Translating the Digital Challenge into a New Business Modell

By Dirk Krafzig, Martin Frick, and Manas K. Deb 

As the first step to meet the enterprise’s digital challenge, its digital future must be shaped alongside an understanding of the necessary transformation, which we know is all-encompassing and involves the whole company. The CDO must determine the target state in cooperation with all stakeholders, both to gather the broadest possible input for the description of the digital transformation and also to create buy-in across the organisation from the outset.

The CDO ultimately shapes the new digital business model

In order to mobilise truly strategic and creative thinking, intense workshops will be necessary, joining the Executive Board including the CEO, business owners and innovative internal employees, and external methodological and content experts. Axel Springer[1], for example, took the rather bold step of immersing a prominent scouting team in Silicon Valley to explore state-of-the-art digital opportunities and then took the whole Executive Committee there for a ground-breaking extended decision-making trip. One way or another, the CDO needs to take the leadership team out of their comfort zone to trigger true digital innovation, but must also make sure, employing standard techniques, that the team sticks to methodological discipline. The digital target state must now be defined in detail. A comprehensive analysis is required rather than focusing on singular elements of the business model. Only such comprehensiveness of approach will avoid shortcomings and inconsistencies.

Ultimately, the exercise must ensure that the digital vision is firm enough to be the foundation of the company, and that no relevant aspects are forgotten. Fortunately, well-established methods exist to support such analysis.

Standard techniques, like the Business Model Canvas, should be deployed

The starting point is a proper description of the new digital business model. The business model describes the WHAT of the business – its role in the market and its commercial cornerstones. Such a view is augmented by the enterprise architecture approach, which describes the details of the HOW – more operational than business strategic aspects. Take a look at the business model first.

The Business Model Canvas (BMC)[2] approach has been established as the de facto standard to describe business models, regardless of whether they are classical or digital. Every business model description has to answer the same set of questions. The BMC is a tool on the one hand to ensure that all aspects of the business model are covered and consistent, and on the other to serve as an intuitively sound vehicle to guide stakeholder discussions. The Value Proposition – which is displayed in the centre of the BMC – is the starting point of the business model definition using the BMC.

On the production side, the BMC describes the internal Key Activities and Key Resources necessary, along with the Key Partners required to produce the intended goods and service. These form the Value Propositions to the market, highlighted by the Customer Segments to be approached, building Customer Relationships in the various Channels of interaction with the client. The production side defines the Cost Structure of the business model, while the market side defines the Revenue Streams.

It is evident that the digitalisation of a business will have an impact on all these components. In describing the change of the business model, or even formulating a radically new one, each of these dimensions must be studied intensively and described. In a digital business model, new digital Channels will be deployed in the communication with customers, leading to materially new Customer Relationships and bringing new digital Value Propositions to the market.

The internal Key Activities will need to be adapted, requiring potentially new Key Resources and linking the enterprise to new Key Partners, potentially in a digital ecosystem. The interaction of these dimensions needs to be considered carefully in order to avoid inconsistencies in the planned new digital business model.

The CDO involves all stakeholders to define the new business model

Typically, a large company has a business model that is an aggregation of multiple smaller business models. A car manufacturer, for example, would define separate business models for passenger cars and lorries, and even break down those business models into brands, regions, etc. Consequently, enterprises can even describe business models for internal services.

Once the business model has been agreed upon and gained the approval of the various stakeholders, the enterprise architecture analysis can start in order to define in detail the new operational set-up of the digital enterprise. The enterprise architecture consistently describes the means necessary to achieve the new targets of the digital business model. It helps to break down the company’s new vision into concrete targets for business units, process changes, organisational adaptations, IT, business development, etc. This is described in section ‘Breaking Down the Digital strategy at the Business Unit Level [COMING SOON]’

By combining business model and enterprise architecture analysis, the disparity between the current and the future digital state can be assessed and the concrete digital transformation programme can be specified to encompass all dimensions of the enterprise’s market approach and operational set-up.

Changing the business model of the enterprise is a formidable challenge to the organisation. The transformation programme defines the path towards the new future. The CDO now needs to define and command the governance tools necessary to direct the company towards the desired target. Stamina and dedication are needed to keep direction. The old change management paradigm applies: ‘If you want the team to sail to distant shores, don’t give them detailed building plans for the ship, but instead tell them about those shores and truly excite them about the destination.’ The digital business model is a description of these ‘distant shores’ and serves as a compass to reach them. The CDO will need to take out this map regularly, demonstrate progress made along the way and highlight the gaps that still need to be covered. A canvas approach such as the BMC can help the broader team visualise the target and progress achieved.

[1]        Burgelman, R. A., Siegel, R. E., Luther, J.: ‘Axel Springer in 2014: Strategic Leadership of the Digital Media Transformation’, Stanford Graduate School of Business, Case E-522, 2014.

[2]        Osterwalder, A., Pigneur, Y.: ‘Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers’, John Wiley & Sons, 2010.

About 'Modelling for Digital: Best Practices for Digital Transformation in Everyday Project Life [Practitioner Edition]'

In this edition, we focus on the practitioner. We mean those colleagues, who conduct the day-to-day work in the concrete projects delivering digital capabilities. Some aspects presented here are very specific to digitalisation projects, while others are general best practices in projects and hence also apply to digitalisation projects. In digitalisation undertakings, however, speed is of the essence, and a certain explorative approach must be chosen in order to match the needs of the customers best. At the same time, security is a pervasive challenge, as is compliance.

About the 'Digital Cookbook' series

Digitalisation is highly relevant in our private and business lives, and it is better to face up to the changes it drives. Setting aside the sociological, cultural and macroeconomic changes driven by digitalisation in our societies, our focus here is on the microeconomic impacts on our businesses. It is probably the biggest upheaval for society and the economy in this century. 

Altogether, 'Modelling for Digital', 'Managing for Digital' and 'Digital in Action' assist you in the shaping, planning and execution of a comprehensive transformation of the status quo (and you should not settle for less). It will accompany you and your business in meeting this challenge, to open up opportunities unthinkable even just a couple of years ago. It provides the context and best practices for such initiatives from a variety of industries, businesses and viewpoints, strategic, functional, operational, technical and executional. The authors lay out a general, abstracted vision of digitalization across different industries.

About the authors of the 'Digital Cookbook' series

Dirk Krafzig spent the greatest part of his professional life working for large enterprises. As the author of the bestselling book 'Enterprise SOA – Service-Oriented Architecture Best Practices', Dirk coined the term 'SOA' and the concepts behind it in 2004. Today almost all large organisations in the world apply service orientation as the foundation of their enterprise architecture. Since 2007, Dirk has been running his own company, SOAPARK, which specialises in strategy consulting in the area of digital transformation and SOA.

Manas K. Deb is currently the Business Head of Cloud Computing at Capgemini/Europe. He is a veteran of the software industry with more than 30 years of experience including deep work in development, product management, architecture, management of transformative customer projects, and sales and marketing. During his career at TIBCO and Oracle, he focused on the whole spectrum of middleware technologies.

Martin Frick is currently COO at Generali Switzerland. He has held executive positions in large multinational corporations, BPO service companies and start-up incubators in international settings, with a focus on IT and operations in financial services. He has been responsible for large-scale business build-up initiatives and turnaround situations in large organisations, always with a strong need for pervasive change management.