As part of a successful strategy, the value of a company should be increased in a targeted manner through the creation of a sustainable competitive advantage. The business model plays an essential role in this regard. The strategic alignment of the business model with customer requirements and satisfaction requires the model to chart the associated value chain in its macroeconomic environment. However, the sustainability and profitability of a business model is always limited in time, since progress and innovation not only promote competition, but also have the power to make whole business models obsolete.
The theme of digitalisation has long exerted a clear influence through various trends and technologies in the private (social media, smart home, mobile internet, etc.) and business environments (3D printing, advanced robotics, machine learning, etc.) The intelligent, global networking of market participants associated with digital change – i.e. people, things and machines – gives rise to an explosive mixture with the potential to significantly alter or even break up existing structures. The associated digital transformation makes use of technological advances to develop novel value chains and business models. In the sense of Schumpeter’s “creative destruction”, this leads to the above-mentioned disruption of established structures of value chains and business models. Examples of such digital disruption are:
Figure 1: Examples of disruptive business models
The examples illustrate clearly how modern technologies can exploit unused resources and, along with their corresponding customer benefits, be transformed into new digital business models. Examples for the market entry of such dynamic, digitally-oriented market participants can be found in almost all industries. As a result, the pressure is increasing on brick-and-mortar “top dogs” to find their own answers to the challenges of digital change.
In addition to the influence of key trends such as digitalisation, there are other areas of influence that result in disruption and thus in a need for the adaptation of existing business models or the development of new ones. Figure 2 provides an overview:
Figure 2: Typical areas of influence leading to the development of new / disruptive business models
If the “pressure” of these areas of influence is intense enough, the opportunity for new, disruptive business models arises. Using a tried-and-tested, systematic methodology, it is possible not only to determine the potential of a new business model, but also how it must be designed and developed in order to ensure sustainable success. Figure 3 provides an overview of the key steps for the design of a (disruptive) business model:
Figure 3: Overview of essential steps in the development of a (disruptive) business model
The 8-step approach to business model development first defines the relevant customers (segments) and the solutions/services offered (steps 1-4), then specifies the requirements for success and implementation.
CUSTOMERS (SEGMENTS) & SOLUTIONS:
- 1) CUSTOMERS (SEGMENTS): A clear, distinct selection of the most attractive target customers (segments) provides the initial basis. It’s vital to analyse whether and to what extent the proposed customer segments actually exist and to check how attractive they really are. Only when it is clear to whom the solution/service will be later offered can targeted development take place.
- 2) PROBLEMS: Once the customers (segments) have been specified, an analysis and verification of the existing “problems” of customer target groups should be carried out. Appropriate solutions and services can then be developed and made available within the framework of the business model. This is a vitally important step in the process, since unfortunately, presumed “solutions” often have little or nothing to do with actual customer requirements (it can be the case that what brings about “personal fulfilment” for talented product developers completely passes the needs of the market and customers by). As such, the systematic review of problems in terms of actual customer needs is crucial. It is also necessary to examine the extent to which the specified customers (segments) have an actual willingness to pay for the identified problems and needs.
- 3) SOLUTIONS / SERVICES: The third step is to develop appropriate solutions and services on the basis of problems from the previous step (i.e., those that have been identified and also verified in regards to customer’s willingness to pay). It is important that solutions are both relevant and profitable.
- 4) CHANNELS: The third step is to determine via which distribution channels the solution/service will be distributed to the customers (segments) defined in the initial step.
REQUIREMENTS & EXECUTION:
- 5) REVENUE MODEL: Within the framework of the revenue model, the significant sales flows per customer segment are defined and transferred into a conditions model.
- 6) KEY ACTIVITIES: After the essential aspects of the business model have been developed in the manner of a “skeleton” in the previous steps, the most important (i.e. differentiating) activities for rapid implementation and successful operation must be determined.
- 7) KEY RESOURCES: In accordance with key activities and other properties of the business model, the essential resources for successful operation of the model must be specified.
- 8) PARTNERS: The final step is the selection of relevant partners for sustainable business success. This includes potential partners along the entire value chain of the newly developed business model, provided that they can make a significant contribution to success.
If the business model has been defined according to the above methodology, financial validation is carried out as part of a complete business plan. The business model then moves into the systematic implementation phase. At this stage, it is worth creating adequate distance between the new business model and the existing business by means of a “new venture strategy”. Experience from our own start-ups and from projects with clients has shown that a new business model can only be developed successfully where sufficient breathing space exists and where it is not “stifled” by too much “administration” at the outset.
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Markus Fost, MBA, is an expert in e-commerce, online business models and digital transformation, with broad experience in the fields of strategy, organisation, corporate finance and operational restructuring.Learn more