Leading the business model change

Somewhere I read, that sustainability can be understood as the process of meeting today’s needs by protecting the tomorrow. But some wise people also said, if you do same thing as yesterday, then you won’t even get what you got yesterday.

When companies embrace the business model transformation, they don’t just change the products and services, but they change the whole organizational behaviour.

Sometimes the process is gruesomely slow, unbearably taxing and painstakingly frustrating while causing a great adrenaline rush.

I want to talk about some perspectives which I personally feel are important while planning a business model transformation.

Prologue

Big bang vs Gradual : Which business model is suitable for any business?

From a tiny cell to complex beings, biological evolution took millions of years. Have you ever wondered, what if it is faster and experienced in a lifetime? The lives of humans and other living creatures would be spent learning to adapt to biological changes. Isn’t this enough to convince us that critical changes are best dealt with when they are slow, gradual, and incremental?? So, isn’t adopting technologies and changing legacy systems in phases better?

What if we don’t plan and keep up with technological advancements?

While nature is slow, technology is not. It changes so fast that our lives alter drastically in just a decade. For all the benefits of technological advancements, we shouldn’t slow them down. Then how do we tackle it?

One way is to take cues from nature and make new technology innovations incrementally. The same applies to policies, plans, and strategies. A gradual approach is much better than a big-bang one. Those that introduced drastic changes failed.

The Sri Lanka saga:

For example, Sri Lanka banned synthetic fertilizers and introduced several sudden changes in economic policies. The soil and crops accustomed to chemical supports couldn’t withstand the sudden withdrawal, thus exacerbating the already struggling economy. The change was not implemented gradually, and the ecosystem couldn’t realign itself to the goals without disrupting the ailing economy.

Floppy disks, still?

On the other extreme is an example of Japan’s continuing use of floppy discs till 2024 even when companies stopped manufacturing them! Japan's Digital Agency (a body set up during the COVID-19 pandemic and aimed at updating government technology) identified issues with legacy technologies in healthcare systems. Some of the processes and operations are not analog. They have been digitalized, yet the legacy digital systems have become impediments to modernization. So, a modernization endeavour that’s too slow doesn’t work either.

The main course

It ain’t broke, but let’s fix it:

Let’s take it for granted that the need for business model transformation is given. We also know how the changing market trends cause certain disruptions, so we won’t talk elaborately about ‘Why’ but let’s try to talk about how.

When we change the business model of a company into something which shines better, we could start the process by asking few questions and finding answers.

Q: Is there a point of return?

If not, build levers in the process to fail fast and exit the path.

Q: Does the change cause (near) business standstill

If yes, it’s not a good sign. Try to restructure the project so that it doesn’t affect the viability of the company itself.

Q: Can it be funded with internal accruals

If yes, that’s great. If not, it is time to work on various funding options

Q: Will it cause customer churn

If so, check and validate the communication strategy

Q: Will it cause employee attrition

Communication to employees is key, communicate the need for change often and more.

Q: Will it cause cash crunch, does the revenue shift to future, will the profitability take a hit?

Business model canvas can get some insights in to areas of attention.

Q: Does the market understand our new proposition

Go to market strategy has to be rock solid since it leads to the right messaging for easier understanding.

IQ: s the market really asking for it?

Sometimes it is advisable to run proof of concept to validate the idea without disrupting everything in one go.

It doesn’t have to get worse, before it gets better!

Indeed. Expecting things to get better after they only got worse is actually welcoming the doomsday. By strategically planning and implementing changes with a customer-centric approach, companies can achieve immediate improvements. Effective communication and continuous learning play crucial roles in avoiding the pitfalls of disruption. Proactive adaptation ensures a smooth transition, leading to swift and sustained success. This mindset challenges the notion of necessary decline, proving that positive change can begin from the very start.

It is also possible that a new business model ambition might confuse the market, not understanding whether the transition from old to new can be handled by the same company, same people and same methodology. So it is not just the intention to change that matters, but the demonstratable ability to change should become evident too.

What is the right pace of new business model adoption?

New business model adoption is not just about technologies. With a rapidly growing digital economy, it makes sense to talk about technologies as encompassing entire businesses or business models.

We also need to talk about customer engagement models, product or service delivery models, pricing models and continuous improvement models. Business models now are also about leveraging technologies for strategic and innovative management.

Though software companies were the pioneers of such business models, this applies to most companies these days as every company uses software or runs as a software company.

This calls for a shift in our mindset. New business model adoption or modernization plans also chart our goals, strategies, and limitations. The pace of technology adoption now depends on the ecosystem, customer or employee readiness, plans specific to the business, etc. And with technologies changing so fast, it is a continuous and iterative process.

