Horizon 1: Transforming an existing business model
Step 1 - Business model analysis:
Transforming an existing business model is crucial for companies that want to stay competitive in an ever-evolving market. The first step in this transformation process is to thoroughly assess the current business model.
It's important to map the key components, such as value proposition, revenue streams, customer segments, and the overall cost structure. Analyzing the performance through financials, customer satisfaction, and market position can highlight strengths and pinpoint areas for improvement.
Additionally, gathering feedback from environmental scanning provides valuable insights into risks and opportunities emerging outside the firm’s boundaries. This step identifies the components that need to change, given the risks and opportunities from outside.
Step 2 - Innovation options:
Once the assessment is complete and the key areas to innovate are identified, the next phase involves ideating and developing new business model options.
This can be achieved by listing alternatives for each critical component or consulting business model patterns as sources of inspiration (see the 10 Different Visual Tools for 10 Different Business Model Purposes). As a result of this step, the three to four most promising business model configurations should emerge.
Compare the potential and risks of each alternative, then select the best-fitting business model for further experimentation.
Step 3 - Experimenting and validating:
Testing a new business model is crucial and can be conducted through pilot projects in selected market segments. Only validation in the real world will show whether the assumptions made will hold true.
This phase allows the business to monitor performance closely and collect detailed feedback, using it to make quick iterative adjustments. Once the model has proven successful on a small scale, cautious planning for a broader rollout should ensure scalability and sustainability.
Step 4 - Change and roll-out plan:
Implementing a new business model transforms the older business model. This requires a detailed transition plan, outlining how the shift from the old model to the new one will occur, including timing, impacts on current operations, and communication strategies.
It’s also important to provide training and support to all employees to ensure they understand their roles within the new model. Adjustments to the business infrastructure may be necessary to support the new model, including investing in new technologies or modifying physical layouts.
Step 5 - Measure and adjust:
Finally, it is vital to set clear metrics to measure the success of the new business model and conduct regular reviews to assess performance against these metrics.
Continual improvement and staying agile are key, allowing the business to adapt further as industry trends shift and new opportunities arise. This ongoing cycle of monitoring and adapting ensures that the business model remains robust and relevant in the market.
Horizon 2: Expanding an existing business model
Step 1 - Market analysis:
Expanding an existing business model is a crucial step for any company looking to grow and sustain its presence in a competitive market.
It's about finding new avenues to increase the customer base, enhance product or service offerings, and enter new markets. A systematic approach to expansion not only streamlines the process but also improves the chances of success.
The expansion process begins with a critical evaluation of the market. What target groups are not yet well served? How big is the demand? Will it grow over time? What (technological or legislative) changes will open up new markets related to the core business?
Step 2 - Solution analysis:
Once the growth opportunities and markets are clear and prioritized, it is important to understand how to address these opportunities. Competitive analysis is also crucial to understand the business’ chances. Knowing competitors’ strategies, strengths, and weaknesses can provide valuable insights and help to craft a unique value proposition.
If the business can serve new opportunities with existing internal capabilities, develop strategies to enter these markets. If the capabilities are insufficient, formulate what is needed to build these capabilities.
Step 3 - Solution development:
Once the groundwork is laid, start developing specific expansion strategies. This might include considering geographical expansion, either internationally or into new regions within the current market, and analyzing various factors like regulatory, cultural, and economic conditions.
Diversifying product or service offerings is another avenue, either by enhancing existing ones or developing new ones. Forming partnerships and collaborations can also provide new channels, resources, or essential technologies.
Step 4 - Validation:
Before fully committing to the expansion strategy, run a pilot program or limited release in the new market or with the new product/service.
This step allows companies to gather data on performance, including customer acquisition, sales, and feedback, and use this information to refine their approach.
Step 5 - Business model adjustment:
Once validated, the new capabilities need to be incorporated into the existing core business model or spin-off into a new business model (read more about The Six Core Business Model Innovation Strategies). This can include revisiting or revising the value proposition, market segments, cost structure, and revenue streams.
Resource allocation is also critical; determining how to distribute capital, staff, and technology to support expansion efforts is a key factor. Additionally, develop risk management strategies to address potential challenges associated with expansion.
Step 6 - Measure and adjust:
Finally, the expanded business must be regularly monitored to evaluate its performance against the set goals using relevant key performance indicators.
Companies must remain adaptable, continuously improving and adjusting their strategy based on real-world performance and feedback. Engaging stakeholders, including employees, partners, and customers throughout the process, is also crucial as their insights can significantly refine the expansion strategy.
This ongoing cycle of evaluation, adaptation, and optimization is essential for the sustained success of the expanded business model.
Horizon 3: Creating or adding a new business model
Step 1 - Market developments:
Creating or adding a new business model to an existing one is a strategic approach that can help a company diversify its revenue streams, reach new customer segments, and enhance its resilience against market fluctuations. It can be a strong growth lever, yet also a risky endeavor. The first step is to identify opportunities for new business models.
This involves conducting extensive market research to spot trends, changes in consumer behavior, technological advancements, and new businesses, such as startups, that inspire the creation or addition of new business models. Additionally, organizing innovation workshops with your team and external experts can foster creative ideas.
Step 2 - Demand assumption testing:
After identifying potential opportunities, the second step is to develop and validate demand assumptions. Is the offering attractive enough for a larger user group? Will they be willing to pay for a product or service?
Multiple assumptions should be generated and outlined using business model innovation tools. Develop the most promising models as rapid prototypes; these must be detailed enough to evaluate but flexible enough to adjust based on feedback.
Gathering input from relevant test users with different characteristics is crucial at this stage to validate assumptions and assess the demand potential. This will help get more buy-in and confidence for the next steps.
Step 3 - Feasibility assumption testing:
Once it is clear that there is demand for the solution, test assumptions about the feasibility.
What are the most efficient and scalable ways to produce the product or service? How can you scale the business model from an initial rapid prototype to full-fledged production?
Step 4 - Going to market:
After validating the demand and feasibility, it is important to define how to go to the market. Will the new solutions be promoted and sold under the current business model, or will they be spun off into an own entity?
Launch the model fully to your target market, making sure all systems and processes are in place to support the scale-up. Monitor the performance closely and continuously look for improvements, being responsive to feedback and ready to make further adjustments as necessary.
Also, look for ways to leverage synergies between your new and existing business models through shared resources, cross-marketing, or bundled offerings.
Step 5 - Optimization:
Once the new model has been refined, tested, and integrated, the final step is to scale and optimize. Review and iterate the new business model.
Set regular review points to assess how the new business model is performing within the context of the broader business strategy. Stay informed about industry trends and developments that may affect your business model. Be prepared to adapt and evolve as necessary to stay competitive and meet changing market demands.