Digital Action Field 4: New Strategies and Business Models
It therefore all starts with new digital technologies and data: they provide the basis for the expansion and development of new products and services and require a realignment of existing business models. Innovation is becoming an integral part of the action field of digital business development and not only serves research and development, but also provides efficiency increases and cost savings.
A practical tool to identify digital business model innovation opportunities is the value chain framework from Michael E. Porter. The aim of a traditional value chain analysis is to analyze the individual steps of the value chain (from e.g., the sourcing of materials to production to sales and customer service) to understand them more precisely to identify any potential for optimization.
The way in which value chains are planned and implemented can lead to strategic competitive advantages. In the traditional development or optimization of value chains, data/information is viewed as an important element in value creation (as an input, process activity or output, e.g. inventory or the quality data of a manufactured product), but not as a source of value per se.
In order to create value with data/information, companies must analyze both the traditional value chain and the market overall with the interactions between market participants and identify strategic potential for creating new value with regard to digital technologies and new data needs in the digital age. This creates a digital value chain that digitalizes existing business or releases new strategic business opportunities for a holistic digital transformation.
As a result, the analysis and design of digital value chains give rise to new (digital) value creation processes in which data/information, including digital technologies, result in new market offers (products and services) (see illustration).
The analysis of the physical value chain reveals where core processes can be optimized, digitalized/automated and value be extracted. The digital value chain captures opportunities across technology and data that might lead to new business models, such as digital platforms and ecosystems. (Marc K Peter, https://the-digital-transformation-canvas.com/).
The term ‘business model innovation’ refers to successfully implemented innovations as part of the business model of a firm, generating added value for both the customer and the company. The business model is adapted to changing environmental conditions. For this purpose, the digital value chain is a practical tool which helps to identify strategic opportunity for business model innovation.
In the next blog post, we will introduce action field number 5, process management, that will identify opportunities to streamline, digitalize and automate processes.
Strategy questions for the digital age:
- Do you leverage your capabilities from the core business in the digital space?
- Did you identify technology and data driven strategic opportunities to extend your value chain?
- Do your business and pricing models allow you to be successful in the digital space?