Digital Transformation Strategies for Business (Module 1 )

Data as a Foundational Strategic Asset

The central theme is that businesses must view data not as a byproduct but as a core
strategic asset. Investing in and building this asset over time is critical for modern digital
strategy.
• Apple vs. Google: Apple strategically moved away from Google Maps on its
devices. The reasons were that Google was withholding key features like
navigation, and more importantly, Apple wanted to dictate the terms of how
much user data was being sent back to Google. This illustrates the high-stakes
battle for control over data.
• Automakers' Data Acquisition: A consortium of car manufacturers, including
Audi, BMW, and Daimler, outbid Uber for Nokia's "Here Maps" data. This move
shows that data is a key strategic intangible asset for future innovations.
• IBM & The Weather Company: This acquisition highlights a key principle: the
company's data can be more valuable than its traditional business model. The
slogan "Weather means business" captures this idea perfectly.

Formulating a Robust Data Strategy

Every business needs a clear and sound data strategy centered around three core
questions:
1. How will you gather data?
2. How will you use the data?
3. How can data create new value?
Key Principles and Data Types
To build a powerful data asset, businesses should adhere to several guiding principles:
• Gather diverse data types.
• Focus on behavioral data—what customers actually do.
• Combine data from across different organizational silos.
• Use data as a predictive layer in decision-making.
• Apply data insights to new product innovation.
There are three primary categories of data:
 • Business Process Data: Includes inventory, sales, and billing information to
optimize operations and manage risk.
• Product or Service Data: This data delivers the product's core value, such as
map data for Google or weather data for TWC.
• Customer Data: Encompasses purchases, behaviors, and comments to provide
a complete customer picture for more relevant interactions.
Real-World Examples of Data Strategy
• Coca-Cola's Data-Driven Marketing: Without selling directly to consumers,
Coke's goal is to understand consumer passions and behaviors to "market to
them as individuals". They use their "Coke Rewards" loyalty program as a data
asset, which has over 20 million members and processes 20,000 rewards
daily.
o Data Gathering: Observed behaviors, social authentication, purchased
data, cookie stitching, and strategic partnerships.
o Data Usage: Predictive analytics, advanced segmentation, hyper-
personalization, and real-time marketing.
o The Challenge: The main difficulty is the cultural shift required,
described as "Turning the Boat at the World's Greatest Brand/Mass Media
Company".
• British Airways' Customer Focus: British Airways integrates commercial
(sales), operational (flights), and engineering systems data into a single Data
Warehouse. This creates a "Single View of the Customer". This integrated data
powers their "Know Me" program links data analytics to onboard staff to provide
personal recognition and better understand individual customer needs.
• The New York Times' Organizational Shift: The NYT evolved its structure to
leverage data better.
o Old Structure: Two divisions: Editorial (content) and Business
(publishing, revenue).
o New Structure: They added a third division, Engineering, which serves
both sides and acts as the "Tech engine for digital".
o Application: This new structure allows them to track user events and
apply subscription behavior and logistics optimization data to audience
development and native advertising.

Understanding Big Data

Big Data represents a qualitative shift, defined by the new kinds of data available and
the tools used to analyze it.
The Three V's
Big Data is famously characterized by the "Three V's," a concept introduced by Doug
Laney of META Group in 2001:
• Volume: The massive scale of data being collected.
• Velocity: The high speed at which data is being generated.
• Variety: The different types of data, especially unstructured data.
Structured vs. Unstructured Data
• Structured Data: Planned in advance and neatly organized in rows and columns,
like a spreadsheet.
• Unstructured Data: Messy, like text or images, has no predetermined structure.
Key sources include:
o Social media: This is used by the CDC to track diseases and by
Hollywood to predict sales.
o Mobile Data: Provides location- and time-stamped information.
o The Internet of Things (IoT): The "sensorification of everything," from
shoes to jet engines, connected to the cloud.
The ability to process this explosion of data is enabled by
Moore's Law postulated the exponential growth of computing power.

Four Templates for Creating Value from Data

There are four primary patterns for generating business value from data.
1. Insight: Revealing the Invisible
This involves analyzing data to see patterns you couldn't see before.
• Example: Gaylord Hotels analyzed unstructured social media data to find key
drivers for positive word-of-mouth. They discovered that the five most impactful
actions all happened at the beginning of a guest's stay.
• Example: New York City found a direct correlation between cutting the tree-
trimming budget and a subsequent lawsuit spike.
2. Targeting: Narrowing the Field
This focuses on using data to allocate resources more effectively.
 • Example: Custora uses data from a customer's first purchase to predict their
lifetime value, allowing for better targeting new customers.
• Example: Healthcare "Hot Spotting" in Camden, NJ, identified that 1% of the
population was responsible for 30% of the city's hospital costs. They then
created a program to treat these high-need patients proactively, improving care
and lowering costs.
3. Personalization: Tailoring the Experience
This is about creating different yet appropriate experiences for individuals.
• Example: Coca-Cola creates hyper-personalized ads by shooting a beverage ad
in different ways, linking it to the specific affinities of each customer, and then
targeting them via social media.
• Example: Caesars Entertainment shifted from a monthly, mailer-based loyalty
program to a real-time model. This allows them to personalize guest
experiences instantly while they are still on the property.
4. Context: Providing a Frame of Reference
This adds value by relating an individual's data to a larger group.
• Example: Fitness Data apps like Nike allow users to compare their personal
metrics with others, which puts their numbers in a meaningful context.

