The coronavirus pandemic has definitely forced companies to change how they create and deliver value to their customers.
Take, for example, Philippine fast-food giant Jollibee Foods Corp. The Nikkei Asian Review reported that the company recently announced “it will spend P7 billion ($138 million) to build discreet ‘cloud kitchens’ and a stronger delivery service as part of a global restructuring plan” to offset the impact of the pandemic. These kitchens would be in discreet, low-rent sites and not include dine-in facilities.
In China, Econsultancy.com reported, “beer brands Budweiser and Carlsberg, cognac brand Rémy Martin and drinks brand Pernod Ricard joined forces with e-commerce site JD.com and Chinese music label Taihe Music Group to create an online clubbing experience, streamed directly to people’s living rooms and complete with liquor that they could buy from the stream and have delivered to their door.”
In London, fitness chain Frame quickly changed the way it operated when it was forced to close its doors because of the lockdown. They launched Frame Online, an online fitness hub with a £10.99-a-month subscription fee that allowed people who were stuck at home to get moving and keep fit with virtual classes, according to The Telegraph.
These are just a few examples of how companies innovated their business model as a response to the pandemic. But still, many other companies are struggling to do just that, let alone understand how they truly deliver value to their customers.
A business model describes the rationale of how an organization creates, delivers and captures value, and value is what a customer is willing to pay for. Business model innovation, then, describes the process in which an organization modifies and reconstructs its business model due to external factors, such as today’s physical distancing measures, community lockdowns and work-from-home schemes. Often, this innovation reflects a fundamental shift in how a company delivers value to its customers.
Such innovation can be classified into four types. First is customer experience innovation, or innovation in how a company engages and transacts with a customer. Moving from the traditional face-to-face engagement to online engagement using chatbots and messaging platforms is one example of such an innovation. The widespread adoption of e-commerce nowadays is another. These are further exemplified by the aforementioned Frame and the alcoholic drink brands.
Second is product or service offering innovation, or innovation in the firm’s set of distinguishing features, functionality and complimentary offerings. For example, companies are now using 3D printing to make products available when needed, such as those 3D-printed heart valves for patients in Italy and the innovative service of supply-chain firm UPS that 3D-prints metal, plastic and glass products on location, instead of waiting for these to be shipped and imported.
Third is business configuration innovation, or innovation in the organization’s processes, structure and connections with others to create value. An example is how many retail companies are now partnering with logistics providers to offer a seamless order-to-delivery process to consumers. The ‘cloud kitchen’ of Jollibee is an example of innovation in process and structure.
Fourth and last is profit model innovation, or innovation in how a company makes money.
Frame’s shift to a subscription model is one example. In fact, the lockdowns all over the world have spurred the use of the subscription profit model, from coffee to toiletries, as consumers stay and work from home.
These four cover all the components of the business model canvas, a tool to map the future business model of a company based on innovations in one or more components. How we innovate a company’s business model entails a methodical nine-step process.
The first step is to identify the customer segments or personas your company is serving. Nowadays, consumer behavior have evolved and new personas emerged that need to be served differently. I have discussed this extensively in a separate article.
Second is to identify your company’s value proposition for each customer segment. These are tangible results a customer gets from using your products or services.
Third is to identify the channels to serve your customers segments. Nowadays, the emerging predominant channel is online, coupled with the physical delivery of a product.
Fourth is to identify customer relationships for each segment, be it through the use of messaging platforms, chatbots, or live chats and calls.
Fifth is to identify the revenue streams resulting from the first four analyses. Examples in the online world are subscription, transactional and try-before-you-buy revenues.
Sixth is to identify key resources to create, deliver and capture the value from steps 1 to 5.
These can be key employees in marketing and technology, resources in technology management, and logistics.
Seventh is to identify the key activities that will create and deliver value to customers, including marketing, technology development and customer services.
Eighth is to identify key partners that will create and deliver value to customers, such as logistics and technology partners.
And ninth is to identify the resulting cost structure from the identification of key resources, activities and partners, be it the new costs of technology or manpower.
The resulting analysis is a new business model. But notice that the main driver is your customer segments and value propositions, which will drive the innovation across all the other components.
To learn more about our Virtual Master Class on Business Model Innovation, you may reach me at my email below.
The author is the chief executive officer of Hungry Workhorse Consulting, a digital and culture transformation consulting firm. He is the country representative of the Institute of Change and Transformation Professionals Asia and fellow at the US-based Institute for Digital Transformation. He teaches strategic management in the MBA program of De La Salle University. The author can be reached at rey.lugtu@hungryworkhorse.com.