Business Modelling
Business Modelling
"The future interests me more than the past, because that's where I intend to live."
Albert Einstein
Business Model Innovations
Business model innovations are a particularly effective and sustainable means of making companies fit for the future - and make companies more profitable in the short and medium term. Studies show that the positive effect of business model innovations on the operating result is many times greater than that of product and process innovations after just three years.
We show why business model innovations are indispensable for successful companies and how your company can benefit from continuously adapting its business model.
The World is flat.
Business model innovation - the key to success in highly competitive markets
The world is flat was the title of a 2006 world bestseller by Thomas Friedman. What the New York Times columnist and renowned globalization expert described with his catchy title is the reality of a global market that is open to more and more companies from more and more countries and in which old certainties no longer exist.
Increasing competition through globalization
For domestic companies, the consequences are far-reaching. The global market not only offers them new opportunities, but also confronts them with previously unknown risks. Because the future competitor of the German medium-sized company most likely no longer speaks Swabian and comes from the neighboring town, but is working somewhere in China or Korea on a product that could soon revolutionize the market and shake the business model of the domestic company overnight.
Business models have life cycles.
Even the most successful business models have life cycles - and these are becoming shorter and shorter in the globalized world. Because not only do more companies have access to the world market than ever before. There's also more research and development going on than ever before, and the Internet is making innovative ideas spread at breakneck speed. Those who are successful today will only remain so if they also have a better business model than their competitors tomorrow.
Medium-sized companies particularly challenged
German companies, especially medium-sized companies, are particularly challenged here. Because they are considered to be particularly innovative worldwide and are often market leaders in their very special niche. But what is a compliment for the strength of the domestic economy and its many "hidden champions" should also be understood as a warning. Because today's market leader is observed and copied particularly closely by the competition and can therefore very quickly be tomorrow's loser - if he doesn't constantly develop his business model further and thus keep his lead over the competition.
Business model – a definition of terms
The business model of a company describes the interaction of all factors that contribute to creating added value for the customer on the one hand and generating income on the other. These factors relate on the one hand to the so-called value proposition for the customer and on the other to the internal processes that are required to fulfill the value proposition and generate a profit in the process.
Which offer for which target group at which price?
The value proposition concerns what a company offers to whom and has three components:
- Target group(s): Who are the company's customers and what are their needs?
- Service offering: What products (goods or services) does the company offer its customers to meet their needs?
- Earnings model: How is the company paid for what it offers?
How can the offer be made profitable?
The internal processes concern the question of how the offer can be provided profitably and can also be divided into three components:
- Value chain: How is the company organized to serve the customer's demand? Which services are provided internally, which externally?
- Cost model: How is the company positioned on the assets and liabilities side to fulfill the value proposition profitably?
- Organization: How are the company's employees optimally deployed in order to maintain and expand the company's competitive advantage?
In order to find reasons for the success or failure of a company - that is, an answer as to why market share is gained or lost or the earnings situation improves or deteriorates - the individual factors are examined in detail. With a business model innovation, this analysis of the old business model is always the first step.
business model innovation.
business model innovation
If a company wants to improve its market or earnings situation or at least maintain it under increasing competitive pressure, it has to adapt its business model to the changing conditions. This process is called business model innovation.
From optimizing the old to creating a new business model
Business model innovations can have a very different scope and range from the optimization of the previous business model to the creation of a completely new business model. In extreme cases, a new market is created in the first place by a business model innovation, which gives the company a de facto monopoly position – and correspondingly high earnings opportunities – at least as long as there are no competitors in this new market. Which form of business modeling is chosen, the "small solution" of gradual change of the existing business model or the "big solution" of strategic realignment, depends on the situation of the company and its market and competitive position.
Reason and objective of business model innovations
The type and scope of a business model innovation depend on the occasion and goal. The reason for a business model innovation can be defensive or offensive in nature. The reason for a change in the business model is always defensive when it consists of an external threat - for example a sharp drop in demand for one's own products, the loss of a competitive advantage (e.g. due to the expiration of a patent) or an impending change in the law, through which the previous business is significantly impaired or made completely impossible. On the other hand, there is an offensive reason for changing the business model when the company's own competitive position is to be improved proactively (ie without the presence of an external threat).
Two fundamentally different options can also be distinguished when it comes to the target direction of the business model innovation: It can either be aimed at defending or expanding the company's position in the traditional business area or at conquering market shares in a neighboring or completely new business area. If the cause and objective of the business model innovation are related to each other, four basic scenarios for business modeling can be distinguished
4 basic scenarios for business model innovations.
Defense of the old core business
In the first scenario, the company's core business comes under considerable pressure (e.g. through the loss of competitive advantages or through new legal regulations), but can still be operated profitably. Here, the value proposition for the customer and the internal processes only have to be adjusted, but not fundamentally changed. In this scenario, the reason for the business model innovation is defensive (the old core business is threatened), and the aim of the business model innovation is to defend the position in the traditional business area.
