CHAPTER 4

Digital Transformation Planning

What Is Digital Transformation Planning

Business and IT leaders have talked about the need for IT/business alignment for well over a decade. They all want the benefits that successful alignment brings, like improved business efficiency, reduced costs, increased agility, and so on. Who wouldn’t want that?

Yet, despite understanding the importance of IT/business alignment, it’s still an issue in many companies. This everlasting struggle between IT and business is illustrated in Figure 4.1.

Why?

What stumbling blocks stand in the way? Why—after all of these years—do companies still struggle to align their IT departments with the business? And perhaps more importantly, how can companies remove these stumbling blocks?

Figure 4.1 Digital transformation planning for business IT alignment

Technology Can Hinder IT/Business Alignment in a Couple of Ways

First, a lack of modern technology can create a stumbling block. Tied to outdated enterprise software or applications, the IT department focuses most of its time and energy keeping the lights on. The maintenance requirements and inflexibility of the old system handcuffs the IT department, keeping them from providing the business with modern solutions.

Second, confusing technology can drive a wedge in between IT and the business. Oftentimes, IT delivers technology with little input from the business. This leads to “Shadow IT,” as end users bypass the technology for third-party solutions.

Traditional IT Structure

Traditionally, IT has been siloed from the business side of the house, where strategic business plans and requirements are decided. In other words, strategy and tactics have generally been divided. As business goals and strategies evolved, changing the needs of an enterprise, IT was not included in the conversations.

In the case of traditional IT, the mentality of “build it and they will come” has lost traction. Why the change in approach? Rather than the continuous on-premises implementation and upgrades, the cloud ­presented a new challenge that required IT to show the anticipated business benefits. New investment structures, subscription-based rather than upfront investments changed the financial model of IT. Instead of standardized applications across business lines, the cloud enabled end-users to access more agile solutions. As the approach to technology changed, so did the need for a shift in how the business functioned.

The Challenge

The challenge with this shift is that there isn’t one owner of enterprise alignment. While organizations can restructure to enhance relationships across business groups, the responsibility to make this alignment happen occurs at an individual level. Enterprises are complex, with hundreds and thousands of employees, a variety of business lines, and as a result, differing expectations. Business–IT alignment works best if individuals are bought in to finding solutions that meet IT compliance standards and capabilities that simultaneously meet the unique needs of internal business groups.

Why Pay Attention to the Shift: The Benefit of Alignment

Strategically aligned businesses function better because they work smarter, not harder. While there is no one best way to align, a business where IT and business strategy are in lock-step can improve organizational agility and operational efficiencies. As the business goals pivot, IT can respond with the necessary solutions to support and as technology changes and improves, IT can influence business strategy.

It’s necessary to continue this discussion around business–IT alignment and how IT professionals can better enable their business.

Why You Need a Digital Transformation Plan

A digital transformation plan or roadmap should have a validity of 12 months. The reasons for developing a 12-month roadmap are not self-evident. Certainly technology is important, but why must the business meticulously plan out their strategy for a year into the future, especially if the environment is working just fine as it is? The truth is that there are many reasons to draft your roadmap, and some of these reasons will be more or less relevant to different businesses depending on their industry.

• Staying competitive: There are industries that are so intertwined with their technology that lagging behind could cost the business their position in the market. The story of Uber is an excellent example of this dynamic. Uber disrupted an enormous taxi industry in a remarkably short period, because they offered an experience to their customer that was ­considered without doubt superior to their competitors. The experience was driven almost exclusively by their mobile app, which other taxi companies simply didn’t have.
• Predictability of IT expense: IT expenses can be notoriously difficult to predict. Should a piece of data center hardware fail, it could cost thousands of dollars of capital to replace. A roadmap provides at least some semblance of IT expenditures for the duration of the roadmap. Yes, equipment can still fail, and the IT budget may still need cushion for such an event. Yet, the business will still be able to confidently point to other costs along the way and plan accordingly.
• Answers the Cloud question: The cloud is not something any company should rush into. It takes a lot of time to migrate, and if not done correctly, your migrated applications may not even work. To save time and money, a detailed roadmap would be best. With the end goal being, “an ideal cloud deployment for our business needs,” you can chart the myriad of different steps that need to be taken by the business to achieve that elusive goal.
• Ensuring the business meets regulatory and compliance needs: A roadmap provides the opportunity to prepare for any ­compliancy or regulatory changes that must be made in the organization.
• Attract better IT talent: If you know what you want and you know what you need to do to achieve it, you’ll understand what additional personnel will be required to complete the roadmap. This gives you a clear advantage in the job market. You can attempt to find an IT professional with the skills most suited for your current needs. Furthermore, a clear vision for what you expect of a new hire will make your ­business more attractive.
• Using employee time wisely: It is easy in IT to get lost in the weeds of day-to-day management of an IT environment. Administrators can lose hours in a day to putting out fires and addressing immediate concerns. The roadmap puts the long-term goals of the department front and center in the minds of the team. With specific milestones and deadlines, the team can budget their time appropriately to ensure their goals are met.
• Improve the relationship between IT and the business: It can be seen in the business as a barrier, when it should be the enabler of success. Instead of IT telling other business units no when they request a new application or technology, the roadmap will ensure the IT department addresses the needs of the business in the most stable, secure, and cost-­effective method possible. This will lead to more communication between departments and hopefully an understanding of the capabilities and limitations of the IT department. Other business units no longer need to make these requests out of the blue. They can be addressed during roadmap planning sessions and understand that their needs will be met on a ­transparent ­timeline.

