The trend of digital transformation (DX) is sweeping across all industries and companies. At the same time, the Ministry of Economy, Trade and Industry has established the “DX Brand 2020” to evaluate listed companies that are working on business model and management reforms using digital technology.
Against this background, not only companies that handle products and services that are highly compatible with IT, but also companies that handle products and services that are not related to IT, are digitizing their business models. I began to consider and trial and error.
However, converting a business to DX not only takes considerable effort and time, but it also requires specific strategies such as launching new businesses and establishing competitive advantages through them.
In this article, we will explain the business model that can be successful, the technology to be adopted, and the challenges that you will face when promoting “DX x Business”.
Table of contents
- What is DX
- definition
- Significance in business
- DX business test
- traditional business model
- Business model definition
- Concept of business model
- Traditional Business Model: Mass Production
- DX x business model
- XaaS
- D2C
- subscription
- Mass customization
- sharing economy
- Values of the business model in the DX era
- CX (UX): Emphasis on customer experience
- breaking down traditional barriers
- Technology necessary for DX x business
- 3 cutting-edge business models using DX/examples of DX business model transformation
- Food and drink: Starbucks
- Retail: Zoff
- Real estate: “ADDress”
- To reform the business process in DX
- Design business improvement
- Secure human resources required for DX
- Business improvement execution
- Challenges Japanese companies face when building DX business models
- summary
What is DX
definition
The definition of DX (Digital Transformation) proposed in 2004 by Professor Eric Stolterman of Umea University in Sweden is as follows.
“It is a technology that continues to evolve and has some impact on human life, and as a result, people’s lives change for the better.”
DX here has two meanings.
(1) Making people’s lives more comfortable through the spread of digital technology (
2) Toward revolutionary innovation that fundamentally overturns existing values and frameworks
However, with this concept alone, it is not possible to have a concrete image of how DX should actually be used in companies and businesses.
Significance in business
The Ministry of Economy, Trade and Industry of Japan summarized the following definitions in the “Guidelines for Promoting Digital Transformation (DX Promotion Guidelines)” issued in 2018.
“Companies respond to drastic changes in the business environment, utilize data and digital technology, and transform their products, services, and business models based on the needs of customers and society. To transform our culture and climate and establish a competitive advantage.”
In other words, it will be important for companies to quickly grasp changes in the external and internal environment, centered on the use of data and digital technology, and create new value by guiding them to optimal management strategies using the power of digital technology. “about it.
In this way, the definition of DX by the Ministry of Economy, Trade and Industry is limited to business perspectives.
DX business test
DX has been actively adopted in business, and recently, the DX business certification has been attracting attention.
The DX business test is a private qualification that allows you to obtain knowledge of “DX” certified by the Japan Innovation Fusion Society. In addition to the basic terms of DX, you will learn business models and corporate DX case studies.
A score of 800 or higher will be certified as “DX Business Professional Level”, a score of 700 or higher will be certified as “DX Business Expert Level”, and a score of 600 or higher will be certified as “DX Business Standard Level”. This qualification is valid for 2 years.
traditional business model
Business model definition
According to Wikipedia, a business model is defined as:
“It is a term that indicates the business strategy and profit structure related to products and services that generate profits.”
Building a good business model is necessary for any company to achieve sustainable growth.
Concept of business model
In today’s increasingly competitive market environment, it is necessary to build company-specific core competencies in terms of “who”, “what” and “how”. Below is an example of the process.
| (1) What kind of value should be provided to which customer → Narrow down the target ( 2) How to provide that value → Realize the value that corresponds to the consideration ( 3) Whether the necessary management resources are gathered → Prepare the management resources ( 4 ) What kind of profit model will be used to obtain compensation → Clarify the profit structure based on competitive advantage, market size and growth forecast |
Traditional Business Model: Mass Production
Since the period of high economic growth, companies have started mass-producing products. At a time when mass production was common, companies frequently changed models to sell more products, and created products that emphasized convenience and design rather than durability.
