Ep. 73 Business Model Transformation

[00:00:00] Peter Maddison: Hello, and welcome to another exciting episode of Definitely Maybe Agile with your hosts, Peter Maddison and Dave Sharrock. How are you today, Dave?

[00:00:07] Dave Sharrock: Being great. I'm doing very well. Thank you, Peter. Good to be back in the studio having a chat. Last time we were talking, we left a little bit of a hook at the end. We were talking about process transformation in the context of digital transformations, and where we start. We just hinted at the need to bring business to the table and really understand why we're trying to do things. That naturally leads us to the conversation of a second type of transformation, which is often referred to as business model transformation.

[00:00:35] Peter Maddison: Yeah. Number two of our four, which is exciting. This one, I find very intriguing because I think there's lots of different types of business model transformation that go on. When we talk about it in context of digital transformation and the application of digital technology to change your business model. Or to add new channels. Or to change how you interact with your customers. These are examples of different types of business model transformation that organizations go through. And we've got a lot of examples of this in the marketplace. Where would you start?

[00:01:11] Dave Sharrock: I think in many cases when we go in to clients and work with transformations, we're actually working, or we're guiding organizations, to focus on business model transformation. They are business led. There are opportunities to really impact the bottom line in some new and interesting ways, where we're leveraging technology as a strategic partner in that journey. What's interesting around that business model transformation is, of course it's going to depend on process transformation, so you're gonna be doing a bunch of those to deliver it. But you have to start from that point of bringing strategic leaders to the table. Business, IT, a number of other leaders, to say "what is the landscape that we're working in? How can the skills and the opportunities, the technology or the processes, stitch together in a different way that better serves our customers?". That opens up opportunities for us to increase the number of customers that we have. Retain more of our customers for longer, because they're more satisfied and they're getting a better service. Or, increase the amount that they spend with us.

[00:02:14] Peter Maddison: Yes, that interaction piece is key to this. How do we interact with our customers? If you have different channels or the way in which you get paid. Somewhere like Starbucks where they bring in the app. Instead of having to line up, wait and to give your order. Now use your app to send the coffee order in. Which means that people are now more inclined, because they can order it on the way down in the elevator and it's ready for them when they get to the store, and they don't have to line up and wait for it all to be made for them. You're changing the business model and the dynamic of interaction with the customer.

[00:02:43] Dave Sharrock: We need to dissect that one just a little bit. It isn't as simple as just throwing in an app and saying, "Look, you've got an app we're gonna pay through the app". That's definitely a part of it. That whole paying through the app and storing money on your card is one piece, that we might talk about in the next section on domain transformations.

[00:02:59] What was interesting there is, shifting the model effectively from being a walk-in cafe mindset. Barista is sitting there, you walk in, you place your order, you hang around, you wait for it. Like a fast food place. You're going to join the queue and you're gonna get your drink pretty quickly, and the app facilitates the paying for that. To one of a "dial in and pick up". So you use the app to place the order, you walk in, you pick up. And the reason I mentioned those are two different things. With the first piece, Starbucks didn't have to change things too much. With the second, once they had people lining up to pick up orders, they often had to add more people. If anybody had a local Starbucks at that time, you'd walk in and there's nobody in the place, but there's a whole pile of drinks waiting to be picked up. Or there are people just working on meeting those online orders effectively. So there's a significant shift in how that business model was being run as a result of the digital elements, which has to do with the app. And the reason I'm mentioning that is, many of us will have experiences with coffee shops that have an app, but don't have that business model transformation.

[00:04:06] You may even have other examples of things, or products, that have an app, that don't necessarily have that business model transformation associated.

[00:04:15] Peter Maddison: Yeah. I can think of the fridge that we recently bought, where the app is absolutely useless. It doesn't give me anything that's of value with respect to the fridge. I can't control the temperature. I can't tell when the filter needs replacing. There's nothing inside of the app that makes it valuable for me to even have it installed, or to interact with the device. So there's been an introduction of digital technology, but it hasn't changed my interaction with the company.

[00:04:40] Dave Sharrock: As you're describing that, all I'm thinking of you is using your app to order a cold beer from your fridge and seeing what happens, which obviously would be a premium benefit.

[00:04:49] Peter Maddison: That that would be perfect. That just bring this picture of cans of beer going, flying across the room.

[00:04:54] Dave Sharrock: I think we've got to recognize there are a couple of things there. One is, business model transformations aren't easy. The point that you are describing, and I can think of a couple of others as well, isn't necessarily a bad thing. They've got to experiment. They've got to seek out what the benefit is. I'm just thinking, I have an app with the car. It's not a Tesla, it's nothing to do with how I can run the car, it's just more about maintenance and reminders about bits and pieces like that. Not very compelling, but they're learning. So that's the one thing we can say about that. The fridge, the app with this particular car manufacturer, we're in that process of trying to uncover possible business model transformation. They're not obvious.