Moving Forward with the Roadmap

With an understanding of what a roadmap is and why a business should devote time to developing one, the next phase will describe how to best draft your roadmap. I’ll cover best practices, pitfalls, and proven strategies to ensure that this process goes as smoothly as possible. The final result will be a realistic, strategic roadmap that actually yields the change in your IT department that the business needs.

Holistic Digital Transformation Plan

If you are the founder of a new startup or an existing business, it’s highly recommended that you develop a roadmap that will get you from where you are today to where you want to be tomorrow, six months from now, or a year or longer down the road. The roadmap is a guide to help you overcome roadblocks, prevent costly mistakes and eliminate time-consuming detours that can prevent you from attaining your goals, and reaching your destination.

In my work, I employ a variety of enterprise grade services to aid in planning comprehensively for business and nonprofit success. I believe the Business Model Canvas and SOSTAC^® methods together represent a valuable toolkit for effective management of your assets, capacities, and revenue. I hope to leave you with the following: that there are two freely available methods that capably stitch together your marketing, customer retention and acquisition strategies, your unique brand identity, and your legal and financial needs.

Both these methods as shown in Figure 4.2 are worth using because they are portable, lightweight, and actionable. What this really means is both methods are easy to use in practice. The way to put these models into use in human terms is equally simple: bring your team together at a comfortable meeting space, display the method in a way that allows each team member to participate and share opinions, have a note taker and a project facilitator, and then start recording observations. Both models are a bit like advanced guided brainstorming. These processes require team members to come together, and as a consequence using these models requires buy-in from management.

Figure 4.2 SOSTAC and Business Model Canvas for best practice

The business model canvas first originated in the book Business Model Generation by Alexander Osterwalder and Yves Pigneur. They described the canvas as follows:

What are the harsh new realities that small businesses, individuals and public sector organizations face in today’s marketplace? The business model canvas helps to address your human, financial and brand capacities. The company behind Business Model Generation, the Business Model Foundry has a new web app that deserves special mention. Called Strategyzer, the web-app offers a platform for global digital collaboration and rapid business model prototyping with the business model generation tool-kit.

The SOSTAC^® planning model by Paul Smith of PRSmith came to my attention via David Chaffey of SmartInsights. This method is different from business model generation in that it is directed more at those in digital marketing, customer relations and professional communications. SOSTAC^® stands for situation analysis, objectives, strategy, ­tactics, actions and control. Like the business model canvas, the SOSTAC^® method delivers a complex message with ease.

The SOSTAC^® model is also as good for business model planning as it helps to highlight the required assets for efficient reputation management and crisis communications, no doubt due to the fact that this method was authored by a public relations professional. Nevertheless, the value of the model is in the details. Focused on the digital marketplace, it offers valuable methodologies to ensure the following: that your brand relates and engages with key influences and communities; that you refine your unique selling position and messages; and finally, that you crucially develop your communications with an understanding of your strengths and weaknesses.

Case: Digital Transformation in Automotive

The integration of digital technologies in the automotive industry is probably the most game-changing development in recent years. Each step in the value chain will be affected by digitalization. Moreover, new business models arise on the back of these developments and traditional ones are transformed in the digital world or simply being disrupted. Luxury car brands in particular are competing fiercely to become the digital leader in their market.

BMW at the Forefront of the Digital Revolution

Currently, BMW is incorporating Industry 4.0 concepts to innovate at each stage of the production process, from design to postmarket.

Design

3D printing has become a commodity for BMW, something you wouldn’t have believed three years ago. They are now producing over 25,000 prototype parts per year; as a result, the hardware design phase has accelerated and entire development loops have changed completely. 3D printing is also being used for spare parts. Now, rather than having spare parts built and lying somewhere, which is an investment in assets, BMW can create them on demand.

Planning

In the planning phase, BMW has had their facilities 3D scanned and digitized their entire assembly shop to create a 3D accurate model they can play with to test and plan various configurations of product lines, equipment, processes, and people.

Launch

To reduce time to market, BMW is using digitalization and virtual commissioning. They can virtualize and digitalize a product to test it, and cut down on physical build phases. They can also simulate a lot with structural parts, but it’s much more difficult with parts like rubber, or scenarios where they have to simulate gravity. As such, they do have mixed reality worlds, which incorporate some hardware and some digital components.

