Riassunto Digital Business Innovation DBI

Introduction

IT refers to anything related to computing technology, such as networking, hardware, software, the Internet, or the people that work with these technologies. Information and Communication Technologies (ICTs) is a broader term for Information Technology (IT), which refers to all communication technologies, including the internet, wireless networks, cell phones, computers, software...

We are living in the 4^th industrial revolution, a world in which many elements are pervading us: Internet of Things, Big Data, Cloud, Mobile, Artificial Intelligence, Industry 4.0, Blockchain, Robots, Drones, AR, VR, New Generation Networks (UBB, 5G) and so on, and only company who are able to do entrepreneurial innovation could deal with the big bang disruption of this world. COVID is the fastest disruption that pervade all the world. So why Digital Business Innovation (DBI) matter? Because the top companies are ITCs companies and if we do not follow this pattern, we will be brought out from the market.

The Digital Business Innovation (DBI) Course aims to let the students understand: the main digital mega-trends that are deeply changing the whole economy, the main business applications deriving from these mega-trends and their impact on companies and the fact that all these trends impact the others like a tornado. Main trends for the infrastructure are 5G and cloud; other digital trends are Internet of Things, B2C eCommerce, AR, AI, Blockchain.

We live in the post-digital age meaning that technology has made an incredible speeding process, the cost of components is dropping every year more, the memory is increasing. Traditionally companies need to have capitals and assets but the world is now changed, is based on idea and information, we can leverage today on assets of others. The most important asset is the information and the ability to manage it (Airbnb or Uber for ex). There is a digital transformation manifesto: we should respect technologies, acknowledge that technological competences are scarce and expensive, apply the fundamental economic rules, be a savvy adopter, diffuse an innovative attitude throughout the whole organization. How to stimulate the circulation of ideas? Meaning that ideas cannot follow only a hierarchy approach top down so executing order, but there should be a circulation of ideas also from the bottom.

Digital business innovation: Theories and models

Why IT and digital transformation are relevant? Pandemic has increased even more the digital transformation from a cost to an opportunity. Technology is pervasive, AI cloud is something that is perceived every day.

When we talk about strategy we can take different perspectives. Strategic decision: a decision we make that has long term, significant and non-reversible effects on the final goal of the organization (decision maker). The long term is 5-10 years, in general, depends on the context; in IT is usually few years due to the speed and the high dynamicity in this sector. The long term becomes 2-3 years, and the short term is less than one year. And also if we think of startups, most of them (90%) fail in the first year of life. So the point is strategic decision is played in the long run, but the long run is becoming shorter. (usually) requires large amounts of resources. The impact could be very significant on the organization; it’s very difficult or impossible to reverse the decision or the investment after the strategic decision requires top management involvement.

The objective of the strategy is to create and sustain competitive advantage: a superior performance than our competitors. Strategy: an integrated, comprehensive plan which identifies the scope and the direction of the organization (decision maker) is aimed at obtaining long term performance superior to competitors (in relation to the goal) integrates a coherent set of strategic decisions.

There’s also a financial perspective of the company, none of the revenues and cost represents an income, the real indicator is the cash: the performances are evaluated on the cash view: NCF. There’s also another view, a holistic view: the value and the creation of value. The creation of value is the creation of health and a benefit we can deliver to our customers. The value is a benefit, can be also tangible and also intangible (social or environmental impact). When we set a strategy we have 3 main parts to connect: corporate, business units and functional.

Business strategy formulation process

The business strategy formulation process is composed by many steps that are repeated iteratively if it’s necessary and are:

• Create the Vision (long term view of the market), Mission (what the company will become) Objective or Purpose (the reason why the company is positive for the world) so, setting the direction for the company
• Then perform External Analysis (check opportunities and threat, PESTEL, 5 forces) and Internal Analysis (strength and weakness for me compared to my competitors, VRIO, value chain) and put everything together performing a SWOT
• Create some Strategic alternatives
• Strategy implementation
• Control, so check the result and go back to adjust

Business model

The Business Model is a company’s architecture of value (Ghezzi, 2016), it represents the way a company:

• Generates value for its target customers (value generation)
• Delivers value to such target customers (value delivery)
• Captures a share of such value to make its business sustainable (value capture)

“The essence of a business model is in defining the manner by which the enterprise delivers value to customers, entices customers to pay for value, and converts those payments to profit” (Teece, 2010).

