[YS Learn] The impact of COVID-19 on business models of organisations, and the way forward
For the past eight to nine months now, Business Continuity Plans (BCP) have become the most important thing for startups, as the coronavirus pandemic has transformed the business plans and models overnight.
Startups like Curefit went completely online and introduced online gym and fitness training, and foodtech startups accelerated their entry into hyperlocal essential deliveries. Even product and hardware startups built drones, thermometers, and sanitisers to stay relevant during these trying times. But needless to say, a crisis like this has long-term impact on business plans and models.
To aid the same, Thomas Ritter, Professor, Copenhagen Business School, along with Professor Carsten Lund Pedersen developed a framework that can help executives identify the business-model risks and opportunities that the crisis presents. This was published in the Harvard Business Review early this year.
The duo divided the core business model into four dimensions - customers, value propositions, capabilities, and value demonstrations. Next, the connections between the dimensions will be analysed, after which one can define realistic objections for the business, both during and after the crisis.
Assessing the four dimensions
To begin with, the report states that one needs to understand what the crisis means for the customer demand. “How will spending patterns change (e.g., spending more on streaming and less on cinemas)? Do you need to consider new delivery channels (e.g., switching from brick-and-mortar to online)? Are there any new customer groups to consider? (e.g., government or home office customers)? And finally, does the virus create safety concerns (e.g., if you sell services that must be performed face to face)?”
The next step is to look at the value proposition - sometimes the customer needs would have changed due to the pandemic. For example, people still want education. But that also means rethinking how you create value online or by other means, and how would you possibly differentiate yourself from the others.
According to the HBR report, “We use the phrase value demonstration to describe an organisation’s sales and marketing channels. The current crisis, with its restrictions on personal interactions and travel, shuts down typical value-demonstration channels such as customer meetings, trade shows, and industry gatherings. Do you need to find new ways to demonstrate value? Some firms are using the crisis as the rationale for faster adoption of video conferencing software and online sales and marketing materials.”
Apart from this, it is also important to assess if the organisation is capable of creating the value needed for the customers. A crisis like the pandemic has no-doubt put a strain on the capabilities, and hence it will require the founder to prioritise different capabilities than usual.
“Facilities management will take up less time, but IT support for tools like video conferencing may take up more. Supply chain and production capabilities will be top of mind and more resource intensive than usual in many organisations since international supply chains are being disrupted,” added the report.
Finding the connection
After the assessment, the next step is to understand the four dimensions of the business model, understanding how the change in one of the four dimensions can impact others, and how all of them can be aligned.
The report says, one should consider “Which customer segments value which of your offerings, and will that change because of the crisis? For example, customers who usually love eating in a restaurant may be willing to transition to take-away purchases, or food-delivery firms may find that home-office employees constitute a new customer segment.”
Also, customers can transition from one value demonstration channel to another, and organisations can also shift their capabilities to deliver to their existing customers.
“In a nutshell, a crisis not only challenges the four dimensions of a business model, but it also creates opportunities to adjust each of the dimensions and how they relate to one another.
However, before you decide on any significant changes in the business model, you will want to think through how the crisis will affect your existing performance metrics. What kind of earnings or losses will you encounter? How will the stock market judge your organisation in the current crisis?, and how might it affect your reputation?”
Edited by Megha Reddy