Companies started mass production because the business model of mass production has the following advantages.
- Can reduce marginal costs (provide products at lower prices)
- Quality is less likely to vary depending on the product
- Produce products efficiently
- We can quickly provide trendy products to the market
Mass production has many advantages, but at the same time, it also leads to problems such as increased waste and environmental pollution due to mass consumption.
In recent years, the idea of building a socio-economic system of “optimal production, optimal consumption, and minimal disposal” instead of “mass production, mass consumption, and mass disposal” has spread, aiming for a sustainable recycling-oriented society.
DX x business model
In recent years, due to globalization, the development of IT technology, the diversification of customer needs, and the social problem of mass consumption, the era of mass production that has supported corporate growth is coming to an end. In the future, in order for companies to grow and expand their markets sustainably, it will be necessary to transform their business models.
However, there must be many people who do not know how to change the business model in the future. Therefore, from here, we will introduce five business models that will succeed in the DX era.
XaaS
Over the past few years, everything has started to become “as a service” (abbreviated as XaaS). XaaS refers to providing products and services via the cloud and providing services online. It is common to abbreviate MaaS, SaaS , etc., which will be described later, by replacing the initial letter “X” of “as a service” with the initial letter of the word that means each mechanism.
| SaaS is an abbreviation for “Software as a Service”. It stands for “software as a service”. For example, the communication tool Slack, customer management (CRM), and sales support system Salesforce in the United States. |
| MaaS is an abbreviation for “Mobility as a Service”. It’s called “mobility as a service”. It is a new concept of “mobility” that utilizes ICT to move transportation to the cloud, treats mobility (movement) by all means of transportation other than private cars as a single service, and seamlessly connects them. Examples include Uber, an American car-hailing platform, and China’s major ride-sharing company Didi Chuxing. |
| IaaS is an abbreviation for “Infrastructure as a Service”. Literally translated, it is “a service as an infrastructure for developing and using applications”. Virtual servers, hard disks, and OS are services that provide networks on the cloud. For example, “Amazon Elastic Compute Cloud (Amazon EC2)” provided by Amazon and “Microsoft Azure” provided by Microsoft. |
One of the points of view for judging whether it is XaaS is whether it has “regular” contact with customers. In addition to the fact that there are no location restrictions, it is possible for multiple people to use the service if the internet environment is in place, which is a unique feature of XaaS.
D2C
In recent years, a new business model called “D2C” has been increasing as a new form of transaction that does not fit into the existing terms such as “BtoB” and “BtoC”. D2C is also called consumption of goods with experience, and it is a business model that many brands that build worldviews have adopted.
“D2C” is an abbreviation of “Direct to Consumer” and refers to “a system to sell products directly to consumers”. In other words, it is a model that sells products planned and manufactured in-house through its own channels such as EC sites.
We will communicate with consumers on social media (SNS), EC sites, and directly managed stores, and sell the products we produce.
D2C has three advantages.
| (1) Delivering the seller’s vision directly to the customer Because the brand’s worldview and vision are often commercialized as they are, D2C can convey the value (vision) that the company values to the target consumer without misunderstanding. . (2) Building good relationships of trust with customers D2C, which facilitates communication with customers, has the advantage of easily acquiring core fans of the brand. In addition to planning and manufacturing, you can also sell by yourself, so you can increase opportunities to build relationships with customers. ③ Product development based on customer data and opinions By analyzing dense data based on customer data and product feedback, you can create more accurate marketing methods. |
This is the form adopted by many “D2C” apparel brands and beauty cosmetics brands.
Founder Mr. Weiss said, “The point of Glossier is the democratized beauty of listening to the voices of the products we use every day.” We achieve this by creating opportunities for open conversation with customers. .
Glossier attracts a large number of customers to its EC site through web marketing that makes full use of SNS with high content and popular influencers, and is not only useful for brand strategy and product development, but also involves users and co-creates. and increased loyalty to the brand.