Data and Analytics

BMW is taking advantage of the low cost of sensors and installing them to monitor brownfields, drives, conveyor belts, and bearings. Making use of the data lake, they are able to predict when there will be a problem and schedule maintenance accordingly.

Implementation

BMW is involved in a number of educational collaborations to strengthen their innovation and workforce pipeline. As a founding partner of Clemson University’s International Center for Automotive Research, BMW is part of an automotive ecosystem where industry and academia meet to conduct research on lightweight design, component production, quality, sustainability, safety, and much more. Cooperation with Georgia Tech provides input for BMW’s production and assembly locations worldwide. The collaboration leverages mutual strengths in industrial engineering and production systems in preparation for increasing global digitalization.

Series Production

At the series production phase, BMW is utilizing automation but also innovating in how to make work better for their employees. The division of labor in their facilities gives robots domain over repetitive and physically demanding tasks, while humans work on things that require finesse and craftsmanship. Combining the strengths of both, they can create a safe and ergonomic work environment, where technology supports and assists associates in a whole new way. They utilize cobots, which can work safely alongside humans, and also use innovations in ergonomics, such as exoskeletons that support the arms of people who have to do work overhead.

SOSTAC®: Transformation Planning in Six Steps

The SOSTAC^® methodology can be found in Figure 4.3. SOSTAC^® is a widely used tool for marketing and business planning, which is rated in the top three most popular marketing models in the Smart Insights review of Marketing Models that Have Stood the Test of Time.” In this book, I give an example of how I have applied PR Smith’s SOSTAC^® planning model, which I think is a broader interpretation of SOSTAC^®.

Figure 4.3 SOSTAC Methodology

Source: eglesdigitalmarketing.wordpress.com

David Green, Head of Global Digital Marketing, KPMG says, “PR Smith has applied his highly acclaimed SOSTAC^® marketing planning system to digital marketing to great effect—even for experienced digital marketers.”

“Although most businesses are now doing digital marketing, nearly half don’t have a plan—that’s shocking! SOSTAC^® gives you an awesomely simple framework to put that right,” according to Dave Chaffey, CEO Smart Insights.

How Does a SOSTAC® Session Work?

The SOSTAC^® session is typically a brown paper session. This involves lining the walls of a large room in brown paper (or any other paper type—as long as it’s large). Then capturing content by sticking notes to the paper that records people’s contribution based on their area of expertise. The notes can denote anything to do with the digitalization process that is under investigation—importance, size, effort, resources, documentation, and opportunity for improvement.

I’m not going to argue for or against the merit of this approach. What I would like to suggest is that the process for capturing the output of such sessions creates a massive amount of work—often for an individual—which more often than not results in content, which at best creates documentation that is rarely read, or at worst, gets filed as it is impossible to revisit in context. The momentum built in the session quickly fades away as the participants head back to their day jobs, the facilitators head off to their next engagement, and ultimately change or transformation is hard to stimulate.

By using a software tool like Spilter during the brown paper session, you can work more effectively. The room is equipped with computers so that the participants can respond to the questions. Everyone enters their response at the same time, which saves a significant amount of time during the brown paper session. Since all participants are working through the computer, everyone participates actively, not just the talkative participants.

What’s more, responses can be entered anonymously, which makes it even easier for participants to freely share their opinions. It’s a perfect way to brainstorm successfully. Categorizing the responses is just as easy. The responses are organized digitally and categorized in relevant clusters.

SOSTAC^® can be used for all sizes of organizations and companies—just adjust how much detail you want in your plan.

Step 1: Situation Analysis

Step 1 of implementing a digital transformation plan framework is setting out the situation analysis. The situation should provide an overview of your organization—who you are, what you do, and how you interact and trade online by addressing internal and external factors impacting the business.

Analyzing the situation involves researching your clients, finding out their industry, what their competitors are doing, and what content and strategy has worked well so far. It’s good to do an audit at this point on what they currently do on social media, as well as other marketing activities.

I also recommend asking your clients what they are hoping to get from social media at this stage. Are they looking to build awareness? Grow revenue? What are their overall business goals?

This step should be painting a picture of your organization and to do this, consider using some of the following methods to bring this step to life:

• Who your digital customers currently are—how do they interact with the brand, the platform/s used, demographic breakdown.
• SWOT analysis—what are the strengths, weaknesses, opportunities, and threats to the whole organization
• Competitor analysis—who are your competitors? How do they compete? For example, price, product, customer service, reputation, what are their key differentiators?
• Digital channels landscape. List out all the various digital channels used and success of each for your organization—what’s performing well or not?

Step 2: Objectives

Step 2 of your digital transformation planning should focus on the objectives of your strategy. Step 1 looked at the situation analysis, which ­provided an overview for your organization, specifically who you are, what you do, and how you interact and trade online by addressing internal and external factors impacting your business.

Here you want to outline SMART targets for your plan. What achievements will prove your strategy actually works? Examples might be:

• Grow 100 new B2B clients in 2018.
• Modernize your value proposition.
• Double the exposure and engagement on social media.
• Implement three emerging technologies to grow sales by eight percent.

