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Business model innovation

Overcoming the crisis through strategic repositioning and business model innovation

On Äripäev’s radio show “Kasvukursil”, the Managing Partner of Grant Thornton Baltic Mati Nõmmiste, Digital Strategist Erik Suits and Nordic Hotels’ CEO Feliks Mägus discussed the impact of the current crisis on businesses.

The Covid-19 crisis has undoubtedly disrupted the equilibrium model of the world economy, as well as on the micro-level the equilibriums of many businesses. Whether your company will exit this crisis alive or even stronger will depend on your ability to rethink the strategic position and business model in the context of the new normal that is still yet to unfold. 

The Managing partner of Grant Thornton Baltic Mati Nõmmiste began by acknowledging that “there are things that will have changed irreversibly due to this crisis. Many of the processes that have now been accelerated, such as the digitalisation of businesses, were being advanced already before the crisis, but now that the pain point and need was so severe, everyone had to act fast and employ the necessary technologies.”

As the changes emerged suddenly and most companies were not prepared to deal with them, it is now of utmost importance to seriously consider how and if I need to adapt to the changing environment. This involves revising your company’s competitive strategy. In aiming to provide a framework for the discussions around strategy, Erik Suits proposed a simple model: “Strategy as a concept might sound abstract for some due to it multifaceted nature. However, now than ever it is important to take a holistic look at your strategy through these three questions: who my clients are, what products and services do I offer to them, meaning what your value offering is, and finally how do I deliver this value effectively. It is important to understand whether your strategic positioning still provides you with a competitive advantage or whether the new context requires you to make changes in any of these three dimensions.”

According to Erik Suits, these questions might seem trivial at the first glance, as most companies know the answers to these questions by heart. However, the crisis has already had its impact. “Especially on the consumer habits – already a significant number of retailers have migrated to online retail, while for some companies the who has changed overnight. Thinking in these three dimensions - the who, the what and the how –  will allow you to redesign and rethink your business model”, Erik Suits said. According to Suits, the ones who will survive in this crisis, will be the ones who carefully consider and aim to understand how the consumer needs and habits are changing in light of this crisis. Consequently, adapting their value offering accordingly. 

Companies applying the who-what-how model

Either knowingly or purposefully multiple companies have considered these three dimensions and already made adjustments to their value offering. Erik Suits further exemplified: “Citybee understood in the midst of the crisis that the demand for same-day delivery services had increased, as consumers transitioned to online channels. They agilely launched a delivery service utilising their floating car fleet and available resources to deliver a new value offering to a new customer group, thus, changing and adapting their business model on all three dimensions.”

Such adaptability in the face of the crisis is not only for agile start-ups. Nordic Hotel Forum was quick to act, as the demand for hotel rooms plummeted. They repurposed their hotel rooms for individual office spaces, thus, changing their target audience while utilising their vacant resources and infrastructure. According to Suits, this is a further example of a venture adapting their model to the changing needs and context, even if it is to survive the crisis.

Feliks Mägus, the CEO of Nordic Hotel Forum, acknowledged that rethinking their business model was a collective effort and that it was imperative that the CEO include everyone on the leadership team in the process: “At the end of the day it’s the experience and intuition that determines the fate of a business in a crisis, while the collective insight underpins every important decision.” Mägus further exemplified: “A significant number of businesses decided to do nothing due to shock, while we understood that panicking would be the most detrimental thing to do – everyone was hit by this crisis, especially the ones whose business was halted in a day. Nevertheless, you need to get over it quickly, reconsider your actions in the short term and go from there with redeveloping your long term strategy – this is the only way out in our industry, as the capital is lacking for everyone and liquidity problems are quick to arise.”

A leader needs to be inclusive

Although, Grant Thornton Baltic’s business was not halted to a standstill by the crisis, changes in the way of operating were required overnight. Above all, it concerned the way of working and servicing clients in a situation where it was not possible to physically meet anymore. Nõmmiste reflected that within just days, everyone was working from their home, and work still had to get done. Therefore, it became even more important that each and every employee would still feel as a part of the collective: so they would feel that their opinion mattered – including people in such times is of critical importance.

Mati Nõmmiste further recognised that this situation has perfectly highlighted that no leader can hold a company afloat alone: “You might be an extremely intelligent executive, but if you cannot convince and lead your team effectively, it is as good as if you were a couple of miles ahead of your battalion on a battlefield and there’s no one to back you up.”

Effectiveness will make or break your business during this crisis

From a strategic perspective, once you have figured out who your target client group is as well as which pains require alleviating and what your product is for that purpose, the attention turns to the HOW – how do you deliver the value effectively. Mati Nõmmiste empathised: “Quite often there are elements in businesses that, although nice, might not actually be critical to delivering the service or product. Therefore, it becomes important to carefully consider which management practices to utilize to align all the business resources for delivering the value proposition and how to forecast the revenue in these uncertain times.”

Although, it is clear that this crisis will undoubtedly increase the adoption of digital services and sales channels, these should not be considered a magical solution that will save the business. Mati Nõmmiste also acknowledged that digital transformation efforts, such as automation and business intelligence, will definitely gain popularity, as they’ll allow companies to better navigate through these uncertain times. In terms of sales channels there will be a definitive shift towards online, however, one should definitely consider whether an online shop fits their business processes and whether they have the required competences to actually make it work.

Nõmmiste further exemplified: “If the type of product you sell is not suitable for an online shop, then transitioning online will do you little good”. Mägus agreed saying that“Nordic Hotel Forum had managed to sell their food and other merchandise through online channels. “However, it nevertheless remains a constrained experience for the customer. It is quite impossible to sleep digitally and to recreate a restaurant experience over the internet. The 7500 hotel rooms will never be successful only utilizing digital solutions alone – there is only so much you can do with novel technology.”

Business Model Innovation

In order to rethink your business it is useful to utilise established frameworks, such as the Business Model Canvas, which will provide you with a holistic understanding of your business (your key partners, processes, resources, value offering, revenue model, cost structure, channels and client segments). In utilising the Business Model Canvas, you will focus on the three underlying questions: the who, what and how, thus, allowing you to rethink and redesign your business model. Erik Suits provided two techniques on how to utilise the Business Model Canvas for rethinking your strategic position and model: “the first technique is freshwatching, it is a process by which you aim to look at your business model through the lens of another company’s business model. Meaning, you overlay your own business model with one of another company. What would happen if you overlay your business model with Uber’s? How would your value proposition and processes change? And what kind of a revenue model would you apply? The second technique is called the epicentre method. Anyone who knows how to utilise the Business Model Canvas, knows that it consists of nine interdependent boxes – changing one will impact all the others. What the epicentre method does, is that it takes under consideration only one of these boxes – the chosen box being the epicentre – and tries to imagine what kind of a business model could be devised utilising this box as a starting point.” Suits concluded that these techniques are not meant to be used only for radically redesigning your business model, but rather as starting points in order to get the important ideas and discussions on the table, so that going through this process a new and more adaptive business model can be born.

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