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By Uwe Riss and  Marco Cigaina

Nowadays we hear a lot about Digital Transformation, that it enforces business model innovation, leads to new kinds of business networks, disperses industry boundaries or allows completely new players to rise to the top class of business within an incredibly short period of time. All this is true, but it naturally brings up the question why this happens now and what is actually the difference to previous developments.

If we point to the acceleration in the development of information and communication technology, we realize that it already goes on for quite some time; this alone does not explain a revolutionary change. To answer the question, we must not ask what is developing faster or more intensive but what makes the transition from the industrial to the digital era so unique. Only if we understand the nature of this revolution we are able to deal with it in a proper way.

There are two fundamental changes that we can associate with the development of an all-embracing Digital Infrastructure.

  • First, while in the past people were only sporadically connected to the internet, today they are embedded in the global Digital Infrastructure all along. While in the past they had to go to a marketplace, now marketplaces come to them from all over the world.
  • Second, while in the past business transactions and coordination activities were comparably expensive, enterprise and customers are all linked through the omnipresent Digital Infrastructure which enables them to perform transactions and coordination with marginal costs and benefit from various network effects.

The leading theme of the industrial era has been that companies created valued products at reasonable costs to optimize profits, where the product appeared as a self-contained unit handed over to customers. Due to the marginal costs of data transfer such products can now establish long-standing platforms that enable the offering of (own or third-party) additional services, as, for example, smartwatches that offer music streaming services. While it the past it was easier to coordinate complex activities within the company, the reduction of transaction costs helps firms to transfer more and more activities to external partners, including the so-called crowd. This is the central reason why company and even industry boundaries have become so pervious. Another crucial advantage of this change is that it enables handling resources in a different way. Although in the past it was important to have permanent control over all relevant resources, for example, by owning them, which came along with considerable costs for retaining them even though they could not be fully used, the universal access to all kind of resources via the Digital Infrastructure allows companies to reach out to resources whenever they are in need for them. The cloud is likely to be the most prominent example. In addition, the communication of companies with their customers has intensified and urges companies to become more responsive.

Business Models Provide the Floor Plan for Digital Innovation

This change also explains why business models have become so popular and have nearly drawn level with the importance of business process. Whereas processes represent the focus on the company’s performance, business models open the horizon toward the company’s interfaces to others. The advantages that companies can gain by managing their business networks have the potential to outstrip those advantages that they can gain by optimizing their internal processes. This does not only concern their partners but also their more and more intensively connected customers. These are no longer recipients of value delivered as products, but cooperators in generating value not only for themselves but also for the company.

Companies that fully understand the fundamental paradigm shift of the Digital Transformation can consequently react to this structural upheaval and make systematic use of its opportunities; this is a chance for significant competitive advantage. To learn more details about the connection of digital technologies and business models go to:

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