- Business Model Innovation
- Learning Module
The module – in brief
The analysis of the surrounding world is the natural starting point in the development of a new business model, especially by applying the outside-in principle. The purpose of the analysis is to give you an overview of your surrounding world and your value chain, and, thus, the context in which the new digital business model or new service is to be implemented. By analysing your surroundings, you will find opportunities, which you can seize, or threats, of which you must be aware.
The analysis of the surrounding world can be carried out by first describing and analysing the surrounding world and then the value chain. The next step after analysing the surroundings is a Pre-analysis of the Company’s Situation.
Before initiating the development of a new digital business model or new digital services, it is recommended to describe and analyse the external context in which the new digital business model or service is to be implemented. By obtaining this knowledge, you will be able to contemplate the viability of the business model in the surrounding world, you may find opportunities that can be turned into competitive advantages in the development of a new business model, or you can discover threats of which you need to be aware or perhaps you can even reduce them with a new business model.
The following two tools give a good overview of your surroundings:
- Surrounding world analysis helps to describe what your surroundings look like now, what threats and opportunities prevail in your surroundings and what you should be aware of or react to. The tool consists of a description of market conditions, industrial conditions and macroeconomic conditions as well as social, cultural and technological conditions.
- Value chain analysis helps to describe the value that you and your business partners deliver across the value chain compared to your competitors. Analysis of the value chain is used in order to examine your opportunities to create added value or your risk of being replaced and being forced to leave the value chain.
Describe your surroundings
Your business environment has a great influence on your business, your business model and the market in which you operate. How successful a business model is, depends not only on the business model being financially profitable and creating value for the customer but just as much on the fact that it is viable in the surrounding world. Changes in the surrounding world could be Amazon’s possible entry into the Nordic countries, or that a start-up is entering the market, which offers customers to rent their products rather than own them. Your surroundings are constantly changing, and you can create a competitive advantage by being proactive concerning the surrounding world rather than being reactive.
One tool for describing your business environment is the tool the Surrounding world. This tool creates an overview of factors in your environment that are important to the business, e.g. social conditions, market conditions, current and desired products and services, new and potential start-ups, competitors, customers and economic conditions. The Surrounding world analysis can be used to find external opportunities and threats to your company.
Set aside 1-2 hours for description, analysis and ranking of threats and opportunities.
It will be a great advantage to let different key employees participate in this analysis.
A print of The Surrounding world in large format should be used, preferably in size A2 or A1. In addition, you need pens and perhaps some Post-its, depending on whether you want to write directly on the sheet or use Post-its, which can be stuck on the sheet. It is highly recommended to perform the analysis on paper rather than on a computer, as it is much more flexible and makes it easier to stay focused.
The step-by-step guide can be read below.
1) Start by describing market conditions in terms of customer segments, customer loyalty, customer desires and needs, customer power and the products and services offered.
2) Then social, cultural and technological conditions are described; for example, an ageing population, increased focus on the climate, widespread use of social media, changes in legislation, increased access to advanced technology etc.
3) Industrial conditions are then described in the form of suppliers, competitors, start-ups, various stakeholders and the product and services that can replace what you offer.
4) Finally, the macroeconomic conditions are described, e.g. do you have access to investors, is the market booming, declining or stagnant, and how is the coherence in the economic infrastructure.
5) After the description of market conditions, social, cultural and technological conditions, industrial conditions and macroeconomic conditions, the individual inputs are discussed.
6) After the discussion, relevant opportunities and threats for the company are ranked and selected. To make it focused, it is recommended to choose the three main threats and the three main opportunities.
- Which three opportunities and threats have the greatest potential to affect your business positively or negatively?
- Which has the greatest potential to change your relationship with customers?
- On which threats and opportunities do you have influence, and which are beyond your influence?
- When will you return to and re-evaluate the drawn up tool?
The selected opportunities and threats can then be used in a SWOT analysis to evaluate the surrounding world and the market in relation to your company’s internal strengths and weaknesses, or insights can be passed on to further analysis in the modules Service Design and Pre-analysis of the Company’s Situation. In addition, the tool for external analysis can be revisited after the development of the new digital business model or new service to evaluate how the solution fits in with the surrounding world.
