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Bestselling author Adrian Slywotzky, with the penetrating insight that has become his trademark, provides the way out of the conundrum. His answer is as simple as it is profound: Before undertaking any digital initiative, the first question that must be asked is: What are the top five business issues facing my company? Only when the answers are known to this fundamental question can one then go on to ask:
About the Authors:
Adrian J. Slywotzky and David J. Morrison are vice presidents of Mercer Management Consulting, a Boston-based strategy consulting firm. They have worked as strategic consultants with a wide variety of companies and industries, including IBM, Dow Chemical, Allied Signal, American Home Products, Lotus Development Corporation, Metropolitan Life, Searle Pharmaceuticals, Tribune Companies, Microsoft, and United Health Care.
When we use the phrase "digital business," many people assume that we're talking about companies that operate mainly on the Internet -- companies like eBay, for example. Or else they figure we're referring to companies that use a lot of gee-whiz technology: computer-aided design, video email, or handheld personal organizers.
Both ideas are beside the point. It's true that the Internet is an amazing new space for business, and it's also true that other new technologies are revolutionizing one business process after another. But none of this describes what we mean by digital business, nor does it capture the profound impact that the advent of digital business will have on your industry, whatever it may be, over the next three to five years.
Digital business isn't just about communicating a little faster, selling products through electronic channels, or storing information in a new and handy form. It's about expanding your company's strategic options through the use of digital technologies.
To show what we mean, let's consider two apparently similar businesses: Compaq and Dell. Both sell PCs and other technology products; they're comparable in terms of quality, reliability, and pricing. But Dell is a digital business, while Compaq is not. What's the difference?
Like most other PC companies, Compaq relies mainly on retail outlets to sell its computers. These outlets have to be stocked with products for customers to look at and choose. Therefore, the marketing process begins with Compaq guessing about what kinds of computers customers are likely to want over the next few months. Compaq manufactures those machines, fills warehouses with them, and then tries to sell them to customers through distributors. Some sell, some don't. What happens to the ones that don't? They end up as fodder for low-margin discount sales or even get junked -- pure loss both for Compaq and for the distributors and store owners who make up Compaq's retailing chain. Dell Computer operates differently. Most of Dell's sales occur on their web site, where customers use an online tool we call a Choiceboard. It lets the customers browse electronically among various PC models, offering basic information about the specifications and capabilities of each. Once the customer picks a basic model she likes, she then answers a series of questions that enable Dell to configure a computer that fits her preferences exactly. Do you want a little more memory, a larger monitor, a DVD drive instead of a CD-ROM, a different software package, a better set of speakers? No problem! The configurator captures your choices with a few mouse clicks. Only then does an order go to Dell's manufacturing plant. The computer is built according to your specs and shipped to you within a few days.
It's difficult to exaggerate the significance of this new way of doing business. Among other effects, the Dell business model:
Dell was one of the first companies to create a Choiceboard, and Dell's Choiceboard remains one of the best in any industry. Furthermore, Dell has introduced a host of other strategic innovations using digital technology in other areas of its business, from manufacturing to finance to human resources to customer service. No wonder Dell has been a remarkably successful business in an industry where profits have been increasingly hard to come by. Over the past three years, Dell's average profit margin has been about 11% (versus one percent for most competing PC companies), while its revenues have grown by an average of 48 percent per year (versus 14 percent for the competition).
Dell is one of a handful of companies we call the digital pioneers. These are companies that were among the first to recognize the transformational power of digital technologies. Some are well-known as high-tech powerhouses: for example, Cisco Systems, the leading manufacturer of routers, switches, and other electronic gear for computer networks. Others will come as a surprise to all but a very few.
For example, consider Cemex, the leading supplier of cement and concrete in Mexico. It's a (literally) gritty, commidity-based industry plagued by unpredictable demand and sudden changes in business conditions, whipsawed by everything from interest rate hikes and labor unrest to weather and traffic conditions in Guadalajara. Probably not the kind of company that comes to mind when we speak of digital business.
Yet Cemex has revolutionized the cement industry -- and achieved nearly incredible rates of growth and profitability -- by using digital technologies to tame their worst problems. After studying how the FedEx shipping company, Houston 911's emergency response system, and Exxon's worldwide oil shipping network had tackled similar challenges, Cemex created a communications system called CEMEXNET. Every Cemex plant and delivery truck is now linked via satellite to a computer system that continually tracks customer demand and Cemex supplies of various grades of cement and concrete. Dispatchers at Cemex's Monterrey plant always know the location, direction, and speed of every delivery vehicle and can reroute shipments instantly as needed.
