A business model is a representation of the way a company generates revenue and profits by creating and delivering value to its customers. It outlines the products or services the business offers, the target customer segments it serves, the channels through which it reaches customers, the resources and activities required to produce and deliver its offerings, and the sources of revenue and profits. The purpose of a business model is to provide a framework for a company to achieve its strategic and financial goals and to ensure that its operations are sustainable and scalable over time.
In essence at a high level it defines the following things:
- What the business does: the service, product or offer it provides to its customers
- How it does it do the thing that provides value
- The value proposition for both the company and its customers
- Current organisational priorities and direction
- Revenue streams
- Strategic partners
- target market
- cost structure
- Plans for the future, growth strategies.
- organisational elements
Transforming an existing business model is more than a few technology initiatives strung together, it's a systemic rethinking of how a business functions. A digital transformation of an organisation can sometimes require a significant business model update, a shift in any of the aspects of a business mode, how you reach your customers, how you generate revenue, who your strategic partners are, any and all facets could require a drastic digital overhaul.
Depending on the unique qualities of an organisations business model along with their level of digital maturity, the organisation may need a drastic digital overhaul, or it may require some digital enhancement of what is already there, most likely something in between. A digital enhancement is either adding a digital channel to the existing business model or augmenting an existing channel with further digital capabilities.
A digital enhancement to an existing business model has the lowest barriers of entry, this is because it is adding capabilities rather than transforming existing ones, digital enhancement are also relatively quick to market. Digitally enhancing a business model could be as simple as partnering with and existing digital entity to augment your services, for example a restaurant could partner with a digital delivers service allowing it to leverage a service such as UberEats.
Another facet of digital transforming a business model are information-based services extensions, these are services which which enhance existing products or service, for example; adding sensors to a product line to provide it's customers with up to date metrics and data, web and mobile apps to provide customers with data, services, and analytics. Creating communication channels for better, quicker and contextually aware support. The barriers of entry are higher because it requires organisations to rethink their core competencies and adjust for a digital age.
Information-based service extensions is adding a service and support as a product line, this added service could be seen as a loss leader, could be priced into existing revenue streams, can be offered as an upsell depending on what the market is doing and how much direct value to customers it can provide, or the data collected could be resold to a third party. Leveraging information based services to collect important data about a product or services lifecycle and usage, then to use that data to provide a insights or service to the customer, this data could also be potentially sold to a third party.
A third element supporting business model transformation and the one with the highest barriers to entry but at the same time the greatest potential to impact revenue in a positive way is Multisided platforms or MSPs for short. MSPs have already disrupted a range of industries, from taxi services, to food delivery, to lodgings. MSPs are neither the seller nor the buyer, they are the middleman.
Multisided platforms (MSPs) are digital marketplaces, the provide a place for buyers and sellers to connect. The most challenging barrier to MSPs is a chicken and egg problem, MSPs will not attract customers without suppliers, and suppliers will not bother with an MSP who does not have customers, this is why first mover advantage in this space is essential for success. A potential strategy could be to partner with an existing MSP first, and to reassess entering the space once an organisation has established a significant following as well as a trusted reputation.
The digital age has opened up many opportunities for small startups to thrive and succeed in the global marketplace. With access to cloud services providing small businesses access to scalable, affordable, and robust technology infrastructure, eliminating the need for large upfront investments in hardware and software; and the ability to reach a global audience through the internet. The digital age has levelled the playing field in many ways between small startups and larger companies. Small start ups which find it easier to move in an agile mindset can directly compete with larger well established companies that may struggle with legacy systems and slow adoption of new technologies. By leveraging these technologies, small businesses can increase their reach, expand their customer base, and ultimately, achieve their goals and ambitions.
A modern approach to business model design should include
- How the organisation will approach digital business: digital first rather than digital afterthought.
- Continuous digital adaption: Digital innovation is a operational necessity, as technology changes, business need to keep up or risk loosing their competitive advantage.
- Leveraging technology to be the first mover in a new digital space, providing an existing product or service in a new way or leveraging an altogether new digital space that previously did not exist.
There are five archetypes of digital business model transformation.
| Archetype | Description | Example |
|---|---|---|
| Reinvent the industry | An organization develops a business model that reshapes an entire industry | Airbnb’s digital business model that uses digital resources changed the short-term lodging industry |
| Substitute products and services | An organization changes how they supply products by substituting or replacing physical formats with digital formats | Netflix moved from shipping physical DVDs on-demand to digital downloads and streaming |
| Create new digital businesses | An organization launches a new product, service, or business line to meet customer needs and wants | Security as a service companies have filled an ever demanding need from companies to protect agaisnt DOS attacks |
| Reconfigure value delivery | An organization connects products, services, and information to deliver value in a new way | Auto manufacturers offer built-in roadside assistance, connecting cars to support centers using digital technology |
| Rethink value propositions | An organization uses knowledge of the customer and their pain points to add flexibility and new features to a product | Smartphones have become indispensable tools because they replace physical items like calculators and cameras and enable people to share and connect |
As technology evolves, business model will have to adapt and change or risk falling behind into obscurity.
