The business world is rapidly digitizing, breaking down industry barriers, creating new opportunities, and destroying long-successful business models. What will the next generation enterprise look like in five years? And how will your company profit in the digital era?
Earlier this month, MIT Sloan Research Scientist Stephanie Woerner presented a one-hour webinar to familiarize participants with the significant changes, risks, and opportunities enabled by digitization. In The Next Generation Enterprise: Four Business Models for Thriving in the Digital Era, Dr. Woerner drew from her study of 144 breakthrough initiatives in large organizations—as well as fascinating survey results from over 300 firms—to help paint this picture for executives.
During her presentation, Dr. Woerner covered four viable business models for the next generation enterprise:
The Supplier Model: Suppliers have a partial knowledge of their end consumer and typically operate in the value chain of another powerful company. Companies that sell insurance via independent agents (for example, Chubb Group), electronic goods through retailers (such as Sony), or mutual funds through brokers (for example, Vanguard) are suppliers. Incremental innovation is important in this model, in order to gain leverage and not be relegated to competing only on cost.
The Omnichannel Model: Omnichannel businesses provide customers access to their products across multiple channels, including physical and digital channels, giving them greater choice and a seamless experience. United Services Automobile Association (USAA) is a great example. Woerner shares how the company has expanded its financial service offerings to address the entire customer lifecycle. Events like buying a car, moving, getting married, or having a child triggers an integrated package of products designed to meet customer needs.
The Ecosystem Driver Model: Ecosystem drivers provide a platform for participants to conduct business. Like omnichannel businesses, ecosystem drivers use their brand strength to attract participants, ensure a great customer experience, and offer one-stop shopping. They aspire to “own” the customer relationship in one domain by increasing their knowledge of their end consumers. For example, the health care company Aetna Inc. is increasingly focusing on a multiproduct and multiservice customer experience that integrates its own products with those of third parties.
The Modular Producer Model: Modular producers such as PayPal provide plug-and-play products or services that can adapt to a variety of ecosystems. To thrive, modular producers must be among the best in their category, and they need to continue rolling out new products and services to demonstrate that they are among the best (well priced) options available.
To learn more about her research and survey results, you can watch the recording of this webinar, where Woerner also covers:
- The financial performances of firms currently pursuing each of these four models, across a range of industries
- The disadvantages of focusing narrowly on value chains
- Why the Ecosystem Driver model outperforms all the others
- How to guide the culture of your next generation enterprise
You may also consider enrolling in Revitalizing Your Digital Business Model, a two-day program for executives. Taught by Dr. Woerner and her colleagues at the Center for Information Systems Research (CISR) at MIT Sloan, this program provides insights into how firms can achieve competitive advantage by providing unique digital content, an exceptional customer experience, and superior digitized platforms
The well-attended webinar drew a large crowd to Facebook for a live Q&A following the presentation. Dr. Woerner could not address all the questions posed during that time, so we invited her to continue the conversation here on our blog. Below are a few additional questions and her responses.
Is security competence a key capability for business transformation in digital era?
In our interviews with boards of directors, we are seeing a strong interest in cybersecurity. All of the business models I reference in the webinar take it as a given that you’re keeping your customer data safe and you’re managing privacy concerns in the environment you’re operating in. Every company we talk to says this is a bedrock. If you can’t keep data secure, you’ll have trouble.
Are these business models specific to digital business, or could they apply to the traditional economy?
There has been a lot of research done on traditional business models. But since the whole world is becoming digital, we [CISR] think our sponsors and patrons need guidance on how to think about the threats and opportunities digital poses. Through our research, we heard about a wide variety of initiatives, but generally companies were seeking to transform in two dimensions: to know more about their end customers, and to operate in an increasingly digital ecosystem. To prepare for the future, companies need to develop new capabilities in these two areas.
Do these business models and frameworks apply across industry?
Industries do not constrain digital business models. These models should occur in every industry. However, some companies will have a harder time with the shift than others, including those with a lot of legacy. Older, more established companies may find digital transformation harder to address. For example, they may be challenged to develop a platform that lots of companies can play on because they have long established ways of working with customers. These companies have to be willing to cannibalize, and that’s a hard thing to do when you’re already successful.
What are the main risks of remaining a supplier?
As enterprises continue to digitize and search becomes easier, suppliers are likely to lose power and be pressured to continually reduce prices, perhaps resulting in further industry consolidation. For example, the Procter & Gamble Company has anticipated this potential loss of power and growth. While they have been successful, they don’t understand their end users. So P&G has recently begun a campaign to learn more about and connect with its more than 4 billion customers worldwide (using social media, direct-to-consumer connections and data-based approaches, etc.). It’s why we see the need for ongoing, incremental innovation--it can help keep you from having to compete on only on cost.
Does big data have an impact on these business models?
I think that data doesn’t have to be big data. Companies need to think about how to explore their little data, too. What matters is becoming experienced in the way you use the data you have. Companies need to use their data to make decisions, as opposed to the HIPPO model (looking for the highest paid person’s opinion in the room). There are very few companies that have gotten around to exploring the data they have. If you start embedding the use of data in your decision-making process, the data itself will become better because people are depending on it. That’s how you move from little data to big data. But ultimately this data has to be great. It needs to be the single source of truth. You don’t want it scattered all over the company in silos, because you’ll be missing opportunities.
How is digitization affecting your business? Assess the digital threat, and become a part of Woerner’s research, by taking this short questionnaire.