These should all be measurable, so you can monitor success and adjust the plan if it’s not going as you want. As a hint, if you are new to this set targets that will impress your client but that you feel confident you can achieve.

From defining your objectives to make it measurable, it is important to turn each objective into SMART objectives, which stands for:

• Specific: Are you focusing enough on a specific issue or challenge within the organization?
• Measureable: How do you plan to assess the performance? Will it be monitored through quantitative or qualitative ­analysis for example?
• Actionable: Will it assist in improving performance if achieved?
• Relevant: Is the issue to be addressed within the domain of the digital marketing team?
• Time-related: Have you set a specific time period?

Step 3: Strategy

Strategy means how you plan to get there in terms of fulfilling the objectives set.

This is an overall plan to hit your objectives. You aren’t going into detail, yet this should be overarching plans rather than talking about platforms. It’s a good point to introduce the type of content and core messages you want to get across to the audience.

What would ensure your audience remain engaged and incentivize following? Contests? Signing up influencers? Brand advocate programs?

What content would generate an increase in revenue? How can you deliver that message on social media where people typically don’t like being sold to?

The strategy section should also identify:

• Which segments of the market you aim to target?
• What your value proposition is?
• What your digital core activities are?
• How your branding is to be improved?
• How you organize your exposure and engagement?
• How you are going to implement emerging technologies and data?

Segmenting, Targeting and Positioning

You need to identify what market segments are best for your business and what segments you will focus on. Positioning is the process you use to determine how to best communicate your product benefits to your target customers based on customer needs, competitive pressures, communication channels, and carefully crafted key messages.

Value Proposition

Value proposition explains what benefit you provide for who and how you do it uniquely well. It describes your target buyer, the pain point you solve, and why you’re distinctly better than the alternatives.

Digital Core Activities

Digital core activities are digital business functions that are critical, and closely related to your company’s strategy expressed in customer service, marketing, product design, and manufacturing. Routine administrative and maintenance tasks are not included as core activities.

Branding

Your brand helps you connect with your customers emotionally. A good brand connects with people at an emotional level, they feel good when they buy your brand. Purchasing is an emotional experience and having a strong brand helps people feel good at an emotional level when they engage with your company.

Engagement and Exposure

Exposure is the degree to which your audience (readers, listeners, viewers, visitors to your website) is in receipt of a promotional message. Customer engagement is the depth of the relationship a customer has with a brand. Engaged customers are either purchasers, evangelists, responders, or loyal customers.

Technology and Data

Emerging technology is a relative term, because someone may see a technology as emerging and others may not see it the same way. According to BusinessDictionary.com, emerging technology is a new technology that is currently being developed, or will be developed within the next five to 10 years. Big data is characterized by 3Vs: the extreme volume, the wide variety, and the velocity at which the data is growing online.

Step 4: Tactics

Tactics cover the specific tools of the digital mix that you plan to use to realize the objectives of your digital marketing plan. The strategy section should also identify which segments of the market you aim to target with your plan.

In tactics you go detailed. How often will you post? What channels will you use? What skills and expertise will you hire? This is where you plan out the meat of your content that ties to the core message in the “Strategy” section. Listing channels and major activities that will be used to carry out the strategy.

Channels

A way of bringing products or services to market so that they can be purchased by customers. A channel can be direct if it involves a business selling directly to the customers, or it can be indirect if an intermediary such as a retailer or dealer is involved in selling the product to customers.

People (Skills and Expertise)

Skills are the expertise or talent needed in order to do a job or task. Skills are what makes you confident and independent in life and are essential for success. It might take determination and practice, but almost any skill can be learned or improved.

Step 5: Action

Step 5 of your digital transformation plan is focused on how to bring your plan to life, to make actionable measures.

In the actual model, essentially this just means once approved going ahead and doing it. I use this space in the plan to write deliverables in a timeline as well as key responsibilities. You may require your client to provide some things and this just makes it clear to them.

The action section covers what needs to be achieved for each of the tactics listed in the previous section of the SOSTAC® plan to realize the objectives of your digital marketing plan.

Step 6: Control

The final step is to lay out how you plan to monitor and measure your performance based on the objectives set at step 2. The tactics have been considered and your control section is providing you with a series of dashboards tailored for each tactic.

The following steps should be covered under the Control step:

• What need to be measured (which Objectives/key ­performance indicators (KPIs)).
• By whom, how often and at what cost.
• Report processes.
• Look to set the KPIs per tactic that tie back into the objectives set and review your KPIs on a regular basis (at least once a month) and adjust tactics or potentially even strategy to ensure objectives get met.

It’s important to also communicate your concerns with the wider team to ensure there is buy-in to the transformation plan.

Business Model Canvas (BMC)

However, SOSTAC alone is not sufficient for your digital transformation Plan. You will also need to have a methodology where you can describe and innovate your business model.