Search for new business areas
In the second scenario, the company's core business has come under so much pressure that its continued existence is uncertain, even with some adjustments. Here, business areas adjacent to the old core business are examined for a possible involvement, and the business activities are relocated there if necessary. In individual cases, the old core business can even be given up entirely in favor of a new core business. Here, too, the reason for the business model innovation is of a defensive nature (the old core business is under threat), while the objective of the business model innovation – unlike in the first scenario – is aimed at conquering new business areas.
Conquest of market shares in the core business
In the third scenario, the company's core business is successful and plans to expand aggressively. Companies that choose this approach are often start-ups or smaller but already established companies that have a special competitive advantage - such as a new technology - and are convinced that they can revolutionize their respective market and set new standards with it to be able to In this scenario, the reason for the business model innovation is of an offensive nature (the old core business is successful and should be expanded aggressively), and the aim of the business model innovation is to capture additional market shares in the traditional business area.
Transfer of the successful business model to new business areas
In the fourth scenario, the company's core business is also successful, and the company should also expand here - not by expanding the market position in the traditional business area, but by transferring the successful business model to neighboring or completely new business areas. Here the reason for the business model innovation is also an offensive one (the old core business is successful and the company should expand), but the aim of the business model innovation here is to conquer market shares in areas other than the traditional one.
However, there is no simple formula for changing a business model. Even for companies where the desired business model innovation falls into the same one of the four scenarios mentioned, the approach can differ significantly - because the circumstances of the specific individual case are always decisive.
Step by step to the new business model.
The starting point for every business model innovation is a precise analysis of the previous business model, on the basis of which a new business model is then developed and the measures required to implement it are determined.
Analysis of the old and development of a new business model
As part of the analysis of the old business model, both the value proposition for the customer and the internal processes with their individual elements are examined more closely.
In the case of the value proposition for the customer, it is examined how the target group and its needs have developed, whether the range of services still suits the needs of the target group and whether the earnings model is still profitable for the company.
The other side of a company's business model, the internal processes, is analyzed just as precisely. It examines whether the company is positioned in terms of value chain, cost model and organization in such a way that it can fulfill the value proposition for the customer and at the same time generate a profit.
Responding to changing customer needs and staying profitable
The online mail order company Amazon, for example, found that many of its customers not only wanted to buy its original range of books online, but also other products. Amazon therefore gradually expanded its range to include music, film and game DVDs and finally numerous other products, all of which required the same sales capacities as the original product "book" and therefore only caused small additional costs.
In this case, the starting point for adapting the business model was that the needs of the target group were different than originally assumed. However, a change in the business model may also be necessary if the customer needs have remained the same but a competitor is making a more attractive offer, or if the range of services still fits the needs of the target group but the business cannot be operated profitably enough .
The platform strategy of the car manufacturer Volkswagen aims to standardize as many components as possible so that they can be used in as many models as possible from its current ten subsidiary manufacturers. This not only allows Volkswagen to use economies of scale in the manufacture of components, but also makes the manufacturer less dependent on fluctuations in demand for individual models.
Benefits from outsourcing and clever organization
In the value chain, for example, it is checked which services are provided internally and which can be outsourced. The key to Amazon's breakthrough in the online book trade was that, shortly after it was founded, it offered over a million book titles, but at the same time only kept around 2000 of the most popular titles in stock. The remaining titles were delivered directly from publishers or from wholesalers with whom Amazon worked. For Amazon, this sales model had the decisive advantage that the risk of misjudging demand could be completely transferred to publishers and wholesalers. If Amazon had simply transferred the classic sales model of stationary booksellers to the online business, its market success would probably have been much more modest.
Here, the value chain was the starting point for adapting the business model. But the optimization of the business model can also start with the other factors of the internal processes. In the case of the cost model, for example, resources can be released for expansion by changing the internal and external financing. And when it comes to organization, the question is not whether “the right man and the right woman are in the right place” internally – but also whether the appropriate decision-maker for a specific task can be found outside of the company in individual cases.
The US retail group Wal-Mart, for example, commissioned its supplier Procter & Gamble to stock its shelves with its own products. Because the consumer goods manufacturer had both the necessary information about consumer behavior and the necessary incentive to always tailor the range of its products to needs as precisely as possible. A welcome side effect for Wal-Mart was that it could do without its own market research in this area.
As these examples show, large international companies are constantly revising their business models in order to survive in the face of competition. In order to consolidate their innovative successes, many of them work towards it systematic innovation management.
Your individual business modelling...
When will you develop your new business model or your new product/service innovation?
As experienced "serial entrepreneurs" we have successfully launched a dozen project ideas on the market in the last decade.
We would also be happy to carry out a fast launch for you. We work very methodically in all projects and carry out market studies and field tests. Ask us specific questions about where your products could still be used or sold. You will receive concrete answers from us, which are backed up with numbers and pre-tests.
We are happy to develop individual projects especially for you.
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