Common Big Data Myths Debunked

It's crucial to separate the hype from reality.
• Myth 1: Correlation Is All That Matters.
o Reality: The business question is key. Correlation (two numbers are
related) can be enough for prediction only. Understanding causation
(knowing what scientifically causes the other factors) is critical for
influencing a precondition.
• Myth 2: All Good Data Has to Be Big Data.
o Reality: What matters is the value of the data and the question it can
answer for your business. For instance, most data queries run by
Facebook engineers can be run on a standard laptop.
• Myth 3: The algorithm will figure it out.
o Reality: Algorithms need humans. They are powerful tools that must be
guided by human intelligence to maximize their potential.
Topic: The Nine Elements of Digital Transformation
Part 1: Core Concepts & Definitions
Key Terminology
• Digital Transformation: The use of technology to radically improve the
performance or reach of enterprises. This involves using digital advances like
analytics, mobility, social media, and smart embedded devices to change
customer relationships, internal processes, and value propositions.
• Digital Maturity: Combining digital activity with strong leadership to turn
technology into transformation. Companies with higher digital maturity tend to
outperform those that are less mature.
• Digirati: The term describes the best companies combining digital initiatives
with firm leadership to achieve digital transformation.
Fundamental Concepts
The core idea is that executives can find opportunities for digital transformation by
focusing on three key areas of their business: customer experience, operational
processes, and business models. Each of these three pillars comprises three distinct
building blocks, creating a framework of nine total elements for transformation.
No single company is expected to transform all nine elements at once. Instead,
executives should select the most relevant building blocks for their organization's needs
and goals. The ultimate success of these initiatives depends on strong leadership and a
clear vision for how the company will operate in a digital world.
Key Thinkers/Authors
• George Westerman: A MIT Center for Digital Business research scientist.
• Didier Bonnet: Global practice leader and executive sponsor of Digital
Transformation at Capgemini Consulting.
• Andrew McAfee: Assistant director at the MIT Center for Digital Business.

Part 2: Frameworks & Models

Framework: The Nine Elements of Digital Transformation
• Brief Description: This framework provides a set of nine building blocks to help
managers identify and categorize opportunities for digital transformation within
their company. It is structured around three core pillars of enterprise activity.
• Components:
1. Transforming Customer Experience: Focuses on how a company
interacts with its customers.
 ▪ Customer Understanding: Using data and analytics to
understand customers better.
▪ Top-Line Growth: Leveraging technology to enhance the sales
process.
▪ Customer Touch Points: Improving customer service and
experience across all channels.
2. Transforming Operational Processes: Focuses on improving internal
operations.
▪ Process Digitization: Using automation and digital tools to make
processes more efficient.
▪ Worker Enablement: Providing employees with digital tools for
collaboration and knowledge sharing.
▪ Performance Management: Using data from transactional
systems to make better, faster decisions.
3. Transforming Business Models: Focuses on fundamentally changing
how the business functions.
▪ Digitally Modified Businesses: Augmenting traditional products
with digital offerings.
▪ New Digital Businesses: Creating new, complementary digital
products.
▪ Digital Globalization: Using technology to move from a
multinational to a truly global operation.
• Application Checklist:
o Customer Experience:
▪ How can we use analytics to understand our customers better?
▪ What mobile tools can we give our sales team to enhance
conversations?
▪ Are our online and in-store customer experiences seamlessly
integrated?
o Operational Processes:
▪ Which repetitive internal tasks can we automate?
▪ Do our employees have the collaboration tools to work effectively
from anywhere?
▪ Are we making key decisions based on real-time data?
 o Business Models:
▪ How can we add a digital service to our existing physical products?
▪ Could we launch a purely digital product that complements our
core business?
▪ Can we centralize key functions into global shared services?
• Strengths and Limitations:
o Strength: Provides a clear and comprehensive structure for analyzing and
planning digital transformation.
o Limitation: It is a set of building blocks, not a sequential roadmap.
Leaders must prioritize where to focus.

Part 3: Case Studies & Examples

Case 1: Apparel Company (Process Digitization)
• Company & Industry: An apparel company in the fashion/manufacturing
industry.
• The Challenge/Opportunity: To reduce the lengthy product development
lifecycle.
• Strategy Implemented: The company moved to digital design processes for
collaboration with its partners.
• Key Framework in Action: Process Digitization, under the Transforming
Operational Processes pillar.
• Outcomes & Key Learnings: This digital shift reduced the product
development lifecycle by 30%, showing that digitizing core processes can yield
significant efficiency gains.
Case 2: Medical Device Sales Force (Top-Line Growth)
• Company & Industry: A medical device manufacturer in the healthcare industry.
• The Challenge/Opportunity: To effectively capture the attention of busy doctors
without being inconvenient.
• Strategy Implemented: The sales force began leaving an iPad with doctors,
loaded with videos and information on new products, to be retrieved later.
• Key Framework in Action: Top-Line Growth, under the Transforming Customer
Experience pillar.
• Outcomes & Key Learnings: The strategy uses technology as a convenient, non-
intrusive entry point to secure valuable conversation time.
Case 3: Sports Apparel Manufacturer (New Digital Business)
• Company & Industry: A sports apparel manufacturer.
• The Challenge/Opportunity: To move beyond traditional apparel and create
new value for customers.
• Strategy Implemented: The company started selling GPS devices and other
digital products that allow customers to track their workouts.
• Key Framework in Action: New Digital Businesses, under the Transforming
Business Models pillar.
• Outcomes & Key Learnings: This initiative created a new, complementary digital
business line and reshaped the company's value proposition.

Part 4: Synthesis & Strategic Application

Thematic Connections

If you
It can enable... Because...
transform...

Empowering workers with better tools (Worker

Operational Customer
Enablement) gives them a global view of the
Processes Experience
customer, allowing for more personalized service.

Understanding customers deeply (Customer

Customer Business
Understanding) can reveal opportunities to build new
Experience Models
digital products or services that meet their needs.

Shifting to a global operating model (Digital

Business Operational
Globalization) drives the need for better Performance
Models Processes
Management and Process Digitization.

