Framework 70 Business Models for the Digital Age

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Introduction

The role of the organisation requires significant shift away from traditional managerial thinking that sees businesses operating in a value chain to thinking about being part of an ecosystem where the lines between the organisation and other stakeholders are blurred. Need to think more broadly than just the value chain approach. Organisations that transform their business into an ecosystem are performing better.
For example, Wal-Mart knows a lot about its products, where they come from, their placement in the stall and when they are sold. On the other hand, it knows little about its customers and why they are buying what they are.

As the world is changing very quickly and in unpredictable ways, the risk of disruption, especially digital, needs to be evaluated. We are in a disrupt-or-be disrupted world, ie disruptor or disruptee. This requires a new mindset. More and more senior executives are concerned about the impact of digital disruption on their organisation and industry (Joanna Gray, 2016). Linked with this is competition coming from outside the typical competitor peer group as start-ups and adjacent businesses, eg Apple Pay with transactions

Digitalisation enables a wider range of benefits. The enhanced customer value comes from having vendors selling like products at differing prices with varying service levels, and faster feedback that allows the vendor to improve their products and services. For example, Amazon.com offers greater customer choice and enables faster innovation. Customers get a one-stop Amazon-managed experience with greater choice and with more information about prices and quality. Amazon explores the data from all of its activities enabling fine tuning and  identification of new opportunities, etc

Detailed knowledge of customers includes names, addresses, demographics, IP addresses, purchase histories (your organisation and others), live events ( personal like weddings births, etc and professional/business like mergers, expansions, etc)

"...companies that earn 50% more of their revenues from digital ecosystems and that understood their customers better than their average competitor, had a 32% higher revenue growth and 27% higher profit margins than the industry averages..."

Joanna Gray, 2016

Four distinct business models
These are used to move from value chain to eco-systems approach with increased consumer knowledge
 

(source: Centre for Information Systems Research as quoted by Joanne Gray, 2016)

1. Suppliers (have partial knowledge of their end user and operate in the value chain of another powerful organisation. As enterprises continue to digitise and search becomes easier, suppliers are likely to lose power and to be pressured into continually reducing prices;  this perhaps results in further industry consolidation. For example, Procter and Gamble have 4 b. customers worldwide; they used branding, social media, director customer connections and database approaches to change their model from supplier to omnichannel)

2. Omnichannel (provides customers access to their products across multiple channels, including physical and digital, giving customers greater choice and a seamless experience. Some examples include retailers like Walmart, Nordstrom, etc; organisations controlling an integrated value chain, with a strong claim to "owning" the customer relationship; the challenge is to increase knowledge about the end customer like goals, etc and reduce the amount of customer churn)

3. Ecosystem (creates relationships with other providers offering complimentary or competing services; provides a platform participants to conduct business - the platform can be more or less open; this works best if the destination for customer is in a specific domain like health care, retail, entertainment, financial services, small business, etc. Examples include Amazon, Fidelity, Apple, Microsoft, Google, etc. 

"...Google operates a very open platform, while Apple is more closed. Fidelity's platform offers its own mutual funds thus also includes funds from competitors such as Vanguard and product and services from complimentary businesses such as personal investment advisers. Ecosystem drivers use their brand strength to attract participants, in short a great customer experience and offer one-stop shopping. They aspire to 'own' the customer relationship in one domain like financial services by increasing their knowledge of their end customers. They extract rents from participants in their ecosystem - both customers and service providers - and rely on brand strength and feedback from customer ratings and reviews to build their reputation and revenues..."

Peter Weill as quoted by Joanna Gray 2016

Another example is Aetna (A$47 b.), a managed-health care firm that is attempting to become the exclusive destination for health-care and lifestyle needs. It focuses on multiproduct and multiservice customer experience that integrates its own products with those of third parties, eg wellness and health coaches, their smartphone apps such as iTriage let users check their symptoms, get information on medications and find nearby hospitals.)

4. Modular producers (provide plug-and-play products or services which can adapt to a variety of ecosystems; to survive they must be among the best in their category, and thrive they need to continually roll out new products and services to provide the best options available and be well priced.This it is a highly competitive environment which the customers can easily search for, and switch to, alternative solutions. An example is PayPal which is hardware-agnostic, mobile-enabled and cloud-based again operate in virtually any ecosystem. PayPal receives around 50% of its revenue from outside USA. This demonstrates how it must adapt to many ecosystems and regulatory environments; only a few players make significant profit and most struggling to survive in a commodity business; they have limited access to customer data, ie only the data from transactions they process.

From studying companies with more than US$1 b. in revenue, 24% were omnichannel, ecosystem (12%) , suppliers (48%) and modular (18%) (Joanna Gray 2016). Smaller companies have started to increase their knowledge of the customers and become more networked, ie ecosystem (31%) and omnichannel (36%). This indicates size is not seen as a barrier to seizing digital disruption opportunities; smaller and younger firms have fewer legacy systems, are less global and more willing to take risks with their business models than larger enterprises. Also they are

"...More able to collect, analyse and act on the data required to really know their end customers......larger companies also have an abundance of data......but generally don't exploit as well because of their numerous silos, geographies and systems (and yes, politics) that make it difficult to connect the dots..."

Peter Weill as quoted by Joanna Gray 2016

(source: Joanna Gray 2016)

 

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