Business model canvas

• Value Proposition: a selected bundle of products and/or services targeting a group of customers and satisfying well-defined needs.
• Value Interface: the channels through which we offer our value propositions to our customers and the types of relationships we entertain with our customers.
• Value Infrastructure: the key activities, resources and suppliers/partners on which the value proposition is built.
• Value Monetization: the revenue streams through which the company earns from its customers and the corresponding cost structure.

Value proposition canvas

The Value Proposition Canvas makes explicit how you are creating value for your customers. It helps you to design products and services your customers want. We can design a value proposition, a package of products or services that include some functionalities that can generate the gains for the final customer. The important part is the alignment between what we serve and what we designed. We have to avoid misalignments. The two models can be integrated with each other.

Does IT matter? In 2003 Carr says that IT doesn’t matter because for him it cannot be a source of long-term competitive advantage since it is becoming more and more cheap, standard and available to everyone; he was saying that IT was useful for operation but was insignificant for strategy. He was wrong because ICT are built on a specific business logic of a company and can create strategic differentiation.

ICT is strategic

ICT is strategic from two perspectives: because it changes the company from the internal perspective (create competitive advantage in terms of cost and differentiation by impacting on the company’s Value Chain and resources) and external perspective (ICT can drive transformations in the competitive landscape, changing the role and the intensity of each competitive force (internal rivalry, potential entries and so on). Is not often easy to let understand that IT matters also because of some cultural barriers in the TMT.

Disruptive innovation

Disruptive innovation occurs when an established and well positioned company on the market (incumbent) is displaced by a new entrant, usually a new venture, which takes the market leadership. Disruptive technologies are hard to intercept as they appear significantly weaker than the established one at the very beginning (they usually start “cheap and simple”, maybe in a niche market). To describe the process, we talk about “the technology cycles” so the fact that the world is made by long period of incremental innovation and then some discontinuity, the radical innovation.

Big bang disruption

Big bang disruptions are fast processes of displacing existing incumbent from a new entrant. Big bang disruptions are commonly found in digital innovation, often unplanned, with low-cost experiments (unencumbered svincolato development); follow a shark fin model not the Roger’s adoption model so there are only 2 categories the trial user and everyone else, this means that there is an unconstrained growth; they follow an undisciplined strategy because usually they are less expensive, better and with more innovation and customization. This is because they rely on computing power, cloud, and mobile device.

These “big-bang” disruptions are often unplanned and unintentional. They do not follow conventional strategic paths or normal patterns of market adoption. To survive them, incumbents need to develop new tools to detect a radical change in the offing, new strategies to slow down disrupters, new ways to leverage existing assets in other markets, and a more diversified approach to investment.

Three main characteristics in the big bang disruption

• Unencumbered development: Big-bang innovations are often born of rapid-fire, low-cost experiments on fast-maturing, ubiquitous technology platforms. They don’t need budget approval and aren’t vetted before development begins. These innovations are often built out of readily available components that cost little or are free. Innovators and entrepreneurs can experiment with new applications at little risk to investors, abandoning prototypes that do not quickly prove popular.
• Unconstrained growth: Big-bang disruptions collapse the product life cycle. Now there are only two segments: trial users, who often participate in product development, and everyone else. The new product cycle can be simplified into three basic stages: development, deployment, and replacement. The innovators collectively get it wrong, wrong, wrong and then unbelievably right. In today’s hyper-informed world, each epic failure feeds consumer expectations for the potential of something dramatically better.
• Undisciplined strategy: Big-bang disrupters contradict much that you know about competitive strategy. Big-bang disrupters are thoroughly undisciplined: They start life with better performance at a lower price and greater customization. They compete with mainstream products on all three value disciplines (low cost; constant innovation; product customization) right from the start. How can better also be less costly? The faster, cheaper, and smaller computing power (Moore’s law) is now deployable on a global scale and delivered through the cloud to inexpensive mobile devices. Today’s technology continually and dramatically reduces costs (parts and manufacturing, embedded technologies and intellectual property, and development costs), thus making it possible to sell new products and services more cheaply than the inferior alternatives they displace.

Big bang disruption is the result of some megatrends like the sharing economy and the product servitization (vs ownership).

Business strategy

It is a set of strategic decision aimed at creating a sustainable competitive advantage. IT strategy is a technical answer to a business question: “How will IT help the business win?”. It assumes the business strategy is set, then considers how to use IT to make that strategy successful. IT Strategy is usually conducted downstream of/ after business strategy.

From IT to “Digital Technology”

What’s new about digital? Pervasive. Digital technologies are so pervasive that they create a different everyday experience. Multi-purpose. Digital technologies can be employed in a plethora of alternative environments with a vast range of applications. Customer-centric. Digital technologies affect customers’ touchpoints and journey to such an extent that they enable and call for true customer-centricity in a company’s strategy.