Comparison Table: Focus of the Three Transformation Pillars

Pillar Primary Focus Key Question Examples

Personalized mobile
External: How the "How can we better
Customer coupons, multichannel
company interacts understand and serve
Experience integration, and social
with its customers. our customers?"
media service.
Pillar Primary Focus Key Question Examples

Internal: How the "How can we work Automating R&D,

Operational
company works on smarter, faster, and virtualizing work, and data-
Processes
the inside. more efficiently?" driven decision-making.

Structural: The way

Business
the company
Models
creates
Exam Notes: Strategy, not Technology, Drives Digital Transformation
1. Core Thesis: Strategy Over Technology
The central argument is that a clear, coherent digital strategy is the key driver of
digital maturity, not the technology itself. The ability to digitally reimagine and
transform a business is determined by a strong plan and a leadership team that fosters
a culture of change and innovation.

2. Defining the Levels of Digital Maturity

The report differentiates organizations based on how they approach digital business.
• Maturing Digital Businesses: These organizations are focused on integrating a
range of digital technologies (such as social, mobile, analytics, and cloud) with
the overarching goal of transforming how their business works.
• Less-Mature Digital Businesses: These organizations are focused on solving
discrete, individual business problems with specific digital technologies.
• Digital Maturity (as a state): This is an organization where digital has
successfully transformed processes, talent engagement, and business models.

3. Key Research Findings

The study identifies three main findings that distinguish digitally mature organizations.
A. Strategy is the Primary Differentiator
The existence and nature of a digital strategy are the clearest indicators of maturity.
• The Clarity Gap: More than 80% of respondents from digitally maturing
companies state they have a clear and coherent digital strategy. In contrast, only
15% of respondents from companies in the early stages of maturity say the
same.
• The Power of Scope: The power of a digital transformation strategy lies in its
scope and objectives.
o Strategies in the most mature organizations are developed to transform
the business.
o Less digitally mature organizations have strategies that are decidedly
operational in focus and tend to concentrate on individual technologies.
B. Mature Organizations Proactively Build Skills
Developing employee talent is a key activity in mature firms.
 • Digitally maturing organizations are four times more likely to provide their
employees with the skills needed to succeed than organizations at the lower
ends of the maturity spectrum.
• A critical skill lacking in many companies at the early stages is the ability to
conceptualize how digital technologies can impact the business.
C. Digital Maturity is a Magnet for Talent
An organization's digital commitment is critical for employee recruitment and retention.
• The vast majority of respondents across all age groups (from 22 to 60) want to
work for digitally enabled organizations.
• Companies that avoid risk-taking are not only unlikely to thrive but are also
likely to lose talent.
• Leaders must recognize this to attract and retain the best employees.

4. Comparative Analysis: Mature vs. Immature Organizations

Digitally Maturing Less-Mature

Feature
Organization Organization

Transforming the entire Solving discrete,

Strategic
business by integrating individual problems with
Focus
technologies. specific technologies.

Strategic Broad, comprehensive, Narrow and operational

Scope and transformative. in focus.

Low (Only 15%

Clarity of High (Over 80% report
report having a
Strategy having a clear strategy).
clear strategy).

Lacks key skills,

Proactively provides
Skills especially the ability to
employees with needed
Development conceptualize digital
skills (4x more likely).
impact.

A toolset to be integrated A collection of individual

View of
into the service of solutions for specific
Technology
transformation. problems.

Export to Sheets

5. Key Takeaways for Leadership & Management

• Culture is Critical: Success is not just about strategy; it requires leaders who
can foster a culture that can change and invent the new.
• Risk Aversion is a Threat: A culture that avoids risk is a liability for business
success and talent retention.
• Digital is a Talent Issue: A deep commitment to digital progress is no longer
optional; it is a core requirement for attracting and retaining top talent in today's
workforce.
The "Rewired" Playbook: Purpose and Origins
The book Rewired was written out of frustration that many companies struggle with the
"how" of digital transformation, not the "what". It aims to be a practical, holistic "how-
to" manual that leaders can use to guide their efforts immediately.
• Origin: The book is based on an internal McKinsey "playbook" first developed in
2017. This playbook was created by reverse-engineering dozens of successful
transformations to find a standard "recipe".
• Goal: To prevent companies from wasting money on digital initiatives and to
provide a straightforward, proven method for success. It's intended to be a
practical reference guide, not just a theoretical book.

The Role of AI in Transformation

AI, particularly generative AI, is a powerful tool with risks. It accelerates the return on
tech investments but requires the same foundational elements as any digital
transformation.
• Key Risk: Companies may engage in "pilot proliferation," trying many small AI
projects without a clear strategy to capture value, similar to the early days of
digital initiatives.
• Requirements for AI Success:
o A clear road map of where the business value is.
o A robust technology architecture, including properly structured data and
in the cloud.
o Strong MLOps (machine learning operations) to ensure models are safe,
scalable, and effective.
• Human-in-the-Loop: A key difference with AI is that it forces companies to more
fundamentally consider the role of human intelligence alongside machine
intelligence, ensuring people are integrated into new processes.

The Nature of Digital Transformation: A Continuous Journey

A common mistake is viewing digital transformation as a project with a defined
endpoint.
• It's a Muscle, Not a Project: Transformation is a continuous journey of building
and honing a "muscle" for constant evolution. The most successful companies
are never "done" transforming.
 • The Critical First Step: The journey must begin with the top leadership team
spending several months learning together. This involves:
1. Visiting other companies further along in their journey.
2. Creating a common language to understand key concepts like "data
architecture" or "tech stack".
3. Deciding where to focus efforts for maximum impact.
• Impact Requires Scale: A single use case or project is never enough to create
meaningful change. It takes a "family of many" initiatives working together.

