The aim of this chapter is to assist you developing a digital business model. For this, you use the Business Model Canvas: a model for strategic management and lean start-ups to create a new business model or assess an existing model. The founders of the model use the following definition of a business model: the basic idea, how an organisation creates, delivers and maintains value.
The canvas consists of four main areas. These are divided into nine building blocks which show the logic of how a company wishes to run its business. The four main areas are: clients, offer, infrastructure and financial viability. These areas all return in the new digital business model. The canvas serves as a foundation for the framework that provides insight into clients, offer, infrastructure and financial viability.
Myths about digitisation
Deloitte discovered in a survey (December 2017) that less than one in three Dutch people still do not consider themselves to be digitally mature. This means that more than two out of three Dutch companies are not there yet. Globally, the score of the Netherlands is not even that bad: only one in four organisations worldwide consider themselves to be digitally mature. However, this is not a reason to celebrate: some drastic changes need to be made in the way in which Dutch companies proceed with their digital transformation, if we do not want to lag behind.
The following figures and insights from the report illustrate the state of the digitisation of the Dutch companies:
- One in five Dutch companies claims to have adequate talent on board to substantiate the digital business strategies and achieve ambitions in this area;
- It is necessary to break down silos if an organisation wishes to successfully embark on the digital transformation. A company that believes it is digitally mature, states that it acknowledges and values collaborations between different departments twice as often than companies who do not believe they are digitally mature;
- There is a substantial group which — while they reserve a bigger budget for innovation — still do not derive any noticeable benefit from their innovation budget. This is due to a lack of clear, digital policy and digital strategy.
The digital strategy remains a challenge for many organisations. The majority of organisations primarily rely on marketing tools such as the website, social media and e-mail marketing. It is a worrying trend that, according to research (Van Grieken, 2017) there is a significant group in the Netherlands (29 percent) which invests rather significantly into digital initiatives, but admits to derive no benefits from this. These companies appear to have no strategy at all and do not measure what the yields of their digital efforts are in a structural way.
The aforementioned research further addresses which possibilities digitisation offers an organisation. In addition, a comparison is made between Dutch companies and the rest of Europe and the world. Dutch companies are not doing as badly when it concerns the digital transformation, states Van Grieken. “But we must continue to develop our DNA to maintain that advantage”. Where globally 25 percent of the researched organisations call themselves digitally mature, the figure in the Netherlands is 31 percent. This means that two-thirds of all organisations do not yet consider themselves to be digitally mature. For many, it’s time to get to work in the digital world.
The Deloitte report Survival of the most adaptable, The Dutch Digital DNA Demystified, appeals to the imagination, offers support for CEOs who wish to focus on the digital transformation and leads to specific advice: an own framework has to be developed, when embarking on the digital transformation.
Many organisations struggle with digitisation when you look at the performances of their websites and social media. A genuine digital vision — just as in the aforementioned research — is missing. Many organisations that I have visited in recent years are missing the context in data. This is a primary component of the digital vision. Managing using predefined objectives is the solution.
But first: a digital mindset
Before you can get to work with the objectives of a digital business model, it is important to let a digital mindset be leading in your company. This goes for every company in every industry and sector. For example, you will have to hire a different type of staff.
Everyone must possess digital skills in a digital company. There is no ‘digital’ department anymore. People with digital skills work at the communication department, the HR department, the customer service and everywhere else in the organisation. Everyone should possess a digital mindset, if you wish to use the framework and let the canvas become a reality.
Business plan for the future
Have you determined how you wish to substantiate the five objectives of the framework? Are you on the way to providing everyone in the organisation a digital mindset? Then you can enter the Business Model Canvas. Moreover: your business plan for the coming three years has to come from this. This is the first step towards making your company, artist, brand or event future-proof.
Digital business model
A business model builds a bridge between strategy and organisation. It is a tool to understand the company. The foundation of every business strategy is looking and thinking outside in. This means looking from the perspective of the client where client values and activities distinguishing you from the competitor can be included in the own business model. Digital innovations change business models drastically. How do you create a digital business model that matters?
The use of a business model
The business model of a company has a number of vital functions:
- Who: which target audience is the company focussing on?
- What: what is the strategy? And which proposition do we offer the client?
- How: how are we going to deliver the proposition? How do we complete the proposition?
- How many: what will the turnover be and what are the costs? How much will we earn from the proposition?
The idea of the business model is that the turnover of ‘who’ (the target audience) comes, the costs of ‘how’ (the completion). The profit is the turnover minus costs: these come from the ‘what’ (the marketing strategy and proposition). The business model is how companies state which value it creates for the client and how it will do that. It shows the level in which a part of the value can be acquired in the form of market share, from which a certain profit forecast and company value can be deduced.
The importance of explicitly defined objectives, or measurable norms, cannot be underestimated when creating a business model. After all, they provide aim and direction to a strategy and its usability.
The Business Model Canvas is a model for strategic management and lean start-ups to create a new business model or assess an existing model. The founders of the model use the following definition of a business model: the basic idea, how an organisation creates, delivers and maintains value.
Business models change
Business models do not last forever. When the market changes there is a 100% chance that the business model will also change. Currently, the information which exists due to technological change is the largest protagonist of change.
There are two types of business models: the model that is already disrupted by the technological developments and the model that still needs to be disrupted. According to some experts, such as Igor Beuker, it is already too late for certain companies. Their business models are destroyed by technology and their failure to respond has resulted in a rapid destruction of the profit.
