In traditional businesses, value creation occurs when customers’ willingness to pay for a product or service exceeds the actual costs of the business’ provision of the product or service.
This is somewhat the same for digital businesses. The main difference is that digital businesses now possess more data and more speed to effectively and efficiently create value for their customers.
Digital value creation is very important. More consumers have access to the internet like never before. Literally, people live their lives on the internet. It is where they connect with people and brands. It is where they make purchases, stay updated on the latest trends and do whatever pleasing to them.
Business needs to know the sources of digital value creation so as to be able to become more relevant. This is because the value created by businesses leads to economic value-added and returns on their invested capital.
Sources of Digital Value Creation
1. Business Model Innovation
A business model simply refers to the methods and activities businesses use or implement to create, deliver and capture value to and from their customers. In digital value creation, digital businesses should look for opportunities to constantly innovate on how they act, use their resources and how they relate with their key partners. In doing this, they would find what’s lacking (minor or major) that needs to be fixed. Fixing such things leads to improvement in how they create value. This satisfies the needs of their customers which in turn increases customers willingness to pay. Business model innovation can deliver more lasting competitive advantage, particularly in disruptive times.
In carrying out a business model innovation, two main questions need to be answered by the business. These questions are 1. what benefits our customers? and 2. how do we create such a benefit. The benefit could range from something minor as product delivery to something major as a complete change in technology. A business that understands these and can change its underlying operating model to create such expected value wins.
2. Business Process Transformation
Businesses have goals. However, such goals largely depend on their target customers. As customers needs are changing almost instantly, businesses can exhibit digital value creation by consciously transforming their business process. One way to do this is for the businesses to examine their value/supply chain. The steps required to achieve a specific goal needs to be examined. Doing this helps to locate processes that do not add value to the customers or the business itself.
Business process transformation could involve things such as removing duplicate activities; identifying what to automate; incorporating new technologies; and changing the elements of a business process. This is for the purpose of meeting the changing business goals of digital transformation.
3. Customer Experience
Customer experience is undoubtedly the new branding powerhouse. A customer’s perception of his/her relationship with a brand matters a lot. Research shows that a lot of customers are willing to pay more for a better experience. Such experience tells more about the business’ interaction with his/her customers.
Businesses, therefore, need to invest in improving their customers’ experience. The benefit a business will get outweighs the cost of delivering such experiences. The improvement should be done throughout the business relationship between the business and the customer. A customer who has good experience with a business stays longer as a customer – and possibly recommend the business to others. This, in turn, helps the businesses to stand out from their competitors.
4. Digital Core Transformation
To simply put, the digital core is the technology platform that allows a business to transform into a digital business. This is becoming more popular nowadays with the rise of emerging technologies such as artificial intelligence, machine learning, advanced analytics, internet of things etc.
The digital core is needed for digital value creation through either business model innovation or business process transformation. This allows businesses to implement initiatives that actually create value for customers.
A business who transforms its digital core to meet the needs of the moment creates more value than a business who doesn’t. There are different platforms as a service that can be used to achieve this.