Published: 29. 11. 2017 in Blog

Understand the digital economy

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Companies coming from the industrial business model have capital, clients, trust and many points of contact with clients, in either the physical or digital worlds. All of this should provide the basis for the digital transformation that uses the introduction of digital business models to defend companies against attacks by new agile competitor companies, and which should also ensure growth in the digital economy. And this should be initiated as soon as possible, despite the fear of change.

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The digital revolution has changed our lives, both private and business. We have grown so accustomed to some of the changes that we don’t notice them or think about how they change operations in the digital economy. For example, how we prepared and traveled in the past and how we travel today. We previously engaged a travel agency and entrusted them with choosing the optimal itinerary and airline for every flight and journey. Tickets, on costly forms, were delivered by couriers. Those who flew regularly bought the Official Aviation Guide (OAG), which was printed in paperback form, with fine print, and contained information about most airlines and their timetables. And that’s how they sought the optimal combination of flights if they didn’t want to entrust that to a travel agency. 

We waited patiently in line to get our boarding passes and negotiated with officials to secure a desirable seat next to the aisle. Today it is most common for us to assume that responsibility ourselves, instead of a travel agency official or staff at the check in desk, as though we are airline officials. We enter our data, choose our flights, prices and combinations in order for our journey to be optimised. We check-in for flights ourselves and choose our own seats on the plane.

And we do all of that with the single aim of receiving confirmation of our ticket that we have to print ourselves or a boarding card that we save on our smartphone or print out.

Companies reduce their costs because their operational activities are partially taken over by clients themselves. Self service and support from other clients, including in terms of evaluating and ranking products and services, have become the standard. The pay-off is the swift completion of desired activities, transactions or purchases. That’s why automation, robotics and artificial intelligence are used ever more often – from bots that use the location of users to lead them to the nearest retail outlet, cash machine or restaurant, to algorithms that approve your cash loans or allow overdraft facilities. Implementation is currently the most important part of the user experience and the motivation for users to personally take on part of operational activities.

Many products have become digital, so instead of buying a book you can very quickly download one via the internet in digital format and read it on your tablet or e-reader. The same goes for magazines, movies, videos and TV programs, operatic and theatrical performances.

The sales model has also changed, so that some things are offered with a monthly subscription instead of being on sale, while instead of buying other things customers pay for usage, and only pay for that which they actually use.

Yesterday’s partners are changing with the new digital ecosystem and the client is coming to the center of operations. Apart from in the travel sector, we have already accepted changes in the music industry, the TV and film industry, IT services and software, while a good example of changes that are yet to come is the news that Norway is preparing a law to only register vehicles with electric motors as of 2025. The growing popularity of electric cars, coupled with the growing number of charging stations for them and their better geographical coverage, heralds the arrival of major changes for owners of petrol stations, manufacturers of motor fuels and car-makers. The intense competition in the development of technologies for self-driving vehicles foretells even greater changes that are approaching beyond the horizon.

Companies emerging out of the industrial era must adapt, and in particular they must resist attacks by start-ups - new companies that are established in today’s digital era and utilise the new opportunities of the digital economy, while taking advantage of the slowness of existing companies. And they primarily do this by using information as a basic resource, with digital channels and the automation of business processes.

Alongside the aforementioned changes in the sales model, and with the new digital ecosystem creating entirely new business models that are seriously taking over part of the clientele in many industries, this process is also accelerating because there are increasingly more innovative new companies. An additional reason is that barriers to entering business have been reduced substantially, while operating costs have been reduced as a result of automation, making it much easier to launch a business today than it was around 30 years ago. The problem for new companies is that they don’t have clients or trust, nor do they have equity, revenue and profit. That’s why they rely on equity investors, and their services are usually free because the hunt for customers is very important for them.

Companies coming from the industrial business model have capital, clients, trust and many points of contact with clients, in either the physical or digital worlds. All of this should provide the basis for the digital transformation that uses the introduction of digital business models to defend companies against attacks by new agile competitor companies, and which should also ensure growth in the digital economy. And this should be initiated as soon as possible, despite the fear of change.

Branislav Vujovic

Branislav Vujovic

President New Frontier Group
Strive to become better

Branislav Vujovic is founder and also president of New Frontier Group and has overall responsibility for the New Frontier Group, with special focus on Innovation, M&A strategy, group strategy and investor relationship.

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