© Tweeter Linder 2017 – All rights reserved. Photo by iStock

The need for business model innovation is a central part of digital transformation. But growing solution complexity in combination with blended/evolved business model is demanding. A reality where you can turn to your local pizzeria for inspiration on how to evolve your game.

Turning dough, sauce and toppings into a pizza is not a piece of cake

When crafting solutions, a common approach is to aggregate offerings and business models bottom-up. You build from the parts and the value created is equal to the sum of all parts. The challenge with this model is all units don’t maintain their value once brought together.

If your solution adds material values to enable a total value bigger than the parts you are safe. But your challenge come for solutions or bundles where the 1+1+1=2.5 from a sticker price perspective. This is where the parts and model aggregation breaks.

I have found this to have a lot to do with the basic business idea for a pizzeria. Your value come from turning dough, sauce and toppings in to a portfolio of pizzas.  And to charge   based on the topping, as the main differentiator. A clear focus on pizzas as you main and top-down defined sales and pricing objects is vital for success.

The trap is to get stuck in a bottom up approach where you don’t get beyond a mid-way point. “Offer dough, sauce and toppings, with a buy 3 pay for 3 proposition. A proposition pizza customers are hesitant to buy into.

Recognize the underlying model and value differences

To succeed in this filed, you need to understand the underlying building blocks. With emphasis on their varying value as independent offerings and as a part of solution or a bundle. Expect all parts to represent different values when approached with a top down perspective.

Some parts are under pressure as they represent a key part of the optical price. Others represent your differentiation and enjoy a larger share of the value. I have found parts to play one of four roles:

1. The enabler that allow you to play
2. A commodity complement making your solution/bundle complete
3. A volume/revenue/margin driver
4. Optional up-sells

An understanding of what role each part play is the foundation for the right top down priorities

Defining the best business model for your combined offering

Your broader offering can now have differentiated values for the parts. Based on these insights you can explore business models different than any of the parts. Models maximizing both customer and shareholder values.

This is an area where you need flexibility to optimize in both dimensions beyond the value and models for the parts. But it is a delicate balance to re-define the value and expected returns. Your best bet is a laser focus on models and values working for your customers and your shareholder

Internal tuning to secure your solution/bundle pays off for all contributors

The models and values to customers don’t need to be consistent back to stakeholders. You can include adjustments to secure all contributors get a fair share of the deal. This exercise is tricky when you deal with parts with different cost and price dynamics.

But it is a key exercise. A contributor who consistently get paid below his value will have low motivation to evolve the solution or the bundle. Contributors get a too big share are like to play a value capture protection game. Also leading to low incentives to evolve the solution/bundle.

Questions to ask yourself and your team

1. What are the main building blocks in your solution/bundle – critical to understand the dynamics.
2. Are you offering a solution or a bundle – solutions tend to increase value and bundles to offer discounts when comparted to the value of the parts.
3. Which values do your bundle/solution provide – build your top-down strategy from the overall values you deliver.
4. Which internal tunings do you need to do afterwards – Expect deviation in model to customer and internal allocations.
5. How do we secure a win-win scenario for all stakeholders – critical to secure the long term evolution of the solution/bundle.

Additional Reading suggestions

• How to scale a business, not all business models are created equal [ARTICLE] – by Inc
• Better by the bundle [ARTICLE] – Harvard Business Review
• How to succeed in business by bundling and unbundling [ARTICLE] – by Harvard Business Review
• Which business model is best: Selling services, software, information or physical products [BLOGPOST] – by Entrepreneurs Journey
• Case study: can one business unit have 2 revenue models [ARTICLE] – by Harvard Business Review
• Services vs. Product: Are you focusing on the wrong side [BLOGPOST] – by Daily Blog Tips