[00:05:30] Peter Maddison: There was an example that you gave before, which I thought was more of an example of a business model transformation around insurance. And the switch from, I buy an insurance policy once a year, to I pay for my insurance by the mile that I drive. That to me is a fundamental shift in the business model. Where does my revenue come from? What is it I'm getting paid for? How am I getting paid for it? Perhaps it might be a better way of thinking.

[00:05:56] Dave Sharrock: What I liked about that example, it's also a great example of how digital technology is coming in to facilitate that. You couldn't have done that without the technology shifts that we've been seeing in recent years. So this is a great example where you've got strategic leaders coming together to say, "How can we tackle this market in a different way? What can we do? We're already dealing with car insurance. We've got technology. We're tracking various things. Is there some opportunity that we can uncover?". And I think that's just a great example.

[00:06:26] Another that I think all of us experienced through COVID is restaurants and takeout. That shift that many, many restaurants made towards a takeout mentality. I'm sure all of us are seeing restaurants where the bulk of their business is clearly takeout business. At least it's a 50/50 or something like this, but the takeout is not the occasional thing, but is a big part of their business because technology allowed them to do that. That technology happens to be quite a number of things. It's to do with all of the delivery startups that are out there, but also updating websites, allowing people to take payments and placing orders. Point-of-sale work, you've got to be able to plug that into however the orders are being taken for the food, and getting sent to the kitchen. So that's again, is an example where the digital side enabled that business model transformation.

[00:07:17] Peter Maddison: I've got one last one before we've wrapped this up. This is forward looking, back in that space around cars. Cars have become more and more complex of the years. Now there so much software and sensors inside of a car, it's not really possible for somebody at home on their own to actually fix these. You've got to take it to garage because that's the only way that it could be fixed. That, combined with the oncoming rush of electric vehicles coming into the marketplace means that there's a shift in how we will probably buy cars in the future. So, from this perspective, your business model, if you are in the business of selling cars, is going to need to change too. And the supporting systems will need to change. That change will drive a need for the change and the adoption of digital technology, to support that new way of delivering cars.

[00:08:06] Dave Sharrock: I really like the example that you're using there, because it's a great way for us to get back to the beginning. In the last episode, we talked about process transformation being the default place that most people go to when they think of transformation within an organization. What you've just highlighted there, is there is absolutely a shift to the business model transformation beginning to be that dominant starting point of a transformation. The need for it is driven by a market where, if you are not the one that is disrupting that market, that is adjusting, that is doing what we've described in terms of Starbucks, what we've described in terms of some of the US insurance companies. If you are not the ones doing that, the others are, and you are having to respond to that. Because they're eating into your market share. They're taking customers away from you. Or they're changing the pricing structure. All of this points to business model transformation. Remember, we define that as strategic leaders around the table, not driven out of technology. But business leaders coupled with technology leaders, really beginning to understand that landscape and look for these opportunities. Try out different things, find out which ones land, which ones gain traction and which ones don't. And I think that is a big learning from this.

[00:09:22] Peter Maddison: I like that. I like that. I think we've covered a lot around this. Are there three points we'd want our listeners to take away from this?

[00:09:29] Dave Sharrock: Yes. Number one is: you need business and IT at the table. You need probably more than that, but you need strategic leaders in business and IT at the table.

[00:09:39] Peter Maddison: I like to always talk about our business, versus it being business and the IT.

[00:09:44] Dave Sharrock: Yeah. That's a great way of looking at it. Yes, absolutely. I think that's so essential. Right? The second piece is that it's shifting how you interact with customers. And we talked a little bit, maybe it's the different channel that you can get paid in. Maybe it's just a different way that you interact. You offer a service which is somehow slightly different, such as insurance by the mile versus annual insurance. But there's some sort of shift in how you go to market, how you find your customers, what service you're offering and where the payments are coming. The third thing I'd say is, as a survival strategy, is the need to get good at business model transformations.

[00:10:22] We've not really touched on it, but there's an innovation and an experimental piece of it. You're not gonna be able to whiteboard the next perfect business model strategy and go and implement it. You're going to have to probe. You're going to have to try different ideas. You're going to have to find out what customers turn their attention to and where you can uncover those points that gain traction.

[00:10:44] Peter Maddison: Yeah. Get good at change.

[00:10:46] Dave Sharrock: Well get good at experimental. Innovation, in a sense. But yes, absolutely. Get good at change.

[00:10:51] Peter Maddison: Yeah. Okay. Well, thank you. I think that's summed it up beautifully.

[00:10:54] We've covered off, out of the four types of digital transformation, we've covered off process transformation. This was all about business model transformation. Next time around is going to be domain transformation and we've still got cultural and organizational transformation to come. Look forward to next time.

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