Web3 Digital Transformation

Feb 3, 2023

Over the last decade, the concept of “Digital Transformation” has impacted every industry on the planet. My personal mental model was shaped by the work of George Westerman, Didier Bonnet, and Andrew McAfee in the book “Leading Digital: Turning Technology into Business Transformation”. On a very high level, Digital Transformation revolves around turning your company into a digital powerhouse where technology informs a substantial part of your business model. In the last edition of this newsletter, we framed the issue using Marc Andreessen’s famous “software eats world” thesis. 

After reading that book, I always ask clients about their vision for disrupting themselves and which role technology plays in their products and services. I have learned there are three main levers that businesses use to enact digital transformation: 

  • Transform your organization and processes: Develop a digital DNA at the core of your company by automating as much as economically possible and digestible by your organization. Establish a digital workplace and lead with a participatory culture to engage your people. 

  • Transform the perception of your company by improving customer experience: Think “customer first” and establish a customer-centric attitude for the whole team, from the executive management to facility management. Customers want to feel welcome and like they matter.

  • Transform your business model: Constantly think about how to disrupt your business model. Find out how someone could take over your business model like AirBnB did with the hotel business or Uber with transportation. Ask yourself where digital services or products would bring value to your customers. From connecting your physical products to the internet of things to subscription models in your services to your choice of platform, everything should be open to experimentation.

Leverage points for digital transformation

If you look around, you will find many of the major players in your industry have already adopted aspects of digital transformation.

And I am not only talking about the obvious industries with some proximity to technology. In fact, some of the best examples are from industries that are not typically associated with “tech.” Did you know that Nike knows which music is played where, at what time, and how long runs last? Imagine what value you could provide with such insight about your customers. 

Starbucks is another example of a company that became a digital powerhouse. The company managed to leverage its digital capabilities to accelerate growth in its Starbucks Rewards membership program — meaning they used technology as a tool to engage and keep customers in the loop. Going further, the company started to apply creative and thoughtful ways to use data so that even non-rewards customers will benefit from being better served. Starbucks isn’t a coffee company; it’s a tech company that serves coffee. 

Fire Plus Algebra @FireAlgebra"What it does exceptionally well is trial all sorts of new ideas using data and technology, then use more data to figure out which ones to take forward." Starbucks isn't a coffee company, it's a data tech business – Was Rahman for @MRKR: buff.ly/2ueuyXq1:43 PM ∙ Jan 23, 2020

Web3-Enabled Tokenomics Is the Next Stage of Digital Transformation

Web3 is basically a vision of a newer, better internet. While web2 relied on trusted intermediaries, web3 is built upon blockchain technology and brings with it new values of decentralization, transparency, permanence, open-source code, and ownership. Bankless Consulting is beginning to write extensively on this issue.

Bankless Consulting 🏴 @banklessconsult🚨 Business + web3 = Next economic revolution This week @0xSiddhearta takes a look at the #Web3 building blocks businesses can use to transform their industry. 👉 What is web3? 👉 Core building blocks 👉 Real world impact 👉 Ready to build banklessconsulting.substack.com/p/building-a-w…banklessconsulting.substack.comBuilding a Web3 Business | Bankless ConsultingDelivering Trusted Web3 Business Strategies Straight to Your Inbox5:12 PM ∙ Dec 2, 202216Likes11Retweets

Web3 tools and technology will also drive digital transformation. The next level of digitizing your business would enable you to create and control incentive mechanisms for the participants of your ecosystem - a concept known as token economics, or tokenomics. 

The secret ingredient in a web3 digital transformation is not the tech or that one can buy an overpriced jpeg as an NFT; it is the possibility of transforming your ecosystem by leveraging token economics.

The ecosystem of a company usually consists of its customers, partners, staff, and shareholders. With web3 concepts you would be able to design and control the incentive mechanism of these stakeholders by building a tokenized economy around them. Tokenization creates a strong gravitational force with the values you provide, which pulls customers, employees, partners, and investors into your business model.

Web3 and the Customer Experience

Gartner defines customer experience as the customer’s perceptions and related feelings caused by the one-off and cumulative effect of interactions with a supplier’s employees, systems, channels, or products.

A well-designed customer experience pulls clients into your ecosystem and makes them stay there. A sustainable company needs customers who recommend the services of the business and engage with products and services. The level of satisfaction also indicates the intensity of engagement.

Imagine a loyalty program where your customers are incentivized for usage and feedback about the quality of your products and services. That feedback can expand beyond the typical feedback button in the my.company.com portal. Here, I am talking about the system's inherent feedback mechanisms.

With web3, the incentive comes in the form of tokens, which users can spend at various places in your ecosystem. Furthermore, you could distinguish engaged customers from your customer base with an NFT they hold, and create special offers or services just to please these select groups. Or you could create gated communities for select customers based upon their blockchain holdings.

More mature ecosystems allow you to build an economy where the customers could use those tokens for other products and services from partners in your ecosystem. It is even possible to imagine trading these tokens on secondary markets in exchange for value.

Boosting Business Ecosystems With Digital Economies

Venkat Venkatraman illustrates the importance of a strong ecosystem and the positioning at the various stages of a digital transformation journey in his book “The Digital Matrix: New Rules for Business Transformation Through Technology”. Venkatraman explains that an understanding of ecosystems and whether to participate or position yourself to orchestrate within them is very important, because it allows you to know where to apply your energy and how to make the most of your resources across relevant ecosystems. 

