But this new chapter will be different: creating new sources of revenue through digital products, services, and experiences has become a priority. And this is a clear trend that we see in the strategy of the leading and most digitally mature companies.
Looking back at the start of the digital transformation as a business driver over the last eight years, we have seen two clear moments, which I will call chapter one and chapter two of the digital transformation.
The first chapter was the innovation and experimentation phase, in which we saw the development of digital solutions to solve problems in silos across the organization - in marketing, sales and operations, etc. The first digital islands of innovation were created, and despite the importance of experimentation, in most cases the solutions were not scalable, and the ROI [return on investment] was not always clear.
In the second chapter, we saw that digital transformation initiatives were concerned with achieving a positive financial impact. The growth in organizations' investments and spending on digital technologies and associated services will almost reach 2 billion euros by 2022, and in this context all shareholders have begun to demand a greater return on investments in digital transformation. In this context, in the last two to three years, ROI in digital transformation has marked its second chapter.
And what comes next? What will be the main features of the third chapter of the digital transformation?
The answer is the Age of Digital Business! Throughout the first two chapters, the digital maturity of society, governments, and companies themselves has accelerated, and is now at a higher level, where business leaders and investors are looking for businesses with continuous, sustainable growth and based on a digital first strategy (digital first).
Organizations will still transform, but transformation is no longer the main focus in a digital world. Top decision-makers recognize that, at a certain point, transformations must be replaced by a bigger and more significant long-term goal , i.e. digital business.
This means that the creation of business value is based on the use of digital technologies in internal and external processes; in relationships with customers, citizens, suppliers, and partners; even in the way organizations attract, manage, and retain employees; and of course how they develop their products, services, and experiences.
Although this is a clear trend in all sectors of the economy, the value and characteristic of the offer will be specific to each sector, but we can observe three distinct stages.
At the lowest stage of maturity are the B2B industries, where physical products and value chains are still the basis of revenue creation and digital revenues are below average. However, the expectation is that, due to the connectivity of assets and the value chain, digital revenues will grow very significantly over the next few years.
In the intermediate stage are the more advanced B2B sectors, with a focus on creating direct-to-consumer channels (e.g. public services, insurance, and automobiles) and less mature B2C sectors, such as the public sector (e.g. government, education, and health). These organizations are now creating digital channels to interact with customers, citizens, students, or patients and will quickly move on to the more advanced stage.
The most advanced stage belongs to the more B2C-focused sectors, such as financial services, retail and gaming, media, where we see that soon more than 50% of revenue will come from digital services, products, and experiences.
In this context, new digital business models are vital for the resilience and sustainability of organizations in the medium and long term. One of the main characteristics of digital business is the "creation of quantifiable commercial value directly or made possible by the digital world". Associated with this, the main focus of most organizations is to generate new revenue streams from digital investments and resources. Companies like Kroger, McDonald's and Adidas are generating billions of dollars in digital business.
Another good example of this transition is LEGO - a toy manufacturer based in Denmark. Less than ten years ago, the company's biggest channel to market was through retail, specifically through Toys "R" US, which closed its doors in 2018. Now it's Amazon. LEGO has also developed its own direct-to-consumer (D2C) channel and is making major investments in customer experience (CX), e-commerce, and digital experiences. In parallel, the company has launched a subscription business model that allows customers to receive a surprise Lego box every week. LEGO is also making major investments to monetize new digital assets, such as virtual LEGOS, developed through a multi-billion dollar joint venture with gaming company EPIC Games, LEGO, and Sony.
What stage is your organization at? And more importantly, what is your organization's strategy for developing businesses with continuous, sustainable, digital-based growth? Remember that trends can change quickly, and new technologies can emerge at any time, influencing the direction of Digital Transformation. Keeping up to date with the latest developments and adapting to change is key to a successful Digital Transformation.