Do You Need a Business Model Transformation?
In this blog series we explore various aspects of business transformation to open up the discussion on how those engaging in business transformations—business leaders and…
In this blog series we explore various aspects of business transformation to open up the discussion on how those engaging in business transformations—business leaders and…
In this blog series we explore various aspects of business transformation to open up the discussion on how those engaging in business transformations—business leaders and consultants—can succeed in their endeavours.
Read the earlier posts in this series:
Over the next few posts we will explore:
Business model: “All it really meant was how you planned to make money.” Michael Lewis in The New, New Thing
Yes. Your business model is about your plan for making a profit.
Or to put it in more magnanimous, PR terms, your business model is about how you plan to create and capture sustainable value through the business.
A business model identifies the products or services a business plans to sell, defines a clear target market as well as the costs and investments you anticipate.
Business models are not a new-fangled idea for startups and newbies. They are equally important for both new businesses and established ones alike. Although many established, even very old organisations were founded long before business models became a topic of conversation, they survived because they had sturdy business models that helped them weather the time.
However, once again, it's time to talk about business models because the world is changing.
New technologies and new forms of value creation—innovative capitals—are now available to us. Modern consumers are changing and adapting to global trends and their aspirations, wishes and needs are changing accordingly. In the world post COVID-19, more and more consumers are demanding more of businesses than ever before.
That is what has given way to another trend: Consumer driven business transformation.
At the same time, new, more nimble startups are disrupting practically all industries across the globe.
How UK CEOs are driving growth
In recognising these market realities, CEOs of established organisations are seeking to drive growth along multiple avenues. According to PwC, UK CEOs are more aggressively pursuing organic growth (84%), new products and services (59%), pursuing new mergers and acquisitions (39%) and planning to enter new markets (34%); way more aggressively than their global counterparts.
This is the time all CEOs, of big and small organisations, old companies and new must ask themselves a few questions:
• Does our business model still hold?
• Is our business model in trouble?
• Do we need a business model transformation?
“Having the ability to be brutally honest with yourself is the greatest challenge you face when creating a business model,” says Mark Cuban, the American billionaire entrepreneur and television personality you know from Shark Tank.
“Too often we oversell ourselves on the quality of the idea, service, or product. We don't provide an honest assessment of how we fit in the market, why customers will buy from us, and at what price.”
Cuban was talking to founders of new firms. But this type of brutal honesty is even more difficult for established firms that have a status quo to maintain and laurels to stand on from past achievements.
That is why, of all the types of business transformation we have discussed in this series so far, business model transformation is undoubtedly the most difficult to envisage and execute.
It is far easier to argue “If it ain't broke, don't fix it.”
However, in this fast paced world of ours, this is bad advice in more ways than one.
Business model transformations are complex.
Compared to other business transformations, they are the most disruptive.
This is because more than any other type of transformation, it aims at changing the heart of a business, by changing the way it creates and captures value.
Look at your current business model
Your business may be operating under the traditional business models of franchise, distribution, manufacturing or retailer business models. While many newer business models were introduced to the world by startups, there is no reason why established companies with traditional business models can't extend their businesses and incorporate new models such as these:
What business model transformation entails
By changing the business model, or even creating a new complementary business model may help you reach a new target market, change your value proposition and cost structure, and sharpen your relative competitive advantage vis a viz your competitors.
This may result in changing your revenue model, deliver new revenue streams, change your profit margins, your cost structure, the resource needs and your key performance metrics.
The features of your new business model redefine everything including the following:
This diagram from Reinventing Your Business Model, an HBR article demonstrates the complexity of a business model transformation.
The complexity and the uncertainty of a business model transformation comes from the fact that the way these elements interact can change with time and as your business matures. It may not always be easy to envisage what each element looks like after a business transformation. That is part of the risk of business model transformation.
The scale of business model transformation can also increase your level of risk.
To change or not to change?
There are also other questions you must find answers for, either as a CEO, Board member, top executive, or even business consultant:
The authors of the HBR article sum up your dilemma: “One secret to maintaining a thriving business is recognizing when it needs a fundamental change.”
To change or not to change? “That is the question”, isn’t it?
Share your thoughts
Over the next weeks, we will continue the discussion on what leads to success in business transformations and what conditions are necessary.
We invite you to share your thoughts in the comments.
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