More than a year in the pandemic, a lot of businesses are still struggling due to the imposition of community quarantines. In fact, around 10 percent of micro, small and medium enterprises (MSMEs) have closed as of June amid the COVID-19 pandemic, according to the latest survey of the Department of Trade and Industry (DTI), which is equivalent to around 140,000 businesses. Furthermore, 46 percent of MSMEs are partially operating and just 44 percent have full operations.
How many MSMEs are permanently closing remains unclear. A study by the International Trade Centre late last year revealed that around 9 percent of Philippine companies were considering permanent closure and 68 percent said they were strongly affected by the lockdowns. The actual business closures are probably more now given the protracted impact of the pandemic.
But amid this backdrop, there are many MSMEs, which quickly and successfully adapted to the new business environment.
Take for example Camille Albarracin, owner of Everything Green, a sustainable products and solutions company, which “initially had to close down temporarily following the lockdown imposition in Metro Manila”, as cited in DLSU Business Notes and Briefings, a journal published by the De La Salle University Ramon V. del Rosario-College of Business.
“A few months into the lockdown, Camille decided to experiment and pivot several of her products, including fashion accessories and wearables, to sustain the business. In the process of creating new product offerings, Camille also jump-started the development of her business’ e-commerce platform. Through this platform, Everything Green was able to shift its business model from business-to-business (B2B) to business-to-consumer (B2C). In addition to this, the platform is also being used to handle the social campaigns of the enterprise.”
Another example is how The Murang Gulay Shop (The Affordable Vegetables Shop) took advantage of its more than 20,000 followers in Facebook to promote its products and received orders during the pandemic, as cited in the journal.
The company “had to hire more people to handle the increasing number of vegetable orders during the pandemic,” as “their customers were worried they will not have food to eat during the lockdown—this was one of the motivating factors of the business to expand its services”.
Yet another example cited by the journal was Esme Palaganas, the founder of the fashion business called Basic Movement, which “began focusing on her business’ e-commerce platform when the government imposed the lockdown”.
Before the pandemic, “fashion businesses like hers relied on social media platforms such as Instagram to sell their product lines” and “the owner or her employees usually perform the rest of the manual legwork, including the consolidation of orders and processing of payments and deliveries, to name a few.” But when the pandemic started, “many businesses like Esme’s had to streamline all these processes through an e-commerce platform.”
These are just a few examples of how the pandemic forced MSMEs to innovate or perish, by changing the way they create and deliver value to their customers, to ultimately capture value in terms of profits. Such is what we call business model (BM). A company’s BM is the firms’ unique configuration of its value proposition (i.e., what does the firm offer to whom?), value creation (i.e., how is this value proposition created?), and value capture (i.e., how does the firm generate profits from this?) approach. It describes the rationale of how an organization creates, delivers, and captures value, and value is what a customer is willing to pay for.
When an organization modifies and reconstructs its BM due to external factors, such as today’s physical distancing measures, community lockdowns, and work-from-home schemes, it is referred to as business model innovation (BMI). Often, this innovation reflects a fundamental shift in how a company delivers value to its customers.
While digitalization is a key component of BMI, it can be regarded as an enabler. The most important source of knowledge for BMI is still the customer, or what we call customer experience innovation, or innovation in how a company engages and transacts with a customer.
Moving from the traditional in-person engagement to online engagement using social media and messaging platforms is one example of such an innovation, as done by The Murang Gulay Shop. The widespread adoption of e-commerce nowadays is another as exemplified by Everything Green and Basic Movement.
According to a study on BMI among MSMEs during the pandemic published in the Journal of Open Innovation, “testing innovations with customers and sensing customer needs are key capabilities for BMI.”
Alongside this type of innovation is product or service offering innovation, or innovation in the firm’s set of distinguishing features, functionality, and complementary offerings; business configuration innovation, or innovation in the organization’s processes, structure and connections with others to create value; and profit model innovation, or innovation in how a company makes money such as moving to subscription profit model. Indeed, the pandemic forced MSMEs to innovate or perish.