{ Business Model Innovation | Leaderonomics }

The Need for Business Model Innovation

By

Dr Arul Aruleswaran

10-03-2020

4 min read

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Let’s acknowledge that the way businesses use technology and solve fundamental customer issues has changed the way services are provided to a customer. In my recent article, the key discussion was about fusing the key elements of customer value proposition, profit formula, key resources and key processes to create value for both the customer and the business itself.

Today, everyone describes this as digital transformation. Various organisations and its leaders are frequently talking and discussing about digital transformation; discussing the potential disruption that could affect a particular industry or a new technology that will eliminate the need for intermediaries.

What is digital transformation?

Wikipedia defines digital transformation as ‘the use of new, fast and frequently changing digital technology to solve problems’.

A European technology website i-scoop.eu describes digital transformation as ‘the profound transformation of business and organisational activities, processes, competencies and model to fully leverage the changes and opportunities of a mix of digital technologies and its impact to society in a strategic and prioritised way’.

A popular technology-based enterprise solution provider, CITRIX, describes digital transformation as ‘the strategic adoption of digital technologies used to improve processes and productivity to deliver better customer and employee experiences, whilst managing business risk and costs’.

There are numerous definitions that can be obtained from the internet search engines, however, the essence of these definitions are in-fact referring closely to the four elements initially stated and also staying current and relevant to the dynamic marketplace.

Photo source:
https://www.youtube.com/watch?v=MnrJzXM7a6o

Apple, one of the pioneers of digital transformation demonstrated during the iPhone launch in 2007, on how it compared against existing mobile phones in the market. Essentially, comparing it to the top-selling mobile phones then, in terms of how smart the phone was and how easy it was to use a smartphone.

Steve Jobs who launched the product demonstrated how iPhone’s smart and user-friendly features became a game-changer in the market. Several years before that, Apple also invented a new product called iPod, which was connected to the iTunes store. This innovation finally disrupted the music industry.

What made both innovation successful wasn’t just the technology but the business model around it that addressed the four key elements of value creation, therefore innovating the business model.

Traditional companies would typically find changing a business model an uphill battle, often facing resistance from key stakeholders and management. A startup, however, finds it easier to execute the business model innovation, reshape the industry and become a Fortune 500 company in less than half the time than its predecessor.

The tendency for traditional companies having little understanding of the interdependencies between value creation for its customers and its inherent weaknesses makes it easy for startups to almost immediately put these companies out of contention.

Further damage is done when traditional companies start investing in technology without knowing how to leverage their core business model and accepting the need to build a new model.

Are Malaysian businesses ready for digital transformation?

Source: https://www.theedgemarkets.com/article/malaysia-acknowledges-digital-disruption-transformation-still-nascent

The Edge Malaysia in 2018 published the results of a survey commissioned by CA Technologies on how well Malaysian businesses are ready in adopting digital transformation. More than 70% of the respondents agree that the marketplace and industry has been impacted by digital transformation however only 9 per cent of Malaysian business and IT (Information Technology) leaders surveyed said their organisations have fully-formed digital transformation strategies in place.

CA Technologies goes on to state that ‘businesses and IT leaders have to be bold in harnessing disruptive technologies, whilst ensuring that everyone in the organisation is aligned and working collaboratively towards a common goal’.

The challenge faced by these businesses is similar to global businesses or international brand names that were put out of contention by startups that redefined their business model and value creation for customers as well as for the business itself.

In Malaysia, the situation can be further compounded by the general lack of will to change. Existing stakeholders of businesses generally feel that existing business models, business policies and legacy systems or processes are sustainable enough to see through the period of digital disruption.

Business transformation: 3 key success factors

Transforming a business in this digital era has to start with a clearly defined and articulated strategic plan. There are three key success factors to understanding business transformation:

1. Identify the opportunity to resolve a real customer problem

2. Having a clear roadmap or blueprint of solving that problem profitably

3. Identify the gap in the existing business model and the extent of change that is required to completely design a new business model.

The outcome of this is a business model innovation. The approach an organisation can take to identify these key success factors are by asking and reflecting on five important questions.

In 1993, Peter F Drucker, published a book entitled The Five Most Important Questions You Will Ever Ask About Your Organization that offered a framework for businesses to develop and execute a strategic plan. The five questions are:

  1. What is our mission? – A business would need to reflect on the opportunity, resources and processes that will drive focus on business model innovation.
  2. Who is our customer? – The primary stakeholder whose problem or opportunity that your business would address.
  3. What does the customer value? – What is the value proposition and the value creation for the customer (and in turn for the business).
  4. What are our results? – Identifying the key metrics and measures to assess the progress towards achieving the mission and opportunity.
  5. What is our plan? – Starting with the mission and followed through with the execution and action steps.

Answering these five questions and developing the strategy for business transformation and innovation is surprisingly relevant in today’s digital era. However, for businesses to review these questions and answer them honestly requires leadership.

Leaders must not be second-guessing these answers on their own but develop them in a structured way with all the key stakeholders (and customers) in mind. As the strategy is to innovate the business model, its success is highly dependent on the execution, as highlighted by question five above.

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