Glossier’s SNS has evolved into a community that voluntarily disseminates and spreads the goodness of the brand, and has achieved great success. The reason why Glossier has grown so far is because the company has grown with its customers using the D2C business model and has created a community with its customers.
subscription
Until now, the business model was centered on selling out services and products one by one. However, in recent years, attention has been focused on “subscription businesses,” in which payment is provided based on the period and amount of use of services and products, rather than outright sales.
With subscription services, plans and fees are determined according to the contents of the content that can be used, and you can receive the service as much as you want during the period of payment.
Another feature of subscriptions is that they can provide a service with higher customer satisfaction than a simple flat-rate service because you can decide the price plan and options according to your preferences and purposes.
Subscriptions have many benefits, but here are three that are most important to businesses.
| (1) Acquisition of new customers In the case of normal product sales, the user must pay the full unit price of the product, so there are cases where the unit price of some products is too high and users do not use it. However, using a subscription lowers initial deployment costs and makes it easier to acquire new customers. (2) Use of customer lists and data You can obtain detailed data on user attributes and usage. In addition, by analyzing data, it is possible to grasp user needs more accurately and use it to improve services. As a result, you can expect higher user satisfaction and lower churn rates. ③ In his business world where continuous sales can be obtained , we must always think about maximizing sales. Subscriptions are a continuous billing business, so sales can be calculated using the formula “number of users x flat rate”. In other words, the biggest advantage of subscriptions is that you can get a stable profit. |
Subscriptions are often incorporated into “XaaS” and are deployed in various industries. Successful examples include the world’s largest music distribution service “Spotify”, cloud-based CRM “Salesforce”, distribution, books, music, movies, etc. packaged “Amazon”.
Mass customization
Mass customization is to sell products and services that meet the needs of individual customers (customization) while making use of production and sales volume (mass production).
Many industries, including manufacturing, are embarking on the introduction of mass customization. There are three possible reasons behind the demand for this business model.
| (1) Diversification of customer needs As information has become easier to obtain, customer needs have also diversified. However, in order to remain competitive in the market, companies need to respond quickly to various customer needs. (2) Decrease in market product value due to commoditization In markets where commoditization is progressing, customers do not perceive added value in products, leading to a decline in product value and low price competition. In order to compete in the market, it is necessary to provide customers with value other than price. (3) The need to shorten the lead time of build-to-order manufacturing The build- to- order manufacturing that meets detailed requirements is one of the values that companies can provide to their customers. There are cases in which sales opportunities are missed due to lead times, so there is a need to establish a system that can efficiently handle made-to-order manufacturing. |
An example here is BMW’s compact car brand “MINI” in Germany. In 2018, we launched MINI Yours Customized, a service that allows customers to freely customize and order interior and exterior parts for automobiles.
With this service, customers can design their own colors and patterns for standard dress-up items such as interior trim and LED door trim through a web-based “customizer.” Design data is sent to a facility in Germany and can be accurately reproduced using IoT , 3D printers and laser processing machines.
sharing economy
The sharing economy is defined as “a new economic movement in which individuals share (rent, buy, sell, or provide) via Internet platforms.” In short, it is a form of economy in which things, places, skills and time are shared through the Internet.
According to a survey by the Sharing Economy Association, a general incorporated association, the size of the sharing economy market is expected to exceed 14 trillion yen in 2030.
The spread of the Internet and smartphones has made it possible for users to use services without being bound by time or place. In addition, the evolution of payment platforms, making it possible to collect fees online, is also considered to be the background to the spread of the sharing economy.
The fundamental business model of the sharing economy is, in fact, matching between providers of idle assets and users who want to use them .
In addition, it is premised on CtoC exchanges and transactions between individuals, rather than BtoC where businesses provide services to individuals. Providers and users are matched on a web platform, and business operators operate this matching platform and are not directly involved in user transactions.
