11 Jul.
2017

The Influence of Digital Transformation on Firms’ Business Models

By Professor Rene Bohnsack

The world is in the middle of the digital transformation. The business models of the past are faltering. We can compare the impact of digital with the industrial revolution in 1800. More or less any industry will be forced to think about innovating their business model these days due to the effect of digital transformation and the sharing economy. Many industries have realized that the internet of things, big data and new social norms render current business model obsolete in the near future. For instance, car producers have started to alter their business model to become mobility provider instead of auto makers introducing car sharing platform. Also, firms in the energy industry which so far have relied on centralized energy production, need to innovate their business models to prepare themselves for a more decentralized energy production and small energy communities. In fact, in the not so distant future, we might buy or energy from our neighbour’s solar panel instead from the utility company. Also, in areas where you might not suspect it, business models are changing fast. For instance, in the finance industry: the revolutionary blockchain technology allows direct financial transactions and may replace the role of traditional banks as the middle man. A study that we conducted at my Smart City Innovation Lab on the finance industry showed that Fintech firms have already started to disrupt the market while traditional banks struggle to reconfigure their business models.

Many businesses are affected by digital transformation, yet the challenges for firms depend on the industry and their core activities. Companies whose activities focus mainly on fairly routine jobs need to be alert since anything that could be standardized will be automated in the future via smart adaptive algorithms. Firms that operate in complex, non-standardisable environments will at least for the moment be less affected by digitalization. Think about consultancy, research or creative jobs.

Nevertheless, three points will be critical for firms to stay competitive in the digital age. First, firms need to create a digital vision and increase their digital intensity. A recent Capgemini MIT study showed that so called ‘Digirati’, firms that have a transformative vision and that have invested in advanced digital services, created 9% more revenues, increased profitability by 26% and had a 12% higher market evaluation. Second, it will be critical to design services that resonate with customers. I always suggest to take a ‘job-to-be-done’ perspective and talk to customers. It is known for a long time already that customers ‘don’t want a quarter inch drill, they want a quarter inch hole’. Last, in many instances it makes sense to test new business models in autonomous organizational units in which teams have enough freedom to develop and learn without being constraint by traditional thinking. The trend towards corporate incubators or skunk works underlines this point.

At the end, one thing is certain: change will remain the only constant for firms, today and in the future. Embracing digital in business models might just be the beginning.

Biography

Rene Bohnsack is the Professor for Strategy and Innovation at Catolica-Lisbon, guest lecturer at AMBS and director of the Smart City Innovation Lab

r.bohnsack@ucp.pt


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