Business Model Innovation for the digital economy - turn uncertainty into opportunities for new business ideas

According to recent statistics provided by statista, the digital economy's share of GDP in many countries has served as a catalyst for organizations to transform into digital enterprises. By 2023, the nominal GDP generated by digitally transformed companies is projected to surpass 50% globally, highlighting the extent to which companies are embracing digital transformation.

Business model innovation in a highly digitalized economy bets on technology, determining economically viable use cases. Capturing technology shifts early and turning them into opportunities for the own business purpose requires an adapted understanding for innovating business models and thus be(come) future ready.

In this article I am sharing, what it does mean to be(come) a future-ready company and which categories of compelling events are causing needs for changes in the business execution of a company. It will be the primer of a cohort-based course, I’ll launch in Q4 2023 on maven - if you’re interested, get on the waitlist by filling in the course interest survey (https://maven.com/forms/601c40 ).

As an exemplary outlook for B2B businesses, I’ll share a framework for the offering composition of a new or adapted business model.

It’s based on the concept that most innovations are often variations of something that is already used in a different context or another market / industry, and thus avoiding reinventing the wheel. The power of multidisciplinary approaches and (re)combination allow for transferring proven methods into a new context.

The future ready company

Digital transformation of a business model requires a comprehensive change of how an organization interacts with data, algorithms, and technology. It comprises changes affecting the leadership & culture, the operating model and business strategy. Only then, innovation can flourish for a sustainable relevance in the company’s market environment.

Digital business model innovation is all about taking advantage of the opportunities that digital technologies offer to create new value for customers and businesses alike.?

In our work with customers we have distilled an interplay of technology employment, organizational readiness and business execution into a future-ready approach, that composes the requirements for a sustainable business model - for the following reasons:

• Having a digital strategy is a comprehensive endeavor, not just the collection of few digital initiatives
• Strategy development processes which are churn along on annual cycles aren’t eligible for designing a digital business model
• Digital businesses are in general incompatible with traditional economic, strategic and operating models.

What it means to be future ready

Becoming future ready affects the business execution (the operating model), people in the organization, how they are embracing change and their own personal development. Then the design business models can be based on a solid foundation that allows for fast adaptation of technology shifts and compelling events for a sustainable business purpose.

Future-ready Enterprise (1):?Digital enterprise from cloud-native to AI-first. Raise productivity with a cloud strategy and digital tools for fast adoption of new technologies. Be(com)ing a digital enterprise is the precursor for adaptive and flexible digital business models in compressed innovation cycles and in a market environment with fast-changing customer demand. Put AI in the center of any automation, optimization and innovation to leverage the own data ecosystem (and until quantum computing is not broadly marketable). An own data ecosystem allows collecting consistent data, process information for prediction, gain insights for product development and form intelligence for prescription.

Future-ready Organization (2):?How to become a learning organization, where training is not employee downtime anymore, and know how retention happens with a self-sufficient knowledge management system. Inherent people enablement to employ technology for continuous workplace optimization and bottom-up innovation.

Up- and reskilling requires that people get the opportunity for an immediate employment of learned skill sets. Research suggests that people perceive career progress via their mobility options in the organization based on mastered skills, which is in consequence a good attrition mitigation.

Future-ready Business Model (3):?Explore today the tech stack needed for a sustained business success in the future with a horizon of 10 years (minimum 5+ years) in order to attract the needed talent early. Based on the defined purpose of tech employment for the target business model, define a continuous exploring and scouting approach that ensure that the company remains contestable with compelling events.

Those compelling events are sometimes predictable but often unprecedented, and when occurring in parallel they can become serious threats. So, let’s take a look at the most common categories of compelling events.

Harnessing the Power of Compelling Events for Business Model innovation

Let’s explore the four categories of compelling events, that often sudden and disruptive, can provoke the need for businesses to adapt of even completely change their existing business models.?

Regulatory requirements or changes in legislation

Regulatory requirements and changes in legislation have the power to disrupt entire industries and force companies to reevaluate their business models. For instance, consider the rise of data privacy regulations like the European Union's General Data Protection Regulation (GDPR). Companies that collect and process user data had to undergo significant adaptations to ensure compliance. Failure to do so not only resulted in hefty fines but also damaged consumer trust and brand reputation.

Technology shifts for affordable mass adoption

Technological advancements can dramatically transform industries and render existing business models obsolete. Take the example of the smartphone revolution. The advent of affordable smartphones equipped with powerful computing capabilities and high-speed internet connectivity disrupted various sectors. Traditional camera manufacturers, for instance, faced a severe threat as consumers increasingly preferred capturing moments with their smartphones instead of purchasing standalone cameras.

