Digitalization is a verb
I understand that as a term it may still be unclear in many companies. It is mainly associated with technology, but in my opinion, it is more about how technology changes the customer expectations and business processes, thus constantly altering the business environment. A dynamic approach to create human-centric services based on real-world data is essential in the digital era.
From a company’s perspective, digital transformation is better seen as continuous adaptation to the constantly changing environment. There is no longer time for a strategy that is prepared for the next five years, but rather the need to continuously sense and respond to the changes in marketplace. Therefore, strategy is also a verb, and digitalization must also affect leadership.
What does digitalization mean to your company?
Whichever business sector your company operates in, the relevant strategic question is, what does your company wish to influence with digitality?
The offering, value proposition, or the way the company wants to monetize it? Is the goal perhaps to carry out business operations in a more efficient manner and thus make savings in production costs? Does your company operate in a business sector in which there are companies that may not be carrying out profitable business yet, but are still eating at it in small quantities? Does digitalization refer to the optimization, the transformation, or even the market disruption?
Watch out for sharks!
Have you stopped to consider why companies that disrupt the market are usually new-comers? The reason is probably in the fact that when a company holds an established and stable money machine position in the market, shareholders naturally do not want to take any unnecessary risks by disturbing the market and at the same time make a radical change!
The fact is, however, that a group of sharks swim around every company, even at this very moment, that have the opportunity to disrupt the market extremely quickly with the help of digitalization. Therefore, it is just a matter of time, when your company’s business model is no longer relevant. So, be alert because the new world order will drive even an established company towards change.
A company’s business model must change from push-driven goods-dominant business to pull-driven service-dominant business.
New world and business order
Digitalization has changed the world in several ways. In today’s business, data is what matters. According to IBM, 90% of the digital data in the world was created during the past two years. The amount of data is not only growing exponentially, but its sources are becoming fragmented.
It has had a significant effect on the purchase behavior of consumers and companies. Approximately 70% of purchase decisions are made before the selling organization is even aware of them, since we shortlist suppliers online before making a purchase decision. Therefore, a company’s opportunity to influence a purchase decision has changed.
Digitalization has also made us move from products to services, because in practice all the service providers in the world are available to all the customers in the world. At the moment, the majority of western countries’ gross domestic product (GDP) is formed by services.
What does it mean in terms of a company’s business model? The fact that in this increasingly complex environment companies must be capable of managing data streams, refining, analyzing and using data wisely for business benefits. To rephrase the famous Darwin-citation, it is neither the strongest nor the most intelligent companies that survives, but those most responsive to change.
In a service-dominant economy, the company’s value stream has also turned upside down. It no longer starts with a product, but instead with a customer – products are sold but services are bought. An organization that produces a service must therefore adapt according to the demand of the service market and aim to co-create services for the customer’s changing needs in a pull-stream manner instead of a push-stream manner.
A company’s business model must therefore change from push-driven goods-dominant business to pull-driven service-dominant business.
Are you ready to create new value?
Now comes the tricky part: how do you do it? I strongly believe in a three-phase value proposition through Design Thinking, Co-creation and Lean methodology. The core is formed by a three-circle model, which starts with first identifying the customer’s needs by means of design thinking. Design thinking is applying design tools for business development. In practice it means that a problem is reframed in making sure the right problem is solved and a vague picture of the service can initially be drafted and put on the market at an early stage to be boldly tested. When sufficient data is gained through design thinking on whether there is a need for a certain value proposition, and a solution for value capture, the following business model can be prepared. Many business ventures fail, not because they fail to build what they set out to build, but because they waste time, money, and effort building the wrong solution.
The next stage is co-creation. The goal is to scale creativity by collaborating with the entire value-creating ecosystem, from competitors and partners to customers’ customers. Through co-creation, value is created throughout the network of actors whenever its members meet. A company that genuinely utilizes its network is smarter and more agile and tolerates the instability of its operational environment better.
When we are dealing with the customer’s strategic needs, it’s important that marketing, product development and delivery run smoothly in order to produce the service. That’s where Lean comes into the picture. I strongly believe in the Lean methodology, where the basic principles are continuous improvement, the readiness to react and continuous pull control throughout the entire personnel of the organization, including tools, processes and management work.
The combination of these three methods creates a framework for responding to the continuous change. With these, the company is not only restricted to making value propositions, but also gets opportunities to actively and directly participate in value creation with its customers.
There might be many creative solutions for this, but I would say that collaboration is the key and I’m glad that the digital journey we are all on is forcing us to push boundaries in order to be frontrunners of change!
Seppo Kuula is the CEO of Enfo
This article first appeared in the February 2019 edition of the Nordic Business Report