Digital transformation involves more than just digitalizing marketing, sales and customer processes. The most far-reaching dimension of digital transformation requires a whole new business model.
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This interview with Jeroen van den Nieuwenhof on digital transformation, previously published on MT.nl
Over five years ago, the average hotel manager could not have imagined that his biggest competitor would not be another hotel but a private home. And yet, as a result of digitalization, travelers now have access to the keys of private homes, facilitated by Airbnb.
This example shows that companies in all sectors are being confronted with a digital transformation from unexpected angles. “Not long ago, many companies still brushed digital transformation aside as something that would not apply to their sector or as something they could deal with. But this view has now changed.” By applying new technologies, such as mobile, social, cloud, analytics or the internet of things, customer and business processes can be improved fundamentally, giving rise to new business models.
Digital transformation is about three dimensions, says Van den Nieuwenhof.
- The first dimension is digitizing marketing, sales and customer service interaction. “This means that all channels are designed in such a way that customers can find information about a product online, buy it online, and also ask their questions about it online. The task of digitalization is often reduced to just this aspect, but there’s more to it than that.”
- The second dimension is about digitalizing the internal organization. “An example of this is when mechanics can carry out repairs better and faster at any location thanks to smart glasses. These glasses not only give mechanics easy access to relevant documentation, but they can also establish a live connection with colleagues or experts elsewhere, who can then see directly ‘through those glasses’ what the problem is.”
- The third dimension is creating and implementing new business models. “This is the most far-reaching change,” says Van den Nieuwenhof. “New business models often involve aspects of a product-to-service proposition, skipping steps in the value or distribution chain, direct interaction with the end-user (who was previously often unknown), or cross-sector partnerships.’
Van den Nieuwenhof mentions the example of a toothbrush manufacturer. ‘By connecting an electric toothbrush to online networks, you gain insight into the user’s brushing behavior. This may be limited to a mobile app, which advises users on how to improve their brushing behavior based on the data provided. But it can also be taken one step further, when the manufacturer of the electric toothbrush joins up with dentists or toothpaste manufacturers to think of more extensive oral healthcare services.”
Facilitating tools and platforms
The first two dimensions are relatively easy to organize. “They are about business processes that need to be digitized. This can be achieved by assigning a program or project team, who will provide the tools and platforms to enable digital working procedures. Once people have been trained to use these new tools, you’re ready to roll.”
To achieve this in large, often international, companies, a top-down approach works best, with managers providing the necessary tools and facilitating implementation. “This ensures speed and efficiency. Employees are themselves part of the change, and still need to carry out their daily tasks. They won’t have time to reinvent their own work, or to select and implement a new technology.”
Separate entity for innovation
The third dimension – the transformation of the business model – is more difficult to achieve. “It involves innovation in areas that companies are not used to. It’s not about product innovation, but about the company’s changing role in the value chain.” This may require new people. “A possible solution could be to put together five to ten people from different, but adjacent, sectors in a separate entity of the organization. Together, these people may be able to think of relevant new business models.”
Making the connection
It will be essential to ensure that this entity remains connected to the organization’s parent company, as the new business model should serve the existing organization. “One person could be made responsible for maintaining this connection. Importantly, this person needs to understand that the new business model should serve the parent company.” The organization should not be obliged to adopt the new business model proposed by the separate entity. “It’s mainly important that they think about it. But if the new model is an insufficient match with current business operations, the proposal may be disregarded or even sold.”
Not step by step
Given that the third dimension cannot be achieved if the first two have not been organized properly, this may all seem like a step-by-step process. But it is far too late for companies to tackle digital transformation step by step. “Customers already have certain expectations, particularly with regard to the first dimension. Organizations that haven’t started yet may actually have missed the boat. Digitalized marketing, sales, and customer processes have already become the standard.”