Every company wants to go digital like Amazon and Apple, to reap the benefits of quick time to market and increased efficiency. But becoming a fully digital business can be a challenge. According to McKinsey, only 40 percent of businesses are digitized.
But every business can get there, if they follow three steps, as CSG’s Sean Casey explained in his IoT Talk “Economic Imperatives for Digitization” at Mobile World Congress Americas.
Step 1: Significantly Lower Cost Structures
Lowering cost structures sounds obvious, but is much harder to achieve in practice, said Casey, Executive Director of Product Management for CSG’s Ascendon. Service providers need to ensure that they’re generating the maximum amount of revenue from their traditional lines of business, while operating those services at the lowest cost to fund innovative new services.
Casey explained this as a “blue to red” shift, where you find efficiencies and funding from traditional services (the blue) to drive growth in new digital services (the red).
“You have to start to move profits from the blue side into the red,” said Casey. “You have to take costs out of the legacy systems, so you can fund new digital businesses.”
But Casey stressed that you can’t just rip and replace in the race to add digital services.
“The worst thing you can do is say, ‘We’re going to move to the red, and we’re going to make it look exactly like blue,’” said Casey. “All you’re going to do is bog down timelines and costs when you’re trying to make that transformation.”
By minimizing the change when moving to a new digital strategy, it will be easier to roll out a digital transformation.
Step 2: Find New Revenue Streams
How do movie theaters make money? Do they make it from the tickets, or from the value-adds, like popcorn? It turns out, it’s the popcorn.
Operators need to find their own “popcorn economics” model, to provide value-added services on top of what they’re already offering now to get that additional revenue. And you have to do it quickly, so that you can find what’s earning revenue and act on it.
“The key as you go through these economic imperatives is launching fast,” said Casey. “[You’re] putting new products and services in front of customers as quickly as possible, seeing what resonates.”
And you won’t always succeed the first time, said Casey.
“Obviously we hope you flourish,” said Casey. “But…you’re learning what the market wants, and what the market needs, and what they’re willing to pay for.”
But to really support the services that work, you will need to look at building a new business model that can keep up as well.
Step 3: Support Innovative New Business Models
Apple and Amazon are part of huge digital ecosystems—they offer platforms where customers can search for the digital or physical products that are being sold by third-part vendors. Apple and Amazon then get a small portion of revenue for having offered the platform to facilitate that transaction.
“There’s a huge amount of growth in working in that ecosystem and working with other digital players,” said Casey. “As you go to market with things like IoT, you’re going to have to look at other vendors you want to work with or participate with to help grow that industry.”
Casey gave the example of Arrow Electronics and HerdX, who have built their own IoT ecosystem. Arrow provides sensors and tags to monitor the health of livestock, and HerdX can use the data generated from those tags to provide insights to their end customers.
“[Arrow] works with value-added service providers like HerdX to then go out and actually monetize those solutions,” said Casey.
By taking the steps of significantly lowering cost structures, finding new revenue streams and supporting new business models, companies can become digital service providers.
For more information and to watch Sean Casey’s full presentation, click here: https://youtu.be/CT9KVF1X2CY