Value-relevant and transformational. Digital technologies, if properly leveraged, can have a transformational and innovative impact on value propositions.

Digital business strategy

Digital Business Strategy is more than IT strategy, it’s a business answer to a digital question: “How should our business evolve to survive and thrive in an increasingly digital world?” It is not a separate strategy, but instead a lens on business strategy. DBS leverages on Digital technology which are Pervasive, Multi-purpose, Customer-centric, Value-relevant and transformational to raise human performance. The essence is to deliver more thanks to the digital density (more connection between people) and the digital edge (recombine digital and physical to create new value).

Strategic palette

A strategic palette is a framework that helps firms in evaluating three dimensions of the environment where they operate: predictability (can you forecast it?), malleability (can you shape it?) and harshness (can you survive it?).

Classical (be big)

Classical leaders analyze the market and firm capabilities and develop and execute the plan to have a competitive advantage.

Adaptive (be fast)

They change continuously their approach generating a range of strategic option to test.

Visionary (be first)

They envision a valuable possibility that could be realized and they work to build it and scale it. It’s essential to be creative.

Shaping (be the orchestrator es Amazon)

Firms engage other stakeholders to create a shared vision of the future at the right point in time. They build a platform through which they can orchestrate collaboration, creating a platform they create co-opetition.

Renewal (be viable)

External circumstances are so challenging that your current way of doing business cannot be sustained. A company must first recognize and react. Then, it needs to act decisively to restore its viability by refocusing the business, cutting costs, and preserving capital, while also freeing up resources to fund the next part of the renewal journey. Finally, the firm must pivot.

Platform

It provides the infrastructure and rules for a marketplace that brings together producers and consumers.

Multi-side platform

Enable direct interactions between two or more distinct sides. Each side is affiliated to the platform. It creates value because reduce: search cost, transaction cost, product development cost (for example Wikipedia is not paying to have the knowledge which is available from the user).

What platforms need

A platform can grow only if there are 3 elements: the sides, market friction (so the pain that the user experience without the platform in finding other user/seller/customer), the network effect (that could be same-side network effect like Whatsapp or cross-side network effect like Airbnb or Uber).

Network effect also create problems like more competition inside the platform. Generally, the more price sensitive side is subsidized, while the side that increases more strongly its demand as the other side volume grows is charged. The objective is to attract enough participants on the money-side in order to get huge revenues on the money side, which will be inclined to pay handsomely to access to the high volumes on the subsidy-side (is charged less than in an independent market, this rewards to participate and reach high volumes and make more valuable the platform on the other side). Quality is another aspect that influence the which part we should subsidize, in fact, charging the side that must supply quality allows the platform to exclude participants that bring low quality products to the platform.

From pipeline to platform

Pipeline is the classical value chain model, from raw material (the input in general) to the final product and then it’s sold to the customer. Now platforms are more and more used where there is a shift from resource control to resource orchestration, from internal optimization to external interaction, from focus on customer value to value of the ecosystem.

Platform’s governance

An effective governance is needed: rules, procedures and policies are fundamental like Facebook, which bans users responsible for misbehaviors. Governance is needed to solve market for lemon (when high quality products are driven out because there are a lot of low-quality product), excessive competition and spillovers. For startup phase is better a decentralized governance (low control) while in maturity stage is better a centralized governance (high control).

Chicken and egg dilemma

We want to populate the platform with the 2 sides, but which side should populate it first? If I have “the fork” with customer but not restaurant is not good. So there are ignition strategies for example:

• Marquee customers: something unrelated to us that attract people in the platform (like have McDonald in the mall)
• Market niche - Ecosystem seeding: Start from a niche (seed) then grow. It allows to concentrate condefined customers with specific requests and needs.
• Zig-zag strategy: In case of cross-side network effects, it shifts its focus from one side to the other, trying to attract critical mass in all of them (like Youtube)
• Two-step strategy: when the platform concentrates its efforts on attracting customers on one side, generating the positive cross-side network effects and, then, the efforts are focused on the side supported by those network effects (like Instagram before I attract user then advertiser want to join).
• Commitment strategy: Sometimes customers of one firm’s business model have to make a significant investment to receive the company’s offering and to take advantage of positive cross-side network effects (like Playstation4 and exclusive partnership with Spotify). In these cases, the firm should prove to these customers that there will be a large customer base on the business model from which the network effects originate.