Describe your value chain
Digitisation has implied a major disruption and tightening of many value chains. For example, the Internet has made it possible to eliminate intermediaries, to distribute and facilitate data more smoothly, thus providing new types of services. Competitive advantages can be gained by looking at how you can secure your position in the value chain, take a larger part of the value chain or turn the value chain upside down.
The value chain analysis is a tool for describing your company and your partners, as well as what value you each deliver concerning the final solution. The value chain analysis also describes the value that is created for the customer and the customer’s customer or for an end-user. Finally, the value chain analysis indicates how much of the value chain your competitors control. The analysis of the value chain can assist you in putting your solution into a larger perspective in relation to the value you will have to deliver. Knowledge of your position in the value chain can be used to point out risks of being squeezed out of the value chain as well as opportunities to tighten the value chain and strengthen your position.
Set aside 1-3 hours for description and analysis.
It will be a great advantage to let different key employees participate in this analysis.
In addition, you need pens and perhaps some Post-its, depending on whether you want to write directly on the sheet or use Post-its. It is highly recommended to perform the analysis on paper rather than on a computer, as it is much more flexible and makes it easier to stay focused.
1) First, describe the solution that your company and business partners provide to the customer and the customer’s customers. This is both a description of the overall solution and what problem it solves, as well as what sub-elements the solution consists of.
2) Your company is then described by answering the following questions: What sub-elements of the solution do you provide? What value do you deliver? How do you strengthen the final solution?
3) After the description of your company, your customers should be described by answering the following questions: Who are the customers? What value do they get from the solution? What problems are solved for them?
4) Next, the customers’ customers or end-users are described by answering the following questions: Who are the customers’ customers or the end-users? What value do they get from the solution? What problems are solved for them?
5) Next, your business partners are described by answering the following questions: Who are your suppliers and partners? What value do they provide to the solution? Which sub-elements do they deliver to the solution? How do they strengthen the solution?
6) Finally, describe the competitors by answering the following questions: Who are your competitors? What sub-elements of the solution do they provide? What products, value and services do they provide? What are their strengths? What are their weaknesses? Also, remember to include new and potential competitors. Please indicate which sub-elements each competitor covers.
7) Once the tool has been completed, you should analyse whether your company is vulnerable in relation to the sub-elements that you offer, and how easy or difficult it is for customers and partners to replace your company with another. If your company is vulnerable in the value chain, you can investigate whether it is possible to cover several of the sub-elements in the value chain, whether you can strengthen your position further and make yourself irreplaceable, or whether you should focus on another business area.
- What is the risk that a competitor or business partner will replace your position in the value chain or start delivering the sub-elements that you currently supply?
- How can you strengthen the value chain or deliver more value to customers or the customers’ customers?
- How can you strengthen collaboration with your business partners, so that together you secure your position in the value chain?
The value chain analysis can be combined with a SWOT analysis to outline threats and opportunities in the value chain, and how you can strengthen your position, based on a focus on your internal strengths and weaknesses, or insights can be passed on to further analysis in the modules Service Design or Pre-analysis of the Company’s Situation. In addition, the tool for value chain analysis can be revisited after the development of the new digital business model or new service to evaluate how they change the value chain and whether it will improve or weaken your position.
- Do not focus on describing the world around you as you see it, but as it really is. Feel free to ally with knowledge institutions or experts.
- Fill in several versions of the tools, as you can easily overlook competitors, threats or opportunities if you only examine your immediate core worlds and hence, you might overlook alternative worlds.
- Revisit the tool occasionally to assess and evaluate your surroundings on an ongoing basis.
- Look beyond yourself and examine the value you deliver, and not the value you think you deliver.
The Pre-analysis of the Surrounding World provides a rich description of the business environment in which your company operates. This is used both as an introduction to the development of a new business model and to describe the context in which the business model is to be implemented. The identified opportunities and threats can be used for further analysis in modules Service Design and Customer Analysis where you can work towards taking advantage of the opportunities and reducing the threats.
The next step in the development of a digital business model is a Pre-analysis of the Company’s Situation where you can take a closer look at your digital maturity and internal strengths and weaknesses in relation to the surrounding world.
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