More and more companies come to realize that offering products and services with superior features is no longer sufficient for achieving long-term business success. Too fast these features can be imitated by competitors. However, companies that succeed in embedding their offerings into a compelling business model, which combines both conceptual and implementation-based strength, can ascend to strategy champions of their industry.
Decoding the DNA of Business Models
As part of the designing of business models, Horváth & Partners has been working with the 7C-Model for years. The experience gained from corporate practice shows that seven dimensions have to be systematically analyzed to illuminate the key characteristics of an organization and the way, in which these characteristics interact with each other.
Fig. 1: The 7C-Model by Horváth & Partners
- Strategic core: The strategic core focusses on the question which products and services the company sells to which customers in which countries.
- Customer perception: Customer perception focuses on those fields of activity that affect the minds of the customers, i.e. their perception of the product or service quality. This includes brand-related value propositions, market positioning and the type of brand usage, including the communication tools used.
- Customer interface: Customer interface comprises all those decisions that determine the direct interaction with customers. This includes distribution channels, the earnings model (i.e. clarifying what the customer is actually willing to pay), types of customer loyalty (e.g. contracts, bonus programs or personal relations) and the design of customer services.
- Value chain: The value chain addresses the provision of products. Furthermore, it takes a critical look at core processes, existing product locations and networks as well as production procedures which are in place.
- Cooperation partners: In the context of this dimension, the company needs to decide with whom and how to cooperate. Collaborations with suppliers, alliances and M&A activities play an important role.
- Concepts for the future: Concepts for the future focuses on the analysis of the innovation portfolio, the definition of the innovation process and innovation dynamics in terms of the timing of innovations (e.g. "first mover" versus "early follower"). It also concerns decisions related to the innovation depth, which answer the question whether external partners should be involved in the different phases of the innovation process.
- Human capital: This business model component deals with the personnel and competence structure of the organization as well as the design of the corporate culture.
Five Steps to Advancing Current Business Models
Like products, business models have a life cycle. Therefore, they should be reviewed for their conceptual strength on a regular basis. The five-stage approach by Horváth & Partners allows the identification of fields of actions that need to be managed and enhanced in order to remain successful in the future.
Step 1: Description of the current Business Model
The first step is to describe the individual dimensions of the current business model and the way they interact with each other. The 7C-Model provides a checklist to ensure that all relevant components of the business model are identified and documented in a structured way in order to avoid any blind spots.
Step 2: Analysis of the current Business Model
In a second step, the individual dimensions of the current business model are subjected to a stress test. Based on the results of the strategic analysis, it needs to be assessed whether the current business model allows a successful business development in the future.
Step 3: Advancing the Business Model by developing new ideas
The third step focuses on the identification of fields of actions that need to be managed in order to enhance the conceptual strength of the existing business model. For this purpose, the company needs to make use of different sources of ideas: the creativity of employees, impulses from customers, suppliers and other partners as well as strategies of competitors within and outside the industry the company operates in. Once ideas have been generated, the most promising ones need to be identified and checked for consistency based on qualitative and quantitative cost-benefit analysis. Do the prioritized ideas complement each other and, taken together, lead to company success or are there any contradictions, which must be eliminated?
Step 4: Evaluation of the Aspired Business Model
After decomposing the current business model and prioritizing the requirements for further development, the financial and non-financial effects of the desired business model need to be evaluated. Will the revised business model be profitable? Is the company capable of implementing the business model adjustments? Are all necessary competencies available? The profitability analysis of the prioritized changes and the consideration of their monetary and non-monetary impacts are crucial in order to take the right path towards a successful business development.
Step 5: Implementation of the Business Model Adjustment
When comparing the current with the desired business model, necessary steps for further company development in the sense of "being different" become clear. The implementation of such changes is associated with the "being better”, as it requires the alignment of employees to new priorities and has impact on strategy-relevant competencies, thinking models, incentive systems, etc. Strategic target systems unfold their full power in this context.
By mastering the two disciplines of "being different" and "being better," businesses can succeed in building those sources of differentiation that characterize a strategy champion.
Fig. 2: Matrix of "Being different" and "Being better“
The interplay between the conceptual strength of the business model and the implementation strength of strategic priorities has been a central component of the consulting approach of Horváth & Partners for more than 10 years now.