(Disruptive) Business Model

Development
The strategic alignment of the business model with customer requirements and satisfaction
requires a model that maps the value chain profitably in terms of overall financial gain. Learn
more here.

As part of a successful strategy, the value of a company should be increased in a targeted

manner through the creation of a sustainable competitive advantage. The business model
plays an essential role in this regard. The strategic alignment of the business model with
customer requirements and satisfaction requires the model to chart the associated value
chain in its macroeconomic environment. However, the sustainability and profitability of a
business model is always limited in time, since progress and innovation not only promote
competition, but also have the power to make whole business models obsolete.

The theme of digitalisation has long exerted a clear influence through various trends and
technologies in the private (social media, smart home, mobile internet, etc.) and business
environments (3D printing, advanced robotics, machine learning, etc.) The intelligent, global
networking of market participants associated with digital change – i.e. people, things and
machines – gives rise to an explosive mixture with the potential to significantly alter or even
break up existing structures. The associated digital transformation makes use of
technological advances to develop novel value chains and business models. In the sense of
Schumpeter’s “creative destruction”, this leads to the above-mentioned disruption of
established structures of value chains and business models. Examples of such digital
disruption are:

Figure 1: Examples of disruptive business models

The examples illustrate clearly how modern technologies can exploit unused resources and,
along with their corresponding customer benefits, be transformed into new digital business
models. Examples for the market entry of such dynamic, digitally-oriented market
participants can be found in almost all industries. As a result, the pressure is increasing on
brick-and-mortar “top dogs” to find their own answers to the challenges of digital change.

In addition to the influence of key trends such as digitalisation, there are other areas of
influence that result in disruption and thus in a need for the adaptation of existing business
models or the development of new ones. Figure 2 provides an overview:

Figure 2: Typical areas of influence leading to the development of new / disruptive

business models

If the “pressure” of these areas of influence is intense enough, the opportunity for new,
disruptive business models arises. Using a tried-and-tested, systematic methodology, it is
possible not only to determine the potential of a new business model, but also how it must
be designed and developed in order to ensure sustainable success. Figure 3 provides an
overview of the key steps for the design of a (disruptive) business model:

Figure 3: Overview of essential steps in the development of a (disruptive) business

model

The 8-step approach to business model development first defines the relevant customers
(segments) and the solutions/services offered (steps 1-4), then specifies the requirements for
success and implementation.

CUSTOMERS (SEGMENTS) & SOLUTIONS:

1) CUSTOMERS (SEGMENTS): A clear, distinct selection of the most attractive target

customers (segments) provides the initial basis. It’s vital to analyse whether and to what
extent the proposed customer segments actually exist and to check how attractive they
really are. Only when it is clear to whom the solution/service will be later offered can
targeted development take place.

2) PROBLEMS: Once the customers (segments) have been specified, an analysis and
verification of the existing “problems” of customer target groups should be carried out.
Appropriate solutions and services can then be developed and made available within
 the framework of the business model. This is a vitally important step in the process,
since unfortunately, presumed “solutions” often have little or nothing to do with actual
customer requirements (it can be the case that what brings about “personal fulfilment”
for talented product developers completely passes the needs of the market and
customers by). As such, the systematic review of problems in terms of actual customer
needs is crucial. It is also necessary to examine the extent to which the specified
customers (segments) have an actual willingness to pay for the identified problems and
needs.

3) SOLUTIONS / SERVICES: The third step is to develop appropriate solutions and

services on the basis of problems from the previous step (i.e., those that have been
identified and also verified in regards to customer’s willingness to pay). It is important
that solutions are both relevant and profitable.

4) CHANNELS: The third step is to determine via which distribution channels the
solution/service will be distributed to the customers (segments) defined in the initial
step.

REQUIREMENTS & EXECUTION:

5) REVENUE MODEL: Within the framework of the revenue model, the significant sales
flows per customer segment are defined and transferred into a conditions model.

6) KEY ACTIVITIES: After the essential aspects of the business model have been
developed in the manner of a “skeleton” in the previous steps, the most important (i.e.
differentiating) activities for rapid implementation and successful operation must be
determined.

7) KEY RESOURCES: In accordance with key activities and other properties of the
business model, the essential resources for successful operation of the model must be
specified.

8) PARTNERS: The final step is the selection of relevant partners for sustainable
 business success. This includes potential partners along the entire value chain of the
newly developed business model, provided that they can make a significant contribution
to success.

If the business model has been defined according to the above methodology, financial
validation is carried out as part of a complete business plan. The business model then moves
into the systematic implementation phase. At this stage, it is worth creating adequate
distance between the new business model and the existing business by means of a “new
venture strategy”. Experience from our own start-ups and from projects with clients has
shown that a new business model can only be developed successfully where sufficient
breathing space exists and where it is not “stifled” by too much “administration” at the
outset.

Contact one of our experts

Markus Fost
Managing Partner

Markus Fost, MBA, is an expert in e-commerce, online business

models and digital transformation, with broad experience in the fields
of strategy, organisation, corporate finance and operational
restructuring.

markus.fost@fostec.com
Phone: +49 (0) 711 995857-10
Mobile: +49 (0) 170 8057143
Fax: +49 (0) 711 995857-99

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