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  • May 25, 2018

How to Build a Digital Business Model

Linda Tsan
Senior Manager

Many companies understand the opportunities presented by digital technologies, but lack a common language or framework to transform their organizations. Through extensive interviews and surveys, researchers at the MIT Sloan Center for Information Systems Research (CISR) have developed a framework to guide thinking about digital business models. The framework focuses on business design considerations and aimed to discover how much revenue is under threat from digital disruption and whether the company is focused on transactions or building a network of relationships to meet customers’ life event needs.

CISR analyzed 144 business transformation initiatives to determine the underlying factors that drive next-generation business models and they
found two common key dimensions:

  1. Customer knowledge. Many companies are launching products and initiatives to learn more about their end customers.
  2. Business design. Many firms are striving to shift from value chains to networks or ecosystems. CISR took these two dimensions and created a two-by-two matrix which highlights the business models that will be important in the next five to seven years, and beyond.

Now, not every organization transforms in the same way because there is no one-size-fits-all approach to building digital business models. As companies evaluate their digital business model, they must answer several key questions. For organizations developing new digital business models best practices, the research suggest answering these 4 key questions is a good starting point:

  1. How much revenue is under threat from digital disruption? It is important to think beyond traditional competitors. What parts of your value chain or business might be attractive to another company?
  2. Is the business at a fork in the road? Key decisions include whether to focus on transactions and become an efficiency play, or meet customers’ life events and build a network of relationships. Investments must be driven by what the company is great at.
  3. What are the buying options for the future? Moving a company’s business model is the equivalent of buying options. One path is to buy an option that helps the company evolve a little bit at a time.
  4. What is your digital business model? Woerner recommends focusing on the business model you want to become. It is important to know where you want to go as a company.

Curious about the framework and Woerner's research? Join this Harvard Business Review webinar on Wednesday, May 30th to hear Woerner speak live with Oracle and share her research findings and insights about digital business models. http://ora.cl/oe8SH 

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