3 Levels of Business Model Alignment

This is an idea I must credit my friend and former PhD director, Professor Yves Pigneur for: It's about the three levels of business model alignment.

Level 1: Alignment & Fit of your Business Model Building Blocks:
At the very least you must achieve a fit of the different business model bricks of your company. It means that the 9 building blocks of your business should be mutually reinforcing and form a coherent whole. For example, you must find the best distribution channels to deliver your value proposition. But when you have found those channels you must ask yourself what the best distribution channel design is for your specific customer segmentation. Then you must go on and ask yourself what kind of customer relationship you should build up with these customers for your particular value proposition and how your distribution channels can support this. Once you have designed these customer-facing aspects of your business model you have to go on and achieve a fit with the infrastructure related aspects of your buisness model. You must ask yourself what kind of activities you have to perform to deliver your value proposition? What kind of resources and capacities do you need in order to build the customer relationships your business model requires? What kind of partnerships make sense to leverage your business model? And finally, all this has to fit together in a cost structures and a revenue model that allow you to maintain a healthy profit. That's basic business model alignment.

Level 2: Alignment & Positioning of your Business Model in the Environment and Competitive Landscape: The second level of business model alignment is with the business model environment and competitive landscape. What sense would it make to have a business model with neatly fitting building blocks that can't withstand the stiff wind of competition. Having a business model that is aligned with competitors mainly means understanding the competitive environment and designing your business model accordingly. In the 90s Dell understood how selling computers through direct-to-customer channels could disrupt the business models of its competitors. When Compaq (now HP) tried to follow Dell in directly selling to its customers they didn't realize that their business model was neither aligned internally nor with the market place. Because they traditionnally sold through resellers they couldn't switch to direct channels because their resellers would threaten them with drastic sanctions. More broadly your business model should be aligned with the 5 forces of your business model environment: Technology, Competition, Customer Demand, Social Environment and the Legal Environment.

Level 3: Alignment of your Business Model with Future Scenarios: Good companies are those that have a business model with a perfect fit and a strong competitive position in the market. Great companies are those that have a business model or a portfolio of business models that are ready for the future. The music industry for instance is an example of what can happen when you are badly aligned with possible futures. The major recored companies were taken by surprise when illegal trading platforms allegedly stole a large portion of their growth & market. Yet, one could argue that they were simply too lazy to align their traditional business model with the realities and opportunities of the digital age. They were much too late in trying to figure out how their current business models would perform in the future.

In terms of alignment this means that if you want to move from level 2 to level 3 you have to try to understand how the 5 forces of your business model environment could evolve in the future. You should reflect on how technology, competition, customers, society and laws will change and what possible impact this could have on your current business model. There are many different techniques to evaluate possible futures, such as scenario planning, prediction markets, systems dynamics and so on. All you need to do is to map these possible outcomes of an uncertain future back to your current business model in order to be better prepared for the rough days ahead of you.