March 15, 2011 | Written by: Saul Berman
The business world has already gone through information revolutions based on digital technology and the Internet. But today’s transformation has raised the ante. People everywhere are using mobile devices to bring digital capabilities to nearly everything they do. Digital technology is not just for business; it’s also for shopping, entertainment and civic life. Our Smarter Commerce initiative, announced yesterday, addresses these and other digital issues. Strategic context will be explored in depth by an upcoming study from the IBM Institute for Business Value. My comments below provide a preview of those findings.
Business leaders in every industry realize that today’s virtualized world has created tremendous pressure to change the way they set their strategies and run their organizations. According to our 2010 IBM Global CEO Study
, business leaders view technology as a force for change that is second only to market factors. Six years earlier, on the other hand, technology did not even make it into the top five factors. The challenge today? To create new value for customers by combining digital and physical capabilities as part of emerging business models.
To understand business response to fast-changing technology, our newest study examines how these business models are evolving. A clear pattern has emerged: companies taking part in the digital revolution are 1) re-shaping customer value propositions based on digital technology and 2) re-modeling their business operations to deliver digital value effectively, efficiently and in innovative ways.
Finding a value proposition means finding what customers will pay for. And increasingly customers expect digital benefits in everything they buy — convenience, socialization, and opportunities for collaboration. These benefits can take place at several levels:
- At the most basic level, organizations add to existing offerings to improve customer experiences – for example, Web-based transactions for service requests, online social networks for consumers of household products, digital safety and security features for car drivers. All of these digital experiences augment physical products or services, and in so doing differentiate the brands that provide them.
- To create new revenue streams, businesses need to extend the value proposition. One example: creating and managing a virtual world where the buying and selling of digital goods provides highly valuable data for third-party marketers and advertisers. Or providing sales associates with easy-to-access analytics that predict the add-on purchase a particular customer is most likely to need.
- At the most intensive level, businesses respond to the digital transformation in business and society by redefining the essential value of their offerings. Medical devices, for example, can do more than reading glucose and blood-pressure levels; they can send real-time alerts to healthcare providers and caretakers. In re-focusing on digitally-enabled benefits, businesses become providers of essential services instead of commodities.
The degree to which businesses incorporate digital benefits like these into their value propositions determines the type of returns they’ll receive in terms of market share, customer loyalty, new revenue and industry leadership.
A digital value proposition is only part of the pattern we’ve seen among forward-looking organizations. We also found that businesses committed to delivering digital value are also organizing their operations to optimize data analysis and customer insights. They are doing what it takes, and more, to maintain supply chain flexibility while integrating sales and marketing across all channels. And, they are using these channels to continuously collaborate with partners and customers for the next iteration of digital value.
Ultimately, successful business models will require digitization of both value and operations to deliver continuous, customer-centric innovation. The path to digital transformation will vary by industry, organizational history and values. However, any organization that finds ways to digitally transform two dimensions – customer value proposition and business operations – will gain the benefits of industry leadership. They will have first choice of talent, partners and resources. Just as importantly, they will set a high bar for current and would-be competitors.