As they develop digital initiatives, companies should aim to create and track three types of value, according to a new research briefing from the MIT Center for Information Systems Research: value from operations, value from customers, and value from ecosystems.
The briefing by researchers Ina Sebastian, Peter Weill, and Stephanie Woerner was based on in-depth interviews with 23 executives from companies around the world and an exploratory statistical analysis using data from a global survey of 1,311 executives. The three types of value collectively explained 39% of the companies’ revenue growth and 24% of their net profit margins compared to other companies in their industries.
Value from customers had the strongest relative impact on firm performance, with an increase of 5.9 percentage points in revenue growth and 4.5 percentage points in profitability creating a 10 percentage point increase in value. This was followed by value from ecosystems and then value from operations.
Here’s a closer look at the three types of value, which are often interdependent.
Value from operations
Creating new value from operations is the foundation of digital business, the researchers found. Companies can benefit from digitizing business operations through reduced costs and increased efficiency and speed. Examples of how to do this include developing modular components, automating processes, and becoming more agile. The surveyed companies were about 54% were effective in creating value from operations.
Value from customers
Companies working on digital innovation can create increased revenue from customers through cross-selling — selling different things to an existing customer — and new offerings. Companies also benefit from increased “customer stickiness” as customers keep coming back — digital initiatives allow firms to expand their knowledge about customers and offer them more choices. Companies were about 40% effective, on average, at creating value from customers.
Value from ecosystems
Creating value from ecosystems is new for most large, traditional companies, the researchers wrote. A digital ecosystem is created when a company partners with others to provide customers a single go-to destination, often covering a domain. Important drivers include digital connections and access to ecosystem data, and companies are about 30% effective, on average, at creating value from ecosystems.
The researchers found that value creation is often synergistic. For example, partnering with other companies in a digital ecosystem leads to new value from customers and operations.
For example, health care provider Kaiser Permanente is building a health and wellness ecosystem with partners such as Samsung to offer new, innovative options, like a virtual program that guides patient rehabilitation after a heart attack.
As a result, Kaiser Permanente created new value from customers through increased engagement, which lead to healthier and more loyal members. More than 80% of patients using the new program completed rehab, compared to 50% of patients using clinics.
The company also saw value from operations, with greater efficiency in health care delivery and reduced administrative and clinical costs because of factors like fewer hospital readmissions.
Kaiser Permanente will see more value in the long term as it becomes its members’ go-to destination, through partnering for things like digital coaching and telehealth. The company is building this ecosystem selectively and gradually, the researchers wrote, so it can scale its options in clinical settings.