6 guiding principles to master Digital Business

These days most companies integrate digital elements yet plenty of corporate failures and opportunities offer guidance to become a successful and profitable business

diego navia digital operations

By Diego A. Navia

“A Digital Business is one that provides goods and services, creating value and competitive advantage by leveraging technology”

Digital Business is the type of term that follows a non prescriptive, principles based definition. Definitions have also varied over time in part because, for the most part, the end state is still a moving target and a continuous discovery process due to the rapidly changing dynamics of the digital world. 

Along these lines, McKinsey’s Karle Dorner and David Edelman argue “Digital it’s about technology. For others, digital is a new way of engaging with customers. And for others still, it represents an entirely new way of doing business…Digital is about unlocking growth now”.

Accenture’s Ram Ramalingam  states  “A truly successful digital enterprise is one that considers the technology, the tools, and the people” by following three key elements and several guiding principles. 

Gartner defines it as “the creation of new business designs by blurring the digital and physical worlds.”

 

A Digital Business is one that provides goods and services, creating value and competitive advantage by leveraging technology; value is created along three distinct categories, or “buckets”:

  1. Reducing cost structures through operating models and agile processes
  2. Improving margins through eCommerce, self-service and customer retention
  3. Driving revenue through new products, services and digital business models

More importantly, a Digital Business includes a full set of capabilities: software, hardware and people working together; As opposed to a process, as described by the term Digital Transformation, that allows companies to achieve an end state. Granted, there can be – and typically there are – many “end states” as part of a digital transformation journey.  

Examples of Digital Business

Eight of the ten most valuable companies in early 2022 are digital businesses. Apple, Microsoft, Alphabet (Google), Amazon, Tesla, Meta (Facebook), TSMC and Tencent (WeChat); These businesses are considered disruptive and in most cases the creators of entire industries. They did it by understanding the digital economy and driving revenue through new products, services and business models.

Digital businesses also include high value software companies like Salesforce, Celonis, media companies like Netflix, Hulu and platform companies like Uber and Airbnb as well as disruptors of traditional companies such as Progressive insurance. Companies that have revolutionized their industries across the three categories of value defined above.

Netflix Digital Business

Some companies like Amazon were once called eBusiness, a term associated with companies created in the late 90’s, early 2000’s alongside the creation of the world wide web. They focused primarily on selling or conducting business online, a breakthrough concept at the time. The preeminent example of a company that iterated to take advantage of Digital age business and psychological dynamics.

Blurring lines Between Digital and Traditional business

So here comes the rub, as time goes by the distinction between traditional and digital companies becomes murky. In fact one could argue these days pretty much every business has digital business elements to it.

 

Across the board, traditional business has embraced email, software to run accounting, warehouses, sales and orders. They have setup online stores, websites and some type of social or web advertising; not to mention Zoom, Teams and other technologies designed to facilitate work-from-home throughout and after Covid-19 pandemic.

On the other hand, Digital companies are increasingly invested in the “real world”. Just think about Amazon’s physical stores, supply chain and physical warehouse network footprint that puts to shame traditional logistic companies.

Then there’s Intuit. Originally an eBusiness, it has built a formidably successful company on the back of software-driven services. After acquiring companies like CreditKarma, Mailchimp and others to build on top off Turbo Tax and Quickbooks foundation, their new strategy hinges on augmenting staff -primarily third party part time contractors- to provide on-demand services using their platform.

 

Consider the size of the physical sales force of organizations such as Salesforce, SAP or Celonis to name a few software companies which are perceived as digital native or digital-only companies.

Examples of Traditional Business morphing into Digital

eCommerce is the most visible example of traditional business evolving into digital business. Of course this is just one element of a Digital company but a very visible one, particularly if you are a retailer or have any kind of retail sales. Think of brands like Nike, Coach and pretty much any brand which now has direct online sales.

Walmart and other retailers like Home Depot have invested large amounts of money not only into their eCommerce presence but also in backoffice automation, positioning themselves as retail platforms competing in the same niche and with similar strategy to Amazon.

Financial services is the other industry where lines blur, at least as it relates to self service and customer experience. Consider online banking at Chase, Citibank, Bank Of America; buying and managing insurance from Allstate, Geico; niche financial services like auto loans from TDAuto bank. In general finance organizations relying less and less on physical branches and more on self service via the web and dedicated phone apps.

There are also twists to this equation such as Hostess, the makers of Twinkies. A private equity fund bought its brands, trademarks and recipes off bankruptcy. They created a brand new company from scratch leveraging modern logistics, backoffice and service providers while the paying customer gets the “same product”; all this at substantially better profit margins, making the company newly viable.

Digital Business strategies to move forward

At the end of the day most people equate Digital with technology and that may be why, once a company adopts at least one of myriad technology acronyms (eg. RPA, Cloud computing, ERP, CRM, SEO, Big Data, Web, Automation, email, etc) you may assume you are becoming a digital business, and that may very well be the case.

Yet the question remains: What value are you creating? How are your margins and revenue behaving? If you do not move the needle you may just be embarking in expensive “me too” exercises of technology varnishing.

There are many ways to move forward but this may be worth considering:

  1. Explore options across three value categories described at the top of the article and articulate a digital business strategy
  2. Always measure value (eg. revenue, margins, ROI, operational ratios) and define how benefits will flow from paper business case to financial statements
  3. Don’t get enamored with hot technology acronyms and pick “fit for purpose” technology
  4. Visualize an end state and iterate again and again across all areas; it’s a journey not a one-time shot, that builds on top of what was previously achieved
  5. Adopt Digital Business Transformation frameworks and tools to facilitate the change process, learning from the success and pitfalls of others
  6. Consider the ecosystem/inverted company big picture when ready, integrating suppliers and partners digitally rather than focusing solely on internal assets and handoffs

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