Living in a dynamic era where speed and transformation is the key to victory, the call for better technologies comes into being. The most notable example of such a transformation is Digitalization. Digitalization means using digital technology in business models to generate income and value-producing opportunities. It is a process of shifting towards digital business. Digitalization can be seen in every segment. Digitalization is a mechanism for transforming all the sectors across the Globe.
Digitalization in common terms means the way people socialize i.e., the movement of interaction through analog technology(phone, mails) to Digital ones(e-mail, chats, social media). The increase in digitalization has impacted various business activities, including firms' business models(BM). Digitalization has put stress on companies to exhibit on their prevailing strategy and examine innovative business opportunities at the early stages.
Value creation, value delivery, and value capture are the main aspects of any business. Thus, a combination of these features to create a system that delivers more value for both consumers and industry is termed as business model innovation.
Digitalization and Business Model Innovation Components
Digital technology affects business and its various components in the business that are listed below:
Digitalization & Value Creation
Value creation refers to offering customers what they want that is customized services and products as per their preferences. Digitalization allows companies to revise or extend their products and services through IoT. Digitalization also helps in increasing customer value and reducing transaction costs. It lets companies create novel offerings.
Digitalization & Value Delivery
It illustrates how activities are employed to deliver the insured value. This includes delivery resources such as- support staff, online monitoring systems, etc. Digital business models require developing new capabilities. New business models require updating operational activities and processes for Global distribution. Companies need to develop scalable platforms that utilize modularity to deliver effectiveness and efficiency.
Digitalization & Value Capture
The value capture model is related to revenue and economic viability. Digitalization helps in enhancing internal processes that facilitate the firm to improve cost efficiency. It enables increased revenue streams. It has some negative impacts that are new and increased risks related to business innovations.Most of the models rely on leveraging digital connectivity to expand globally rather than on the physical movement of the good and fixed investments in the market.
Developments contributed to the rise of innovative business models:
Integration of people and businesses through digital technology is reducing the cost of acquiring data by enabling software features to deliver services to customers. The number of people connected to the internet is rising incredibly, while the number of connected devices is estimated at 21 billion by 2020.
Data Analytics and AI
Speedy advancements in data analytics and artificial intelligence are enabling companies to gain valuable insight into the global business and customers through the flow of data. This will give rise to employment for data analytics.
The digital platform is fueling more than thirty percent annual growth in e-commerce, which is expected to reach $1 trillion by 2020. The concentration of buyers, sellers, and products on digital platforms lessens the cost of acquiring the customer base.
The new era of industrialization with advanced manufacturing capabilities such as- 3-D printing, advanced robotics, digital prototyping, and factory management systems are boosting productivity up to 30 percent and reducing the cost of labor.
Protectionism & State Capitalism
Protectionist barriers such as- tariffs, new procurement rules, and others are increasing the cost of cross-border trade. The increasing economic nationalism is forcing businesses to rethink their physical presence.
Connected & Mobile Consumers
Consumers are increasingly connected digitally. The rising popularity of pay-as-you-go business models is increasing for goods such as- automobiles, agricultural equipment, and aircrafts engines. These changes are altering demand and setting expectations for the products as well as services.
The emergence of New Business Models In Digital Markets
In digitalization, businesses interact with consumers through various web-based interfaces. The platform allows direct interaction with the end-users. It becomes challenging to classify the entire company into a specific type as digitized companies as they have more than one business line.
Platforms that allow end-users to exchange and transact while leaving liabilities towards customers. Example- Uber, Airbnb, Amazon Marketplace, Facebook, Google, UberEATS.
Businesses that acquire products from suppliers and resell them to buyers. In such a case, resellers decide the price of products. Example- Alibaba, Spotify, Tencent's music distribution, Netflix.
Vertically Integrated Firms
Businesses with the ownership of suppliers integrate the supply side of the market. Example- Amazon e-commerce, Xiaomi, Huawei.
Suppliers of intermediary products use in production processes of goods or services in other firms. Example- Intel, Tsinghua Unigroup.
The New Business Models
These business models take benefit of the technological developments that make it less expensive to reach customers and provide services. The following models are leading among companies that are succeeding in the new era.
Manufacturers relied on the physical selling of products, but due to rising trade barriers, it becomes hard to increase the market size. Thus, by focusing more on delivering digital services, manufacturers are generating new growth opportunities. The growth of IoT and advanced data analytics are driving this trend. Rolls Royce Totalcare program is one of the examples of servitization.
Asset Light Market Entry
Increased digitalization provides greater digital connectivity, Global IT platforms, and all aforementioned makes it easier for companies to enter new markets with fewer investments. For example, Xiaomi uses platform based partnerships. By teaming up with local E-commerce company- Flipkart, it entered the Indian market. By offering low-cost phones, Xiaomi captured 11 percent of India's smartphone market with a sale of $1 billion in two years.
Global digital Systems
Global Digital Business ecosystems deliver the most reliable technology, featured products, and accelerate commercialization. Google android provides functions such as tools for managing workflow and coordinated manufacturing operations.
Technology is helping companies to deliver personalized experiences through digital platforms directly to customer's connected devices. Example- Starbucks has tuned AI algorithms to personalize offers, rewards, and recommendations to its customers based on their purchased history.