The most common and widespread tool for developing and visualizing a business model is the business model canvas (BMC) by Alexander Osterwalder and Yves Pigneur. The BMC and its building blocks can be found in Figure 4.4. The canvas was cocreated with many practitioners and was based on the business model ontology developed by Alexander Osterwalder in 2004. The results are a best-seller book titled Business Model Generation, and the tool business model canvas. The BMC has been published online with a Creative Common license and therefore published and iterated by many practitioners.

Figure 4.4 Business Model Canvas (BMC)

What’s the Business Model Canvas?

If you’re already familiar, you can skip the explanation. The BMC gives you the structure of a business plan without the overhead and the improvisation of a “back of the napkin” sketch without the fuzziness (and coffee rings).

The BMC has nine building blocks. Together these building blocks provide a pretty coherent view of a business’ key drivers:

1. Customer Segments: Who are the customers? What do they think? See? Feel? Do?
2. Value Propositions: What’s compelling about the proposition? Why do customers buy, use?
3. Channels: How are these propositions promoted, sold, and delivered? Why? Is it working?
4. Customer Relationships: How do you interact with the customer through their “journey”?
5. Revenue Streams: How does the business earn revenue from the value propositions?
6. Key Activities: What uniquely strategic things does the business do to deliver its proposition?
7. Key Resources: What unique strategic assets must the business have to compete?
8. Key Partnerships: What can the company not do so it can focus on its key activities?
9. Cost Structure: What are the business’ major cost drivers? How are they linked to revenue?

The BMC is popular with entrepreneurs and intrapreneurs for ­business model innovation.

Fundamentally, I find it delivers three things:

• Focus: Stripping away the 40+ pages of “stuff” in a traditional business plan, I’ve seen users of the BMC improve their clarity and focus on what’s driving the business (and what’s noncore and getting in the way).
• Flexibility: It’s a lot easier to tweak the model and try things (from a planning perspective) with something that’s sitting on a single page.
• Transparency: Your team will have a much easier time understanding your business model and be much more likely to buy in to your vision when it’s laid out on a single page.

Business Model Innovation for Competitive Advantage

Short-term competitive advantage is created by exploiting existing business models. However, in the long term, all markets mature, competition intensifies, and turbulence increases. Consequently, new sources of growth must be explored, and fresh answers to enduring success must be found. The answer used to be innovate or die. But research shows that pouring more money into pure product innovation does not lead to improved performance. We need to dig deeper.

To succeed in innovation and to seize new opportunities, the scope of innovation must be expanded to encompass the full business model, and new processes must be mastered. This chapter explores how an innovative business model is linked to customer value creation, defines growth opportunities, and presents key success factors to exploit the potential of business model innovation.

In essence, the scope of creating customer value propositions and, thus, competitive advantage has been expanded from delivering basic products to crafting advanced business models.

Professor Michael Porter captured this paradigmatic shift back in 1996 when he noted that a strategic fit among many activities is fundamental not only to competitive advantage, but also to the sustainability of that advantage. Porter argued that it is considerably harder for a competing firm to match an array of interlocked activities than it is merely to imitate a particular sales force approach, match a process technology, or replicate a set of product features. Therefore, positions built on systems of activities are far more sustainable than those built on individual activities.

Scrutinizing the business model to discover new business opportunities places the customer center stage by asking if the fit between current activities and customer needs maximizes value creation for both customer and company.

As shown in the opportunity matrix, business model innovation does not have to be radical. Simple moves can achieve great results in existing markets and discover new differentiation factors.

Redesign the current business model to expand the market: Incremental change in the current business model can be leveraged to expand the market by attracting noncustomers. For example, the practice of serving products in small and affordable sizes is a widely used strategy by global consumer brands to enter emerging markets. Seven out of 10 Filipino smokers buy their cigarettes by the stick rather than by the pack, and as much as 68 percent of Procter & Gamble’s shampoo business in the Philippines is generated by sachet sales. The core product is left unchanged, while innovative distribution setup and packaging changes are keys to success.

Attracting noncustomers can sometimes be achieved through small changes, and, thereby, a latent demand can be converted into real demand. Typically, noncustomers are those who are either unaware of your offering or meet some sort of barrier to consumption. Understanding and removing the barriers are keys to expanding the market. Understanding commonalities in the noncustomer segments paves the way for redesigning the business models.

Launch a new business model to disrupt the existing market: Investigating the needs of current customers in some cases leads to the discovery of attractive subsegments that are not appropriately served by the current business model. The discovery of underserved or overserved customers leads to important managerial decisions. Should all segments be served by the same business model while running the risk of opening a flank for competitors? Or should a radically new business model be designed to serve attractive subsegments while cannibalizing the existing business model?

At the other end of the spectrum, the high end of a market can be equally attractive to explore through new business models. Consider the makers of automated espresso machines powered by easy-to-use coffee capsules such as Nespresso. By removing the risk of failing to brew the perfect cup of coffee and reducing the time it takes to make a nice single-shot espresso, an attractive niche of espresso drinkers has been identified. Whereas high-end disruptions typically are based on a technology leap, low-end disruptions can also be achieved by simplifying and lowering costs.

