A business model that works today, is no guarantee for the future. Many smaller companies, but also larger organisations such as Kodak and Nokia, have experienced this. Will your service or product still be relevant in a few years, especially given rapid developments in artificial intelligence? And how about the GDPR that will go into effect in may 2018, will you be able to continue working as you do now? Innovating your business model is essential to remain relevant in the long term. Research in our European project ENVISION shows that 37% of the European SME's are working on business model innovation. The organisations doing this also seem to perform above average. In many cases though, the business model is seldom tested for being robust or futureproof. Which is a pity. By mapping recent developments in technology, legislation and the market and asking yourself what the impact is on your business model, you will be able to anticipate these future events. And make your business model more robust. Innovalor and TU Delft have developed a new technique to do this, the business model stress test. It is the first scientific and practical approach that evaluates the robustness of your business model.

Business Model Stresstest

With the business model stresstest you confront your business model with the developments in the environment. You visualize the challenges for your business model in a 'heatmap' and discover ways to increase the robustness of your business model. This approach works with seperate component of the business model, such as value proposition, key activities or revenue model. But it also looks at the relationship between these components. The business model stresstest is done in four steps. In the first step, the business model is described and in the second step the relevant developments are collected. In step three, the actual stress test is done and step four is using the results of the stress test to improve the business models' robustness. The steps are described below, using an example from an insurance intermediary. The steps and example are taken from this paper:

Timber Haaker, Harry Bouwman, Wil Janssen en Mark de Reuver (2017). Business model stress testing: A practical approach to test the robustness of a business model, Futures, Volume 89, pp. 14-25.

Step 1: Describe your business model

Describe your business model in a structured format, such as the business model canvas or STOF business model. You will need the components of the business model to systematically evaluate it agains relevant trends and developments. In the paper your can find the business model canvas example for an insurance intermediary.

Step 2: Describe the relevant trends and developments

Select the most important developments that could have an impact on your business model. Keep in mind the trends of which you are certain and the developments for which the outcome is uncertain. An example of a certain trend is the aging population. Uncertain developments can be seen in macro-economics (hard/soft brexit) or legislation (how strict will privacy and data regulations become?) Reviews of trends and uncertainties can be found in trendreports business analyses, freely available on the internet. An easy way to create an overview of relevant development is a PEST analysis. Which helps cover relevant political, economical, social and technological developments. In case of uncertainties, keep in mind that there are several possible outcomes: 

 

Step 3: Create a heatmap

During the stresstest you confront every compontent of your business model with each of the identified developments in a 'heatmap'. To indicate the impact of a development we use colours: green for positive impact, red for negative impact with great consequences, orange to indicate the component will need to be taken into account. Make sure to write down the arguments for each colour. These are actually more important than the colour itself. For the insurance intermediary, the heatmap looks like this: 

The heatmap shows the strong and weak point of your business model in relation to the external developments. The red components could cause your business model trouble. The orange components should be examined further at least. For the insurance intermediary, the uncertainty around commissions deserves extra attention for example. The question is, how an intermediary could use this development to pivot to DIY-insurance, where consumers are looking to insure themselves online instead of doing it through an intermediary. 

Step 4: Analyse and improve

The last step is seeing where the weak points are and which changes could be implemented to make your business model more robust. Check the arguments that were made for choosing an orange or red colour. These can often help you formulate the specific action that should be taken to improve the business model. The insurance intermediary will want to decrease the risk of dependancy on his commissions and will need to look for new revenue models. Such as asking an hourly rate or an 'all-in' tariff for specific services or a subscriptionmodel for pro-active and long-term support. The intermediary could also experiment with the DIY-insurance methods for specific insurances and learn what the added value is for customers and where potential costs can be spared. 

With the stress test you not only point out what the weak spots and risks are, but how to potentially improve the business model and make it future-proof! 

Want to know more?

• For more information, check out businessmakeover.eu, our platform with tools for business model innovation, under business model stresstest.
• See our instructionvideo about the business model stresstest.
• For an extensive discussion of the example and more background material, see our published article.

Interested in a stress test for your organisation? Contact Melissa Roelfsema.