How does digital transformation and business model innovation interlink?

Digital transformation and business model innovation are closely related in many ways.

Digital transformation and business model innovation are closely related in many ways.

Digital transformation is an enabler for new business models. It opens new ways for developing products, finding clients, creating and delivering value and making profits. All of these can be combined to transform any company digitally.

Anyway, this is an abstract claim. We need some inspiring cases to fully understand what digital transformation is, so let us examine some business model examples from real companies:

  1. A great example is Netflix. This company survived the great transformation that the Internet unleashed into the entertainment industry, which ended powerful companies such as Blockbusters, and threatened many others. Netflix first championed a DVD delivery service, with high performance in logistics and distribution. The company was doing good, but they realized that past success is no guarantee for future success, and decided to try out a new busines model. Based on the data collected by their recommendation algorithm, they created a streaming service through Amazon Web Services, giving their customers the choice to customize their experience. They created a new product of high value that was replacing TV within the digital natives, building a scalable and profitable business, and successfully transforming the company. This is a great example where an innovative business model was created on the basis of a digital development.

  2. At Starbucks, we find a business model example for digital transformation for the restaurant business.  In fact, this company is spearheading digital customer-facing solutions, increasing profitability through excellent products. First, they created an app to pay for coffee and food in their restaurants. The company coupled it with the loyalty program, starting to craft personalized offers and experiences for their 24-hour connected customers. The company also developed new digital services to be enjoyed in their physical stores, achieving a highly praised omnichannel approach. And this is just the beginning: Starbucks is continuously developing new digital offers and services, even involving their users in the design process through a customer co-creation service.

  3. UnderArmour, the sports apparel company, is also a good business model example for the creation of new services with a customer focused approach. Fulfilling its mission to make the athletes better and change the way they live, the company purchased several sportive digital services, such as MapMyFitness, followed by the addition of EndoMondo and MyFitnessPal and the launch of UA Record. With these acquisitions the company created a whole new digital service for their customers, helping them to measure and improve their training. With more than 200 million registered users, it has been a great success connecting people to the brand, guiding them to UnderArmour stores, and providing a highly valuable data to understand user needs and develop new services for their satisfaction.

  4. Daimler is a business example for digital transformation in the automotive industry, a huge business that is changing fast. The company is already leading smart city transportation services with Car2go, a car-sharing service, and is planning further developments in this area. And many others are following this path: Ford´s CEO has openly stated that he wants the 100 years old corporation to be a technology company and not just an automaker, In fact, it has partnered with software companies to create new smart mobilities solutions and services.

Is there any lesson we can take from these four business model examples? We believe there is a major insight: digital transformation is not just about products and technology. In a connected world, where most physical products are already commodities, and people can quickly search for competitors on the Internet, market advantage should come from changing the business model, adapting it to new digital clients demanding customized services rather than new physical products.

This transition from physical product to digital service is very demanding: it requires new skills, value chains, and a customer-focused mindset. It is real challenge, especially for those industries focused on product and retail. Nevertheless, digital transformation is here to stay, and companies should think about their whole business model when embracing it.