Business models in a changing world

I think I’m in the same boat as pretty much everyone on the planet when I say that this year isn’t turning out quite how I thought it would. And like pretty much everyone else, I also don’t know whether the current crisis represents a temporary diversion from business as usual or a more profound and permanent change. What I do know, though, is that if it turns out to be the latter, some of our organisational business models are going to struggle. And they’ll need to adapt – quickly – if organisations are to survive.

The question of what actually constitutes a business model, however, is a surprisingly contentious one.

The simplest definition I’ve come across is ‘how we plan to make money’, which is probably fair enough if the aim of your organisation is simply to make money. And it’s true that most – if not all – organisations need to bring in money at some point, even if that’s not their main purpose.

A better definition, in my view, and one that works also for those organisations with a primarily social – rather than commercial – purpose, is introduced as part of the Integrated Reporting framework.

I’m paraphrasing here, because the original is a bit jargon-heavy, but what it essentially says is that a business model is the way in which an organisation does things that fulfil its strategic purpose and create value over the short, medium and long term.

This doesn’t really address the need for financial sustainability, though, so perhaps we need a definition that lies somewhere between these two.

In fact, I’m rapidly coming around to the Harvard Business Review’s theory that a business model is one of those ‘an art not a science’ things that is hard to define, but we all recognise it when we see a good one. Or a bad one, for that matter.

Which brings me (finally) to my point.

Some organisations have good business models. Some have bad business models. And some organisations had good business models, but have had the rug pulled out from underneath them by the coronavirus outbreak so that they’re left with bad business models.

And if the impact of the pandemic turns out to be permanent, this is clearly going to be a problem.

I doubt this will be news to anyone. After all, organisations around the world are scrambling to put in place protocols and processes that will allow them to keep functioning in a socially-distanced world.

But many won’t be able to keep these up for long. Not if they are to remain financially viable. And we can’t rely on government support forever.

For many organisations, then, a more profound change will be needed. A change to the fundamental logic underpinning how the organisation works. A transformation in how it does what it does – and perhaps even in what it does, too.

A new business model for a new world.

This isn’t going to be easy. And I fear that many organisations may not be able to make the transition. But the sooner they start to think about it, the greater their chances of success will be.

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