Venkatraman introduces “coopetition” as a strategy - the idea of combining various elements from competition and cooperation to create a fruitful relationship: 

“Pure competition is about dividing up the existing value pie; companies use their set of capabilities to win a greater share of the value. Cooperation is about enlarging and expanding the value pie by pooling the capabilities of several companies for the short term and also for the longer term. In contrast, coopetition is about both expanding the pie and ensuring that you get a fair share of the value.”

Another useful explanation can be found by Greg Sarafin at EY. Greg states that “Participants in business ecosystems create more value collectively than they could create individually.” So nurturing the ecosystems will create prosperity across the ecosystem and the foundation for providing sustainable customer value. 

It is becoming more and more important to have a solid understanding of business ecosystems if you want to stay ahead of the rate of change. A well designed ecosystem allows members to generate more value together than they might individually.

Businesses that fail to adopt robust ecosystems run the danger of becoming obsolete.

By applying web3 technology to the above example, we can see a world where clients might use ecosystem tokens to pay for other goods and services from various partners. This would drive customer experience for the whole ecosystem and its participating members.

The relationship with your partners could also benefit from this modern digital economy. Discounts, referrals, fees, and incentives could be measurably bound, cementing the partnership even deeper. You would also be able to create gated communities with special partners who have provided value and thus “earned” an NFT to prove it.

Engaging Your Employees With Tokens

Employee engagement is a huge factor in a company’s success. Depending on your industry, you might already be facing a talent shortage. You want people in your company who own their roles and overdeliver. This topic is covered by “New Work” concepts and finds its manifestation usually in “modern workplace” programs.

Stock options are an established instrument to engage your people financially over the long term. With a token economy, you could incentivize your staff on a finer-grained level than with stocks.

Take incentive design to the next level by borrowing from gamification and game theory by leveraging “experience point” systems. A study from 2017 in the journal “Computers in Human Behavior” examined the motivational impacts of gamification and concluded that various game design components can result in correlated motivational effects. The impact of various combinations of game design features were investigated using a framework from self-determination theory. Badges, leaderboards, and performance graphs had an impact on competence and autonomy in terms of task significance. A meaningful plot, teammates, and avatars all had a favorable impact on social relatedness.

And if you are a believer in modern leadership approaches like agile organizations or are even leaning towards holocracy, you could arm your staff with governance tokens to use in decision-making processes. This approach borrows from decentralized autonomous organizations (DAOs) where governance tokens are the established mechanism for decision making via voting processes.

Projecting this into the ecosystem scenario above, one can easily understand why earned tokens are accepted in retail situations where they can be treated as loyalty points or even be used for payments.

Transform Investors Into Supportive Participants

Investors in your company are convinced the value of your company will grow in the future, thus making it a profitable investment. The jurisdiction of the company and the quantity of stock investors own determines the level of control for the investors. In some cases and early stages, investors can use their networks and experience to help guide the company, but in general investors are not not considered to be active participants in the company.

Involving investors in your web3 economy might change that. With the ecosystem token example above, all investors holding the token would participate directly in the growth of the entire ecosystem.

In scenarios with governance tokens that influence decision making, investors could even inject personal or network knowledge to guide decisions. This could aid certain aspects of maturity in product development or organizational processes.

Additionally, this opportunity of influence might attract more or even better investors who support the journey of your company with capital, network traction, and knowledge.

Using mechanisms of decentralized finance (DeFi), investors could even use or create pools on decentralized exchanges, like Uniswap, to exchange tokens for other digital currencies or use decentralized lending platforms to borrow against their positions and have liquidity immediately while keeping the investment alive simultaneously.

Illustration of a token swap pool in Uniswap

It’s Just the Beginning of Digital Transformation

The previous section introduced how the different stakeholders, involved in the areas of digital transformation, could provide value to the ecosystem and receive tokens in proportion to their value added. The below image illustrates the intertwinement of stakeholders in a token economy. Here, every stakeholder would be able to clearly answer the question “what’s in it for me?” and would receive immediate incentives for participation. This amplifies the gravity of the system and attracts more participants, resulting in a circle of sustainable growth.

Intertwinement of the ecosystem stakeholders via token economy

Whereas most digital agendas focus solely on the company itself, the attention to transform the ecosystem with web3 primitives could create new opportunities by generating a strong pull on capital, partners, talent, and resources. Token economies are a natural next step in the transformation process for companies.

Digital transformation will be an ongoing responsibility for executives. According to statista, the spending on digital transformation will almost double by 2026, and blockchain-related technologies are among the top ten topics to shape trends for the next decade. Decision makers should mark web3 and token economies on the digital agenda to be well prepared for the next evolution of the internet.    

0xMarcus is a Web3 Strategy & Tokenomics consultant at Bankless Consulting, focusing on transforming business models and strategies to web3. He has broad expertise with over 30 years experience in major industries like banking & finance, retail, manufacturing, and utilities. With roots in enterprise software architecture and a degree in information systems he gained profound knowledge of decentralized software systems. Follow him on Twitter, Lens, and LinkedIn.