With digital change a certain type of organisations or brands play a major role. They have in common that they, with the help of concepts, budding or ones that have sometimes existed for a long time, have enjoyed success thanks to technological disruption. Consider for example: ‘everything-as-a-service’, ‘the co-creation of content’ and ‘innovation of the chain’.
Disruption of business models
A good example of a party that innovated the entire chain is Apple. Via their iTunes and App Store, the Apple web store, they sell content and apps of third parties. Apple gets a commission for this. This way, Apple manages the majority of the entire value chain. Below you can find a number of developments that disrupt business models. Consider these for a moment.
- Mobile experience
Niklas Zennström, Skype’s co-founder and founder of investment fund Atomico, stated a few years ago that newcomers have to focus on the ‘mobile experience’ and ‘the presence in the entire internet ecosystem’. Companies can no longer just have an offline presence, they must also be present in the digital shopping street.
The growth of 4G mobile data networks, ‘cloud computing’, the internet of things and the mobility of employees brings the necessity to upgrade the telephony networks. The 5G network is currently on the way.
- Outside the box
Companies in some sectors must start to think outside the box of everything imaginable. The pharmaceutical industry will, for example, have to change its beliefs, by sharing knowledge instead of protecting it from their competitors, for instance. But within many other industries such an attitude must also prevail. Consider sport, media and entertainment. Where property is replaced by access to content.
Companies must take the wishes and preferences of their clients far more as a point of departure for their policies. Whoever has the best insight into these changes in fan or client behaviour, and responds to this in a focussed way, creates an advantage over its competitors. Making it easier to retain existing fans or clients, and makes recruiting new clients much easier. The point of departure is: the proposition must be based on the wishes and preferences of clients or customers. Retention is the key word.
Companies have been using their reputation or client relationships to offer new products and services in ‘their’ market for many years. Nowadays, it is not uncommon that the competition comes out of an unexpected corner. Just look at Uber who is competing with Foodora and Deliveroo with its UberEATS service.
For a number of companies, the type and level of technical development is critical for its marketing success. The technology is also a very important element of the strategy.
- Market segmentation
The most important choice that an organisation makes is choosing a market and the products suitable for it. The continuity stands or falls with this choice. A market segment can be defined as a number of potential buyers, who view and value a product or service in the same way, display the same purchasing behaviour and use the product in the same way. The selection of a market segment occurs on the basis of the idea that client groups need products or services that the company can offer with its skills. Also, from the idea that this company does that better than the present competition.
Not only SWOT
Often the SWOT analysis (Strengths, Weaknesses, Opportunities and Threats) is used when developing strategies. Firstly, however, this model has a theoretical weakness: first internal then external. In addition, SWOT cannot really be implemented in practice, because the number of aspects leads to a long and complex analysis, which quickly loses its strength as a decisive model.
With a SWOT analysis, the following scenario threatens to occur: we are very good at making clogs, so there must be a market for clogs. (Doeland and Hofstee, 2013) Better is the ‘outside in’ approach: people walk on plastic clogs (for example, Crocs) so what can we learn to convert our knowledge of woodwork into plastic? Therefore, the market takes a central position (the top of the diabolo). After all, this describes our right to exist. The organisation is only the tool (the bottom of the diabolo) to implement the strategy.
Macro-, meso- and microeconomics must therefore be analysed to determine the possibilities or opportunities for the organisation.
- Macroeconomic developments impacting ‘walking comfortably’.
- Mesoeconomic developments impacting ‘walking comfortably’.
- Microeconomic developments impacting ‘walking comfortably’.
- Which ‘walking comfortably’ opportunities are offered to Crocs?
- Crocs chooses the marketing strategy of the best usable opportunities.
- Which weaknesses must be upgraded to handle the proposition?
- Which products and services does Crocs need for this?
- What do we have to organise in order to do this?
- Which prerequisites and conditions are present at Crocs for this?
The 20-minute business model
Can you put your entire business model on paper in 20 minutes? Start-ups seems to be able to. ‘Start-ups are companies that succeed thanks to a rapidly-made successful plan, before they can find external resources’, states Ash Maurya, author of the book ‘Running Lean’. They simply cannot afford to invest months into the traditional and customary 10-to-60-page business plan. Maurya developed a ‘Lean Canvas’, which allows you to put the most important elements of your business model on a sheet of paper in 20 minutes.
The most important elements of this canvas are:
- the problem that we will solve;
- target audience: clients and users;
- our unique value proposition;
- our solution;
- distribution and communication channels;
- revenue streams;
- cost structure;
- figures, metrics and analytics;
- our unfair advantage (something that cannot be copied or sold).
Strive for an unfair advantage
In principle, an unfair advantage is the following: whatever puts the company in the right position to understand a problem, create a solution and innovate faster than other companies.
An example of a deliberate, uncompromising obsession for the product is Google’s focus on developing the best search engine. Before you can have this unfair advantage, you have to refuse to want to lose on a distinctive capability which is difficult to achieve. Also consider:
- Personal authority: professional service providers draw on their experience where they can be a leading authority in their domain.
- Ecosystem: this is the network of fans and clients and fans and partners, that make up part of the internet ecosystem of your users.
The Apple, Facebook and Google ecosystem all depend on their ‘communities’ to add values (and an unfair advantage) to their products. Other unfair advantages are a dream team, better context from data, exclusive access to a channel or clients, employing the right experts or having access to them, and having a leading reputation of the fan or customer service.
This chapter is intended to give rise to new ideas for the future of your own business model. Hopefully it will inspire you to gain more new insights. The content about the framework to be used is also recommended. This is how you can learn how you can make sure your business model is future-proof. It makes your business model, with the company value and revenue models measurable, and direct management can be implemented.