You’ll need help from partners and strategic allies. They will only be able to help if they understand where you want to head – which means you have to be able to articulate your vision well. A focus on a single, extremely clear message. Great organizations don’t try and be everything to everyone. They have a simple, clear business idea which gets repeated again and again until everyone begins to live it. Usually, that will take a year or two of repetition before people begin to take notice. High know-how circulation. The digital business of the future will share knowledge exceptionally well. That will apply both to the success stories to be emulated and the traps to avoid. Good businesses excel at disseminating, reusing and circulating knowledge. An emphasis on serving the customer, not cutting head count. For traditional businesses, whenever they can reduce head count, the market value of the company increases. Digital businesses approach this question from a different orientation. For them, the real question is how best to use new technology to simplify and make customer processes more efficient. The more efficient these processes become, the more time the people in the organization will be able to devote to higher value tasks like exceeding customer expectations. A commitment to leveraging talent. Digital business builders know ideas reside in the minds of people. Thus, they focus on making the most of their company’s intellectual capital. Generally, that involves designing internal systems so people have the time and energy to be creative.

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Key Thoughts “Whatever amount of time and money you spend on going digital, think of it as an investment. Like any worthwhile investment, it will pay dividends – in money and time. Intelligent digitization will leverage your own talents, enabling you to spend more time doing the creative personal work only a human mind can do. Your real priorities can only benefit.” – Adrian Slywotzky and David Morrison “The power of your technology is unimportant in itself: what matters is the degree of relevance of your technology to customers’ needs.” – Adrian Slywotzky and David Morrison “Internet-based businesses must be prepared to face the same kinds of unexpected, unpredictable, often seemingly unfair business challenges that traditional companies have always faced. Responding to these challenges successfully will be a matter not such much of technology as of foresight, flexibility, integrity and courage. Today’s dot-com leaders will be tested on all those fronts in the years ahead.” – Adrian Slywotzky and David Morrison “Dot-com valuations will no longer remain at astronomical levels in the absence of sustainable profit models and other elements.” – Adrian Slywotzky and David Morrison

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How Digital Is Your Business? - Page 8

In the final analysis, moving to a digital business model is all about building an organization with four key attributes: 1. Fast Digital technology enables information to be captured and circulated in real time. That means customer choices and feedback can be assembled, analyzed and acted upon quickly. It also means the resources of the company can be applied where they will generate the greatest benefits rapidly. 2. Accurate Being fast and wrong generates no added value whatsoever. It is accuracy that makes speed valuable. Traditional businesses have always operated on informed guesses and projections. Digital businesses gather precise information for decision making. 3. Morphable Digital businesses are flexible, built around managing information rather than goods and reliant on working with partners rather than doing everything internally. Therefore, when a digital business needs to change, it can. As markets evolve, the digital business can be reconfigured to suit. 4. Externally Focused A digital business model has an external orientation. It is always aligned with the needs of the customer and the general marketplace rather than being tied to a historical legacy business. That makes it less likely significant market shifts will be missed or ignored. It all really comes down to one simple question: “Why do our customers choose to buy from us rather than from one of our competitors?” An organization with a digital business model is more likely to be able to offer a unique set of value propositions that no other company will be able to match. And even more importantly, digital businesses are built to evolve. As customers change, that uniqueness or point of differentiation can evolve as well. Thus, digital-class companies constantly focus on one key question above all else: “Are we unique in a way that matters to our customers and talent?” Key Thoughts “The greatest challenge in shifting from conventional to digital business design, in getting from point A to point B, is the organizational one. However, a process of change management that begins with partnering at the top, invests in internal marketing and provides leverage to the talent significantly increases the odds of making the transition successfully. It also begins to create the type of organization that can compete successfully in tomorrow’s economy.” – Adrian Slywotzky and David Morrison “There’s always a Next Big Thing waiting around the corner to make today’s skills and today’s business designs obsolete. The smartest businesspeople are always looking for the Next Big Thing – when they’re not busy developing it themselves.” – Adrian Slywotzky and David Morrison

“The last decades of the twentieth century were the era of the reinventors: businesses with the insight and courage to redesign themselves as needed to achieve and sustain a special place in the minds of customers as well as a growing share of sales and profits. The first decades of the twenty-first century will belong to the digital reinventors: businesses that know how to take advantage of both traditional and digital options to create and occupy unique and continually evolving positions in a rapidly changing economic universe.” – Adrian Slywotzky and David Morrison “The development of the digital organization is still in its early stages. Its state of evolution might be compared with that of the twentieth-century corporation in 1920-1921, when Pierre S. DuPont was designing DuPont as one of the first modern corporations. Today, a host of individual changes fostered by digitization in every area of business activity, from sales and marketing to recruiting and management, from design and manufacturing to customer service and finance, are accumulating, interacting and catalyzing one another so as to produce broader changes that are fundamental. They predict a different kind of organization than the now-traditional corporation pioneered in the early years of the twentieth century.” – Adrian Slywotzky and David Morrison “It’s not surprising the Internet space has proven to be a wasteland – potentially a graveyard – for hundreds of seemingly promising business start-ups. As we’ve seen, the factors that make the Internet an attractive business venue are the same factors that make it treacherous: low barriers to entry, low switching costs for customers, volatile revenue and no ‘moat around the castle’ to protect profitability. Add the fact that both the technologies and the economics of the Internet are still undergoing rapid and continuous change, and it’s easy to see why success has eluded most dot-coms.” – Adrian Slywotzky and David Morrison “Digital business design is about business first, design second and digital third.” – Adrian Slywotzky and David Morrison “Going digital can be accomplished in four years if you start working at it immediately – and like banshees, just as the digital innovators did.” – Adrian Slywotzky and David Morrison “Digital innovators share one quality in common: They are energetic advocates for their customers, their employees and their investors. Their mindset is simple and obsessive, and they are frighteningly persistent in their pursuit of answers to a single set of questions: How can I exploit digital options to offer a better deal to my customers? To create a better system for my employees? To generate a better risk-adjusted return for my investors? An unrelenting focus on these three concerns has produced some fascinating business designs. They are different in their details, but each started with the business issues and the problems of customers.” – Adrian Slywotzky and David Morrison

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