13.1 The Changing Business Environment and Business Models
Key Takeaways
The main drivers of change in Module 7 are technology, sustainability and emerging markets.
Technology can automate existing activities, extend the business with new supporting activities or transform how business is done.
Cloud computing is offered as infrastructure, platform or software as a service, turning capital outlays into flexible operating costs.
Osterwalder and Pigneur's business model canvas has nine blocks, from customer segments and value propositions to key partnerships and cost structure.
Copying a competitor's business model rarely works because advantage lies in the hard-to-imitate system behind it.
13.1 The Changing Business Environment and Business Models
Executive Summary: Module 7 examines strategy and leadership when the business environment changes so quickly that business models themselves must change. This section identifies the main drivers of change—technology, sustainability and emerging markets—explains how technology automates, extends or transforms business, introduces cloud service levels and business ecosystems, and presents the business model canvas and the main types of new business model.
Environmental Dynamism and the Drivers of Change
Environmental dynamism describes how fast and unpredictably an environment changes. High dynamism makes long-range forecasting unreliable and rewards organisations that can learn and adapt quickly. Three drivers stand out:
- Technology: mobile internet, the internet of things (IoT), cloud computing, artificial intelligence, automation and robotics, autonomous vehicles, renewable energy and 3D printing (additive manufacturing) all have the potential to transform industries.
- Sustainability: climate change, resource scarcity and stakeholder expectations push organisations toward low-carbon, circular and sharing models.
- Emerging markets: fast-growing economies create new customer groups and new competitors, often with very different business models.
Three levels of technology-driven change
| Level | What happens | Example |
|---|---|---|
| Automation | Doing existing activities faster or more cheaply | Robotic process automation of invoice matching |
| Extension | Doing new things that support the core business | A physical retailer adding an online store |
| Transformation | Replacing established ways of doing business | Streaming replacing physical media rental |
Cloud computing service levels
| Level | What the provider supplies | Strategic effect |
|---|---|---|
| Infrastructure as a service (IaaS) | Computing, storage and networks | Converts large capital outlays on servers into flexible operating costs |
| Platform as a service (PaaS) | Infrastructure plus operating systems and development tools | Lets developers build applications quickly without managing infrastructure |
| Software as a service (SaaS) | Complete applications delivered over the internet | No installation; pay by subscription; fast deployment |
Cloud services lower the cost of entry for new competitors and allow established firms to scale or experiment quickly.
Business Ecosystems and Hypercompetition
A business ecosystem is a network of organisations—suppliers, partners, complementors and even competitors—that co-create value around a shared platform or customer need (Section 13.4). In hypercompetitive markets, advantages are temporary because rivals and new entrants copy or leapfrog them quickly. Organisations must often cooperate and compete with the same partners at once (co-opetition), so treating every ecosystem partner purely as a rival is a strategic mistake.
What Is a Business Model?
A business model describes how an organisation creates, delivers and captures value. Alexander Osterwalder and Yves Pigneur's business model canvas has nine building blocks:
| Block | Question |
|---|---|
| Customer segments | Who are we creating value for? |
| Value propositions | What problem do we solve or need do we meet? |
| Channels | How do we reach and deliver to customers? |
| Customer relationships | What relationship does each segment expect? |
| Revenue streams | How and for what will customers pay? |
| Key resources | What assets are essential? |
| Key activities | What must we do well? |
| Key partnerships | Who are our key partners and suppliers? |
| Cost structure | What are the most important costs? |
The right side of the canvas (segments, propositions, channels, relationships, revenue) concerns value for customers; the left side (resources, activities, partners, costs) concerns efficiency.
Types of New Business Model
| Model | How value is captured | Example |
|---|---|---|
| Subscription | Recurring fees for continuing access | Software, streaming, meal kits |
| Freemium and free | Free basic service; revenue from premium tiers, advertising or data | Productivity apps, social media |
| Platform (two-sided) | Fees from connecting distinct user groups | Ride-hailing, marketplaces (Section 13.2) |
| Ecosystem lock-in | Interlocking products that are worth more together | Device, app and service ecosystems |
| Access over ownership | Pay for use rather than owning the asset | Car sharing, equipment rental |
| Product as a service | Selling the outcome rather than the product | Lighting or engines billed per hour of use |
| Experience | Premium for a memorable experience | Immersive retail, events |
A subscription model, for example, changes the key activities from making the sale to keeping the customer: usage, satisfaction and churn become central measures.
Exam trap: copying a competitor's model block by block rarely works. The advantage usually lies in the hard-to-imitate system behind it—resources, partners and capabilities—not in the pricing model alone.
Worked Illustration: From Selling Machines to Selling Compressed Air
An industrial compressor manufacturer traditionally sold machines and spare parts. Customers bought on price, and margins were falling. Using the canvas, management redesigned the model:
- Value proposition: from "a reliable compressor" to "guaranteed compressed air at a fixed price per cubic metre", removing the customer's maintenance and energy-efficiency risk.
- Revenue streams: from one-off equipment sales to monthly usage-based fees.
- Key resources and activities: IoT sensors and remote monitoring, predictive maintenance and an energy-optimisation team.
- Customer relationships: from transactional sales to long-term service contracts.
- Cost structure: the manufacturer now owns the machines, so capital tied up rises and must be financed, while energy savings become a source of margin.
The new model raises switching costs and gives steadier revenue, but it changes the financial profile: the CPA must model the funding of installed equipment, revenue recognition over the contract (AASB 15) and the risk of customers' usage falling.
Sustainability and Emerging-Market Models
Sustainability-driven models include circular models (designing products for reuse and recycling), product-service systems (retaining ownership and selling performance) and the sharing economy. In emerging markets, successful models are usually built from local realities—income levels, infrastructure, distribution and institutions—often through frugal innovation that delivers good-enough performance at very low cost, rather than by transplanting a model from a developed market.
A traditional bookstore chain launches an online shop that customers can use to reserve books for in-store pickup, while its stores continue as before. Which level of technology-driven change is this?
Extension, because it adds a new activity that supports the core business
Automation, because the same activities are done faster
Transformation, because the established way of doing business is replaced
Disruption, because it targets non-consumers
In the business model canvas, a gym chain's decision to offer 24-hour access through a members-only app with automated entry relates most directly to which block?
Cost structure, because automated entry removes the need for reception staff
Revenue streams, because members pay a monthly fee for 24-hour access
Key partnerships, because the app is supplied by a technology partner
Channels and customer relationships, because it changes how members access the gym
A start-up wants to build a new application quickly without buying servers or managing operating systems, but needs its own developers to write the code. Which cloud service level fits best?
Infrastructure as a service, because it supplies only raw computing and storage
Software as a service, because it supplies a finished application
Platform as a service, because it supplies infrastructure plus development tools
On-premises hosting, because it gives full control
Sections you finish are checked off in the contents.