Among the things that can be shared, the three that occupy a particularly large proportion are “things,” “space,” and “movement.” “Things” include a flea market app (Mercari) that buys and sells second-hand goods and apparel sharing services. This includes car and bicycle sharing services.
Recently, matching of “skills” that goes beyond the things and things that exist in reality is also appearing.
From the perspective of business operators, there are three advantages of sharing services.
(1) Effective utilization
of idle assets The point is that idle assets such as “things” and “things” that are used infrequently can be effectively utilized. By utilizing idle assets, you can increase your income without initial investment such as purchase.
(2) New value and business creation
Sharing not only increases the convenience of users’ lives, but also leads to economic growth. For example, the sharing of skills and human resources creates employment opportunities for people who find it difficult to go out to work due to housework and childcare, and for people who want a highly flexible work style.
( 3) Cost reduction
Sharing a car or house, which has been the norm until now, eliminates the need for the renter to purchase goods and the costs of maintaining and managing the purchased goods.
Currently, the sharing economy is spreading widely by adding value such as “cheap”, “easy”, and “whenever you want” by building a digital platform.
Values of the business model in the DX era
Let’s take a look at what elements are in the values of business models related to the spread of DX.
CX (UX): Emphasis on customer experience
By emphasizing customer experience such as “customer experience”, “CX” and “UX” in the business field, customer’s overall satisfaction increases, leading to sales improvement and market expansion.
Customer experience CX (Customer Experience) refers to the flow of customer contact with a product, from the stage when a customer becomes interested in a product or service, through research and consideration, to purchase, use, and after-sales support. It’s all about the experience.
The concept of CX was proposed by American management scholar Bernd H. Schmidt. Mr. Schmidt describes customer experience as emotional value as “Sense”, “Feel”, “Think”, “Act”, and “Relate”. (social experience value)”.
Currently, customers can easily send reviews of purchased products and sellers mainly through SNS, so it is becoming more and more important for companies to reconstruct the customer experience due to the diversification and complexity of customer contact points.
Below are the three steps.
| (1) Having many customer contact points When providing specific products and services, it is necessary to implement DX measures to increase the channels and contact points that customers access, such as “EC,” “real stores,” “apps,” and “SNS.” (2) Through the application of advanced AI technology that derives deep insights from the obtained information and data , and the conversion of data into value, not only conventional customer attributes and purchasing behavior, but also data such as apps, websites, purchase history, search keywords, etc. It is important to analyze and focus on intellectual interests and interests that serve as guidelines for customers’ unconscious actions, gaining deep insight into customers’ “what kind of life they want to live” and “what kind of interests they have”, and providing services that stick to them. is. (3) Providing a customized experience for each individual customer Based on his data, it is necessary to have a deep understanding of the customer and design an optimized experience at points of contact with various individual customers. |
breaking down traditional barriers
Today, technology is developing rapidly, and so is the social environment. When starting to work on a business model, there are probably more than a few people who first try to research advanced cases.
However, there is no set methodology or form of success for promoting digital utilization and DX. If the past successful experiences of your own company and other companies are simply accepted as they are, competition among market players will intensify and it will be difficult to survive. Therefore, it is essential for companies to research and challenge new business models.
Of course, it is not useless to refer to previous initiatives, but we need to be careful not to adopt the attitude of “I won’t take on challenges unless there are precedents and successful cases.”
Here, I would like to break down traditional barriers and introduce a new sales approach that fuses the online and offline aspects of the retail industry.
“Live commerce”, which was born in China, has already become a common sales method in China as a new form of e-commerce that enables interactive connection with users, but it is not yet popular in Japan.
“Live commerce” is a new sales format that combines live distribution and EC. Users who participate in the live distribution can purchase products immediately, and they also serve customers while distributing on a dedicated platform or their own EC site or SNS account.