Launch a new business model to create new markets: Designing radically new business models can be leveraged to create entirely new markets where large groups of customers have been locked out. In some markets, minor business model tweaks such as sachet marketing are simply not enough. A complete overhaul or even a new business model is needed to commercialize a value proposition for a new market. New markets can be defined both geographically such as bringing products from developed markets to emerging markets and as needs-based such as fulfilling emerging customer needs.

A business model currently under development illustrating the idea is the current debate concerning designing a house for the poor that can be constructed for under $300 which keeps a family safe, allows them to sleep at night, and gives them both a home and a sense of dignity. It is a grand challenge that surely can only be solved by thinking innovatively about the entire business model. The potential is huge. 2.5 billion people at the so-called bottom of the pyramid live on less than $2.50 per day and are by far the ­largest global socioeconomic group. Furthermore, fulfilling the vision leads to value creation that, by far, goes beyond pure economic value ­creation.

New market creation demands innovative business models. Moreover, these emerging markets are often judged unattractive to well-established companies, because they start out small and do not meet the expected growth rates to attract ordinary innovation investments. However, these markets often become large and profitable, and patience for growth pays off.

In a world characterized by exponentially increasing turbulence, expanding your innovation horizon to encompass the entire business model is timely and needed for gaining long-term competitive advantage. However, to stay true to the principles, we should not get caught up in too much theorizing, but just do it and learn along the way. Close the laptop, get out of the building and learn from your customers to discover your future business models.

BMC Building Blocks

The business model canvas is broken into nine building blocks for your customers. I’ll break down each of those segments so you can get a better understanding of what each of them means for your company.

Value Proposition

The first section is about your value proposition. Your value proposition is what your company is making and who they’re making it for. It’s not about your specific idea or product, it’s about solving a problem or filling a need. It’s also about who you are solving that problem for.

Once you know what problem you’re solving and who you’re solving it for, you can get into what exactly your product or service is. This is where you list all the benefits and features of your product and what they do to solve the problem.

Customer Segments

Perhaps the most important part of your canvas is the customer segments. If you don’t know who your business is catering to, you’ll never be able to sell to them. You need to figure out who your customers are and why they would buy from you. You want to get very specific and figure out where your customer lives, what their social habits are, how old they are, if they’re male or female, and so on. You want to be so detailed that you could draw a picture of your customer, put it on a wall, and have it detail their exact persona. On day one, this is nothing but a hypothesis, but as you start testing and selling your products, you will be able to change this accordingly.

Channels

Your channels are what you use to deliver your product from your company to your customer. In the old days, you really only had one channel and that was the physical channel. You had a storefront and your goal was to get people to visit your store.

With the rise of technology, a storefront is no longer necessary. Now many people use the Internet and mobile devices as their channels. Even if you have a physical channel setup, you’re most likely still going to have a web presence. You need to decide which outlet or outlets are best for you to get your product to the customer.

Customer Relationships

Your customer relationships are the fourth piece in your business model canvas. This section is about how you get your customers, how you keep your customers, and how you grow your customer. The channel you choose to distribute your product will also help determine your customer relationships.

A physical store will acquire its customers differently than an online store. If you’re using a website as your main channel, you need to figure out how to get them to your website, how to get them to buy once they are there, and how to get them to hang around and buy more of your products. Just like previous steps this is only a hypothesis on day one and will be figured out as your business grows.

Revenue Streams

Your revenue streams are how you will actually make your money from your value proposition. What value is your customer paying for and how are you going to capture that value?

Depending on your company, it could be a direct sales model, a freemium model, a subscription model, or a licensing model. Again, the model you choose depends on your business, and your business could use multiple revenue models. Your revenue streams aren’t about the actual pricing of your product, it’s just your way of capturing revenue.

Resources

The next section of your business model canvas deals with is your resources. This is what you need to sell your product, the assets that are required for you to be successful.

The most important resource for many new companies is financing. Do you have enough cash on hand to fund your business? Will you need funding or a line of credit? There are also physical needs like a store, manufacturing plant, or delivery trucks. You might need intellectual properties as patents and customer lists. You might also need a good, strong workforce of salesmen, programmers, and manufacturers.

Key Partners

Your key partners are the people and companies who are going to help you grow your business. There are some things you aren’t going to be able to do and some you just won’t want to do on your own, so you’ll want to partner with people that can do them for you. Two of the most common partnerships are suppliers and buyers.

The two main questions you need to ask yourself before forming a partnership is what you’re going to get from them and what activities they are going to perform. If you have a one man startup, your partnerships will likely be different than the partnerships a larger company has.

In your first year, you might choose to do everything yourself just to save money. As your business grows, you will be able to invest in partnerships that can save you time and help grow profits.

