Research scientist Stephanie Woerner explains the digital business models companies are using to compete in the digital economy and the capabilities needed to succeed.
Stephanie Woerner is a research scientist in the Center for Information Systems Research at the MIT Sloan School of Management. She is also the co-author of What Is Your Digital Business Model? Six questions to help you build your next-generation business coming out next month.
In part one of this SearchCIO Q&A, ” MIT Sloan: Finding Your Digital Business Model ,” Woerner outlined four types of digital business models that companies are using to generate revenue. digital and thereby become viable players in the digital economy. They are as follows:
- Supplier model: Companies sell products through intermediaries; Because of this, they often don’t know much about their end customer. The closest structure to traditional business models, the supplier model requires companies to optimize their supply chains to be efficient, cost-competitive, and find ways to digitize their products. surname.
- Omnichannel Model: Multichannel companies bundle products and services to solve customer problems. In the omnichannel model, the company owns the customer data and allows the customer to do business across multiple channels.
- Modular digital model: Technology agnostic service providers can be a good fit for many businesses. PayPal is an example of this type of digital business model.
- The driving force behind the ecosystem: It’s companies like Amazon that are a prime example – hosting the technology platform on which business partners and customers join. Ecosystem Drivers own customer data and also extract part of every transaction between platform partners and customers.
Here, Woerner explains four digital business models and dives into some of the attributes companies need to build to become successful digital players.
You describe the ‘ecosystem driver’ as one of the most difficult digital business models to get right. Amazon has mastered it. So what other companies are in this category?
Stephanie Woerner: We’re seeing several financial services companies in this category. What they are doing is determining the destination. They don’t think of themselves as a financial services company. They said, ‘Okay, maybe we’re not going to be the top monkeys; maybe what we’re going to do is define a destination and be the best there is. ‘
We’re also seeing real estate companies and some insurance companies adopting this digital model: They say, ‘We know where the problem is and we can bring together a lot of people. players together and is the platform to unravel that problem. “Honesty can be the driving force behind the ecosystem for many retirees. In addition, honesty also plays a role in all four types of digital business models, in many of the largest companies.
Buying a home is a field that is still very active.
What about companies like Zillow and Rocket Mortgage?
Woerner: Zillow is digital, and you can find all the assets, but do they aggregate all the finances? Do you have title insurance and home inspection? I think that’s still the kind of area where there’s a lot of contention.
Now in retail, it must be said that Amazon is winning. However, you can see a more specialized ecosystem, in the higher end retailers have assembled a smaller, highly regulated ecosystem that pursues a small group of the best customers and provides give it to them.
So we see companies trying to identify where they can be an ecosystem driver and realize it will probably only be for a small subset of their customers.
To be the driving force behind the ecosystem, technology is a fundamental factor. Do you think technology will be the limit for big companies – even a deal breaker?
Woerner: It would be if they didn’t have the technology available and they didn’t have the platform. Without the background, they’re going to have a really hard time. At that point, a company may really want to look at other digital business models – omnichannel, or they want to create a service that can be combined with many other ecosystems, to become a module manufacturer. I’m working on a modular digital business model this year, trying to see some of the capabilities that module makers have to build in order to be successful.
And this model will also be difficult to get in the right direction because it is so dependent on one platform and creating API-enabled services can fit everywhere. Module makers have to be tech-savvy, and it takes a special mindset to do that.
General Electric, with its Predix platform , is trying to be the ecosystem driver for the industrial internet. However, this building of digital capabilities created a lot of anxiety for shareholders, and GE had to deal with that. Can you give companies some suggestions on how they can improve their chances of building successful digital business models?
Woerner: We have identified eight capabilities that companies must build. Some of them are around the business design. One of the cool things about GE is that they really tried to be the driver of the ecosystem, but it was difficult to know who their partners were. Really, the best ecosystem drivers are always thinking about who their acquirers are [and] who their partners are. With GE, it looks like they tried to go it alone. I could be wrong about that.
Another characteristic is that you take your customers very seriously – their voices must be heard. And, again, with GE, I’m not sure what the customer’s role is. That’s what I thought of.
Companies must find a way to amplify the voice of customers within the company. Do you know what your customers really want? Do you have the ability to listen and collect, not only large amounts of data from customers, but also collect and identify customer problems to solve? And if you can’t do that, that will be a real hindrance for you.
A disruptive innovation theorist , Clay Christensen of Harvard Business School, makes this point in his lectures. Companies need to look at their products in terms of the customer’s job to be done.
Woerner: Yes, we see companies making progress in this direction. Firstly, they have good customer data, and they really have found a way to consolidate their customer data into one place. Or, they did it through technology in such a way that they would eventually have to consolidate or they would continue to grow like little spaghetti noodles. But in the short term, they know where their customer data is, how to access and use it, from using that customer data to making decisions based on cues.
What are some other characteristics a company needs to have in order to develop successful digital business models?
Woerner: You really have to start thinking about doing some tests and then check if you can scale those tests.
And when you’re thinking about changing the design of your business, you realize that there are these partnerships and acquisitions that you have to think about doing, but you also have your background where you must be able to deliver a service — create a service — that you are willing to use both internally and externally.
So when we talk to companies, we’re not really asking them to turn on APIs with every service and then open them up to the outside, but ask them to identify the best services they can. enable the API and then advise them to open these services to everyone in the company to see what kind of innovation they can get inside the company. They can then start thinking about how they open those services to the outside. Do you want to open them like a Google Map API that anyone can use? Or do you want to keep a tighter grip on your services, have a little more control, and open them only to specific partners? You need to think about that kind of strategy.
And if you want to build a destination that other people will come play and plug in, you have to ask yourself, ‘Why did they go there?’ You can’t just say, ‘We’re going to be the platform for’… You have to think about how you’re going to make yourself the destination that customers and partners want to go to. So there’s part of the strategy there.
And once you go digital, you have to be good at security, compliance with regulations. We have seen what happens.
How do you advise companies whose competitors are beating them in the digital realm? Do you deal with companies where you have to say, ‘You won’t be able to catch up.’
Woerner: Because of our sponsor model and the people who come to us, we often talk to companies that are trying and working hard to make very difficult choices. So sometimes, you have to say, ‘You might have to cut your expectations. What do you do best and can you focus on that? ‘
The data we have shows a lot of consolidation coming and we can see a lot of companies going out of business. If they don’t have a good business model to generate money and cash flow, I’m not sure how they’re going to stay ahead, unless they can convince the market to keep investing in them.
Most of the time, however, we have large sponsors and patrons, so we are working on issues of interest that can be solved, such as data consolidation. And we have companies that can do that because they’re always trying to survive.
Woerner and CISR President Peter Weill will present their research on digital business models at the upcoming MIT Sloan CIO Symposium on May 23 in Cambridge, Mass.