"Doing Digital" vs. "Being Digital": Key Indicators of Success

A truly "rewired" company embeds technology into the fabric of the business, rather
than treating it as a separate function.
• 1. Tech-Savvy Leadership: There is an "incredible correlation" between the
number of tech-savvy executives in the C-suite and the success of a
transformation. Business leaders must also be technology leaders.
• 2. The "Who Do You Look At?" Test: A sign of a problem is when everyone in a
leadership meeting turns to the CIO or Chief Digital Officer when a digital topic is
raised. In a truly "rewired" company, any business leader should be able to
speak to the P&L impact of a digital initiative.
• 3. The "Requirements" Word Test: "requirements" is a red flag for an outdated IT
culture. It signifies a transactional, project-based relationship where the
business team hands off tasks to the IT team. A digital culture features integrated
teams where business and technology leaders jointly own a problem and a
digital product on an ongoing basis.

The MOST Important Part of a Transformation (Three Perspectives)

The authors highlight three different, but interconnected, elements as being the most
critical.
1. The Value (Rodney Zemmel): The most crucial factor is being "lasered in on
where the money is". Without a clear plan to reimagine the business and
generate value, having the best talent and technology is useless. This is
considered necessary, but not sufficient.
2. The Delivery (Kate Smaje): Knowing where the value is doesn't matter if you
cannot deliver it. The common failure point is forgetting that people's jobs and
functions must fundamentally change to adopt and use the new technology
effectively.
3. The Mindset & Alignment (Eric Lamarre): The "crystallizing moment" is the
initial learning journey for the C-suite. Aligning the top team, building their
confidence, and establishing a new tech-focused mindset is the foundational
step that enables everything else.
1. Introduction to Digital Business Models (BM)
• The internet has provided the opportunity to create new value propositions and
linkages with external customers, suppliers, and partners.
• A Digital Business Model (BM) is a key concept in this new environment.

2. The Nature of a Business Model

• A Business Model possesses two primary characteristics:
o It is explicit: It can be codified precisely and formally.
o It is general: Its applicability is not individual or specific.
• The general nature of a BM might suggest that replicating another company's
model is trivial, but this is often not the case.
• Difficulty in Replication:
o Although a BM itself is explicit and general, successful replication is
difficult.
o Replicators often fail to appreciate the complex interconnections of the
multiple activities that constitute "best practices".
o Companies may copy piecemeal from one or multiple models, hoping to
achieve strategic superiority, but this often fails.
o Example: There have been multiple failures of established airlines like
Delta and Continental to replicate the successful business model of
Southwest Airlines.

3. Business Model Innovation (BMI)

• Definition: BMI is a reconfiguration of activities and organizational units within
and outside the firm designed to create value in producing a specific
product/market set.
• BMI often involves importing a successful business model from one
product/service market to another.
o Example: Southwest Airlines borrowed a BM from interstate bus
transportation and applied it to the airline industry.
o Example: McDonald's brought traditional assembly line techniques into
the fast-food business.
BMI's Impact and Relation to Technology
 • BMI can have a larger impact than a new product or service.
• There is significant potential for value creation derived from BMI, where
companies find a performance advantage by altering their existing BM.
• However, altering an existing business model is challenging for an incumbent
company.
• While the internet creates opportunities for BMI, the idea that value creation
through BMI requires a new technological revolution is mistaken.
• BMI offers a route to strategic goals that does not rely on breakthrough
technologies, new product launches, or the development of new markets.
• A firm does not need to invest in developing new knowledge for BMI; that
knowledge often already exists within the firm.

4. Business Model vs. Business Strategy

• A Business Model is not the same as a Business Strategy. A BM exists as a
concept that answers three core questions:
1. What is the offer?
2. Who are the customers?
3. How is the offer produced and delivered?
• The "how" defines the firm's choice of BM.
• Firms can have essentially the same product offer ("what"), aim for the same
market segment ("who"), and still operate with different business models
("how").
Case Study: Zara's Innovative BM
• Zara's dominance in fast fashion did not depend on product or market
innovation.
• It offered "freshness" to the market by introducing new collections weekly,
contrasting the industry norm of seasonal collections. This was different from
Benetton, which only provided freshness in color.
• The heart of Zara's innovation was the answer to "how".
• Comparison with Competitors:
o At GAP, design preceded manufacturing and commercial activity.
At Zara, these activities were done simultaneously using a team approach.
 o H&M outsourced all its production, while Zara retained many activities in-
house.
o H&M used a "Push" approach, with substantial advertising.
Zara used a "Pull" approach, attracting shoppers with small collections and new
weekly offerings, without product-specific advertising.

Feature ZARA H&M

What? Fast fashion Fast fashion

Young, suburban, fashion-seeking Young, suburban, fashion-seeking

Who?
shoppers shoppers

Substantial vertical integration, Traditional vertical disintegration, with

including final design, raw materials most production outsourced to an
How?
warehousing, cutting, assembly, and independent and dispersed supply
logistics network.

Export to Sheets

5. BMI Mechanisms and Case Studies

There are four key mechanisms of Business Model Innovation:
1. Relinking: An alteration in the connections between organizational units
currently performing activities.
2. Repartitioning: An alteration in the organizational units' physical, cultural, and
institutional boundaries.
3. Relocating: An alteration in the physical, cultural, and institutional distance
between organizational units.
4. Reactivating: Altering the activities that constitute the firm's current business
model.
BMI Case Studies
• Embraer: The Brazilian aircraft manufacturer underwent privatization through
BMI, which involved reorganizing and relocating. Its new BM involved
conceiving a plane by looking at the needs of foreign lead customers and then
designing and building it with a consortium of independent suppliers from
several countries. This led to Embraer becoming the world's fourth-largest
aircraft manufacturer.
• Taco Bell: By centralizing cooking, Taco Bell gained economies of scale and saw
dramatic efficiency and quality control improvements. This also allowed for
 reconfiguring store space to allot more to customer service. Without altering the
offer or customer, this BMI-generated value was achieved with old technology,
not R&D or tech breakthroughs.
• Nissan: Transformational change accompanied BMI at Nissan. The requirements
for this change included assuming nothing, finding answers within the company,
and using cross-functional teams to recommend changes. This process required
mutual engagement and commitment to the organizational changes.
The presentation provides a table classifying these examples, noting that
Embraer and Nissan used outsourcing (a form of repartitioning).

