What does being a “Digital Business” mean?

Every business is a digital business. 

But what does ‘digital business’ mean? 

The answer to that question reflects your organization’s view of the relationship of business to technology.   A technology lens concentrates on seeing the technology they have as defining what makes them digital.  Alternatively, other executives concentrate on the business side of the definition asking how they grow profitably as a digital business.

The two views complicate efforts to launch a digital business creating a chicken and egg situation.  Growing digital revenue is difficult without digital resources.  Likewise digital resources are hard to justify against prospective revenues.  Which comes first and where you focus first sets the context for digital strategy and digital capabilities.

Feeling Digital: Measuring digital technology

Equating who you are by what you have is a common form of self-identification for individuals as well as companies.   Companies can feel digital when they see technology all around them.  We have a web store.  We have a Facebook Page. We are on Pinterest, Tumbler, etc.  We have mobile apps. We have automated processes.  We have robots in the warehouse. We are spending money on this; therefore we must therefore be digital, right?

This view is accurate to a point, but often it creates blind spots in the way you see the world.  If you consider Amazon an online bookstore because they sell books, then you are missing the point of their business model – using technology to disrupt access to products and services. 

Showing off digital technology makes you no more of a business than showing off a new sports car makes you a good driver.  Viewed with this lens, you digitize existing processes, relationships, channels etc.  Unfortunately this type of digital substitution drives commoditization of value, erosion of pricing power and limited revenues that eventually call digital technology investments into question.  A recent WallStreet Journal article on Wal-Mart illustrates this challenge. 

According to a former online- executive quoted in the article “every year, executives would start a "five-year planning exercise, but the plans were never executed and management would say the sales weren't there to justify the investment capital."

The quote illustrates the tension in building a digital business, particularly when you see it from the perspective of buying digital technology.   It is understandable that business leaders would adopt this view and build a business that uses digital technology, not a digital business.   There is a difference and the difference matters.

Possession is 1/10^th of the way to being a digital business. 

Being digital requires more than applying digital technology to current business models, products and services.  Having the technology represents an important but incremental part of the digital picture; the other 9/10^th of digital potential rests in creating a digital business.

A digital business is one that generates growth and operational results from new combinations of digital and traditional resources.

It’s a simple definition, but different in the sense that digital resources are integral to the company’s strategy and value proposition not just important part of its operations.   Determining how digital technology changes the value equation creates opportunities and drives outcomes that represent the bulk of the heavy lifting in creating a digital business.  Those issues form the center of an effective digital strategy.

Being Digital: Measuring growth, profit and value

Being digital involves more than transforming atoms into bits.  It requires creating new value propositions, products and services that drive sustainable growth as well as new relationships and processes that create results.  That combination incorporates digital technologies as an integral part of the business rather than an internal substitute for a business.   Without that combination, digital strategy becomes tragedy as organizations can lose up to 40% of their pricing power in the marketplace as transparency and commoditization take control.

A digital business is first and foremost a business.  That makes growth, profit and value central elements of a digital business model.  Being digital means being successful now with the technology but with incorporating technology into value creation and delivery.  That can be a daunting task, after all it is much easier to turn a book into an eBook, build a mobile app or create a new ‘big data’ report.  These actions may make you feel more digital but it’s a false sense of security.

Building a digital business requires the same leadership, foresight, effort and challenge of building any business.  Only the context and terms of competition are changing, growing faster, more socially fickle and fleeting as the economy moves into the first digital decade.  Success in that decade starts with having a clear idea of what digital business means. 

Building a real business, with real customers, growing real revenues, results out of new combinations of the physical and digital world.   A business based on value not on swapping atoms for bits.