EXPANDING BUSINESS MODELS THROUGH DIGITAL

I believe that many traditional industries, and the established businesses that exist therein, will dramatically change and expand their business models over the course of the next two years. Understanding the critical necessity of digital interactions, organisations that have relied solely on in-person, high-touch customer interactions, or face-to-face business processes, will develop new digital business lines to insulate themselves from market and operational risk.

Moreover, I don’t think these changes will be subtle. As an example, I expect the airline industry will establish and/or fortify new revenue streams that allow them to extend their transactional relationship with their customers beyond air travel, doubling down on the business lines from bank partnerships and digital loyalty programmes. I think this, along with massive changes in their operational overhead and cost structure, may eventually drive ‘air travel’ into a secondary position on their P&L. Further, even within ‘air travel’ business lines, I think we can expect new digital transactional models, perhaps even something as extreme as annual subscription programmes for established frequent fliers, which will decouple the digital transaction event from the delivery of the service and will smooth out revenue swings caused by regional travel uncertainty.

STEPS FOR SUCCESS IN THE DIGITAL WORLD

This kind of change is hard. These are not easy decisions, and it will take real steel and resolve from business leaders to see them through. There are ways, however, to break this digital acceleration into more manageable components. Businesses need to do each of the following three things, to position themselves successfully in the digital world of the future:

 

  1. COMPLETELY DIGITISE  – all existing analogue (or partially digital) revenue streams
  2. IDENTIFY AND LAUNCH – new business lines that are entirely digital

  3. RETIRE BUSINESS LINES – that are inflexible or represent a material operational risk in a digital world.

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DIGITISING ANALOGUE REVENUE STREAMS

When embarking on the process of digitising existing analogue, or partiallydigital business lines, businesses need to go through the process of mapping the entirety of both their customer journeys, and the supporting operational business processes that underpin those episodes. During that mapping, businesses need to honestly identify the areas of that customer journey that require analogue interactions, that is any face to face communication or the in-person physical transfer of goods or objects. These areas will need to be replaced with digital interactions (web, mobile, voice, etc.), as well as consider the potential automation of previously manual activities. Doing so will help prevent digital breakages, where a digital process hands off to an analogue one and improve overall customer satisfaction and retention. To make this more tangible, let’s look at banking. As an industry, banking has fortunately already begun this digitisation process. The functionality of depositing a check using intelligent image recognition software built into a mobile app experience, rather than personally handing it to a teller at a bank branch, is a great illustration of a previously physical process that has been successfully digitised.

LAUNCHING NEW DIGITAL LINES OF BUSINESS

Next, to identify brand new digital revenue streams, organisations need to assess the strengths of their business. What is really the driving differentation of the products and/or services they provide to customers, and how can they fortify or highlight thos positions?

In 2004 Amazon introduced its Prime service. This wasn’t a brand-new business line; it was an extension of their core offering that created a brand-new revenue stream by introducing an annual fee. Prime delivered huge additional value for their customers, by removing two large points of friction in online shopping at the time – namely slow standard delivery times and expensive expedited shipping options. By offering customers free 2-day shipping, partially subsidised by this new annual fee, Amazon understood they were strengthening their relationship with customers which would, over time, yield more revenue as those customers moved more of their commerce activities online. Amazon didn’t dilute their customer value with an unrelated offering – they understood the strength of their business and introduced a new digital product to fortify it.

MITIGATING THE RISK OF ANALOGUE

Lastly, organisations are going to need to take a hard look at some business lines that may not be practical for the world moving forward. Models that require constant analogue interaction, between employees and customers, or customers amoungst themselves (i.e. indoor competitive fitness classes or ride-sharing car-pool scenarios), will continue to create risk for the businesses that rely upon them. While they may still be able to operate in times of uninterrupted interaction, in any lockdown or limited interaction scenario, they represent the real threat of ongoing carrying costs with greatly reduced supporting revenue. It will be imperative for organisations to begin the process of divesting themselves of those business lines, and actively refocusing any available capital in the newer, more flexible digital models they’ve (hopefully) identified. Along with the above, businesses need to take a hard look at the strengths and weaknesses of their customer relationships and the products and platforms that support those bonds. Overall, by identifying which interactions are already digital, which can handle complete digitisation, and which need to be retired, businesses can evolve beyond the analogue business models that won’t have the flexibility to roll with the punches of an uncertain, and undoubtedly digital future.

CDO Justin Marcucci

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