6. e-Business Strategy and Information Systems (IS)

An e-Business strategy involves leveraging the internet and information systems to
achieve a competitive advantage.
Cisco's e-Business Strategy
• Cisco sells most of its internet hardware (routers, switches) on the Web.
• Its business model includes automating all routine activities on the internet.
• Sales support is automated via programs that answer queries online 24/7,
allowing buyers to serve themselves.
• This frees highly trained service engineers to deal with technical challenges
instead of routine questions.
• Since 1995, this model has helped sales jump fourfold.
• Cisco also set up a program allowing customers to download software directly,
eliminating printing, handling, and postage costs.
• Overall, Cisco saves an estimated
$325 million a year from automating its sales and distribution support.
The Role of Information Systems (IS)
• There is a critical relationship between a firm's strategy and the Information
Systems it uses.
• Airline Industry Example:
o Processes: Customer experiences (reservations, check-in, baggage
claim) and airline operations (resource allocation, flight departure,
cleaning) are managed by IS.
o Databases: Core data includes customer, maintenance, schedule,
employee, aircraft, and ticket information.
 • IS can have a significant impact on a company's competitive position.

Four Generic Strategies Using IS

1. Low-Cost Leadership: Using IS to lower operational costs.

Example: Wal-Mart's Point-of-Sale (POS) system is linked to a central computer that
transmits purchase orders to suppliers for continuous replenishment.
2. Product Differentiation: Using IS to enable new products/services or change
customer convenience.
Example: Apple's iPod combined with its unique online iTunes music library.
3. Focus on Market Niche: Using IS to serve a narrow target market better than
competitors.
Example: Hilton employees can scan customer records to find preferences and
profitability during check-in.
4. Strengthen Customer and Supplier Intimacy: Using IS to increase switching
costs.
Example: Amazon's one-click purchasing encourages repeat purchases by making it
easy and storing buyer information.

7. Developing an e-Business Strategy

The development process involves understanding competitive dynamics and aligning
business with technology.
Business/IT Alignment
• A formal business model should make business/IT alignment easier.
• Henderson and Venkatraman's (1993) model illustrates this alignment across
four domains:
o Business Strategy: Defines business scope, distinctive competencies,
and IT governance.
o IT Strategy: Defines technology scope, systemic competencies, and IT
governance.
o Organizational Infrastructure: Includes administrative structure,
business processes, and skills.
o IS Infrastructure: Includes architecture, processes, and skills.
o The model emphasizes the need for strategic fit between strategies and
functional integration between infrastructure.
The Cyclical Process of Strategy Formulation
Developing an e-business strategy is a continuous, cyclical process.
1. Evaluate the changing environment. This involves understanding the
constraints of the current strategy and evaluating scenarios.
2. Evaluate the changing strengths and weaknesses of the company.
3. Create an e-Business strategy. This involves working back from customers.
4. Create an e-Business transition plan. A portfolio of strategies should be
developed.
5. Drive implementation. This step emphasizes the importance of senior
management.

8. Competitive Strategy Frameworks for e-Business

Several frameworks help in analyzing the competitive landscape.
Porter's Generic Strategies
• Porter proposed three generic strategies:
1. Cost Leadership: Offer low prices.
2. Differentiation: Offer premium features for premium prices.
3. Niche Specialization: Focus on a limited market segment.
• Porter argues that firms should clearly pursue one strategy to avoid "getting stuck
in the middle".
• However, the online world enables firms to provide multiple benefits
simultaneously.
Yahoo.com is an example, offering a single access point, fresh information, and easy
navigation.
• Amazon.com is in sharp contrast to offline models, as it can compete on
multiple benefits simultaneously, including price, customer intimacy, depth of
product line, and service innovation.
The Delta Model
• Developed by Hax and Wilde (1999), this model argues that Porter's framework
doesn't adequately represent competition in today's tech-driven industries.
• It proposes three strategic options:
1. Best Product: The traditional Porter view of low cost or differentiation.
 2. Customer Solutions: Focuses on customer economics, such as
reducing costs or providing customized products (e.g., Amazon,
McDonald's, Disney).
3. System Lock-in: Based on system economics, this involves locking in
complementors to enhance offerings and locking out competitors with
proprietary standards (e.g., Microsoft, Intel, eBay).
Modified Porter's Five Forces for the Web
The internet significantly changes the classic competitive forces:
• Bargaining Power of Buyers: This significantly increases as buyers take to the
web. Infomediaries help buyers find the best deals.
• Potential Entrants: Traditional barriers to entry have largely disappeared.
• Substitutes: The potential substitution of information for material becomes a
significant threat.
• Bargaining Power of Suppliers: Changed as the internet is used to integrate
supply chains.
• Rivalry Among Existing Firms: The nature and value of products are changing.
• Employees (New Force): There is intense competition for employees who can
create and maintain an e-Business.
Value Systems and Value Webs
• A Value System shows the linkages that must be managed for competitive
advantage. Examples include the automobile assembly chain (Suppliers →
Assembler → Dealer → Consumer) and the insurance chain (Company →
Agents/Brokers → Consumer).
• The Value Net (Nalebuff and Brandenburger, 1996) examines the
interconnectedness of a company ("You") with its Customers, Suppliers,
Competitors, and Complementors.
• The Value Web is a more detailed map of these relationships. EBay's Value Web
includes:
o Customers: Buyers and Sellers.
o Complementors: Shipping Services, Banks, Credit Cards.
o Allies: IEscrow, Search Engines (for traffic).
o Suppliers: Hardware, Network, and Software Providers.
o Competitors: Yahoo Auctions, Other Online Auctions, Classifieds.
Creating a New Value Curve
This framework helps discover new value by answering four questions:
1. REDUCE: What factors should be reduced well below the industry standard?
2. RAISE: What factors should be raised beyond the industry standard?
3. ELIMINATE: What factors in the industry should be eliminated?
4. CREATE: What factors should be created that the industry has never offered?
Example: Amazon
• Reduced cost.
• Raised the range of books available.
• Eliminated the need for physical stores.
• Created the ability to search and order books.

