How to Revitalize Your Digital Business Model

The sprawling self-help industry for executives tends to chop up advice into business baby food, with small, easy-to-digest chunks, flavorful summaries and beautiful illustrations. Truisms are packaged into “models” with the promise that following them will make every business better. Beleaguered executives swallow it up and then try to remember what it tasted like when some botched goal wreaks havoc on their day.

It was refreshing, then, to hear a bit of deliberate self-betrayal emerge at a recent seminar run by MIT Sloan Executive Education, “Revitalizing Your Digital Business Model.”

“Why on earth do we need another thing with ‘model’ at the end of it?” asked Martin Mocker, a research scientist at MIT Sloan School of Management’s Center for Information Systems Research (CISR).

A business model, of course, defines how a business makes money. Digital business models define how businesses make money digitally. A lot of traditional companies might say, “we don’t.” Some might even whisper, half to themselves, “ … and we probably won’t.”

Those are cries for help in a world where 2 billion people are online and there are 5.5 billion mobile phone subscriptions, where online users have instant access to price information via search engines — and the ability to express displeasure with companies in ways that damage brands and revenues — and where mobile phones, with or without Internet access, are upending how things get done. In Africa, cell phone carriers are outstripping banks as sources for money.

Mocker’s colleague Peter Weill, the chairman of CISR, then offered three straightforward ways that he and Stephanie Woerner have developed to help executives think about how companies interact with their customers in the digital world.

1. Focus on content, experience or platform. Weill said that when a company moves from (physical) place to (online) space, “you have to be the best, or as good as the best.” A company with a clunky platform will be compared to the very best platforms out there, whether or not they offer competing products or services. Similarly, the customer experience must measure up to the very best the Web has to offer. And content — products and information, not just media — must also be the best available. Weill recommends companies focus on one, to start, and make it world class. Partner for the other two, and then gradually develop those as well.
2. Know your competitive advantage. Look at the three areas in point one: content, experience and platform. One of them distinguishes your company from its competitors. Start your digital effort by making that area your priority. For instance, Trip Advisor’s content is what sets it apart from other travel companies, USAA offers unmatched customer experiences, and Commonwealth Bank of Australia has built a platform that allows it to out-innovative its rivals. Weill, by the way, says companies with the best platforms have the best margins.
3. Learn how to read customers’ minds. Companies learn what customers want in a variety of ways. Weill offered up four approaches: The mellifluous HiPPO method (relying on the highest-paid person’s opinion), asking customers, data analysis and AB testing.

The problems with relying on a HiPPO should be obvious. It might be less obvious that asking customers can fail because customers don’t actually know what they want. Data analysis tells us what has happened, not what will happen. Weill favors AB Testing, as in, “do you want A or B?”, because in the online world, companies can very quickly run small tests and get immediate feedback from customers on which is better. And as Weill pointed out in an article published in March 2013, knowing what your customers want from their online experience is one key to digital success.

Digital business is brutally hard, especially for traditional companies built for physical interaction. It’s okay to ask for morsels of help.