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"Business Models Matter"

On November 7th, Richard Hunter, VP & Gartner Fellow, gave a presentation entitled "Business Models Matter for CIOs" highlighting the need for IT professionals to be involved in business rather than focusing only on daily IT operations. As a matter of fact, this year's Gartner Symposium/ITXpo focused on digital business value and on the changing role of the Chief Information Officer.

"Current Business Models will not survive the era of digital. Too much is changing in the environment, whether it is customers, the way people interact, value proposition, etc" started the Gartner analyst, showing how the yearly apparel revenue evolved in online stores – which grew from $27.8 Billion – and department stores – which lost $29.6 Billion – since 2005.

 

Enabling change in the era of digital business

In the 2018 CIO Survey, executives involved in digital business where asked to name the most important mindset or behavior they will need for their organizations to realize their digital business opportunities. The top five responses were: understanding business models (25%), culture shift and acceptance (15%), executive commitment and skills (14%), risk-on attitude (11%) and transforming business models (10%). "Business Models play a big role, yet, many executives do not have something specific in mind when talking about Business models: they need to understand them and how to transform them" added Richard Hunter. Every enterprise has a business model which starts with a customer and a value proposition. Every business model describes the essential characteristics of the business the company is in, has a value proposition – or the deal offered to the customer – and a customer, and also describes the capabilities necessary to deliver and its profit model.

"The Business Model always precedes strategy, with Information & Technology often at the heart of it, CIOs can help make both explicit. They are in a good position to document the model because they are among the few people who see everything that's going on in the company. They can make sure strategy and business models are not in conflict" highlighted Mr. Hunter.

"The era of digital business is having a profound impact on capabilities. We have entered an unprecedented era. We now have the ability to capture data in large amount and make sense of it in near-real time" added Richard Hunter, who shared the examples of the changing insurance and banking industries, but also when it comes to mobility. "Changes in the Digital Business context notably enabled BMW DriveNow business models. Its value proposition? The ultimate driving machine, hassle-free, and available by the minute. The channels used are therefore the website and a mobile app, while costs are mainly related to marketing and energy" explained the Gartner analyst. And even if this brand new business model failed in San Francisco due to the lack of chargers, it worked very well in several other cities.

 

The advent of digital and the evolution of Business Models

"Technology enables new customer value propositions and therefore allows the creation of new Business Models" he stated, before explaining the several new possibilities offered to companies through the use of digital, ranging from the less transformative to the most transformative:

selling digital assets such as data or algorithms,

digitalizing products or services: connected machines and services,

selling metered usage, on a pay-as-you-use basis,

finalizing contracts based on shared risk outcome,

building a platform business, with sellers and buyers all working on the same platform,

• and moving into adjacent and new industries by using the know-how in one industry to launch in another.

eBay, Uber, Airbnb, etc: digital technologies have enabled a platform business model to create shared value, but bringing together customers, ecosystems, things, IT systems, and by putting intelligence at the very center of the digital business model. Moreover, successful platform business models create multidirectional value streams, which can be called the sharing economy.

 

"In order to move from a traditional business model to being able to use all the capabilities of digital technologies, CIOs and companies in general need to define their current business models" explained Richard Hunter. In this respect, many questions need to be answered: what's your current value proposition? What business context was the assumed starting point for that value proposition? What relationships with customers are required to support the value proposition? What assets and capabilities support delivery of the value proposition? What's the resulting cost structure? What are the sources of revenues? What partners are essential to the value proposition, and what are their contributions and incentives?

The next step would be to develop a deeper understanding of your business by modeling it. Reviewing the model then becomes essential: annual planning cycles aren't fast enough in an era of dramatic change. "CIOs need to look for synergies and conflicts within the business model,  between the business model and the business context and bring those into discussions with the executive team" added Richard Hunter. Finally, prototyping with customers and suppliers is essential to business model innovation. He concluded: "Think about what will be possible next year already!"

 

Alexandre Keilmann