9. E-Business Building Blocks

Based on a 2000 IBM Corp. survey of 600 e-businesses, these are the fundamental
components of an e-business.

Value Propositions
Value Propositions
Building Block to Recipients Required Capabilities
to the Firm
(Customers)

Increased breadth,
diversity, depth, Reduces load on
frequency, and staff. Provides Reproduce info at near-zero
1. Online
availability of usage data: lower cost. Store info electronically.
Information
information. error rates and Design user-friendly
Exchange
Improved searching cheaper interfaces and mine data.
and flexibility of dissemination.
analysis.

Increased Reduces load on

information detail. staff, offloads
Lower transaction mundane tasks. Production of content in
2. Electronic
costs and time. Allows staff to usable forms. Secure private
Execution &
Faster access and focus on complex information transmission.
Delivery of
broader availability. tasks. Provides Design of new, integrable
Services
Customized service expanded data. business processes.
and better timing Attracts more
accommodation. clients.
 Value Propositions
Value Propositions
Building Block to Recipients Required Capabilities
to the Firm
(Customers)

Reduced Access to the

transaction recipient's
time/cost. wants/needs.
Information More targeted Ability to serve custom web
3. Customized organized by promotions and pages. Monitor user actions to
(or Personal) preference. Alerts, cross-sells— identify preferences and
Services reminders, and increased predict behavior—data mining
tailored switching costs and maintaining privacy.
promotions. No and likelihood of
need to re-enter repeat
data. transactions.

Lower costs of
Single point of
operations. Frees
contact. Better,
resources for other Develop network-based
more reliable
tasks. Better info coordination systems.
4. Resource service quality due
sharing and Centralize domain expertise.
Pooling to central expertise
collaboration. Deliver service to and gather
and aggregation of
Ability to input from remote users.
info. Consolidation
outsource
of demand.
generalized tasks.

Less wasted effort

Proactive
on low-probability
identification of Data gathering, synthesis, and
opportunities.
needs. integration. Analysis
5. Business Better opportunity
Communication is technologies.
Intelligence selections and
better targeted to Identification/classification of
returns. Better
interests and targets by profiles.
relationship with
knowledge level.
the target.

Communicate with
Stay in touch with Develop a structure for
peers. Access a
community knowledge storage.
wider set of
sentiments. Knowledge search and
viewpoints—
6. Online Leverage retrieval techniques.
flexibility in
Collaboration community ideas Incentives for contributing
time/location of
for new product information. Monitor usage
collaboration.
development. and keep collaboration on
Catch up on missed
Increase word-of- topic.
discussions.
 Value Propositions
Value Propositions
Building Block to Recipients Required Capabilities
to the Firm
(Customers)

mouth
promotions.

A greater share of
a customer's
One-stop
purchasing
convenience with a Electronic linkage with
budget. Market to
large selection. suppliers. Detect and cater to
a larger market.
Comparison customer preferences. Offer
7. Offering Promote
between choices. recommendations and
Aggregation complementary
Access to hard-to- product comparisons: cross-
offerings—reduce
find offerings and selling capabilities and
the need to
detailed logistics management.
produce the
information.
offering or carry
inventory.
Digital Transformation: Customer Networks (Module 2)

The Customer Network Paradigm

The traditional approach to customers was the Mass Market Model. In this model, a
company would use mass production and broadcast one-way mass communications to
a large group of individual customers. The new approach is the Customer Network
Model. This paradigm views customers as a network of interconnected nodes. The
company, customers, and various digital platforms (like blogs, forums, Twitter, and
YouTube) are all part of an interactive web. In this model, customers can actively shape
and create new value for the business.

Rethinking the Marketing Funnel

The traditional marketing funnel consists of five stages:
Awareness, Consideration, Preference, Action, and Loyalty. Conventional marketing
tactics were aligned with these stages, such as using TV and radio for awareness or
offering reward points for loyalty. In the digital era, this funnel must be rethought to
account for customer networks:
• Awareness: Now driven by search, online buzz, and blogs.
• Consideration: Involves online research and user reviews.
• Preference: Is influenced by social networks, YouTube, and local search.
• Action: Can include group discounts and online, in-store, or mobile purchases.
• Loyalty: Involves "friending" on social media (Facebook, Twitter), email, and
customized up-selling.
• Advocacy: A new stage is added where advocacy from existing customers
influences new customers. This is driven by reviews, links, "likes," and social
buzz.

New Customer Behaviors & Micro-Moments

The modern path to purchase is about understanding the customer's "in-the-moment"
needs. Google Research calls these Consumer "Micro-Moments".Four Key Micro-
Moments :- I-want-to-know moments , I-want-to-go moments ,I-want-to-do
moments and I-want-to-buy moments
Showrooming and Mobile Usage
Showrooming is when a customer looks at products in a physical store without the
intention of buying them there. Customers use mobile devices to look up product
reviews and product information during a shopping trip. Taking pictures of the product
to get another opinion. Looking for digital coupons. A survey on buying behavior
revealed 25% would always buy in-store once they are there. 45% would always opt for
a cheaper discount offered online. 30% were on the fence and might buy in-store
despite cheaper online options.

