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This article is part of our Conference Coverage: 2018 MIT Sloan CIO Symposium: A SearchCIO guide

In search of digital business models: Six questions

Old-school companies must find ways to generate digital revenue. Researchers at MIT Sloan laid out six questions that will help companies refine their digital business models.

Peter Weill and Stephanie Woerner have been studying a question of critical importance to just about every large...

enterprise that wasn't born in the digital age: What do big ol' companies (their term) need to do to be successful today?

At the 2018 MIT Sloan CIO Symposium, Weill and Woerner, co-authors of What's Your Digital Business Model?: Six Questions to Help You Build the Next-Generation Enterprise, discussed the five years of research that went into their new book and laid out their prescription for helping legacy businesses find their digital business models.

"We came up with six key questions that we think senior management teams have to discuss, answer and have an honest dialogue about, if they're going to thrive in the digital era," Weill said.

Weill asked the audience to consider these questions through the lens of a hypothetical CEO of a large European bank.

Here are the six questions for honing digital business models:

Question 1: What is the level of threat facing your organization?

Senior management teams should start by assessing the threats to their organizations' current business models. Weill said that if you are that CEO of a large traditional European bank, the current threat level probably looks pretty high: The economy is tough, margins are under pressure, customer satisfaction scores are "less than brilliant" and new regulations on privacy have arrived. Making matters scarier, nipping at your heels are all sorts of new competitors, from the new online banks to platform companies offering financial services. Meanwhile, on a recent trip to China, you discovered yet another digital threat: The instant messaging app WeChat has become the payment method of choice for the country's roughly 900 million people. That can't be good for an old-school bank.

Peter Weill presents some of his research at the MIT CIO Symposium
Peter Weill takes the stage at MIT CIO

Question 2: If your current business model is under a significant amount of threat, what is the right digital business model for your company?

In the case of the hypothetical European bank, its current business model revolves around products: "You sell car loans, house loans, foreign exchanges," Weill said. "But it turns out what your customers really want are to solve their life events." Life events are not the loans or foreign currency the bank offers but finding and buying the car and the house, and taking the trip abroad.

"So you really have two choices," Weill said, addressing the hypothetical bank management. "You can either manage the first model, which is under significant threat, and which is going to be a lot about cost cutting ... or you can say, we will move to a different model that really tries to meet the needs of our customers."

How BBVA did digital the right way

In his presentation on digital business models, Weill stated that the multinational Spanish banking group BBVA exemplifies a "big ol' company" that handled digital transformation correctly. The company was founded in 1857 as Banco Bilbao Vizcaya Argentaria, S.A. Luckily for BBVA, executive chairman Francisco Gonzalez was thinking digital a decade ago. Below are the six steps BBVA took to transform into a digital age powerhouse.

  • Step 1: Being honest about threats

Gonzalez early on identified the need for a new mission, telling Weill "there's a real growing gap between customer behavior and commercial banks." His broad goal: to adjust bank operations to meet customers' needs.

  • Step 2: Pinpointing what needed to change

BBVA saw that the old-school product-driven model wasn't working and put in the work to find the model that worked better, Weill said. This model focused on being a "knowledge-based information company."

  • Step 3: Leveraging its competitive advantage

In a digital transformation effort, an established digital platform is one of the most valuable tools companies can have. BBVA, having started early on its digital transformation journey, simply needed to find where its digital platform would help the most, and settled on customer experience.

  • Step 4: Seeing digital as an opportunity, not a threat

Instead of looking at the threats that had arisen in a digital economy, BBVA looked at the opportunities. Specifically, BBVA made the mobile phone a "remote control" for customers. Previously, most banks had only seen mobile devices as another medium for sales; however, BBVA allowed customers to book branch appointments and direct message their account managers by mobile phone.

  • Step 5: Building smarter

Developing the right skills to deliver digitally is difficult, and in BBVA's case it required some organizational maneuvering. BBVA created multiple new teams, and combined some old ones, to do digital effectively and efficiently.

  • Step 6: Getting people on board

Getting people to buy in to change is a challenge for any company that is transforming. In BBVA's case, this meant changing the culture. While no culture is ever finished changing, BBVA's results speak for themselves, Weill said. Over the past three years BBVA's Net Promoter Score scores have jumped 20 points on average across all markets; their digital sales now account for 36% of total sales. And their customer experience? It's ranked No. 1 across all markets. BBVA has done digital right, and they've got the numbers to show it.

Question #3: What is your current competitive advantage in the digital era?

As the first two questions illuminated, big old companies certainly face many threats from competitors that have adopted successful digital business models. But they also have a number of advantages, Weill said. Established, big banks, for example, have customers, branches, products and "amazing data."

"You may not use them well, but you have significant competitive advantages," Weill said. He added that identifying existing advantages -- and how to exploit them better -- "is one of the hardest questions I find when working with senior management to have an honest conversation about."

Question #4: How can the digital era help your company?

Digital economies are built on new ways of connecting through technology.

"And so one of the really interesting opportunities for you, as a bank, is to put your customer in control through their mobile device, and maybe [through the use of] IoT or big data," Weill said. CIOs have a big role to play in helping their companies answer this question.

An interesting statistic from our work is about half of the executive committee members of companies that successfully transform, turn over.
Peter Weillco-author, What's Your Digital Business Model?

Question #5: What "muscles" do you have to develop to really deliver?

If the big European bank aims to deliver on helping customers solve their life events, then it will have to partner with outside companies that provide complementary products. For example, to meet the customer's need to find that house, the bank could partner with insurance agents and realtors.

"But you also have to be much better at integrating your siloed products to deliver on a single point-of-life-event need," Weill said. Delivering on the customer need will require the hypothetical bank to be better at analytics, for example, and to operate more nimbly. "There are a whole lot of things that add up to a cultural change that you have to do."

Question #6: Do you have the leadership to pull this off?

This is probably the most difficult question companies must answer when adopting digital business models, Weill said. That's because it often results in big changes at the top. 

"An interesting statistic from our work is about half of the executive committee members of companies that successfully transform, turn over," he said.

Stay tuned for part two of our coverage of this discussion, in which Stephanie Woerner outlines the five things top performing CIOs do to separate themselves from the pack.

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Which of these questions do you think would be the most difficult for your business to confront? Which one would be the least?
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