Eight Lessons for Business in the Digital Era

Prof. Josep Valor highlights successes and failures

02/05/2014 Barcelona

8 lecciones de empresas con impacto en la era digital

The advent of the digital era has produced spectacular successes and colossal failures in the business world. Both of them provide lessons that must be learned, or guides to what does and does not work when a business adapts to digitalization. Prof. Josep Valor, professor of information technology at IESE, talked about all this and more at a Continuous Education session titled "Creating successful businesses in the digital world," in which he highlighted eight lessons derived from the experience of well-known companies.

Lesson 1: find a sustainable business model
Technological evolution can render a business model obsolete, and being aware of the new trends may not be enough to change the way in which a company operates. This is what happened at Kodak, that even started manufacturing and selling digital cameras. However, it was not able to adapt to the change that digitalization of the industry brought to the structure of its income – it still relied on charging for every single photograph taken and developed, as well as camera sales. But the film roll disappeared and cameras lost popularity to mobile phones and tablets.

Lesson 2: make sure that you capture value
It’s essential to capture value at the right stage of the ecosystem and this was a bitter lesson for traditional record shops. There are few left these days, as, in the digital era there is little income to be had from the sale CDs and vinyl – the links in the music industry’s value chain with the least margin.

Lesson 3: look beyond the communication channel
Many information businesses are platforms for communication between two groups, but it can be hard to make a profit from this, where it is a free service. This is where The New York Times and the majority of traditional newspapers find themselves, as they have not known how to adapt advertising finance to the digital version. At the other end of the spectrum is Google, and others, and the efficiency and profitability that they have achieved with online publicity by taking advantage of the enormous opportunities offered by channel segmentation.

Lesson 4: think blended ( mixed models)
The best technology is not enough in itself. Mixed or blended models, which bring together the advantages of digital technology with the knowledge of the key variables in the sector, are much more likely to be successful. However digital your company may be, if you don’t have a good understanding of the business you’re in you will probably crash. This is what happened to Webvan, a company that sold food online which, in spite of its initial success, went bust after barely 18 months. The founders of Webvan, a librarian and a consultant, didn’t know how to calibrate the complexity and costs of warehousing and food distribution. In contrast, FreshDirect, set up by a supermarket and an IT expert, has established a profitable business model for distributing food, most of it fresh (more complex but with a greater margin) in the densely populated area of New York.

Lesson 5: don’t forget the end user
In the world of platforms, the client has a global perception of value and it is essential to provide sufficient extras for the end-user to feel they are getting good value. A paradigmatic case is that of Blackberry, which, in barely seven years, has gone from almost 100 percent of the market to practically zero. The user doesn’t fall in love with an operating system, they care about which apps it allows them to use. The success of iPhone and Samsung mobiles doesn’t derive from the technical superiority of their respective platforms (iOS and Android) but on the ecosystem of developments and applications that they have been able to generate.

Lesson 6: remember that we are permanently connected
Clients are always connected and have instant access to our products and services and to those of our competitors. This means that, with some limits, we can always know where they are. This opens the door to coordinating supply and demand in an unanticipated way. The results of any promotion can be maximized through the geo-localization of the supply and the possibility of promoting products in real time. These are the coordinates driving Groupon, which, having passed through an initial boom in the discount coupon business, continues to see its share price rise.

Lesson 7: make the most of big data
The scope for managing big data efficiently opens up enormous possibilities for predicting people’s behavior and for developing new business models. Furthermore, a "personal data market," which is more precise and personalized (Small Data), is opening up and is changing the relationship between users and service providers. This is terrain occupied by Target, which is able to know and predict the habits and preferences of its market thanks to an exhaustive analysis of digital behavior (Internet searches, comments and forums).

Lesson 8: don’t limit yourself to being a traditional intermediary
Business models based on reducing coordination costs between various products must re-examine their strategies as cheaper and more efficient digital intermediaries may yet appear. Take, for example, Lending Club, an online platform that connects lenders with borrowers. It’s an innovative and growing financing model that, in spite of the understandable reticence of the banks, exchanged $4 billion in March 2014. The security of the model is based on the information that users give about the solvency of debtors. The indebtedness of the Lending Club is around 4 percent – around or just below the average of most financial bodies.

Do you want to know more about the social and business changes in the digital era? A date for your diary: the 20th Telecommunications, Digital Media and Information Society meeting (Madrid, June 17 and 18, 2014) and the Short Focus Program 'The Connected Client is Transforming my Business' (Barcelona, June 10, 11 and 12, 2014).