Crisis-Proof Business Models

April 21, 2020 by Razvan Tapu

In a recent article, I outlined the strategies that organizations should adopt not only to cope with the economic crisis but also to thrive during and after it. And yes, it is possible to thrive even during this challenging period, as demonstrated by various studies that have analyzed the performance of thousands of companies during downturns.

In this article, I will go through the business models that offer the greatest chance of enabling businesses to thrive during the crisis caused by the coronavirus pandemic. The business models I’ve included are:

  • Digital First
  •  “Platformification”
  • Open Innovation
  • XaaS (Anything as a Service)

And whilst changing an entire business model might seem like a luxury in this period, or like too great a risk, that is exactly why some companies, the winners during this period, are going to do it. Let’s look at  the four threats to succeeding when pivoting to a new business model:

  •  Imitation by competition
  • Innovation by entrants and incumbents
  • Unfavorable shifts in the industry
  • Failure to execute

The first two threats are much less likely to materialize during this period. And for this reason, this is the ideal moment for a business to create an initial user base, because that user base can grow exponentially and allow a business to become dominant in its field of activity.

The listed business models, due to what was going on before the crisis and the social or group distancing introduced by COVID-19, are a response to the Digital Society, which is now being created at an even greater pace. The Digital Society is the result of modern society adopting and integrating information and communication technologies at home and work, as well as within education and recreation.

Digital First

The first business model, Digital First, is also the most obvious, and involves the appearance of new digital channels, alongside the increased usage of existing channels.

If the client is not visiting your store or showroom, or not coming to your office or production facility, there’s a clear business need to update the customer journey map and digitalize all the touchpoints before a sale. It also potentially becomes necessary to make the product or service available for consumption remotely.

Gartner already predicted, even before the crisis, that the second most important technological trend for 2020 will be multi-experience. Multi-experience involves creating fit-for-purpose apps based on touchpoint-specific modalities, such as touch, voice and gesture, while at the same time ensuring a consistent user experience across web, mobile, wearable, conversational and immersive touchpoints.

The technologies that enable multi-experience are already proven, and businesses must use creativity in putting them to work.

"Platformification"

The proliferation of Digital Channels will further fuel the appearance of new platforms. As with Digital Channels, the Platform business model was already a hot topic before the crisis.

From the most valuable start-ups disrupting traditional markets, to established companies that have shifted their approach, most of the poster boys of the Digital Transformation era (Uber, Facebook, Threadless, AirBnB, Nike) are using this Platform business model.

A platform creates value by facilitating exchanges between two or more interdependent groups, usually consumers and producers.

Platform businesses don’t (just) own the means of production – instead, they create the means of connection. In this model, the supply chain is no longer the central aggregator of business value. What a company owns matters less than what it can connect. In a networked world, scale comes from cultivating an external network built on top of your business. 

The success of this model relies on the network externalities principle. Network externalities occur when the value of a good to a user increases with the number of other users of the same or similar good.

A small but early lead in a race to gain users, consumers, or complementary goods can create a large advantage for a firm's product. This was the mechanism behind Windows OS winning its war with MacOS.

This model will only offer greater value with the rise of machine learning. The more customers one business connects to, the more data it has about those customers, which leads to better outputs from machine learning algorithms, which in turn increase the value crated by that platform.

Open innovation

Open Innovation, is more than a business model, it is also a mindset. Whenever the world is faced with great challenges, like it is now, society tends to come together to address these. The Platformification that we’ve talked about earlier is also contributing to the acceleration of Open Innovation.

Conceptually, Open Innovation is a more distributed, more participatory, more decentralized approach to innovation, based on the observed fact that useful knowledge today is widely distributed, and no company, no matter how capable or how big, can innovate effectively on its own. 

For business, open innovation is a more profitable way to innovate, because it can reduce costs, accelerate speed to market, increase differentiation in the market, and create new revenue streams for the company. 

XaaS

Anything as a service (XaaS) uses X as a placeholder for any kind of product and involves charging for the usage or the output of the product, rather than selling the product itself.

When businesses have to compete with lower budgets and less risk appetite, both within the B2C and B2B space, those companies embracing XaaS will have the upper hand when it comes to surviving and thriving over the coming years by allowing customers to switch capital expenses with operational expenses.

XaaS started more than sixty years ago, when the Xerox Corporation introduced a new business model to encourage affordable widescale use of their copy machines by leasing their machines to offices. Xerox would supply the machine, services and support allowing companies a specific number of copies included in the service and charging for usage above and beyond that amount.

Rolls-Royce is another, more recent, adopter of the XaaS model with its turbine engines, charging aerospace customers a fixed price for the number of hours they fly. Maintenance is covered, engine downtime is reduced, and companies have a fixed, predictable cost.

Usually, when talking about XaaS, the provider not only manufactures the goods or delivers the core service, but also attaches a whole range of additional value-added services, such as predictive maintenance or consumption analytics.  For the added services to be beneficial, especially where goods are concerned, an IoT system must usually be put in place with a platform that connects the necessary sensors, stores and aggregates information, makes predictions and connects the rented good with the manufacturing company.

Share:
See more Business

Are you transforming your business?