Circle of Success for digital Business

The publishing and media industry, for example, has been facing digital change for years. It is essentially trying to master the challenge with familiar means. Classic revenue models, including advertising and subscriptions, are being digitally adapted and converted into revenue models such as display advertising and paywalls. Real innovation in terms of content monetisation is essentially missing. How can it be that companies originally from outside the industry, such as Amazon, Facebook and Google, manage to create new lucrative digital revenue models on the assembly line? They have appropriate structures and a corresponding corporate culture. In other words, it is crucial that companies position themselves in such a way that they can cope with volatile conditions and adapt and redevelop successful digital models. The digital transformation process required for this, which is not always popular, is multifactorial. It requires courage and the will to act on the part of decision-makers and the consistent interaction of the five success factors of the “Circle of Success for Digital Business”.

A fundamental factor for successful digital change is the way the company sees itself. It must see itself as both a sender and a receiver in relation to its customers. For many companies, the role of “customer understander” is new. It should be established in the corporate culture so that the needs and feedback of customers can be incorporated into the daily work. Perfect digital channels for this are social media, especially WhatsApp, and business networks. In the context of digitalisation, this is an essential building block for success.

Disruption is not calculable – companies that act as “customer understanders” are one step ahead of their competitors. The negative example of Nokia shows how important it is to have lean structures in order not to be lost in market upheavals. The leader of the mobile phone industry missed the rapid development towards the smartphone and was literally overtaken by the competition. A lack of flexibility in the corporate structure as well as a lack of resources and know-how meant that the former market leader was unable to make up for the backlog that had apparently developed overnight.

INTERNAL COMPETENCE AND EXTERNAL EXCELLENCE

Companies must not only take the customer’s needs seriously, but also create the necessary internal structures to be able to react to them in good time.

This applies both to technology and to the corresponding know-how of employees. These challenges can be met if both are scalable. In other words, the technology and human resources of the company are modular and flexible. For the technology, this means a well-thought-out system architecture, clear interfaces, and economically viable operation; for the personnel, a combination of in-house staff and highly qualified external personnel. A good rule of thumb is “80:20”. In this way, fresh methods, procedures and findings can be quickly transferred to the base, even for less experienced companies, and necessary new product developments can be implemented promptly.

An important factor, such as the agile development of digital products, can thus be integrated more easily in companies that have little experience and expertise in this field. The advantage of the agile approach lies in the fast iterative development cycles. This allows products and improvements to be brought to market in short time intervals. The clou: the customer feedback, which is critical for success, can be quickly transferred to the follow-up product.

Another advantage is the cost. The risk of going in the wrong direction with the product is minimised proportionally to the development cycles after the initial groundbreaking, in the case of an agile approach to two to three weeks, provided that the groundbreaking is oriented towards the most important components of the product. In contrast to a sequential approach, the company is not forced to plan its digital product two years in advance.

Collecting and evaluating data within the legal requirements of the GDPR is a supreme discipline of digitisation – and one of its greatest advantages. Automated data analysis and intelligent processing through machine learning processes provide data-driven companies with tangible competitive advantages. However, this requires companies to define Key Performance Indicators (KPIs) in advance, which they can use to sort their data according to relevance.

EVALUATE DATA... AND THEN ACT

However, analysis of the data alone is not enough. Only when conclusions are drawn from the results in a timely manner, such as when airlines use algorithms to adjust their ticket prices to supply and demand every second, do KPIs help to adapt the product to customer behaviour and make it successful.

Digitisation is a business field extension. This means making the core business more efficient by optimising processes and at the same time opening the door to new fields. The core business should be served as long as it pays off. At the same time, digital revenue alternatives must be developed – through acquisitions or in-house innovations.

Many paths lead to alternative sources of revenue: copying existing models, improving your own or creating completely new ones. The latter requires courage and acceptance of the risky innovation process, which is essential for the successful development of a company in the digital environment in the long term. One problem, however, is that the necessary “digital lateral thinkers” are just as rare as the appropriate environment. Very few companies are willing to take the financial risks that innovation entails.

INNOVATION NEEDS “DIGITAL LATERAL THINKERS”

But there is a solution. Innovation only works if failure is also accepted. It is in the nature of change that innovators are not always successful at the first attempt. The way out is to establish a willingness to take risks while keeping the risks low. In concrete terms, this means that companies create room for new developments and financial losses but must limit these to a level that is not dangerous for the company.