The world of business and services has changed rapidly the last ten years. And there is no argument against that. Our physical economy has gained its counterpart, the digital economy. Ten years ago people used to call it “the second economy“. Well nowadays we can be sure in calling it the first.
There has been a separation between the physical and digital product. We search for, look at and buy nowadays the digital product while the physical product will be delivered some other time. And services are handled completely in the digital world nowadays. And in both cases it is expected that it will grow even more because of the progress made with the learning computer.
Take for exemple a diagnosis in the medical world, it has become almost completely visual with photo’s, scans etc. The computer now starts to make better judgments than humans, resulting in better and more accurate diagnosis. And also the financial world has become almost completely digital. Look at your own interactions with your bank. And in the stockexchange there are computers dealing completely autonomous. The average stockposition nowadays is three minutes!
The information now crosses the borders of the organisation without the need for a product or a human to interfere. Specifications of products are now delivered digitally from suppliers. For one of our customers we collect this at night from suppliers based in Germany and Sweden. They provide their data by putting this data online. And every night we “ask” these computers if they have got something that is new.
This is done by the use op APIs. You have probably heard this term before. We have the opinion that every should know what these are, because they are becoming an essential part of this new economy.
Every morning our client looks whether there is interesting new data that is fit to add to his own existing article database. And if that is the case and added, then it goes to his clients via his own API.
“IT IS NOT THE STRONGEST OF THE SPECIES THAT SURVIVES,
NOR THE MOST INTELLIGENT THAT SURVIVES.
IT IS THE ONE THAT IS THE MOST ADAPTABLE TO CHANGE”
– CHARLES DARWIN –
The ideal situation is when an organisation only has to monitor the whole process. And that directly has to do with the added value. Is this added value than still the same? The value chain has become a data or information chain (the content chain)
Two elements are at the base of this digital change and the shift in relationships that arise when you add value.
Transactional costs become lower and lower and the marginal costs go to zero.
Next to this you see a short video by McKinsey which explains “digital strategy” in simple terms. However it has a high information density. Looking at it more than once can help. The original you will find: Digital strategy
An interview with Paul Willmott.
Transaction costs consist of the effort or energy that a client must take in order to find what he wants. This can be expressed in money. So what product are you looking for, where does the product has to be an answer to, find out what are the specifications and go up to a mall or the city centre to look for it, etc.
For business to business these costs can often be higher. How did you use to find a good supplier in the old days? Go to trade fairs, make company visits, to read and make proposals and offers, make appointments, and so forth.
Especially the internet has made this so much easier nowadays. This means that there are lesser trade fairs and also lesser shops.
For branded products it is no longer essential if you get a box of Lego for example delivered by a shopkeeper over the counter or you get it from the mailman. And the search for that box of Lego takes minutes on the internet. And twenty years ago this search took hours up to days. You had to go to the town and the shopkeeper had to order it for you.
And if you are looking for industrial chains or cables at one of our clients you will find online within a few minutes the cable that suits the diameter, minimal breaking force and weight. Within an hour you have your offer. In the past that took days or weeks. And a typing error in the articlenumber could have disastrous consequences. Ordering digitally reduces failures and that alone can add up to large cost reductions.
Talks at Google
Jeremy Rifkin: “The Zero Marginal Cost Society”
The digitisation of organisations means the further lowering of marginal costs. Marginal costs are the costs that are made for producing an extra product. Especially Jeremy Rifkin has made this point very clear. And with services nowadays it is especially visible. If you book a holiday or a stay at a hotel or apartment via Booking.com or AirBNB the owners themselves fill in the website and keep track of everything. For Booking.com or AirBNB it costs nearly nothing to zero to add new hotels or apartments. And for that they charge up to 20% commission! But it can be added even further by looking at the (marginal) costs of a supply chain as a whole. After a product is made the wholesale wants to have a 10 to 30% margin in order to cover costs and have a profit. But also the shopkeeper changes the sellingprice at sometimes 1,2,3 or even 5 times the purchasing price. But what if Lego starts a webshop for itself? Than it painfully becomes clear who adds the value in the digital world. And Lego has that webshop! And the value of a strong brand. The margin that they used to loose to wholesale and retail is now completely for Lego themselves. A huge margin by all means.
As told above we have the huge reduction of marginal costs and this means that for a lot of companies nowadays it is absolute necessary to think about (their) added value. Market ratios and market structures are changing rapidly. For rethinking we advise to use the Business Model Canvas. With this method you are forced to view all parts individually and in relation to one another. Mind that in order to use this tool properly it is necessary to go through it approximately 30 times. And this must be done with several people. For everyone individually and than together. A most effective method for a ‘brainstorm’. Indvidually everyone can be free to express his or her ideas. And by joining together you have all the points of view in order to quickly judge all ideas and have them elaborated. The most important concepts in the Canvas are “Value Propositions” (the value that can be created) and the “Customers” (all kinds of buyers). And you especially look at the relationships among them. Because when there is none, than there is no Business Model. And so there is no viable company, product, service or plan. We do such sessions also for our clients. Just to give them new and different points of view and to force let them think out of the box. We can also put up such a session for you or your organization.
Customer relations and the channels and contacts you need are very well explained by a new and important model by McKinsey.
“The consumer decision journey”
In this time when business-to-business trade with the internet becomes more and more the same like consumer trade, this model is the one that everyone should use. It is clear that the whole purchasingprocess is now completely different. And with it comes a complete new sort of marketing, namely digital marketing. This new way of thinking means that you actually have to completely transform the company.
The most important thing is that you have to be present at the decisionmaking process of your client. More and more this means that you must be present on his or her smartphone. For example for one of our clients it meant that we had to make the complete webshop in responsive design. The webshop is then visible and functional on every device from desktop, tablet to smartphone. And this webshop is then used for retaining all data and the client keeps up all his products and offers.
And there is also an App which adds more functions. For example a consumer can scan the product and immediately can place the right order. And there is no necessity to have a connection with the internet. Further in time we synchronise with the webshop when there again is a connection. The webshop stays at the focalpoint, but now we are always present for the consumer.
How digital is your company?
These four short videos by McKinsey give you a quick overview of the questions you have to ask yourself for this.
The original you will find at: What it takes to build your Digital Quotient
Perhaps just as our clients you have the urge to get informed about all these changes that are coming at you.
For management at companies we have have developed special knowledge transfer sessions. In two sessions you and your staff get this new reality in view. And with it comes our rich experiences and the possibilty to look inside other trades and industries. Just to give you different points of view which can be enlightening. These are new ideas and thoughts which provide a mental journey for you. And in time they will certainly fall in place.
This new digital reality takes time for everyone to get acquainted with. To put this reality next to your own company and situation we can make a strategies plan if you wish. Someone from outside your company is then best suited to put your situation into this perspective. And with it comes that a pair of fresh eyes can make it easier for you to make the necessary changes within the company. The businessadvisor can look at and tell things which you inside the organization don’t want to do. Mainly in order not to overthrow existing structures and relationships at once. For a conversation without obligation, email or call us.