Digital transformation is taking over the world, and businesses that aren’t paying attention are going to be left behind. However, simply being “digitized” doesn’t mean you’re guaranteed to be a success. In fact, it doesn’t even mean your company will be competitive. A leading business of tomorrow will inherently need to be a data-driven company. It must adopt data-driven business models to disrupt, innovate, create and evolve. A data-driven company that embraces these pursuits will increase their odds for market leadership significantly. And for those that don’t do so—obsolescence might just as well be around the corner.
Why Is It Important to Be a Data-Driven Company?
In describing a data-driven business, it’s worth taking a look at trends in business economies today. Instead of ownership, consumers are more willing to share products or temporarily subscribe to services. Rather than buying items off-the-shelf, customers desire more personalized goods and on-demand access. Thus, while DIY is still experiencing great vogue in some areas, individuals are more willing to pay for services out of convenience. What do all of these have in common? Each trend favors a data-driven company over a company that is not.
Data-driven business models are quickly becoming the norm—and for good reason. Consider a few relevant statistics. A data-driven company is 23 times more likely to acquire new customers. Similarly, a data-driven company is also six times more likely to retain them. Data-driven business models are also 19 times more likely to yield better profitability. Given these figures, it seems like a “no-brainer” for businesses today to choose data-driven business models. But studies show that only half of all business-to-business commerce is data-driven today. And for business-to-customer services, the percentage is even lower.
Data-Driven Business Models Today
With companies embracing digital transformation, data-driven business models are becoming more prevalent. But at the same time, these models are evolving. No longer do collecting emails and social media contacts enable a business to claim they it is a data-driven company. Instead, the data-driven business models today are considerably more integrated into the companies that use them. In essence, three major types of data-driven business models can be readily identified.
The Revenue-Focused Model
A revenue-focused, data-driven company is basically “all-in” with analytics and data. Not only is data used to enhance company services and products, but it also serves as the key source of profits. In essence, information is transformed into a revenue-generating asset in these companies. In fact, data and information are often the only real assets these companies have.
Examples of a data-driven company in this category might be Facebook, which generates revenues through data that drives advertising income. Or Airbnb, which earns revenues by charging a commission for its “middleman” data services regarding rental accommodations. In the retail category, Lowe’s Home Improvement and Meijer are admired for their use of data. In healthcare, Novant Health is an example of a data-driven model. For these businesses, data is not just a tool to enhance services. It’s a means to earn profits by leveraging the information they have.
The Disruption-Focused Model
For a data-driven company that belongs in this category, the use of data serves as a means to excel. Information is used to drive sales through data-focused marketing activities better. Or, data is used to create operational efficiencies that provide a competitive advantage over others. In these instances, the ability to leverage data in creating efficiencies is highly disruptive to other competitors.
A great example of a data-driven company that uses this model is Amazon. The company has used predictive analytics for years to gain a competitive advantage in its supply chain operations. Another company might be Dominoes, which made an incredible turnaround through its digital transformation. By creating entirely new data-driven models in its sales platforms, Dominoes climbed to the top of its market.
The Quality-Focused Model
This model is perhaps the most commonly employed strategy among data-driven business models. A data-driven company using this model utilizes data and analytics to enhance the value of its services and products. Digital technologies, including artificial intelligence, are employed to improve a product’s performance or to align it more with customer needs. Instead of using the data directly as a revenue-generating asset, the data is used to drive better goods to do the same.
Numerous examples using this data-driven model can be readily appreciated. For example, John Deere uses such an approach to equip new tractor models with the IoT devices. Tesla Motors uses similar strategies to keep up with maintenance and repair needs of its vehicles. Plus, value-driven companies are constantly creating customer profiles based on data to better define product development. Though not as disruptive or impactful as other data-driven business models, these remain highly valued.
Be Data-Driven or Be “Data-Defeated”
When looking at the statistics for businesses today, corporate turnover is a bit scary. In the late 1970s, the average lifespan of a company was about 37 years. Within the decade, experts estimate that it will just number to be about a third of this. Digital transformation has brought about many exciting conveniences and changes. Yet, at the same time, it has placed incredible pressure on companies to change, adapt and evolve. For businesses that don’t want to be left by the wayside, their best choice is to become a data-driven company.
Despite rising business challenges, numerous success stories exist about companies adopting data-driven business models. In fact, in recent years, dozens of high-valuation startups have employed such models to excel in the marketplace. To achieve and sustain success in the future, businesses will need to embrace progressive levels of digital transformation. Using one or more data-driven business models will likely be the key to determining exactly how significant that success will be.