Health is generally described as 'undisturbed inner life processes'. But how can companies stay healthy when they are constantly surrounded by an ever changing external environment?
The ongoing ICT revolution supports the development of new business models that challenge established players of the old economy. Rapidly evolving digital technology and its possibilities change existing paradigms. New online platforms (think Uber for mobility, Facebook for communication or AirBnB for hospitality) that operate with the advantage of zero marginal costs introduced by digital communications are market-changing for designing businesses.
The most severe difficulties for established businesses arise when they need to sustain a competitive advantage based on old assumptions in increasingly complex, digital markets shaped by fast moving competitors. In effect, being able to perceive, understand and process external business model innovations is becoming a crucial competence to safeguard a company’s health and ultimately its survival.
To stay healthy, here is your apple a day
For capturing key changes that are taking place at the moment, we identified the most fundamental building blocks among existing business models and compared them to emerging business model designs.
Subsequently, we line out three of today’s ingredients for a competitive business model that support maximal impact and growth.
To create and capture value within a company, businesses need to align strategic goals and objectives.
Traditional value chains often focus on the production and selling of physical products. Not only do they tie-up a significant amount of capital, they also decrease business processes agility, relying on a considerable stack of assets. New platforms based businesses try to outsource most of these resources, reducing cost and risk while increasing profitability. For example, Lieferando (an online food delivery service) provides its customers with a one stop shop for ordering food from over 10.000 suppliers without the need to maintain or set up a delivery service.
Shifting ownership of infrastructure
In general, the infrastructure of a business is a framework composed of elements like human resources, facilities and finance etc.
Combining those elements the right way can make a business profitable. While a lot of old business models rely on the ownership of massive, cost-intensive manufacturing facilities and stores, the importance and value adding factor of these brick and mortar facilities is shrinking. Taking the example of Uber, taxi drivers (or even private persons) themselves provide the core product – personal transportation. By outsourcing the necessary service infrastructure to drivers and only providing a single scalable software platform, Uber is able to drastically reduce infrastructure costs, offer lower prices and grow rapidly. This way the company managed to become one of the world’s largest mobility providers without actually owning one single taxi.
For offering and selling products and services, stores and staff were traditionally quintessential. Customers had to visit outlets to get information or purchase products. In contrast, new businesses rely on digital communications and leverage online-offline integrations to scale faster and minimize costs. The ubiquity of internet connected devices like smartphones and tablets not only allows businesses to offer customers 24/7 availability through digital channels but also enable more efficient supply and delivery solutions. A good example for an application of these new possibilities are free-float car rental solutions like car2go. Nowadays, to rent a car you neither need to go to a car rental outlet nor plan ahead. The only thing necessary to get yourself a car in a few minutes is your phone.
The outlined examples show how changes in business environment and technological progress impact key assumptions of how businesses can be run. In an upcoming post we’ll look into other parts of business models that have been impacted by the digital age – stay tuned.
Editors note: This piece was originally published in the Service Design Gazette in November 2015.
Illustration: Sabrina Feuerherd