- Business Model Innovation
- Learning Module
The module – in brief
The purpose of this module is to shed light on whether you can create and deliver the value on which the business model is based. Therefore, the focus is on validating that your company can handle the task and that all pros and cons have been considered. Guidance will be provided on how to analyse the strengths, weaknesses, opportunities and threats that your company is facing as well as on how to understand and navigate essential organisational elements. The goal is to qualify and validate that you can make the new business model work internally and to anticipate risks so that a plan for managing these can be drawn up. With a validated business model you will then be able to proceed to implementation.
When a company develops a new business model, it is – in addition to testing the business model on the customers – also important to be aware of how the new business model will affect the organisation internally. For simplicity, tests are divided into two modules:
- This module, Internal Validation and Testing, deals with testing the business model internally within the organisation. Thus, this module largely focuses on the issue of value creation and value delivery by asking the question: Can your company handle the task of creating the solution in the digital business model and deliver it to the customer groups and users at which the business model is aimed?
- The second module, Early usability testing and pretotyping, focuses on the customer side of the business model, including the customer’s experience of the digital products and services in the solution, the sales message and the customer’s view of the value of the solution and thus what the customer is willing to pay for the solution.
The next section will provide insight into testing the impact and requirements of the business model internally within the organisation. This is illustrated with the use of a SWOT analysis (Strengths, Weaknesses, Opportunities and Threats) and with the use of a methodology for analysis of organisational elements called the Ss of mutual effect.
A SWOT analysis is a tool used to identify and analyse the Strengths, Weaknesses, Opportunities and Threats that exist either in the current situation or in an imagined future situation. This analysis can be applied at different levels, for example on a complete strategy or a single business model or service.
The SWOT analysis consists of two parts, the first of which is internally oriented and the second externally. Basically, Strengths and Weaknesses exist internally in your company (e.g. processes, employees, technology, resources etc.) while Opportunities and Threats basically exist externally in your market and the surrounding world (e.g. competitors, changes in the market, cultural trends etc.).
The SWOT analysis can be used as a tool to examine your market opportunities and threats, including your strength with which you react to these. Likewise, SWOT can be used to assess the results of any other analysis to understand how strong your company is regarding executing on the results, as well as what opportunities and threats need to be taken into account. In other words, you can use a SWOT analysis on the results of other analyses.
“SWOT matrix” adopted from Digital Business Models for the Future under license CC BY-SA 4.0
Prior to the analysis, you should define the topic of analysis. As mentioned, this could be a topic with an overall and/or strategic nature (the company, the organisation, a strategy, a project) and a theoretical nature (sketching a business model, using a certain tool).
Regardless of the topic, it is recommended to let employees from different departments and with different professional backgrounds participate in this analysis. This will create a more detailed and complete analysis and a common understanding of how your company and the individual employees optimally create an interplay between relevant internal and external factors.
You will either need a printout of the SWOT matrix or a large blackboard or whiteboard on which you draw the tool. In principle, the results of the analysis can be written directly into a blank document on a computer, but it is strongly recommended to carry out the analysis in writing, as this is much more flexible and, to a greater extent, encourages interaction. It is recommended that one person be selected who is responsible for writing down the input of the participants and systematically filling in the SWOT matrix.
1) Determine the topic of the analysis and make it clear to anyone who is going to contribute to the analysis
2) Draw or print a SWOT matrix. Start filling in the individual fields.
3) Describe strengths internally in your company. Strengths should be what you as a company are good at. For example, great knowledge of the business area, experienced and service-oriented technicians, easy access to resources, offering a unique product/service, strong collaboration across the company etc.
4) Then describe weaknesses within the company. Weaknesses are what you as a company are less good at. For example, that you have difficulty attracting the right talent pool, that your website is not user-friendly, that there are problems with the delivery etc.
5) Next, you should describe opportunities in the market. Opportunities are what you as a company can seize. For example, new legislation that benefits you, the fact that robot technology can make production processes cheaper, that customers are willing to spar and develop together with you etc.
6) Finally, threats in the market are described. Threats are what you as a company must be aware of and what can negatively affect your company. For example, start-ups gradually taking over the market, production of cheaper copy products, influx of new technology undermining your business model etc.
7) The results of the analysis should now be thoroughly assessed to ensure that they are real and relevant. This involves assessing whether it is possible to take actions that can increase your strengths, minimise your weaknesses, enable you to seize opportunities and eliminate or minimise threats.
8) If the SWOT analysis is to result in concrete action, the remaining factors in the matrix – those that have been found real and relevant – must be converted into action parameters. This is done by assessing, determining and justifying the following:
- how strengths can be used to take advantage of the opportunities
- how strengths can be used to reduce threats
- how weaknesses that prevent the exploitation of opportunities can be overcome or reduced
- how weaknesses that increase the likelihood of threats becoming a reality can be reduced or overcome
When filled in, the SWOT matrix should create a basis for action. By operationalising the points above in concrete actions, e.g. through projects or otherwise, the analysis will be converted into concrete results. Your business will become stronger and will be more able to create business through the existing opportunities.