So, is a Big Bang not possible or preferable?

Foreseeing a Big Bang Change and preparing the ground to equip the organization to adapt to the changes makes a business thrive in the long run. Every change brings a lot of turbulence in an organization and the managers need to realign strategies to navigate this change. We haven’t forgotten the recent pandemic, have we?

The Big Bang Change brings sudden transformation and disruption that should be addressed comprehensively. The leaders should not only foresee but also equip all the systems and stakeholders to adapt to sudden transformation. The process needs to prioritize where to build capacity for the inevitable changes and where gradual changes can be implemented without creating more turbulence. Every change brings with it more efficiency and opportunity to innovate.

The iterative model of innovation is relevant even in determining our preparedness for a Big-bang. It helps us in gauging turbulence and creating a proper feedback mechanism to assess and grow beyond the emergency phase.

Business Engineering through the times.

From start-ups to established companies with a clear and specific area of expertise and operations, businesses grow, and then further into multi-national companies and enterprises. As a business grows, what changes and what is retained? Sustainability is about continuing the benefits of today as we grow and leap into tomorrow. While tomorrow differs from today, we want to preserve certain things for the future. This is true both for agriculture and business.

Like Sri Lankan economic policies, businesses shouldn’t rush themselves into the future and lose the preserved flavours of yesteryears.

How is AI shaping our business models?

Our business models evolved form the industrial revolutions, to the services sector, and now to flow models suitable for products and platforms. As novel technologies like AI are fast changing the pace of business, operations, and innovation, business models are also evolving. It is still quite early to point out or name specific models or changes to models that have cropped up. We will see business models evolving fast in this decade. Change whether big-bang or gradual, is the only constant in both the biological as well as the technology world.

Epilogue

There are industry standard methodologies to help companies structurally manage the business model transformation as a successful adventure.

Assess Current Business Model

• Understand the Existing Model: Evaluate the current business model using tools like the Business Model Canvas.
• Identify Strengths and Weaknesses: Conduct a SWOT analysis to understand strengths, weaknesses, opportunities, and threats.

Define the Value Proposition

• Customer Needs and Wants: Research and understand customers' needs, wants, and pain points.
• Unique Value Proposition: Articulate the unique value your business offers better than competitors.

Develop a New Value Delivery Model

• Customer Segments: Identify and prioritize customer segments that will benefit from the new value proposition.
• Value Creation: Design processes and activities that create value efficiently.
• Value Delivery: Plan how the value will be delivered to customers through channels and relationships.

Align Resources and Capabilities

• Key Resources: Identify the critical resources needed to support the new model.
• Key Activities: Define key activities needed to deliver the value proposition.
• Key Partnerships: Establish partnerships for value creation and delivery.

Develop a Revenue Model

• Revenue Streams: Identify ways to monetize the value delivered to customers.
• Cost Structure: Analyze and plan the cost structure associated with delivering the value.

Implement and Iterate

• Pilot and Prototype: Test the new model on a small scale to validate assumptions and gather feedback.
• Measure and Optimize: Use KPIs to measure success and identify areas for improvement.
• Scale: Scale the model to broader markets and customer segments.

Communicate and Train

• Stakeholder Engagement: Communicate changes to stakeholders and ensure buy-in.
• Training: Provide necessary training and resources to employees.

Monitor and Evolve

• Continuous Improvement: Regularly review and refine the business model based on market changes and feedback.
• Adaptation: Stay agile and ready to pivot the model as needed.

Example Frameworks and Tools

• Business Model Canvas: Template for developing or documenting business models.
• Value Proposition Canvas: Ensures product or service aligns with customer values and needs.
• Lean Startup Methodology: Scientific approach for startups to create and manage products efficiently.

One for the road

John Kotter, a renowned expert on leadership and change management, often emphasized the dangers of companies becoming overly obsessed with internal reorganization while neglecting their core focus: the customer. Kotter argued that such companies risk losing sight of what made them successful in the first place. He believed that successful organizations should prioritize their customers' needs and preferences, as this external focus drives true value and growth.

Kotter pointed out that excessive internal restructuring can lead to a form of organizational myopia, where companies become too inward-looking and disconnected from market realities. This inward focus can result in inefficiencies, a decline in customer satisfaction, and ultimately, a loss of competitive advantage. Instead, Kotter advocated for a balanced approach to change management, where internal improvements are aligned with a deep understanding and anticipation of customer needs, ensuring that the organization remains relevant and responsive in a dynamic market.

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