There is a myriad of strategies that work within the digital ecosystem because of its constantly evolving nature. However, we cannot rule out the importance of understanding structure when it comes to keeping the entire value stack alive. In this article, I touch on the three elements that a CEO should keep tabs on, as well as the nine revenue models you need to understand to birth your digital enterprise. I recommend this for enthusiasts and executives of the digital transformation of today and the future.
A truly digital enterprise does more than just using new technologies. What truly distinguishes and gives a digital enterprise its competitive advantage is its culture, strategy and mode of operation. Digital enterprises strive continuously to enable new and leaner operating models, underpinned by agile business processes, connected platforms, analytics and collaboration capabilities that enhance the productivity of the firm. A digital enterprise relentlessly searches out, identifies and develops new digital business models, ensuring that customers and employees are at the centre of whatever it does. There are three areas which companies need to reassess and reform if they are to become digital enterprises. These are (i) the digital business models (what companies need to do), (ii) digital operating models (how they can do it), and (iii) digital talent and skills (who they need to work with to succeed).
In the scheme of digital transformation or enterprise digitization, many businesses are moving beyond viewing technology merely as a cost and seeing it as an important enabler of revenue generation. A recent survey by Mckinsey found that 45% of IT executives see revenue growth by improving digital capabilities and making it a top priority. However, in Africa, the rate at which IT executives integrate technology business processes is low, and this is because CEOs are yet to exist within that frame of mind. Most CEOs believe that their companies can implement a successful digital transformation simply by launching a digital business unit and hiring a Chief Digital Officer. But the reality is, successful digital transformation demands a culture sponsored by the leadership that promotes innovation, encourages risk-taking and empowers employees at all levels of the economy.
Becoming a digital enterprise requires that at the first level you decipher the problem gap (otherwise known as the job-to-be-done according to my favourite Harvard Business School Professor, Clay Christensen), vis-a-vis the customer segment you want to focus on, as that will pave the way for designing the framework of operations. The truth is digital technologies have enabled the emergence of the following business models: peer-to-peer networks, freemiums, delivering outcomes (mainly driven by the Internet of Things), crowd-funding/crowdsourcing, e-commerce/marketplace personalization, among others.
Several Nigerian start-ups employ digitization to generate revenues, an example is PayLater, a financial technology platform that started by loaning customers money without collateral within seconds. They are now creating more services within the value stack. PayLater runs on a revenue model where commissions are made from interest on the loans given.
A careful study of the following nine revenue models will reveal what can work for your digital enterprise idea and guide your eventual strategy development as a start-up.
Transaction: Traditionally manufactured products are packaged and resold from one to many users; ownership is transferred from seller to buyer through distribution channels.
Capacity Leasing: Capacity is monetized in the form of human time, machine or asset availability; companies manage the supply of capacity through demand forecasting, customer orders and sales.
Licensing: Technology, brand or intangible assets are licensed for some time to reflect the value of the original invention but without the inventors needing to market or sell the product/service themselves.
Subscription: Products/services are subscribed to, usually for a period, which can be as short as a day but often for longer, locking customers in with a reduced upfront cost.
Commission: Agents receive commissions (or a margin) for matching buyers to sellers for a given product/service; agents can be people or, more recently, scalable digital platforms.
Advertising: Often used in media and entertainment as a way to distribute and share ideas, with associated products/services marketed through the medium.
Trading: Buy low, sell high, if successful; traders monetize mispriced goods and services due to fluctuations in demand and supply using market knowledge.
Donations: Often found to be transactional or subscription-based for individuals to participate either on a one-off or regular basis; philanthropic donations can often provide intangible benefits to the donor.
Subsidies: Often found in public service organizations whereby traditional revenue models only make up part of the cost to provide the service; subsidies typically incentivize improvements in quality of service.
My advice to anyone looking to start or transition into a digital enterprise is to start immediately, don’t put it off anymore.