In this way, the SWOT analysis can be translated from theory into a practical and operational plan.
Example of the SWOT analysis
In the example below, you can follow the fictional company X-Production and let yourself be inspired to using the tool.
“X-Production’s SWOT example” adopted from Digital Business Models for the Future under license CC BY-SA 4.0
The organisational elements of mutual effect
Implementing a new business model generates new demands within the organisation, and as a derived effect, internal inconsistencies may arise. It is important to be aware of potential inconsistencies before implementing the new business model to ensure that all internal elements contribute to the shared goals and values of the organisation. Here, a structured methodology for analysing these internal elements is effective in supporting the process, as it provides an overview of the organisational changes and alignments needed in order to position a new business model to become successful.
“Ss of mutual effect” by EU-IoT project under license CC BY-SA 4.0
- Strategy: the organisation’s plan for building and maintaining a competitive advantage over its competitors.
- Structure: how the company is organized (how departments and teams are structured, including who reports to whom).
- Systems: the daily activities and procedures that staff use to get the job done.
These hard elements are relatively easy to recognise, and the management can influence them directly. The soft elements are more difficult to recognise, as they are less tangible, and more influenced by the company culture. The soft elements include:
- Shared values: these are the core values of the organisation and reflect its general work ethic. The placement in the centre of the framework highlights that they are central to the development of all the other critical elements.
- Style: the style of leadership and management processes adopted.
- Staff: the employees and their general capabilities and roles.
- Skills: the actual skills and competencies of the organisation’s employees.
The methodology can be used as a checklist when assessing what it requires of the company to implement a new digital business model, process, solution or technology, as well as to examine and test the likely effects of future changes in the organisation.
Below, the methodology is illustrated by an example where you can see the logic of how the Ss of mutual effect influence each other, and how changes in one element cause a chain reaction across the whole organisation.
To initiate a reflective dialogue that tests the sustainability of a potential new digital business model, the following questions could be raised based on the methodology:
- Based on the Ss of mutual effect-elements, where will the implementation of the new business model cause the most changes internally in our organisation?
- A) What will the change look like
- B) Which element(s) are directly affected by the changes – and how?
- C) How does the change in one element influence the other elements?
- How do you see value creation in the business model in relation to the organisation, and on which elements will the new value creation cause the most changes?
- Ask A), B) and C).
- How do you see the technology in the business model in relation to the organisation, and on which elements will the new technology cause the most changes?
- Ask A), B) and C).
- How do you see the revenue mechanism of the business model in relation to the organisation, and on which elements will the new revenue mechanism cause the most changes?
- Ask A), B) and C).
In the module about Implementation, you can read more about how the Ss of mutual effect can also be used as a methodology to support the adoption of a new business model in the internal organisation, and you can follow a guide that takes you through the process step-by-step.
Validating a new digital business model before implementing it enables practitioners to be at the forefront of the challenges that may arise in the process. By using the Ss of mutual effect as a methodology, you can create an overview of the new requirements that come along with the new digital business model, process, solution or technology, and you can assess which internal elements are affected, examine the derived effects, test and prepare the organisation so that you are in the best possible position when implementing the changes.
Example of the Ss of mutual effect
In the example below, you can follow the fictional company X-Production and let yourself be inspired by how the methodology can be used.
X-Production is considering investing in a 3D printer, i.e. implementing new technology in their systems. With a 3D printer, X-Production can enhance service to customers by offering fast prototypes and production of special orders in small quantities. In other words, they are able to deliver a new and better value proposition, and the investment thereby derives from the strategy of the organisation, as it builds a competitive advantage over competitors.
By examining the Ss of mutual effect, X-Production can see that they should be aware that the new 3D printer requires new skills among the employees; for example, skills to operate the printer and to design the print products. Likewise, it will require new capabilities among the staff in the production, as some employees will now have to take on a new role and enter into dialogues with customers about special orders as well as they have to handle the orders.
Along with the 3D printer comes also new software in the organisational systems, and new flows of data and information will emerge, which makes a new form of structure necessary in X-Production. Employees in production and IT must collaborate and frequently report to each other, and/or a dedicated team across departments should be structured to handle the entire 3D printing process. The organisational changes will place great demands on the styleof X-Production’s management processes that must ensure that the employees acquire the needed skills and are equipped to perform their new roles, including that individual employees are encouraged to take leadership in the new technology.
Finally, the service of 3D printing fast prototypes and special orders in small quantities will positively reinforce X-Production’s business model by generating added value for the customers. This aligns with the shared values of the organisation, where the general work ethic is based on a ‘value for customers’-mindset, and these are thereby central to the development of all the other elements.
Testing the elements of a business model can lead the process into a series of loops where you may want to revisit the knowledge found in the previous modules such as Basic principles, What you need to know about digital business models, Customer Analysis, Service design or The development process. The goal is to continuously test and increase the maturity of your business model to reach the point of validation where you are ready to progress with Implementation, which is described in a separate module.