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When a crisis like the coronavirus pandemic hits an organization, its executives need to assess the impact on their business model, both immediately and over the long term. A framework we’ve developed over a decade of teaching can help executives identify the business-model risks and opportunities that the crisis presents.
To start, you’ll look at the four core dimensions of your business model: customers, value propositions, value demonstrations, and capabilities. Second, you’ll analyze the connections between these dimensions. Third, you’ll define realistic objectives for your organization, during and after the crisis. (You may want to consider different objectives for different crisis scenarios, such as fast crisis recovery vs. long lockdown period.)
The Four Dimensions
First, you need to assess what the crisis means for customer demand. Will overall demand go up or down? How will spending patterns change (e.g., spending more on streaming and less on cinemas)? Do you need to consider new delivery channels (e.g., switching from bricks-and-mortar to online)? Are there any new customer groups to consider (e.g., government or home office customers)? And finally, does the virus create safety concerns (e.g., if you sell services that must be performed face to face)?
You also need to think through how the crisis affects your value proposition. For example, let’s look at our own industry of higher education. Customer needs have not been changed by the coronavirus crisis — students still want to be educated. But if campuses need to stay closed for a long time, colleges and universities will need to rethink how they can create value as an online institution and how they differentiate themselves from competitors. (The crisis will likely hasten the widespread adoption of MOOCs and blended learning.)
We use the phrase value demonstration to describe an organization’s sales and marketing channels. The current crisis, with its restrictions on personal interactions and travel, shuts down typical value-demonstration channels such as customer meetings, trade shows, and industry gatherings. Do you need to find new ways to demonstrate value? Some firms are using the crisis as the rationale for faster adoption of video conferencing software and online sales and marketing materials.
Finally, an organization’s capabilities are the fuel that drives the engine, allowing your firm to create value for customers. A crisis may put a strain on your capabilities — and it may also require that you prioritize different capabilities than usual. Facilities management will take up less time, but IT support for tools like video conferencing may take up more. Supply chain and production capabilities will be top of mind and more resource intensive than usual in many organizations, since international supply chains are being disrupted. Employees’ typical levels of performance and productivity will be affected by the move to home offices, restrictions on travel, and illness.
Aligning the Elements
Once you’ve assessed where you stand on the four dimensions of your business model, you can think through how potential changes in one dimension can be aligned with the others.
Which customer segments value which of your offerings, and will that change because of the crisis? Customers who usually love eating in a restaurant may be willing to transition to take-away purchases, for example. Or food-delivery firms may find that home-office employees constitute a new customer segment. Likewise, customers may transition from one value demonstration channel to another — for example, from on-site meetings to online meetings, from corner shop to web shop, from in-person advice to YouTube videos. Similarly, due to a shortage in one capability (e.g. production in Asia), local production capabilities may be activated to support value propositions. Organizations may also shift their capabilities from demonstration to value proposition in order to deliver to customers rather than to convince new customers.
In a nutshell, a crisis not only challenges the four dimensions of a business model, it also creates opportunities to adjust each of the dimensions and how they relate to one another.
How Crisis Projects Can Drive Business Model Change
How can you move from a diagnosis to a response?
Before you decide on any significant changes in the business model, you’ll want to think through how the crisis will affect your existing performance metrics. What kind of earnings, or losses, will you encounter? How will the stock market judge your organization in the current crisis? How might it affect your reputation?
Then you need a plan for embracing the opportunities — and managing the damage — that these analyses have revealed. Our business model mapping tool can help you develop and prioritize a list of projects to invest in as you move through the crisis. One lesson from previous downturns is that companies that are proactive and growth oriented, even as they shore up their vulnerabilities, will have an edge coming out of the crisis.