The four key elements of a Business model are i.customer value proposition, ii. profit formula, iii. utilization of key resources and iv. implementation of key processes. The integration of all the four key elements can be formed as one of the frameworks for Business model innovation. However, companies need to look beyond the horizon to formulate different frameworks in the world of uncertainty. In the process of looking beyond the horizon, companies can identify and conquer White Spaces and Blue Oceans by utilizing different frameworks.
Difference between White Spaces and Blue Oceans :
Blue Ocean is about creating new market space and new customer demands thereby making competition irrelevant. However, the process of conquering White Spaces is more complex and goes beyond the process of implementing Blue Ocean strategy. Conquering White space is not only about creating new markets, but also about transforming existing markets. Exploring White Space is also about perceiving the existing market in a different manner and understanding the customer’s jobs to be done. Competition cannot be ruled out while exploring White Spaces as one company’s White Space can be strategic capability or core competence of another company.
Just like the four key elements, there are also some other existing frameworks that focus on disrupting beliefs and orthodoxies. One of the frameworks that can be used a starting point is constructed by Mckinsey & Company consultants. The framework follows a five-step procedure: Outlining the dominant business model, dissecting the dogmas, flipping the orthodoxies, testing the rationality of the reframed beliefs and finally translating the reframed belief into a business model.
Components of New Framework:
The components of the new framework for an innovative business model focus on how to monitor and keep track of an organization’s capabilities. The following components are created on the assumption that the organization has clearly defined its objectives and implements activities based on its agenda. The second assumption on which the components of the framework are feasible is that companies are constantly monitoring customer’s decision journey and profoundly scanning the external factors to transform the core competences.
- CAPS: This is an acronym that serves as a tool to assess the capabilities of an organization. The four elements are i. capability to capture ii. affordability, iii. penetrability and iv. sustainability. In my perspective, an organization’s capabilities should possess these four elements in order to grow exponentially or to achieve a non-linear growth. Companies should first be able to capture consumer’s attention in order to maximize customer equity. Companies must make their offerings accessible to a greater number of people by selling them at affordable prices. The offerings made by the companies should be able to penetrate into disparate markets, cultures and boundaries. The element of sustainability has two connotations and organization should fulfill both the aspects of sustainability. The business practices should be sustainable by developing more products and services by utilizing fewer resources. By following these practices, an organization would also be able to fulfill the second aspect of sustainability, which is to survive in the marketplace for a long period of time.
- Reverse Income statement: Companies are prone to financial risks in the process of exploring White Spaces and Blue Oceans. Companies can test their strategies by designing a reverse income statement to evaluate cost benefit proposition of an offering. The financial aspect of business models should start with required profits rather than starting with estimates of revenues and working down the income statement to derive profits . Profits are necessary for the financial sustainability of any organization, although determining the “required profits” shackles imagination. In order to tackle with this, companies can determine “required profits” in different scenarios based on external environmental factors. For instance, in the case of favorable environmental factors, a company can project its profits to ten times higher than existing levels or exponentially higher than in a normal scenario.
- Consumer-centered design: Every offering designed should have a consumer-centered approach. Any offering or product should be designed in a manner that is simple for anyone to understand. Companies need to focus their attention on the cases where things go wrong, and this starts with a good understanding of people and the needs that design is intended to meet . This approach further ensures that there is a constant deconstruction of design orthodoxies in any industry.
- Turn VUCA into a beacon of opportunity: Business models go under acid tests due to various environmental forces. Business models should be designed to be safeguarded against Volatility, Uncertainty, Complexity and Ambiguity. Stable business models will not only safeguard against VUCA but will also capitalize on those four elements and turn them into a beam of opportunity.
- Reconstruct the existing & implemented frameworks: This is probably the radical step in the creation of framework for an innovative business model. Frameworks may also become obsolete just as company’s orthodoxies, practices and strategies. In the current age of creative transformation, companies need to question, experiment and reinvent the existing frameworks for an Innovative business model. This practice should be one of the crucial elements in the DNA code of an Innovator.