Summary Digital Transformation in IB
Chapter 1. The five domains of digital transformation
Overcoming your blind digital blind spots
Businesses recognize the possibilities created by digital technologies. They see that the
constraints of the pre-digital era have vanishes, making new business models, new revenue
streams, and new sources of competitive advantage not only possible but also cheaper,
faster, and more customer-centric than ever before.
Five domains of strategy that digital is changing
- Digital technologies change how we connect and create value with other customers
- Digital technologies transform how we need to think about competition.
- Digital technologies have changed our world perhaps most significantly in how we
think about data.
- Digital technologies are also transforming the ways that businesses innovate.
- Digital technologies force us to think differently about how we understand and create
value for the customer.
So, digital forces are reshaping five key domains of strategy:
1. Customers
2. Competition
3. Data
4. Innovation
5. Value
Across the five domains, digital technologies are redefining many of underlying principles of
strategy and changing the rules by which companies must operate in order to succeed.
Customers
Traditionally, customers were seen as aggregate actors to be marketed to and persuaded to
buy. The prevailing model of mass markets focused on achieving efficiencies of scale through
mass production and mass communication.
In the digital age, we’re moving to a world best described not by mass markets but by
customer networks. In this paradigm, customers are dynamically connected and interacting
in ways that are changing their relationships to business and to each other. The use of digital
tools is changing how they discover, evaluate, purchase, and use products and how they
share, interact, and stay connected with brands.
Rather than seeing customers only as targets for selling, businesses need to recognize that a
dynamic, networked customer may just be the best focus group, brand champion, or
innovation partner they will ever find.
1
,Competition
Traditionally, businesses competed with rival businesses that looked very much like
themselves, and they cooperated with supply chain partners who distributed their goods or
provided needed inputs for their production.
Now, we are moving to a world of fluid industry boundaries, on where our biggest
challengers may be asymmetric competitors.
- Asymmetric competitors: companies from outside our industry that look nothing like
us but that offer competing value to our customers.
- Digital disintermediation: upending partnerships and supply chains. Our longtime
business partners may become our biggest competitor if that partner starts serving
our customers directly.
At the same time, we may need to cooperate with a direct rival due to interdependent
business models or mutual challenges from outside our industry.
The net result of these changes is a major shift in the locus of competition. Rather than a
zero-sum battle between similar rivals, competition is increasingly a jockeying for influence
between firms with very different business models, each seeking to gain more leverage in
serving the ultimate customer.
Data
How businesses produce, manage, and utilize information.
Traditionally, data was produced through a variety of planned measurements that were
conducted within a business’s own processes (manufacturing, operations, sales, marketing).
The resulting was mainly used for evaluating, forecasting, and decision making.
Today, we are faced with a data deluge. Most data available to businesses is not generated in
unprecedented quantities from every conversation, interaction, or process inside or outside
these businesses. With social media, mobile devices, and sensors on every object in a
company’s supply chain, every business now has access to a river of unstructured data that is
generated without planning and that can increasingly be utilized with new analytical tools.
These “big data” tools allow firms to make new kinds of predictions, uncover unexpected
patterns in business activity, and unlock new sources of value.
Data is a vital part of how every business operates, differentiates itself in the market, and
generates new value.
Innovation
The process by which new ideas are developed, tested, and brought to the market by
businesses.
Traditionally, innovation was management with a singular focus on the finished product.
Because market testing was difficult and costly, most decisions on new innovations were
based on the analysis and intuition of managers
Today, start-ups have shown that digital technologies can enable a very different approach to
innovation, one based on continuous learning through rapid experimentation. As digital
2
, technologies make it easier and faster than ever to test ideas, we can gain market feedback
from the very beginning of our innovation process, all the way through to launch, and even
afterward.
This new approach to innovation is focuses on careful experiments and on minimum viable
prototypes that maximize learning while minimizing cost. Products are developed iteratively
through a process that saves time, reduces the cost of failures, and improves organizational
learning.
Value
Traditionally, a firm’s value proposition was seen as fairly constant. Products may be updated,
marketing campaigns refreshed, or operations improved, but the basic value a business
offered to its customers was assumed to be constant and defined by its industry.
A successful business was one that had a clear value proposition, found a point of market
differentiation, and focused on executing and delivering the best version of the same value
proposition to its customers year after year.
In the digital age, relying on an unchanging value proposition is inviting challenge and
eventual disruption by new competitors. Rather than waiting to adapt when change
becomes a matter of life or death, businesses need to focus on seizing emerging
opportunities, divesting from declining sources of advantage, and adapting early to stay
ahead of the curve of change.
Changes in strategic assumptions from the analog to the digital age
From To
Customers 1. Customers as mass market 1. Customers as dynamic
(chapter 2) 2. Communications are network
broadcast to customers 2. Communications are two-way
3. Firm is the key influencer 3. Customers are the key
4. Marketing to persuade influencer
purchase 4. Marketing to inspire purchase,
5. One-way value flows loyalty, advocacy
6. Economies of (firm) scale 5. Reciprocal value flows
6. Economies of (customer) value
Competition 1. Competition within defined 1. Competition across fluid
(chapter 3) industries industries
2. Clear distinctions between 2. Blurred distinctions between
partners and rivals partners and rivals
3. Competition is a zero-sum 3. Competitors cooperate in key
game areas
4. Key assets are held inside 4. Key assets reside in outside
the firm networks
5. Products with unique 5. Platforms with partners who
features and benefits exchange value
6. A few dominant 6. Winner-takes-all due to
competitors per category network effects
3
Chapter 1. The five domains of digital transformation
Overcoming your blind digital blind spots
Businesses recognize the possibilities created by digital technologies. They see that the
constraints of the pre-digital era have vanishes, making new business models, new revenue
streams, and new sources of competitive advantage not only possible but also cheaper,
faster, and more customer-centric than ever before.
