Business model deconstruction is the process of disassembling the building of company to reuse it for a new business model. The business model is very significant to create and deliver value to the customer. The success of a business depends upon its model, even the established business has to renew its model according to changes in the business environment. The innovation and deconstruction are required when a company is getting a new opportunity or there is a major need for changes.
Opportunities for business model deconstruction are as follows:
• Disruptive innovation: A business model must be updated to acquire opportunities for the new market. generally, this situation arises, when customers are not satisfied with the products available in the market at a specific price. Thus, a business firm must acquire innovation to provide quality products at reasonable prices.
• New technology: To compete with competitors in the market, a company has to adopt new technology to produce quality products and meet the demands of customers. By using new technology in the production processes, a business can create a new market to sell their innovative products.
Needs of deconstructing business for new innovations are as follows:
• New disruptors: When a company is facing competition from new entrant using updated technology and recognized as a low-cost niche player in the local market. The existing business needs to acquire that updated technology and use the advantage of existing goodwill and brand name to compete with a new entrant.
• The basis of competition: The rivalry in competition in market changes time to time, it changes the basis of competition companies are competing for, it may be a range of products, price, innovation or quality. Thus, if the basis is innovation a business has to acquire new technology and sustain in the competitive market.
Nine building blocks in Osterwalder & Pigneur’s canvas
According to Osterwalder & Pigneur’s canvas, a business model is the rationale of the management that creates, deliver and capture the value in the market. The nine building blocks that determine the model of a business are as follows:
1. Customer segments: A business is required to meet the needs of customers by offering distinct or innovative products and build a loyal relationship. Customers are divided into different segments according to their needs and problems, thus business model must cover maximum segments as much possible.
2. Value proposition: The business model must be designed in such a way, that it will answer the following questions of market positioning.
• Why should a customer choose your company over others?
• How the business model solves the problems of customers and provides them the satisfaction?
• Which specific market segment will be targeted with this business model?
• What value will be delivered in the market?
3. Channels: The channels used by the business model should create awareness about the company in the market, and the measures to evaluate the value proposition of the company. It must provide clarity of the delivery system of the company. The channel of distribution must add value to customer experience.
4. Revenue Streams: The business model has been established to earn maximum profits, so they must plan their budget properly to determine the efforts. The price range of products offered, the willingness of the customer to pay that specific price and transaction mode. All these factors must be well planned to direct business towards higher success.
5. Key resources: The business model must identify its key resources that contribute the most to create value in various processes and operations of the business model. Resources could be physical, intellectual, human or financial.
6. Key activities: Activities that create a value proposition for the company, that could be production, marketing or problem-solving.
7. Key partners: sometimes, companies' alliance their business with their competitors to develop the business and with other parties contributing towards the success of the company.
8. Cost structure: Proper record and control of cost incurred by the company are necessary to achieve the desired goals. The knowledge of cost drivers, value drivers, fixed and variable cost will ensure better control.
9. Customer relations: To acquire a new customer is more expensive than retaining the old one. Thus, to boost the sales of the company, it must work on building a good relationship with them.