- Business Model Innovation
- Learning Module
The module – in brief
When working with the development of digital business models and with digital transformation in general, some basic principles are worth applying because they simply work well in the challenges you face in the digital world.
All methods and tools presented here are based on one or more of the principles, and even if you do not use the methods and tools, it is worth knowing and following these principles.
It has always been relevant for companies to take stock of the market and to know the customers’ wishes, but with digitalisation and globalisation, it is an absolute necessity. We call this the outside in-principle, and it is simply about the fact that you as a company primarily have to relate to and adapt to the surrounding world. You can to a lesser extent than previously see the world only from your angle and, for example, expect that customers will buy exactly what you want to sell because it is becoming increasingly easy for customers to find and buy goods and services from other suppliers. Of course, it is still relevant that you relate to what you can and will deliver to whom and how, but you cannot expect that your wishes only set the agenda.
The methods and tools here are based on different ways of using the outside in-principle and can help you screen the surrounding world, the market and the customers and systematically and simply adapt your company to the customers’ conditions, demands and wishes.
With the outside in-principle, you can get an overview of how you can analyse the surrounding world as a whole, then the market, then the customers and then possible solutions for the customers. When you start researching possible business models in order to create solutions for customers, you have reached the point where the customers’ wishes (and associated willingness to pay) meet your wishes (and associated profit requirements). Based on a possible business model, your analysis moves into your company and examines what it takes you to deliver solutions to customers in the market via business models.
Why - How - What
It is important to answer the questions why, how and what so that the answers can form a framework for your project, but the order is crucial.
No matter on which project or change you want to embark, a prerequisite for success is to become aware of why you are doing it. It can make a huge difference whether you are just attempting to streamline something, which already exists, or create something completely new, and it can also make a difference if you do it to solve a specific problem or to seize a new opportunity. If you do not know why you are doing something, how can you then determine if and when you have achieved what you wanted?
It seems obvious and straightforward but many companies start projects without having made it very clear why they do it – in other words, they have not defined the purpose. In practice, many companies start from behind with deciding what they specifically need to do – activities and tasks – and what they specifically need to apply – technology, resources, competencies – before they have made their purpose clear. It is a bit like packing your suitcase before you have chosen where you want to go.
Because digital development is going so fast, in terms of technology development and the impact on business conditions, it is more important than ever to have a clear answer as to why you are initiating a change – what the purpose is – so you can use that answer as a guiding star by which you can navigate. If you start packing your suitcase before choosing your destination, there is a high risk of ending up on a tropical island with a suitcase full of expensive, newly purchased ski equipment. Or conversely, that you end up travelling to the Alps because you bought ski equipment and not because it was actually where you wanted to go.
The principle Why – How – What is useful to answer these important questions and to remember to work with them in the right order; hence, why, i.e. the purpose, sets the direction and is not just enthusiasm for a particular technology or work method that dictates where the company is going. At the same time, it is a good tool for communicating about the digital change: Why do we do it? How is it going to take place? What exactly needs to be done, with which technology, by whom and when?
Hence, the first question is why: Why should we develop a digital business model and work with digital transformation? Define the overall purpose of doing something at all. The purpose can take many forms, such as maintaining competitiveness vis-à-vis new companies in the market or getting a new type of customers or something completely different. If you have several purposes, you must formulate and write them down individually and then carefully consider whether you should tackle all at the same time or prioritise them.
Only when you have formulated and written down your why clearly and unambiguously, it is relevant to start thinking about how you can approach the task. If you do not know what the purpose is (why), you cannot choose the best methods (how).
Based on a clear answer to why, you can shift the focus to how, which is about strategy, tactics and method. For example, when we want to strengthen our competitiveness vis-à-vis new competitors in the market (why do we want to develop our business digitally), should we then do it by a digital streamlining of all processes or by offering new digital services that can steal customers (how do we want to achieve our purpose)?
While it is recommended that you formulate one why at a time, you can probably easily find several how-answers to each why. Often, the answer to how will be a series of strategic moves that need to be executed one after the other. Make sure that the answers to how together give an overall and logical recipe for how you can achieve your purpose, and make sure to write it all down.
If it turns out that you are not sure, which possible strategic move you should choose, then write them down next to each other as different options and return to the question later. It is also perfectly fine if, at some point, you find out that it is relevant to change one or several of the points under how. There must be room to become wiser and find a better way to achieve your purpose, but if you change something under how, then make sure that your how is still an overall, but complete, recipe for achieving your purpose.