Five domains of strategy that digital is changing
- Digital technologies change how we connect and create value with other customers
- Digital technologies transform how we need to think about competition.
- Digital technologies have changed our world perhaps most significantly in how we
think about data.
- Digital technologies are also transforming the ways that businesses innovate.
- Digital technologies force us to think differently about how we understand and create
value for the customer.
So, digital forces are reshaping five key domains of strategy:
1. Customers
2. Competition
3. Data
4. Innovation
5. Value
Across the five domains, digital technologies are redefining many of underlying principles of
strategy and changing the rules by which companies must operate in order to succeed.
Customers
Traditionally, customers were seen as aggregate actors to be marketed to and persuaded to
buy. The prevailing model of mass markets focused on achieving efficiencies of scale through
mass production and mass communication.
In the digital age, we’re moving to a world best described not by mass markets but by
customer networks. In this paradigm, customers are dynamically connected and interacting
in ways that are changing their relationships to business and to each other. The use of digital
tools is changing how they discover, evaluate, purchase, and use products and how they
share, interact, and stay connected with brands.
Rather than seeing customers only as targets for selling, businesses need to recognize that a
dynamic, networked customer may just be the best focus group, brand champion, or
innovation partner they will ever find.
1
,Competition
Traditionally, businesses competed with rival businesses that looked very much like
themselves, and they cooperated with supply chain partners who distributed their goods or
provided needed inputs for their production.
Now, we are moving to a world of fluid industry boundaries, on where our biggest
challengers may be asymmetric competitors.
- Asymmetric competitors: companies from outside our industry that look nothing like
us but that offer competing value to our customers.
- Digital disintermediation: upending partnerships and supply chains. Our longtime
business partners may become our biggest competitor if that partner starts serving
our customers directly.
At the same time, we may need to cooperate with a direct rival due to interdependent
business models or mutual challenges from outside our industry.
The net result of these changes is a major shift in the locus of competition. Rather than a
zero-sum battle between similar rivals, competition is increasingly a jockeying for influence
between firms with very different business models, each seeking to gain more leverage in
serving the ultimate customer.
Data
How businesses produce, manage, and utilize information.
Traditionally, data was produced through a variety of planned measurements that were
conducted within a business’s own processes (manufacturing, operations, sales, marketing).
The resulting was mainly used for evaluating, forecasting, and decision making.
Today, we are faced with a data deluge. Most data available to businesses is not generated in
unprecedented quantities from every conversation, interaction, or process inside or outside
these businesses. With social media, mobile devices, and sensors on every object in a
company’s supply chain, every business now has access to a river of unstructured data that is
generated without planning and that can increasingly be utilized with new analytical tools.
These “big data” tools allow firms to make new kinds of predictions, uncover unexpected
patterns in business activity, and unlock new sources of value.
Data is a vital part of how every business operates, differentiates itself in the market, and
generates new value.
Innovation
The process by which new ideas are developed, tested, and brought to the market by
businesses.
Traditionally, innovation was management with a singular focus on the finished product.
Because market testing was difficult and costly, most decisions on new innovations were
based on the analysis and intuition of managers
Today, start-ups have shown that digital technologies can enable a very different approach to
innovation, one based on continuous learning through rapid experimentation. As digital
2
, technologies make it easier and faster than ever to test ideas, we can gain market feedback
from the very beginning of our innovation process, all the way through to launch, and even
afterward.
This new approach to innovation is focuses on careful experiments and on minimum viable
prototypes that maximize learning while minimizing cost. Products are developed iteratively
through a process that saves time, reduces the cost of failures, and improves organizational
learning.
Value
Traditionally, a firm’s value proposition was seen as fairly constant. Products may be updated,
marketing campaigns refreshed, or operations improved, but the basic value a business
offered to its customers was assumed to be constant and defined by its industry.
A successful business was one that had a clear value proposition, found a point of market
differentiation, and focused on executing and delivering the best version of the same value
proposition to its customers year after year.
In the digital age, relying on an unchanging value proposition is inviting challenge and
eventual disruption by new competitors. Rather than waiting to adapt when change
becomes a matter of life or death, businesses need to focus on seizing emerging
opportunities, divesting from declining sources of advantage, and adapting early to stay
ahead of the curve of change.
Changes in strategic assumptions from the analog to the digital age
From To
Customers 1. Customers as mass market 1. Customers as dynamic
(chapter 2) 2. Communications are network
broadcast to customers 2. Communications are two-way
3. Firm is the key influencer 3. Customers are the key
4. Marketing to persuade influencer
purchase 4. Marketing to inspire purchase,
5. One-way value flows loyalty, advocacy
6. Economies of (firm) scale 5. Reciprocal value flows
6. Economies of (customer) value
Competition 1. Competition within defined 1. Competition across fluid
(chapter 3) industries industries
2. Clear distinctions between 2. Blurred distinctions between
partners and rivals partners and rivals
3. Competition is a zero-sum 3. Competitors cooperate in key
game areas
4. Key assets are held inside 4. Key assets reside in outside
the firm networks
5. Products with unique 5. Platforms with partners who
features and benefits exchange value
6. A few dominant 6. Winner-takes-all due to
competitors per category network effects
3