The beauty of live commerce is that you can take advantage of the commenting feature and ask questions in real time. Consumers can learn more about product features by asking questions in the comments. Another appeal of live commerce is that you can check the usability and atmosphere through video, so you don’t miss the intuitive desire to buy.
In the post-digital era, where digital penetration has rapidly deepened among consumers, let’s take on the challenge of new business forms without being overly attached to traditional business models.
Technology necessary for DX x business
AI x data
Among the technologies that handle data, AI is currently attracting particular attention. In particular, machine learning technology, which autonomously learns patterns from large amounts of data, is attracting attention.
In order to realize a business model in DX, not only digital technology but also “data utilization” is important. By learning past time-series data (data expressed along the time axis), AI can predict future numerical values. Currently, AI prediction is used in various situations such as store sales, stock prices, and inventory levels.
One of the appeals of AI prediction is that it greatly reduces human costs by analyzing data and making predictions. Companies will be able to spend the human cost that they used to spend on other parts, making it easier to expand their business.
In fact, many companies are establishing a competitive advantage by utilizing the huge amount of collected data and using AI.
5G
5G is a technology that can be said to be the main player in the IoT era, where all devices are connected to the Internet and data is exchanged at high speed.
5G, which features ultra-high speed, large capacity, multiple simultaneous connections, and ultra-low latency communication, is expected to be used in various fields such as automobiles, machine tools, manufacturing equipment, medical equipment, transportation infrastructure, and surveillance cameras. increase.
The greatest features of 5G in business are the diversity of application areas and the ability to collect huge amounts of data and use it in real time. 5G can be said to be a driver of DX business promotion for companies.
cloud service
Cloud services provide users with data and software, which they used to use on their own computers, as a service via a network. Typical examples include Amazon Web Services (AWS) and Microsoft Azure.
In recent years, many companies are using cloud services, and they have come to attract attention from the public.
Businesses use cloud services for the following reasons:
1, costs can be reduced
In the case of on-premises that is paired with the cloud, it costs a lot because it is necessary to prepare servers and communication lines in-house. However, the cloud can manage information via the network, so there is no need to purchase servers or operate the system.
As a result, the cloud can significantly reduce initial costs compared to on-premises.
2. Reduced operational load
The cloud does not require maintenance of servers, communication lines, and associated equipment, so it can reduce the operational load of infrastructure.
In the case of an on-premises system, if a problem occurs in the system, it is of course necessary to deal with it immediately, and it costs money to make improvements. The advantage of the cloud is that there are no such risks.
3. In the case of on-premises that can be started in a short period of time,
if you want to introduce a new server environment, you will need to go through many stages from scratch to design, develop, test, etc., and it will take several months. Of course it takes.
However, in the case of the cloud, since the server environment already exists, it can be introduced immediately. Speed is especially important for DX businesses, so being able to use services quickly is a big advantage of the cloud.
3 cutting-edge business models using DX/examples of DX business model transformation
Food and drink: Starbucks
In the food and beverage industry, there is a strong tendency to ride a boom, and until now, it has been seen that when ingredients and menus become popular, they all follow suit. However, with the spread of SNS, the cycle of the spread and convergence of the boom has become faster than ever.
For this reason, restaurants with highly unique menus that are “only available at that restaurant” and “a bit different from others” have succeeded in attracting new and repeat customers and retaining a strong customer base. .
Starbucks is a successful case here.
Starbucks has developed its own brand power through strategies such as its unique concept of “Third Place,” “a third space that is neither home nor work,” calm and stylish store interiors, new seasonal menus, and customized drinks. We have successfully created and differentiated strategies.
The company is also focusing on customer experience, and in 2019 launched the mobile ordering service “Mobile Order & Pay”. If the customer completes the order and payment in advance using the dedicated app, the customer can immediately receive the drink made at the specified store. Since the launch of the service, the number of monthly users has tripled.
