In the book What's Your Digital Business Model?, MIT researchers uncovered what makes top performing companies thrive in the digital era.
While most leaders of large legacy companies recognize both the threats and potential opportunities inherent in digital, they tend to lack a common language to assess their specific situation and give them direction about how to move forward.
Enter the digital business model. In a presentation at the 2018 MIT CIO Symposium in Cambridge, MA, Peter Weill, chairman of the MIT Sloan Center for Information Systems Research, and Stephanie Woerner, a research scientist at the Sloan Center, explained the concepts behind their new book What's Your Digital Business Model?: Six Questions to Help You Build the Next-Generation Enterprise, and what makes top-performing companies thrive in the digital era.
In the book, Weill and Woerner collected data from more than 1,000 companies globally. They uncovered six key questions that senior management teams must engage honestly with if they are going to successfully digitally transform their organization:
SEE: IT leader's guide to achieving digital transformation (Tech Pro Research)
1. What is the digital threat and opportunity?
Take the case of Banco Bilbao Vizcaya Argentaria (BBVA), a major European bank. The bank examined the threat landscape, and found a tough economy, pressure on margins, waning customer satisfaction scores, new regulations around privacy and open banking, and competition in the form of online banks and platforms offering financial services. However, each of these areas opened a new opportunity for the bank, particularly between customer behavior and retail banks, Weill said in the presentation.
2. Which business model is best for your enterprise's future?
Banks fundamentally sell products, such as car or house loans, Weill said. But customers are now looking for ways to solve life events like finding and buying a house or car, or booking a trip, from end to end. "You have two choices," Weill said. "You can manage the first model, which is under significant threat and will be a lot of cost, or you can say, 'We'll move to a different model that tries to meet the life event needs of our customers."
"It's not just about being a bank, it's about being a knowledge-based information company," BBVA executive chairman Francisco González told Weill in the book. "We are building the best digital bank of the 21st century," to "bring the age of opportunity to everyone."
3. What is your digital competitive advantage?
Legacy organizations often have several digital competitive advantages that they may not immediately realize, Weill said. For BBVA, these included customers, branches, products, and data. "You might not use them or integrate them all as well, but you have significant competitive advantages," Weill said. "One of the hardest questions when working with senior management teams is 'What are our advantages, and how do we make most of them?'"
4. How does the digital era help connect you?
This question involves determining how you can connect customers and systems using technologies like mobile and the Internet of Things (IoT), Weill said. "The opportunity for you as a bank is to put customers in control through mobile devices, and maybe IoT, big data, and other technologies," Weill said. The CIO can play a particularly large role in taking on this question, he added.
At BBVA, a customer's mobile device acts as their remote control for the bank, with most products purchasable on the device. They can also use their phone to book an appointment at the branch, or direct message their account manager.
5. Do you have the critical capabilities to reinvent the enterprise?
If not, you need to determine what abilities you have to develop to do this, Weill said. It might involve partnering with other organizations, such as, in the case of a bank, realtors or insurance companies. You also need to integrate siloed products to deliver on life event needs, and draw more on analytics, Weill said.
BBVA created a number of new groups that provide core competencies across the entire bank, González said in the book. For example, it created an engineering department that combines what was previously operations, IT, and a number of products—the argument being that in the digital era, those three are the same, and should be one group.
6. Do you have the leadership to make the transformation happen?
The researchers found that at companies that successfully transform, half of the executive committee members turn over—and that's okay, Weill said.
After going through this process, BBVA has seen a number of positive outcomes, Weill said. In the past 10 years, the bank increased its net promoter score by 20 points on average across all markets. Digital now accounts for 36% of all products and services sold. And the digital customer based grew by 44% in 2017 alone, to reach about 18 million customers.
CIOs at top-performing organizations (defined as those in the top 25% of net margin relative to industry) take on five particular tasks, Woerner explained in the presentation:
- Work with their organization to identify the threats and opportunities that digital brings
- Work directly with customers, and help amplify their voices throughout the company
- Innovate, by setting the vision, integrating data, and consolidating organizational silos
- Work with, or join, executive committees, to set a plan for transformation and open up that plan to the organization
- Open up systems. Top-performers think about APIs, and work with executive committees to find the crown jewels of the company that they want to open up and use as a basis for innovation throughout the company.
Executive committees at top-performing companies spend 44% of their time identifying digital threats and opportunities, the research found. And at these successful organizations, 51% of systems are enabled with APIs for external users—a key part of ramping up innovation, Woerner said.
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