Strategic Response: The Omni-Channel Strategy

To adapt to these new behaviors, businesses must evolve their channel strategy.
• Multi-Channel Strategy: This is when one company sells in multiple, separate
channels, such as a physical retail store and an e-commerce website.
• Omni-Channel Strategy focuses on collaborating with different channels to
create an integrated and seamless customer experience.
Example: Walmart employs an omnichannel strategy with its mobile app. The app uses
geo-location to detect when a user is in a store and updates to an "in-store version". This
enables features that are more appropriate and helpful for in-store purchases.

Summary: Shifting the Customer Approach Strategy

The move from an analog to a digital business model requires a fundamental shift in
how companies view and interact with their customers.

Moving From
Towards Digital
Analog

Customers as Customers
mass market dynamic network
a as a

Communications are Two-way

broadcast to customers. communications

Customers are the key

The The firm is the key influencer.
influencers.

inspire purchase, loyalty,

Marketing to persuade purchase Marketing to
and advocacy

One-way value flows Reciprocal value flows

Economies
Economies of (firm) scale (customer) value
of
Digital Transformation: Understanding Digital Customer Behaviors (Module 3)
Customer networks influence customer behavior, which can be understood through a
new marketing funnel that includes stages of Awareness, Consideration, Preference,
Action, Loyalty, and Advocacy. This leads to five fundamental customer behaviors that
businesses must understand.

The Five Fundamental Customer Behaviors

1. Access: Be Faster, Easier, and Everywhere
This behavior is driven by customers seeking easier, flexible, and ubiquitous digital
information. Businesses aim to be faster, easier, everywhere, and always on for their
customers by creating a seamless experience.
• Mobile Device Usage: The average smartphone user picks up their phone 150
times daily.
• On-Demand Business Model: This model reconfigures services so that a
specific place and time are no longer required, allowing digital access to the
customer anytime and anyplace.
o Example: Digital Banking: Customers can make a transfer, check their
balance, pay a bill, and scan, upload, and deposit a cheque.
o Example: Zipcar: An on-demand car rental service where members can
join, rent cars by the hour, view them on a map, select the nearest one,
punch in a code, and drive off.
2. Engage: Become a Source of Valued Content
This behavior involves customers seeking engaging and relevant digital content. As
media consumption has shifted from "Appointment Viewing" to "Always on Demand"
(e.g., YouTube, Hulu, Spotify ), it has become harder to engage customers with
advertising only. Every business must now think like a media company and become a
source of valued content.
• The "Hero, Help, and Hub" Content Model:
o Help Content: Answering the customer's specific need in the moment.
▪ Example: The Home Depot provides "How-To" videos for
customers needing help with DIY projects.
o Hub Content: Regularly publishing content that keeps the customer
coming back for more.
▪ Example: The AWS Security Blog by Amazon Web Services
provides ongoing, valuable information for its users.
 o Hero Content: Using powerful storytelling to engage the customer.
▪ Example: Corning's highly engaging videos about the future of
glass technology.
• Content as Utility: Building simple apps or tools that provide value to
customers, creating stronger bonds with the brand.
o Example: Columbia Sportswear is creating an app that teaches users to
tie different knots.
3. Customize: Make Your Offering Adaptable
This behavior concerns customers seeking digital information and experiences based
on their preferences. The strategy for businesses is to make their offerings adaptable to
individual customer needs.
• Example: Netflix: 75% of user activity on the platform is based on
recommendations.
• Example: Lancome's Virtual Makeup Tool: The "Magic Mirror" allows users to
virtually try on makeup by uploading their own photo or choosing a model.
• Example: Coca-Cola's "Share a Coke" Campaign: Coke customized its
packaging to combat a declining millennial consumption. They printed the 150
most common names in Australia on cans, offered custom printing, and allowed
users to create virtual personalized cans. This resulted in millions of social
media shares and a 7% increase in sales to millennials.
• Example: MakerBot: Customizing physical products to suit individual customer
needs through 3D printing.
4. Connect: Become Part of Customer Conversations
This behavior reflects customers' desire to seek a digital experience to express
themselves and share it with others. Businesses aim to become a part of their
customers' conversations.
• Using Social Media as a Tool: Businesses can use social platforms to solicit
ideas from customers.
o Example: Dell's IdeaStorm: This platform invites customers to suggest
ideas for any Dell product, post their own suggestions, view others' ideas,
and vote for the ones they like.
• Connecting Through Online Communities:
o Example: SAP Community Network: An online community where users
connect, find answers, and read blogs. This community has 1.2 million
unique monthly visitors, 30,000 new members per month, and generates
 3,200 discussion posts per day. The community spirit of sharing and
supporting adds value to the business.
• Social Media in B2B Sales: A study showed that social-savvy sellers see 2-6%
improved sales outcomes. One respondent noted that using LinkedIn to find
common ground with new clients leads to "much better" results.
5. Collaborate: Let Customers Help Build Your Enterprise
This behavior involves customers seeking shared goals and contributing via digital
platforms. The strategy for businesses is to invite customers to help build the
enterprise.
• Example: Wikipedia: The online encyclopedia was built almost entirely by users
who could create and edit articles.
• Example: Waze Navigation App: Waze did not have map data or the money to
buy it. They collaborated with their customers, who built the maps simply by
driving with the app turned on.
• Open Platforms:
o Example: Apple's iOS Platform: A nine-year-old developer coded an app
called "Doodle Kids," uploaded it for free to the iOS platform, and it was
downloaded over 300,000 times in three months.
o Example: Intuit: Allows customers to provide customer service to other
customers.