As a result, Cemex has reduced the industry-standard three-hour delivery window to twenty minutes. Is that a big deal? You bet it is. When you're the manager of a construction crew with three hundred workers standing around a big hole in the ground, waiting for the cement you need to start pouring a new foundation, every hour lost costs thousands of dollars. You'd be foolish not to do business with the digital pioneer in the cement industry.
So both Dell and Cemex are examples of digital businesses. What do they have in common? Both companies are certainly technologically savvy. Their brilliant business innovations wouldn't have been possible without electronic tools like Dell's Choiceboard and CEMEXNET.
But it would be wrong to focus on the technology alone, as if an infusion of computer gear is the cure for what ails any lagging business. The success enjoyed by Dell and Cemex comes, first, from their deep knowledge of customer needs; then, from their readiness to apply the new capabilities made possible by digital technologies to meeting those needs better, faster, more accurately, and more economically.
We've studied Dell, Cemex, and the other digital pioneers, as well as a number of companies that are moving rapidly to join the ranks of digital businesses. (Jack Welch's GE is one example.) We've found that going digital enables companies to:
Today, being a digital business offers a distinct competitive advantage -- often one that will allow a company to dominate its industry for the next several years. Tomorrow, it will be the price of admission to the game. The sooner you learn what it's all about, the better.
Posted April 12, 2005
The authors Slywotzky and Morrison are renowned for their inspiring bestseller 'Profit Zones' in which they elaborate on 22 different profit models for businesses. In this book on digital business design they explain how to design the 23rd profit model. Digital Business Design is the art of using digital technologies to expand a company's strategic options. It is not about technology for its own sake; it's about serving customers, creating unique value propositions, leveraging talent, radically improving productivity, and increasing profits. It's about using digital options to craft a business model that is not only superior, but also unique. Until recently, the probability that any organization would enjoy long-term success was determined by a single factor: the quality of its business design. Today, the multiplication of digital technologies has introduced a second crucial competitive factor: the degree of its relevant digitization. FOUR-QUADRANT 'MAP' Any organization can be mapped into a four-quadrant 'map' based on its level of digitization and its business design: * Low digitization, bad business design (Southwest quadrant - 'Weak Business Designs'). * High digitization, bad business design (Northwest quadrant - 'The Dotcoms'). * Low digitization, great business design (Southeast quadrant - 'Business Design Reinventors'). * High digitization, great business design (Northeast quadrant - 'Digital Business Design'). YOUR DIGITAL RATIO One important aspect of moving from a conventional to a Digital Business Design involves shifting many of your company's key activities from paper-based processes to digital (usually on-line) processes. To obtain at least a partial measure of how digital your business is, complete a simple exercise referred to as estimating your Digital Ratio. The authors suggest that you measure the following processes [0-100% digital]: selling, delivery, supply chain, customer service, billing, buying, recruiting, training, finance, R&D, manufacturing, and marketing. Moving towards 100% digital is not an end in itself. Any decision to move a particular activity toward the right, and how far, depends on your key business issues, what is required to improve your value proposition for your customers and employees, and the capital and process efficiencies of your business. On the surface, Digital Business Design indicates how many of your business processes are conducted on-line. At a deeper level, it tells whether you've transformed the way you do business by taking advantage of the new strategic options enabled by digital technologies. THE DIGITAL BUSINESS DESIGN BENEFITS SCALE Figuring your Digital Ratio is a useful exercise; for many companies, it will be a sobering one. But it only scratches the surface of what Digital Business Design really means. The experience of the digital innovators shows that Digital Business Design can fundamentally change the way you do business. It enables you to make a dramatic, positive shift toward implementing the benefits: 1. FROM GUESSING TO KNOWING. The basis of your business decision-making shifts from guessing to knowing. 2. FROM MISMATCH TO A PERFECT FIT. The value proposition you offer to your customers shifts from a mismatch (great or small) to a perfect fit. 3. FROM LAG TIME TO REAL TIME. Information flow within your company shifts from lag time to real time. 4. FROM SUPPLIER SERVICE TO CUSTOMER SELF-SERVICE. Your customer service model shifts from supplier service to customer self-service. 5. FROM LOW VALUE-ADDED WORK TO MAXIMUM TALENT LEVERAGE. The use of your employees' time shifts from predominantly low value-added work to maximum talent leverage. 6. FROM FIXING ERRORS TO PREVENTING ERRORS. Your processes shift from a focus on fixing errors to preventing them. 7. FROM 10% IMPROVEMENT TO 10X PRODUCTIVITY. Your productivity growth pattern shifts from a norm of 10 percent improvement to 10 times prWas this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.
