Decoding Digital

How to Rethink Business Models to Drive Value and Innovation with David Sovie & Vik Viniak

By Ideas @ AppDirect / August 31, 2021

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Their work at Accenture involves providing consulting and professional services to companies that want to change their business models and grow. Both David and Vik have played an integral part in helping companies around the world develop digital transformation strategies and put them into action.

Based in Chicago, Vik leads Accenture’s electronics and high-tech industry practices in North America. He focuses on using analytics and AI to drive business transformation. David is based in Japan, where he works as Accenture’s global high-tech industry leader. He helps to drive high-tech industry growth, thought leadership, client portfolios, and market positioning. Back in 2019, he released a book on the subject called ‘Reinventing the Product: How to Transform Your Business and Create Value in the Digital Age.’

In this Decoding Digital episode, Vik and David discuss why digital business models are so critical for success and how companies can start rethinking their own products and services for future growth.

What businesses can learn from software companies about digital transformation

As customer behavior and technology change the landscape of commerce, product-only businesses are looking at different ways to innovate.

One thing many of them are doing is asking: “can I and should I transition to more of a service model?” Not only is it now possible with modern technology, but the service-based model has plenty of advantages. It results in higher valuations, with more durable revenue streams.

David highlights how some of the big tech giants have pivoted their model with great success.

“Apple still makes most of its revenue from selling hardware. But if you look, now, they have a $50 billion-plus services business. They've taken that platform, and now you have Apple Music, Apple Cloud, Apple TV. And so, you see a lot of hardware companies trying to emulate that.” (David Sovie)

However, like with any big business change, it needs thorough planning. It needs to be board and CEO-sponsored, and the transformation needs a holistic plan for how it impacts every single process in the company.

“This is not a small little tweak to your business. It is a fundamental transformation of your business model, and it needs to be board and CEO-sponsored. And you need to think holistically because it impacts every single process. It impacts how you develop products, how you market them, how you sell them, how you service them.” (David Sovie)

The three ways businesses must pivot for successful transformation

Transforming your entire business model is no simple undertaking. Vik’s advice is to look at three main areas.

1. Think about the agile principle

    This is something that the software industry has found success in. Vik believes you need to make sure you’re doing agile development because product companies typically have a more engineering focus.

    2. Cultural transformation

      Beyond the logistics, what needs to happen is a big cultural transformation within a company. To go from selling a product to selling a subscription requires a huge transformation - not just from the company but also in customer expectations. It’s all about changing mindsets and showing people the value that this pivot will bring.

      3. Dual dynamic

        The third thing that Vik mentions is that this is a dual dynamic. To provide true value for customers, you need to see what they value and work backward. You need to stay close to your customers and make sure you’re constantly innovating and creating features that the customer is really looking for.

        How businesses can bundle products in the recurring business model

        According to Vik, there are two ways to look at this. The first thing to realize is that you already have a customer base where you’re selling products. There will be some early adopters in that customer base who want to be on the front end of whatever innovation you bring.

        The second thing is to look at is your product and where the industry is heading. Perhaps you can move into an adjacent industry because if you don’t, someone else will. It’s all about being adaptable.

        How a business can start from an organizational perspective

        Transformation fatigue is a big problem when every step feels like a huge transformation. For that reason, Vik recommends the agile approach that software companies use. Testing a few products in this new model is the first step, and then scaling from there is the next.

        From a cultural perspective, you need to think like a start-up while making sure that you’re still a large organization. That’s because you need that innovation, but you should also work with your strong customer base rather than finding a new one.

        “So to actually adopt and say, “I now need to actually have the mentality of a services company” to say “the product is just a way to create a footprint.” The facilitated ongoing services relationship is a dramatic cultural shift.” (David Sovie)

        Another thing you need to do is decide whether this shift will affect the service and business in a fast way or whether it’s going to be slow and gradual.

        The key characteristics of a successful leader

        It all starts with the recognition that this is not just a business model transformation but a cultural one as well. For product-based businesses, the way of conducting business meant that the company wouldn’t usually have an ongoing relationship with the customer.

        With a service or subscription model, this all changes. You need to forge a relationship with customers that’s a huge shift in the way you do business.

        Is it better to transition quickly or gradually?

        Making big changes in your organization takes time. As consultants, Accenture likes to help guide the company throughout the process to help them make the best decisions possible.

        There needs to be a consensus on how fast the company wants to progress, but patience is essential.

        “Once you're on this journey, you're all in, and you have to stay patient, and you have to stay persistent on the journey. You can't just turn around in six months and say these things are not happening fast enough because to turn around a ship. It takes time.” (Vik Viniak)

        The challenges of shifting to a service model

        Those businesses that were built with a product-only business in mind were not built for these massive technological shifts. They may have the technology, but it’s not a particularly efficient ecosystem to apply to this new business model. There’s rarely a way to track entitlements or to use ongoing customer monitoring.

        Once businesses realize this, they typically opt for a new end-to-end business process and technology architecture review. What happens next is they come up with a completely new technology stack that supports both the old and the new business models.

        Accenture works with several clients to plot out that new technology architecture to make the change as efficiently as possible.

        The future of competition and cooperation for businesses

        In the modern world, it seems that companies, big or small, can more easily collaborate and partner together. Previously, companies would simply compete with each other all the time.

        Vik’s take is that “you’ve got to build your ecosystem and you’ve got to pick the right partners. And then you’ve got to go all in, whether it's to build the product, whether it's to scale, or whether it's to drive growth in the market.”

        This is something we see in the software world. Microsoft provides software to Dell and HP. Yet, in some ways, they all compete with each other. However, this cooperation benefits everyone because these companies are constantly innovating and performing strongly anyway.

        That’s why Vik believes the key to cooperating and not missing out is constant innovation.

        To learn more about how businesses can adopt a more service-based business model, listen to Vik and David’s full discussion with Daniel Saks on the Decoding Digital podcast.

        Check out the Decoding Digital podcast series for more insights from inspirational thought leaders and digital innovators. You can listen to the podcast on your favorite podcast app, including Apple Podcasts and Spotify.