Socio-economic changes or geo-political risks?

Socio-economic changes and geo-political risks can introduce unforeseen challenges for businesses, compelling them to reevaluate their strategies. Consider the COVID-19 pandemic, which profoundly impacted global businesses across industries. Lockdowns, travel restrictions, and shifts in consumer behavior forced companies to innovate rapidly or face the risk of irrelevance. The hospitality and travel sectors, for example, experienced a significant decline as people halted non-essential travel, compelling hotels and airlines to adapt their business models to survive the crisis.

Other market dynamics

Changes in market dynamics, including shifts in customer preferences, competition, or economic conditions, can necessitate a rethinking of business models. A notable example is the rise of streaming services in the entertainment industry. Traditional cable companies faced a severe threat as consumers increasingly opted for on-demand streaming platforms. This compelled cable providers to evolve their offerings by either introducing their own streaming services or adopting hybrid models to remain competitive.

So, compelling events can act as powerful catalysts for business model innovation and adaptation. No matter which category or whether they occur in parallel, these events have the potential to seriously threaten the execution of a company’s business model.

To thrive in such volatile environments, businesses must remain vigilant, embrace change, and proactively identify and seize opportunities presented by compelling events. By doing so, they can position themselves for long-term sustainable success and ensure continued relevance in an ever-evolving market environment.

Composing the Offering for a Future-Proof Business Model

When developing a new business model, it is crucial to consider how you will compose the offering to ensure long-term profitability and success. There are several key aspects to keep in mind as you create a comprehensive and effective offering for your customers.

1?? Consider the employed assets – that is, the physical component that will be deployed so that the customer can use it. This could be anything from a physical component, hardware to software or data. Considerations like asset-lean funding determines whether the employed assets are hold on the company’s balance sheet or other asset holding vehicles are considered. Remember, making use of an asset doesn’t necessarily require its possession and thus capital allocation (famous example: airbnb)

2?? Identify the risks that may arise and how they can be managed to ensure profitability. For example:

• Payment risk as the financial risk directly assigned to the customer’s ability to pay in time (according to the credit scoring) - mitigation by sale or receivables
• Delivery risk - risk provoked by limited availability of 3rd party, own, or other supplier’s components, service, software - mitigation by resilient supply chain
• Performance risk - risk provoked by a reduced / limited quality in the supply of components / services / software of a 3rd party. Reducing the resulting cost of poor quality can be mitigated by collecting utility data which is interoperable beyond the own system landscape.

3???Determine the pricing tactic that will respond to customer needs related to the service provision - for example:

• Scope of access: Basic functionality is used or the full feature spectrum, often seen in SaaS models
• Availability: how fast does a customer need the access to a product? Often important to be considered by the provider when asset disposition needs to managed carefully
• Capacity and Quality of Service (QoS) - how self-explanatory can the customer use the product or service? Is there a willingness to pay for assistance or even guaranteed outcome? Performance-based contracting is a typical example.

The pricing tactic should always reflect the capital allocated for the employed asset plus the risk premium resulting from availability and quality issues plus the aspired margin that reflects the capability of assessing risks better and at an ease of use for the customer.

4???Consider the payment model in terms of who is actually paying, how the payment will be conducted, and in which currency. It is important to keep in mind that data and attention are also potential payment currencies.

By taking all these factors into account, you can create an offering that meets the needs of your customers and ensures long-term profitability for your business.

Overall, developing a new business model requires a careful and strategic approach that takes into account all the different factors that will impact your success in the long term. By focusing on aspects like employed assets, managing risks, determining pricing tactics, and developing a payment model, you can create a comprehensive offering that meets the needs of your customers and ensures the long-term success of your business.

Conclusion: Turning Uncertainty into Valuable Business Opportunities

As the digital economy continues to grow, businesses are faced with unprecedented levels of uncertainty and change. However, with the right approach to change management and business model innovation, uncertainty can be turned into valuable business opportunities.

By embracing compelling events and taking an adaptive approach to business model design, companies can position themselves for long-term success and continued relevance in an ever-evolving market environment.

If you're interested in learning more about “Business Model Innovation for the Digital Economy”, I invite you to fill out the course interest survey (https://maven.com/forms/601c40 ) for my upcoming course on Maven.com (planned for Q4 2023). Together, we'll explore the principles of future readiness and how to harness the power of compelling events for business model innovation.

Are you ready to turn uncertainty into opportunity? Join us for this exciting new course.

Sources:

Statista: https://www.statista.com/statistics/1134766/nominal-gdp-driven-by-digitally-transformed-enterprises/