Posted March 25, 2001
This is not a book about E-Commerce or how to develop an electronic business. It is not a book about the Internet or the latest technologies. This book is about a specific business approach ¿ Digital Business Design (DBD). As the author stated, ¿DBD is not about technology ¿ it¿s about serving customers, creating unique value propositions, leveraging talent, radically improving productivity, and increasing profits.¿ Through out the entire book, the author uses numerous real life and up-to-date examples to illustrate the concepts, deployment, strength, benefits and the marketing effects on DBD. Case studies included companies such as GE, IBM, Dell, Cisco System, Charles Schwab and a number of Dot-Coms (eBay, Yahoo!, etc). The author provided in-depth analysis of these companies on their ¿digital¿ business strategies and how DBD helps make these companies leaders in their industry. Most examples used in the book are recent and the latest statistics covers the period up to the first half of 2000. The author also uses an interactive and practical approach by using worksheets, checklists and questionnaires on sections where new concepts are being introduced. This approach encourages readers to actively participate in the discussion on DBD and helps readers to analyze their business based on DBD. Aside from the discussion on DBD, the book is factual. This book is suitable for all readers interested doing business in the digital age.Was this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.
Posted March 27, 2001
This book does a great job of clearly defining a Digital Business while providing case studies to help the reader understand the business models and strategic concepts. The authors help you to understand the importance of going digital as well as the importance of knowing why you need to go digital. Even though profit is the underlying reason for a company's existance, there must be a product or service needed by others. As the authors point out, it is good to try to be unique, offer something that no other company offers but customers will want. The book won't tell you what to use to turn you company into a Digital business but it will give you the basic tools to make your own evaluation. The audio version of the book is great for those who telecommute.Was this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.
Posted March 27, 2001
HOW DIGITAL IS YOUR BUSINESS, in its own way, explains the broader implications of the Information Age. The manipulation and transfer of knowledge is now the defining feature of success or failure in business and life. This genre of literature is a must read for today's manager, as well as anyone who wants to be aware of their surroundings in the world of business. HOW DIGITAL IS YOUR BUSINESS is a well-written guidebook in the genre for those interested in modern commercial success. It draws strength from arguments grounded in the basics of business theory. I would disagree, though, with the authors' contention that previous business movements were narrower footnotes in history than digital business is likely to be. On the contrary, they are invaluable precursors. The case studies chosen were well thought out and exemplified the broadly applicable benefits to what they call 'Digital Business Design.' One weakness is the one-sided support of some of the technology presented, without any discussion of shortcomings. An example would be on-line education¿ its actual successes aren't that well documented in the book, only the potential. Overall, I would recommend this book to any student of Electronic-Commerce and more importantly to anyone who doesn't think they need to be.Was this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.
Posted April 6, 2001
This title of this book is misleading to the detriment of the book's sales by understating the book's focus. The subject matter is really how to create new business models for outperforming competitors by taking advantage of the potential of computers and electronic communications. You can become more digital and not differentiate yourself in the eyes of customers, and that will be a losing strategy, as the authors make clear. In fact, almost all companies fall into that trap now. I found this to be by far the best book that the authors have written. The ideas are immediately applicable, the concepts are clear, and the writing is especially transparent. This book will be valuable to CEOs by making them more aware of how to redesign a business model, and to bring them up-to-date on the potential applications of information technology for this purpose. The book will be valuable to CIOs by making them aware of business model redesign as a discipline. Companies usually make computer investments because the old system can't be kept running any more, or because of some potential for incremental cost savings. By contrast with those approaches, the authors' concept of Digital Business Design is 'about using digital options to craft a business model that is not only superior, but unique.' So before you spend all that money to put in all kinds of new data processing capability, consider this book. It will be your best investment. But realize that the book is also not focused on technology, per se. So if you want to learn specifically about which digital technologies you should be applying, look elsewhere. The book is made practical by a four quadrant approach to help you diagnose the quality of your business model's design and how digital you are. Most companies will find themselves in the weak business design quadrant. The dot coms are highly digitalized, but usually have weak business models. Some innovative companies have great business models but are slow to put in computer technology. In a series of case histories, the authors make the case for having much more rapid revenue, profit, and stock price growth from using Digital Process Design. The examples include Dell versus Compaq, Cemex's computer-based dispatch of roving cement trucks in Mexico, Charles Schwab versus Merrill Lynch, Cisco Systems versus 3 Com et al, GE, IBM, AOL, eBay, and Yahoo! I enjoyed the way the authors posed the next set of business model challenges these companies face today. The benefits of this new approach include improvements in knowledge, better fitting with customers, operating in real time to get results faster, customers happily servingWas this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.