It can be an advantage to write down the answers to why and how down and put them on the wall in a visible place so that they can constantly help to set the direction for subsequent decisions.
The last step is to consider what, which, in principle, can contain an endless number of elements. Maybe so many elements that it is not possible at all to write them all down; however, this does not matter. Actually, you do not ever have to write answers to what, because the important thing about asking why, how and what is to remember to formulate and write down your answer to why and your answers to how, and to do this initially, so that it can frame the many what-decisions you have to make during your project.
It is important to remember that you must not make a what-decision about technology, tasks, activities, resources etc. if you cannot point to a how-point that it is meant to support, and it is important to remember that of course, you must not formulate how-points that do not clearly support your why’s.
Business - Organisation - Technology
One would think that digital business development was about technology, but even though technological development creates completely new opportunities and challenges, technology is not the first thing to focus on when you want to develop your business digitally. Development must be driven by a holistic principle.
You have to start by thinking about business: What business value do you want to achieve? Do you want to tighten and streamline your business processes so that they are almost fully automated? Do you want to create new value with digital services in connection with your physical products? What drives you must be business goals because if there is no business in your idea, then you must come up with a better idea.
Once you have found a business idea, you need to consider the organisation. How do we organise ourselves in terms of processes, management, roles and competencies in order to realise the business value we want to achieve? If you cannot find solutions to the organisation, then you will not be able to realise your business idea, and hence, you have to come up with another business idea that you can actually realise.
Only when you have a business goal that you believe you will be able to realise organisationally, you can start considering how the business goal and the surrounding organisation can be supported with technology.
The three elements must work together – i.e. interact – but when you initiate your work with digital business development, it is important that you start at a point where you can make sure that it first and foremost makes sense in terms of business, and that you can realise your goals – organisationally. The technology can then be chosen with the aim of supporting business and organisation.
If you think the formula Business – Organisation – Technology is a bit like Why – How – What, then you are absolutely right. The two principles focus on different aspects, but what they have in common is that the business purpose must be the governing feature, that the way you work is the glue in the middle, and that technology and concrete tasks eventually must always be defined based on the previous two.
Digitalisation connects the whole world and the individual companies in completely new ways, and digital value arises precisely through this connectedness. This also means that in the individual company, digital business and digital business development go across departments, organisational layers, processes, professional groups, systems, topics and work tasks. Therefore, holistic thinking is necessary if you want to create and harvest digital value.
As a company, you increasingly have to relate to the world around you to spot and deal with threats and opportunities, you have to understand the customers’ needs and wishes, you have to be able to create partnerships, and, internally, you have to be able to think across boundaries and at an overall level.
The methods and tools here each help in their own way to get holistic thinking into your digital business development in the form of, e.g., analysis of the surrounding world and the market, service design based on the customers and a method of viewing the whole company on the backdrop of the digital changes.
Iterative, agile approach
In a world where technology, markets and customer expectations are evolving ever faster, it is an advantage to work iteratively and agile. That is, working in small cycles where you constantly complete a task or a set of tasks, which in itself creates value, and where you continuously from cycle to cycle learn from experience and adjust accordingly. This makes development and implementation more manageable, flexible and result-creating.
Today, it is the case that if you as a company set yourself a long-term goal, it is then necessary that you also set yourself many smaller sub-goals, which not only lead to the ultimate goal but sub-goals which provide value along the way. This is because it is far from certain that you will ever reach your long-term goal – or that you should want to achieve it – because the world is changing so rapidly and dramatically that one goal is rarely relevant for a particularly long time. Instead, it is about getting quickly off the ramp with services, processes and business models that provide value here and now.
All methods and tools here are suitable for supporting iterative and agile work. The methods support that you experiment, quickly develop and implement something new, learn from the results and then, again and again, repeat the process from scratch with experiment, development, implementation and learning.
On the learning platform, you will find modules that describe the various tools for developing, testing and implementing a new digital business model from the company’s current position. A good place to start is with a Preliminary analysis of the Company’s situation and the Surrounding world to gain insight into the prerequisites your company has internally, as well as the context that surrounds it externally, and get insight into the Development Process of a new digital business model.
Before initiating the transformation process, you can take a closer look at What you need to know about business models where the value principle and logic about several business models are described.
The content elements above have been developed through two projects:
‘Digital Business models for the Future’ by Aarhus University, Aarhus School of Marine and Technical Engineering and Danish Technological Institute supported by The Danish Industry Foundation. The material from this project has been adopted in alignment with CC BY-SA 4.0