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At the start of the pandemic, businesses around the globe found themselves exposed to an unexpected boost in digitalization. Those who promised to keep the wheels turning were given carte blanche to do whatever it took to keep a company running. But as many now return to the office, they also realize that the digitalization lodestar is beginning to fade. Where investment priorities were clear early in the pandemic, companies now face the same uncertainties regarding digitalization as they faced before it.
At the heart of this uncertainty is a simple question: How do leaders make sure that digitalization makes a purposeful and sustainable impact on the business — and doesn’t just follow the next tech hype?
Behind this question stand legions of digitalization leaders who have tried to figure out what the latest trend in tech means for them — from AI and blockchain to quantum computing. But while many of these trends are hyped initially, executives have become all too familiar with the hype cycle’s “valley of tears”: the sobering phase after the initial hype when impacts and benefits remain vague and many projects are abandoned. Only a few manage to pull through and reach the “plateau of productivity” where digital investments start to make a difference.
If digital transformation is supposed to be meaningful and lasting, companies must think about changes in products and processes more than changes in technology. But many companies struggle to look past the shiny promises that usually accompany new technologies. As a result, they dedicate too many resources and too much attention to the technology side of digital transformation projects.
One approach to counter this imbalance is to think of digitalization as business model innovation rather than technology-related change. Over the past three years, I’ve been working with dozens of teams who made that shift. They were faced with digitalization challenges across a wide range of industries (e.g., consumer goods, health care, education, construction, finance) and firm sizes (from small and medium enterprises to larger, international organizations).
While their motivations and goals differed, the teams shared the experience that envisioning business model change — whether in response to digital disruption or to innovate digitally themselves — helped them see technology in context and better understand what measurable changes to expect. Across the teams, one simple, well-known tool turned out to facilitate the necessary shift in perspective: the business model canvas.
The Business Model Canvas
The business model canvas, developed by Alexander Osterwalder and Yves Pigneur, has helped organizations sketch out and transform their business models since the late 2000s. It’s intuitive to use and consists of nine key elements that each business usually relies on. At the heart is the value proposition, usually understood as a combination of pains addressed and gains delivered from a customer’s perspective. Toward the right, an understanding of who a business’s customers are leads to the capturing of customer segments. Between the two, customer relationships and channels sketch out how to relate to customers, stay open to their input, and deliver the value to them. On the more operational left side of the canvas, businesses are encouraged to think about the key activities and key resources needed to create that value. This side of the canvas also takes a look at key partners, such as through strategic alliances or complementary offerings, that help create value or further add to it. The canvas is then underpinned by an understanding of a business’s cost structure and insights into its anticipated revenue streams.
There are two aspects of the canvas that make it particularly suited to the digitally oriented conversations in focus here. First, while it serves as a sort of checklist to ensure that none of the nine key elements is overlooked, it also pulls all of the elements together, allowing for an understanding of the crucial interplay between them. Changes to one element usually have ripple effects across the entire canvas. For instance, changes in how an innovation is monetized will alter cash flows, which then in turn requires key activities to be restructured. This focus on interplay is key in digital transformation projects, too, because their success depends not only on investing in the right technologies, but also on the complementary changes in organizations that ensure that the technologies are used efficiently and effectively.
Second, the business model canvas is strongly rooted in the thinking that a perfect business plan rarely emerges in its final form overnight. Generating one is a process of iterative refinement driven by intense customer testing (e.g., through minimum viable prototypes or focus groups). In this way, smaller aspects of the canvas are subjected to feedback from key stakeholders to see how much sense they make and whether any changes are needed to improve the business model. This spirit is expressed well by the idea of lean startups. Changes that result from such testing can be evolutionary, gradually refining the business model, or even revolutionary, pivoting the whole idea. The same logic can also be applied to digitalization projects because many parts — both technological and organizational — need to be aligned iteratively to make them work.
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Benjamin Mueller is the professor for digital business at the University of Bremen and an associate researcher at the Karlsruhe Institute of Technology. He specializes in digital ethics as well as understanding how advanced information and communication technologies transform organizations and individuals’ work. Follow Benjamin on LinkedIn.