Summary: Five Customer Network Strategies

1. Access: Be faster, easier, on-demand.
2. Engage: Be a source of valued content.
3. Customize: Be adaptable to customer needs.
4. Connect: Become part of customer conversations.
5. Collaborate: Let customers help build your enterprise.
 E-Business Strategy & E-Commerce Business
Models – Master Notes

1. Introduction to Business Models

A business model is a set of planned activities designed to create profit in a marketplace. It defines
how a firm creates, delivers, and captures value. The business plan is the document that explains
this model in detail. An e-commerce business model is distinct because it leverages the unique
qualities of the Internet and Web, such as global reach, interactivity, scalability, low transaction
costs, and customer engagement.

2. Eight Key Elements of a Business Model

To evaluate whether an e-business will succeed, eight key elements are used.

• Value Proposition – why customers should buy (personalization, reduced search costs, better
delivery).

• Revenue Model – how the firm will earn (ads, subscriptions, freemium, transaction fees, sales,
affiliates).

• Market Opportunity – size of the marketspace, often divided into niches.

• Competitive Environment – rivals in the marketspace, their size, share, profitability, pricing.

• Competitive Advantage – the edge of the firm (quality, lower cost, asymmetries, first-mover,
unfair advantage).

• Market Strategy – how the firm will promote and reach customers.

• Organizational Development – structures required; shift from generalists to specialists.

• Management Team – leadership credibility, knowledge, and execution ability.

3. Raising Capital
E-businesses require funding at different stages, from seed money to expansion funding.

• Seed capital.

• Traditional sources include incubators, angel investors, banks, venture capital, and strategic
partners.

• Crowdfunding options enabled by JOBS Act (US) and Startup India.

4. Categorisation of E-Commerce Models

There is no single right way to categorise e-commerce models. They are often divided by sector or
technology, and many firms adopt hybrid models.

• By sector: B2B, B2C.

• By technology: e.g., mobile commerce.

• Hybrid examples: eBay combining auction and marketplace.

5. Business-to-Consumer (B2C) Models

B2C involves direct transactions with consumers through various models.
• E-tailer – online retailer; revenue from sales. Variants: virtual merchants, bricks-and-clicks,
manufacturer-direct.

• Community Provider – online environments for social interaction (Facebook, LinkedIn, Twitter,
Pinterest). Revenues are usually hybrid.

• Content Provider – digital content (news, music, videos). Revenue from ads, subscriptions,
digital sales. Success depends on owning content.

• Portal – search plus integrated content/services. Types: general, vertical, search. Revenue
from ads, referrals, subscriptions.

• Transaction Broker – processes transactions (finance, travel, jobs). Saves time and cost;
revenue from fees.

• Market Creator – platforms for buyers and sellers (eBay, Uber, Airbnb). Revenues from
transaction and access fees.

• Service Provider – online services such as Gmail, Google Maps. Value in convenience;
revenue from subscriptions, ads, data sales.

6. Business-to-Business (B2B) Models

B2B e-commerce enables firm-to-firm transactions, often through digital marketplaces.

• E-distributor – digital wholesalers/retailers for MRO goods. Revenue from sales.

• E-procurement – markets for indirect goods; SaaS and PaaS providers. Revenues from service
fees, SCM, fulfilment.

• Exchanges – independent vertical marketplaces; revenues from fees; many failed due to
intense competition.

• Industry Consortia – industry-owned marketplaces; selective suppliers; example: SupplyOn.

• Private Industrial Networks – long-term coordination networks; majority of B2B spend by large
firms; example: Walmart suppliers.

7. The Four Pillars of E-Business Models

Successful e-businesses rest on four interconnected pillars.

• Product Innovation – capabilities, value proposition, target customers.

• Infrastructure Management – resources, value configuration, partner networks.

• Customer Relationship – information strategy, trust, loyalty, service experience.

• Financial Aspects – cost structure, revenue model, profit/loss.

8. How E-Commerce Changes Business

E-commerce alters industry structure by affecting competitive dynamics.

• Increases rivalry among competitors.

• Lowers barriers to entry.

• Raises threat of substitutes.

• Shifts supplier bargaining power.

• Shifts buyer bargaining power.

9. Disruption by Technology
Disruptive technologies reshape industries by introducing innovations that improve over time,
eventually surpassing incumbents. Sustaining technologies only enhance existing products without
disruption.

• Disruptors start with lower-quality products.

• Improve rapidly and become superior.

• Incumbents lose market share as disruptors dominate.

10. Properties of Modern E-Business Models

Modern models shift focus from just creating products to enhancing customer experiences
throughout the journey.

• Technology enhances selection, ordering, delivery, and after-sales service.

• Value defined by end-to-end customer experience.

• Example: Amazon builds loyalty by wrapping service attributes around commodities.

11. Revenue Model Prototypes

Different revenue prototypes show how e-businesses capture value.

• Advertising – selling attention; examples: Yahoo portals, vortals, incentive marketing,

free/bargain models.

• Infomediary – collecting/selling consumer data; examples: Deja.com, NYTimes registration.

• Merchant – e-tailers like Amazon, catalogue merchants, hybrids (Gap), digital vendors (Cisco).

• Manufacturer – direct-to-consumer; examples: Intel, Apple, FreshFlowers. Eliminates

middlemen.

• Affiliate – pay-per-performance through partner sites; example: BeFree.

• Community – voluntary contributor content; examples: ExpertCentral, KnowPost.

• Subscription – paid access to premium content; examples: WSJ, Gartner.

• Brokerage – market makers connecting buyers/sellers (ICICI Direct, eBay, Yahoo Shopping).

12. The Right Model

There is no single right business model. The most effective approaches combine different
prototypes, evolve with the digital economy, and sometimes patent innovative concepts.