Transformation is a phase that all long-lasting businesses will eventually have to go through, one way or another.
While navigating a very fast-paced world and dealing with the numerous market shifts, a business needs to keep its operations functional by always optimizing its internal processes.
This constant optimization will enable a company to remain relevant and profitable while also keeping up with its competitors.
However, transforming a company’s internal processes does not always lead to the expected results.
Some companies cannot remain functional in their current form, so the type of digital transformation they need to go through is a little more fundamental and extensive.
When a company’s business model is no longer functional and does not lead to success and profits, the company needs a business model transformation.
Table of Contents
- What Is Business Model Transformation?
- The Types of Business Transformation
- Examples of Business Model Transformation
What Is Business Model Transformation?
Business model transformation, or simply business transformation, relates to fundamental changes in the way organizations operate.
These fundamental changes can include changes in organizational structure, operational processes, and company goals.
It is a change management business strategy that realigns the focus of a business or a company. This transformation allows a company to pivot from its previous business model to become more efficient and profitable.
A business model refers to an organization’s strategic plan to make a profit from the delivery of value through goods or services.
A business model includes target audiences for which the products or services are appropriate, potential engagement strategies and practices, and anticipated expenses.
Every business unit is required to have a business model to be functional.
Of course, business models defer in each organization, making some companies more profitable than others.
New businesses with new types of business models can create shifts in the market if it is proven that their business models increase profitability.
Therefore, many other organizations tend to follow suit and transform their own business models into something similar to enjoy some of the success their competitors do.
There are also the companies that take the initiative to change their business model into something original that can then inspire the other businesses around them.
Business model transformation is how they make that happen.
On the other hand, companies that remain stagnant for too long are usually on a downward trajectory.
The reasons a business might decide to go through a business model transformation are various, including low profit and turnover, the introduction of new technologies, market disruptions, and much more.
Sometimes, a business model transformation is required due to a merger or acquisition. In this case, the company’s business model will have to be modified to align with that of the other companies.
The Types of Business Transformation
There are a few different types of transformation for a business.
Organizational transformation relates more to the infrastructure of a company and especially the way the company’s employees work.
The organizational transformation aims to redefine work processes to make the employees more productive and the company more profitable.
Management transformation refers to changes in the hierarchy of an organization.
This is when the company decides to restructure its management team(s) and redefine the idea of leadership in the company.
Cultural transformation is about changing the way of thinking and creating a new set of practices for the company’s staff.
This type of transformation usually follows a management transformation, as it is important for the leadership team to set up the kind of company culture that the employees will later have to be introduced to.
Information systems transformation
Information systems transformation is driven by the introduction of advanced digital technology in an organization’s internal business process to correct deficiencies, increase profit and support the company’s employees in simplifying specific tasks.
Business Process Transformation
Transformation of business processes is related to modifying or completely changing the way a company operates, introducing faster and simpler processes, and allowing the organization’s staff members to be more productive.
This type of transformation usually removes tedious and repetitive tasks, replacing them with more functional work assignments.
Business Model Transformation vs Digital Transformation
While both are very important steps for a company to follow through, business model transformation and digital transformation are two very different processes.
Business model transformation is a change management strategy that focuses on changing a business’s core goals and infrastructure. It is generally centered around business and go-to-market models.
Digital transformation simplifies processes by bringing new technology to support the company’s operations.
With business model transformation, a company or business unit changes its focus. Digital transformation changes the way it works due to the influence of technology.
Both types of transformation drive innovation and make space for new business strategies that make the company more efficient and profitable.
Examples of Business Model Transformation
Let’s look at a couple of examples of a business model transformation initiative.
Before PayPal became the online payment service it is today in our digital economy, it was actually in the cryptography business. At the time, it focused on providing security software for portable devices.
However, with its original professional services not meeting the public’s expectations and not gaining interest, the company started the process of transforming its business model to identify a new business model that would make it more profitable and enhance customer expectations.
It was then that PayPal realized that the idea of repurposing the technology it specialized in to create a digital wallet was creating a new need that would eventually lead to more customer demand.
Today, PayPal is an international financial technology company specializing in online payments, facilitating the safe exchange of funds online.
Netflix is famous for being one of the most significant case studies for a successful business model transformation. Netflix originally began as a mail-based rental business through a subscription-based system that specifically focused on selling DVDs.
However, with the decline of the VHS in the early 2000s and the eventual decline of DVDs in the 2010s, sales for Netflix had started going toward a downward spiral.
Thankfully, the company decided to reevaluate its business model and transform the business into an online streaming service provider.
Recognizing the need for convenience and ease of access to boost the customer experience and experience business growth, the leaders of Netflix realized that technologies like Blu-Ray would not replace a physical product like DVDs and VHS.
Instead, it would be online streaming services that would become the new way of watching content.
Today, Netflix is one of the most successful entertainment companies, creating multitudes of content worldwide.