Friday, November 27, 2020

Innovating Business Models Upon Building Blocks

A strong business model is hard to copy because it focuses attention on how all the critical internal and external business elements of the system fit into a working whole to make it differentiated in the marketplace. 

A business model is a multi-level schema of how an organization creates, delivers, and captures value for stakeholders. A viable business model is analytical and quantitative, focusing attention on how all the elements of the business system fit into a working whole. 

To design a practical business model, business leaders should scrutinize further by asking: How do we get revenues now? What will we do in the future? How should we help the company win businesses? How to contribute to customer acquisition and retention? And what are building blocks for utilizing a strong business model to achieve profitability and build long term organizational advantage.

Value proposition: The goal of business model development is to create value. In a literal sense "what value does this investment provide the business," and how to improve ROI. To perceive the value of the business model and make an objective assessment of an investment, you need to have a very clear idea of the new product/service - its life cycle, the overall "value proposition," where it fits into the overall "product portfolio," the wider competitive landscape and your price/business model. In specific, value should be estimated or demonstrated through the rate of productivity increases, the rate of new product, service development, the rate of market share gains, the rate of customer approval and satisfaction gains, or the rate of sales gains, etc.

To design a successful business model, make efforts at the leadership and portfolio level to qualify and quantify value in terms of both strategic value and tactical value; direct revenue and indirect to craft high-level strategic intents. Businesses value is multi-faceted and it’s interesting to see how business value is in the eye of the beholder. Not all business value is directly related to ROI. Besides financial benefit such as economic value or shareholder value, there are other forms of value such as employee value, customer value, supplier value, channel partner value, alliance partner value, managerial value, and societal value, etc.

Key partners: To expedite business development cycle, those organizations that have innovative vendors or more mature alliances can have better chance to the success of business model reinvention, outperform their competitors and tend to be more responsive to changes. Vendor evaluation or sourcing can no longer just consider cost, it's also about evaluating vendor's innovation capability, leverage expertise, add alternative brainpower & talent pool, and build up a solid partner relationship for long term. The other angle to evaluate vendor and sourcing strategy is about investigating "hidden cost" or grey area, some reasonable, some not, and customers surely dislike to see such surprises too frequently.

The partnership management is both art and science. It entails effective communication, partnership, collaboration, governance, and value analytics, etc., all these need to be effective to have close alliance and strong relationship management. Methodologically, there is a need for formal communication paths of gaining approval and creating an atmosphere of transparency. It’s better to have a level of rapport to ensure formal communications are not misinterpreted and partnership is enforced, critical domain knowledge centric activities are encouraged and business innovation driven initiatives are managed effectively.

Key channels, customer relations: There are dozens of different components in the business model such as target customer, type of offering, and pricing approach, etc. To create a practical business model, both sales and products in the business are absolutely critical. Without a product, you have nothing to sell, and without sales, you have no revenue. The purpose of business is to create customers. The management needs to clarify: What are our distribution channels, sales channels. how do we add value for each service, and how to build long term relations, etc. The type of the business where the relationship might be a make or break situation is generally where you build a partner-relationship for mutual benefit.

Companies can explore the concept of a business model by addressing several core questions such as: Who is the target customer? What need is met for the customer? What offer will we provide to address that need? How does the customer gain access to that offering? What role will your business play in providing the offering through which channels? The relationship is part of what creates the exchange of goods or services for that profit with a positive experience or a negative experience. Strong business relationships can create a value proposition that would move your prospects to become your clients; more importantly, to improve customer retention.

Key activities: Business model development needs to be based on the core business competency of the organization for either providing value-added solutions to current customers or exploring the new customer need continually. The reality in most organizations though is the process which is forcibly jammed within an existing operation or lack of resources to experiment with something new. The management needs to ponder: what do we do in terms of value chain, processes, project management? Do we have a deep understanding of crucial business issues, and develop a business model to fix them, create value and make continuous improvement?

Traditional organizational management with siloed processes often causes bureaucracy. Making a spiral approach to do business model investigation and reinvention suggests a loosely structured and circular process that allows companies to connect with the various points of the spiral in different ways and at different times and take a set of activities to lead capability based business model implementation. More specifically, those activities involve but are not limited to, assessing business capability and capacity, implementing an end to end demand management process which takes care of new project validation, business case approval, project development, design, user training and rollout, user adoption and change management and benefits realization, etc. Establish a set of “What-if” scenarios showing the potential scale of business benefit to be driven from the portfolio based on different mixes of programs and projects.

Key resources: The organization has limited resources, time, and talent, they can’t chase all emerging opportunities or capture everything that looks shiny. One of the important aspects of business model reinvention is how to apply finite resources to get the best yield possible to meet stakeholders’ expectations. It’s critical to mind the resource and investment gap to enforce holistic resource management disciplines for unlocking the organizational performance, potential, and competency.

Resource allocation is most contentious at onset, while the time issue gets magnified at the end of the initiative. To accelerate business model development cycle, the resource management needs to be refined to the point that they are nimble, can adapt to changing business demands in a timely fashion, can be reapplied to altering business priorities and be effective with little down curve. The goal of resource management is to eliminate unnecessary complications, capitalize on management “know-how,” optimize processes to reduce the burden on the company while trying to stay current with ever-changing dynamic business environments.

Revenue streams: Business model is neither equal to strategy nor technology only, It is a description of the way in which an enterprise intends to leverage the emerging technologies or rising trends to make money and create revenue streams. At a conceptual level, a business model includes all aspects of a company’s approach to develop a profitable offering and deliver it to its target customers. Technically, there are mapping relationships between the business model and capability model, between capability model and process model. Creating new revenue streams and achieving profitability is a strategic aspect of business’s survival and thriving, especially for many struggling vertical sectors today.

When the organization experiments with the new business model that creates the revenue stream, the challenging part is that you must be careful of what cost optimization/restructuring/performance measures need to be considered while trying to model a particular business growth scenario. In practice, the emerging businesses usually lack hard data. It is difficult to measure the impact without taking the time to generate impacts. Attach believable dollar values to identified benefits flows, select a set of KPIs to measure business performance with tangible results.

Cost structure: Many organizations which get stuck at the low level of maturity have little insight into their cost structures and who is consuming the assets. They have no idea where they are spending their money on and often assume it is mainly being spent on items which are actually much lower on the list. To create and implement new business models, doing cost/benefits analysis and optimization of cost structure are important to improve business management effectiveness and efficiency. All spending must be looked at through an investment lens, providing a framework for thoughtful and informed investment decisions.

A real business model is an analytical model that lists all of the sources of value, cost, and risk, and contains formulas to interconnect them. Scrutinize cost, complexity, or footprint, improve the visibility of costs measured against the visibility of quantifiable benefit. Reuse and reduction of waste reduces cost and creates new revenue streams to catalyze top-line business growth. It’s important to have an cost optimized system that improves cost structure, fine tunes processes, removes wastes, and makes wise investments to reinvent the business.

A strong business model is hard to copy because it focuses attention on how all the critical internal and external business elements of the system fit into a working whole to make it differentiated in the marketplace. It’s about understanding how relationships, ecosystems, market dynamics, and the connections between business units are related, and take a holistic management approach to run a profitable business.


Post a Comment