Key Activities

Your key activities are the most important things your business must do to make your business model work. If you’re in the production business, you’ll be making products. Maybe you’re a consultant and you’re in the business of solving problems. You could also be in sales and be responsible for getting people to buy various products.

Whatever it is that your business does, your key activities are what you need to become an expert in for your business to be successful.

Cost Structure

Your cost structure is what it’s going to cost you to keep the business running. You have to think beyond the obvious costs like your payroll, rent, and materials and be sure you are including everything.

You need to know what the most important costs are, what your most expensive resources are, and how much your activities and partnerships cost. Then you will need to ask the typical accounting questions like what your fixed and variable costs are, and any economies of scale. Anything that is going to cost you money to keep your business operational needs to be included here.

BMC Before Transformation: Automotive Case

The BMC before transformation is required because you need to have an overview of your original business model as a starting point. Figure 4.5 is the starting point where I developed the BMC for a traditional high-end automotive company.

Figure 4.5 BMC before transformation—Automotive

The first part of the business model canvas is focused on your ­customers. Let’s start with defining your value proposition.

Value Proposition

Your value proposition is what defines your business, and what excites your clients to do business with you. If you are not exciting your clients enough, they would not go through the effort of trying your product or service.

Here are four questions to ask yourself about as you define your value proposition:

• What is the problem that you are trying to solve?
• What is the value that your product or service add to your target segment?
• How do you address the needs of your target segment?
• How is your value proposition different from others—or unique?

Keeping your value proposition clear and effective allows you to communicate it effectively within your company and to your target segments. Every one of your team members needs to understand how their work contributes to that value proposition.

Value proposition for this case would look like this:

• Driving experience
• Model range
• State-of-the-art technology
• Migration to full-electric
• Remote services

Customer Segments

Customers segments have something in common with each other allowing you to reach them more easily by knowing what their interests are, where you can reach them, and what they need.

All through the development of your business, it is crucial that you and your team are very clear on the market segment that you are trying to reach as this would guide many other decisions that you need to take.

Customer segments for this case are as follows:

• Performance-driven people
• Quality-minded people
• Conscious people

Channels

Channels are the way that you interface with your clients and services. Your aim is to find the most convenient way for your clients to buy your products and services and to have a great experience doing so.

For this particular case, channels would be as follows:

• Dealers
• Online rental booking
• Third party mobility service providers

Customer Relationships

Your customer relationship will influence the experience that they will have with you and the frequency of engagement with them.

Determine which relation types have the most value to your business and to your clients’ experience resulting in great customer service.

For this specific case, customer relationships would be as follows:

• Trade shows
• Always at your service
• Brand loyalty (car for life)

Revenue Streams

Revenue streams or sales refer to how you generate cash from your clients. In the business model canvas, different client segments could pay you in different ways. Without sales, a business can’t function, so this is the most important aspect of any business.

Ensuring which revenue streams are most convenient for each of your target segments and in turn allowing you to generate the most business is an essential aspect of having your business survive and thrive.

For this case, I’ve defined revenue streams as follows:

• Car sales
• Service and maintenance
• Leasing fees
• Rental fees

After focusing on the customer aspect of the business, we shift our views to the internal operations which sustain our business model.

Key Resources

Key resources reflect the most important assets of your business. Identifying them will help you in protecting these assets and making the most of them.

Identifying your most important assets in your business and protecting them is essential to making your business function well.

For this case, I defined key resources as follows:

• Efficient dynamics
• Brand
• Agile manufacturing system
• Talented people

Key Partners

Forming strong partnerships with your ecosystem is a great tool to help in expanding your reach and making sure that your business is delivering its promise to clients.

Continuous evaluation of the available partnership options is essential to stay abreast of the latest developments.

For this case, I defined the following key partners:

• Car designers
• Other car companies
• Supply chain partners
• IT companies

Key Activities

There are many daily tasks that are done within the business, but it is always important to be clear about what are the key activities that need to be conducted within the business to deliver on the value proposition that you are promising your clients. By identifying these activities, it would help you to prioritize the efforts taking place in your business.

Reviewing your key activities and improving the performance is an essential part of innovating a better product or service to your clients.

For this case, I decided for the following key activities:

• Sales, marketing, and production
• Innovation for driving experience
• Develop future of mobility

Cost Structures

Cost structure refers to all the costs that you incur to deliver on your business model. Keeping your costs under control is essential to maintain a healthy business.

When you are starting up a business, keeping the fixed costs as low as possible is essential so that you don’t run out of cash too quickly before you start selling enough products and services to cover your costs.

For this particular case, cost structure looks as follows:

• R&D
• Innovation and exploration
• Production
• Sales and marketing
• People training

BMC After Transformation: Automotive Case

Information for the BMC after transformation comes out of the SOSTAC^® sessions and are marked in red in Figure 4.6. This gives you an overview of your innovated business model. Figure 4.6 is the ­situation after transformation where I developed the BMC for a digital high-end automotive company.

Figure 4.6 BMC after transformation-Automotive

I will start again with your value proposition.