Retail: Zoff
Intermestic Co., Ltd., which operates the major eyeglass brand “Zoff”, is trying to create new value in eyeglasses. Until now, glasses were nothing more than a vision correction device.
However, the company established Zoff Eye Performance Studio (hereafter, ZEPS) to make eyeglasses items that improve human performance, and is working to create new value for eyeglasses.
Zoff first launched its own e-commerce site, started omni-channel, and now also runs an OMO model. Even if people remember their eyesight, there are few people who remember the degree and type of lenses they have, so we introduced a system that links that information with the EC site.
Information such as the power and lens type of eyeglasses purchased at a physical store, and information such as where and which eyeglasses were previously purchased are linked to the e-commerce site. Therefore, once you log in, you do not have to enter new information, and even if you do not know the power of the glasses you are using, the system automatically reflects the information on the site.
Real estate: “ADDress”
The nationwide unlimited living service “ADDress” is a housing subscription service that allows you to live in old houses and vacant houses nationwide for a monthly fee.
Each base provided by ADDress recruits local vacant houses and idle villas, secures them by purchasing or subleasing, and renovates them. The house is fully equipped with a shared living room/kitchen, furniture, Wi-Fi, utility bills, amenities, etc., and even cleaning is provided within the price.
The appeal of ADDress is that users can use bases at reasonable prices, and base suppliers can earn income from vacant houses.
Many companies have cooperated with ADDress as partners and started the service in 2019. ADDress contains the intention of challenging the still-rooted new building faith society even now, and it is also expected to be a solution to the “vacant house problem” which is currently regarded as a problem.
There are other proposals for countermeasures such as providing property information using VR , 3D cameras, online technology, etc. and demonstrating the effectiveness of viewing services for vacant houses in remote areas .
To reform the business process in DX
Introducing three steps to reform business processes in DX.
Design business improvement
First, design business improvement. Let’s identify the parts of the business that are not efficient and the work that puts a heavy burden on employees. Decide the order of priority to work on in the identified tasks.
Secure human resources required for DX
Once the business improvement is designed, we will secure the human resources required for DX.
Here, we will introduce five main human resources required for DX.
producer
Producers are leaders (including CDOs) who lead the realization of DX and digital business.
business designer
Business designers are in charge of planning, formulating, and promoting DX and digital businesses.
Architect
Architects design systems related to DX and digital business.
Data Scientist/AI Engineer
Data scientists /AI engineers are human resources who are familiar with digital technologies (AI, IoT, etc.) and data analysis related to DX.
UX designer
UX designers are in charge of user-oriented design of systems related to DX and digital business.
Engineer/Programmer
In addition to the above, engineers/programmers are responsible for implementing digital systems and building infrastructure.
Business improvement execution
Once you have planned the business improvement and have the necessary human resources for DX, let’s implement the business improvement.
Implement the improvement plan and evaluate it when finished.
Challenges Japanese companies face when building DX business models
Until now, Japanese companies have used IT and digital technology only for the purpose of streamlining operations and reducing costs. As a result, it is said that Japan is one step behind other countries in promoting DX by emphasizing customer experience and creating new business models.
In addition, the shortage of IT personnel specializing in DX has become an issue in promoting the DX business model. Against the backdrop of the advancement of digital technology, the use of big data, and the intensification of competition in the global market, in order to further promote DX for the needs and satisfaction of customers in the future, we are quickly aware of the development of DX human resources. should.
As described above, rather than superficial digitization, Japanese companies are required to undergo a more substantive digital transformation, from business models to organizations.
summary
In order to survive in the after-digital era, it is important to develop systems and business models that are in tune with the times, create new value, and at the same time gain a competitive advantage.
It is necessary to use digital technology to transform, develop new ways of fighting, and transform the underlying business model.
It is not enough to just introduce data analysis and digital tools, but as a management strategy, let’s always take on the challenge of how we aim to transform our business model. If we can achieve that, I think we will be able to achieve “business model x DX” for the first time.
