What is a Business Model?
A business model is an abstract representation of how an organization creates and delivers value for its customers and how it sustains itself financially over a period of time. Critical components of a business model include customer audiences, value proposition, products and service offerings, business processes, the overall business network (ecosystem), and the technological and other infrastructure that the organization needs to operate the business and deliver that value proposition.
Why are Business Models Important?
The topic of a business model usually comes when discussing an organization’s business strategy and when establishing a business’ overall objectives.
Whether you are a small or a large organization, you should not only know your business model but you should be confident about its viability. You should know whether your business model is still valid for the business environment that you operate in.
A validated business model can help you in setting up the course of your business moving forward and will provide you the confidence in making your business investments. Businesses that fail to make the right adjustments are taking the risk of inching closer to the edge of a cliff.
That’s what happened to businesses such as Blockbusters, Borders Bookstore, and others. These businesses failed to see how their audiences and their behaviors had changed and thus their ongoing business practices, processes, and offerings failed to change with them leading them to lose business value quickly.
If you are new in business or going through a change, taking the time to reassess your business model is more than required.
Businesses that are undergoing changes due to the digital transformation need to take a hard look at their core and their business models and need to establish a new course for themselves to ensure they are rightly aligned with the future.
A good place to start is to document your organization’s business model. A documented business model helps surface both challenges and opportunities in the way an organization creates value for its customers and shareholders.
Business Models Disrupted by Digital
Over the past few years, digital has disrupted more business models than any other phenomena in history. If you have not yet reassessed the viability of your business model in the digital era, perhaps this is the tine to start.
Let’s review some of the business models that have been disrupted over the past few years because of digital. Reviewing this list can help you understand whether your business is next and whether you are ready to absorb that impact.
- By offering courses online, Coursera is on a collision course with the offerings of business schools. The question remains to what extent will this disruption dent the revenue of business schools and how will they change to tackle this challenge.
- Amazon Web Services revolutionized the notion of organizations not having to own or invest in their technological infrastructure. Rather they can rent and pay for what they use. Amazon was able to offer this service by relying on technological advancements and perfecting technological and business execution arming them with new business capabilities.
Success Stories of Businesses who transformed to become digital
- NYTimes.com understood the power of digital and now more than offering digital subscriptions offers other digital content including 3D videos.
- IBM understood the power of digital and invested heavy in cloud technologies and as a result in under 3 years derives major revenue from that transformation.
Read about Steps of creating a digital strategy
Questions to ask about your business model
Here are some questions that your business should ask when assessing your business model in the context of digital.
- If your business has been based on a bricks and mortar business model, how will this transform to bricks and clicks business model? Have you identified all the scenarios to operate in both or will you be transforming to an all clicks and digital model?
- How will your business create value in the new era?
- How are various aspects of your business being digitized? This includes customer acquisition, lead generation, conversions, customer interactions, building customer relationships, staffing and resourcing, and so on.
- Customers are hungry for more information to help them make better decisions. What tools and information can you provide them to make those decisions? Providing this information shouldn’t be regarded as a risk of having them turn away. Instead, you may earn their trust that will make you a prime candidate for them to throw their support behind you.
- In the new digital economy, products, services, and offers are rolled out at a much faster pace than ever before. Has your organization transformed to become agile in rolling out products and services at a much faster pace to the marketplace?
- Are you focused to make your organization’s brand disruptive?
Asking such questions will get you thinking about your business model and to make any necessary adjustments.