Value Proposition

New topics in the value proposition for this case are:

• Personalized vehicles
• Full-electric
• Connected drive
• Twenty-first-century services
• Self-monitoring vehicles

Customer Segments

A new topic in customer segments is:

• Environmentally and safety-conscious people

Channels

New topics in channels are:

• Augmented reality
• Direct sales channels

Customer Relationships

New topics in my customer relationships are:

• At your service 24/7, 365 days/year
• Schedule test drive

Revenue Streams

A new topic in revenue streams is:

• Car sales (split by dealer/direct sales)

After focusing on the customer aspect of the business, we shift our views to the internal operations that sustain our business model.

Key Resources

New topics in key resources are:

• Fully automated manufacturing (IoT, machine learning)
• Robots

Key Partners

A new topic in key partners is:

• Charging partners

Key Activities

New topics in key activities are:

• Sales, marketing, and 3D printing production
• Data analytics and insights

Cost Structures

New topics in cost structure are:

• Software and technology development
• People and robots

Summary

Business and IT leaders have talked about the need for IT/business alignment for well over a decade. They all want the benefits that successful alignment brings, like improved business efficiency, reduced costs, increased agility, and so on. Who wouldn’t want that?

Yet, despite understanding the importance of IT/business alignment, it’s still an issue in many companies.

A digital transformation plan or roadmap should have a validity of 12 months. The reasons for developing a 12-month roadmap are not self-­evident. Certainly technology is important, but why must the business meticulously plan out their strategy for a year into the future, especially if the environment is working just fine as it is? The truth is that there are many reasons to draft your roadmap, and some of these reasons will be more or less relevant to different businesses depending on their industry.

In my work, I employ a variety of enterprise grade services to aid in planning comprehensively for business and nonprofit success. I believe the business model canvas and SOSTAC methods together represent a valuable toolkit for effective management of your assets, capacities, and revenue. I hope to leave you with the following: that there are two freely available methods that capably stitch together your marketing, customer retention and acquisition strategies, your unique brand identity, and your legal and financial needs.

The integration of digital technologies in the automotive industry is probably the most game-changing development in recent years. Each step in the value chain will be affected by digitalization. Moreover, new business models arise on the back of these developments and traditional ones are transformed in the digital world or simply being disrupted. ­Luxury car brands in particular are competing fiercely to become the digital leader in their market.

SOSTAC is a widely used tool for marketing and business planning, which is rated in the top three most popular marketing models in the Smart Insights review of Marketing Models that Have Stood the Test of Time. In this book, I give an example of how I have applied PR Smith’s SOSTAC Planning Model, which I think is a broader interpretation of the original SOSTAC. SOSTAC can be used for all sizes of organizations and companies—just adjust how much detail you want in your plan.

However, SOSTAC alone is not sufficient for your digital transformation plan. You will also need to have a methodology where you can describe and innovate your business model.

The most common and widespread tool for developing and visualizing a business model is the business model canvas (BMC) by ­Alexander Osterwalder and Yves Pigneur. The canvas was cocreated with many ­practitioners and was based on the business model ontology developed by Alexander Osterwalder in 2004. The results are a best-seller book, titled Business Model Generation, and the tool business model canvas. The BMC has been published online with a Creative Common license and therefore published and iterated by many practitioners.

The BMC before transformation is required because you need to have an overview of your original business model as a starting point. The first part of the business model canvas is focused on your customers. Information for the BMC after transformation comes out of the SOSTAC sessions and are marked in red in the previous figure. This gives you an overview of your innovated business model.

Homework Assignment

For students: consider a brick and mortar banking company that delivers products and services to the business-to-business (B2B) market.

For professionals: consider the company you’re working for or have been working for.

Your VP of business development wants to transform the company to a digital leader. As a C-level business manager with more than average interest in everything digital, you are asked by the VP of business development to conduct a research study that will lead to a digital transformation strategy. Include exposure, engagement, and technology. Add opportunities to unlock new business values and increase competitive advantages.

You can do this exercise alone. However, for best results, consider forming a team with two colleagues with a business background and two with a technology background. You or someone else can take up the role of facilitator. The other team members will do their questions and answers. At the end of the session, the facilitator will wrap up the results.

The initial tasks involve the following:

• Set up a digital transformation plan using SOSTAC^® and business model canvas
• Feasibility and business case for a digital transformation plan
• The competitive advantages you will accomplish with the digital transformation plan

The homework assignment to be conducted is to draft a short report (4–8 pages), which addresses the following questions and topics:

• Outline your digital transformation plan.
• Test your digital transformation plan for success.
• Remember the sequence to develop your final digital ­transformation plan:

  º Develop your original (brick and mortar) business model canvas

  º Develop your SOSTAC^® six-step model

  º Develop your innovated (digital) business model canvas

• Find a list of top digital transformation consultants and their solutions (find at least 10 vendors).
• Align your strategy with the company’s business strategy.

Inspire your VP of business development to take the next step, which would be the implementation of your digital transformation plan.