Extend your strategy? Extend and test the digital twin business model (80)

Our digital-twin business model explains and predicts how our business works and performs – so adapt the model for how the strategy may be extended.

I previously offered here this framework for working out the nature and scale of opportunities to extend our strategy – adding to the types of customer we serve (who), and/or the types of products/services we offer (what), and/or adding a new way of operating (how) …

We should surely test our strategy – whether that’s business-as-usual or any change to that BAU – yes? And we should certainly test this extended strategy before risking cash or effort on doing it!

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I have also explained here how spreadsheets are hopelessly unfit for this purpose. So instead we need a digital-twin business model.

Extend the strategy – extend the system

The strategy dynamics method leads to a high level structure for how standard resources properly specified (customers, staff, product-range, capacity + some context-specific items) work together in a generic “strategic architecture” to drive sales and profits (if you need a reminder, start here).

So … extending the strategy implies one or more of the following:

winning a population of new-type customers – e.g. if we already serve consumers, maybe start to serve small enterprises (quite different from simply capturing more customers into the same stock)
building a set of new-type products – e.g. if we already offer physical products, maybe start to offer parts for self-assembly (quite different from simply adding more products to the existing range)
building whatever other resources are needed to enable a new way of operating – e.g. building an online store if we currently sell only through retailers

… so extend the model

The way we handle this in a working digital-twin business model is not technically difficult. Take a case where we ‘extend’ by adding small business customers to our current consumer focus.

Add a distinct stock for those new-type customers, e.g. change the name of our ‘Customers’ stock to ‘Consumers’ and add a 2nd stock of ‘Business customers’
Add any elements required to build that new stock, e.g. new marketing spend, different pricing
Add whatever elements and connections are needed to capture how the added stock interacts with the rest of the existing system e.g. if we add new-type customers, we may need to add the support-demand they create, and of course the sales and revenue they generate, and of course, the impact on sales and profits.

Here is a high level summary of the model structure you would end up with, where we are adding B-type customers to a business already serving A-type customers …

Note that there’s detail inside the ‘supply/demand quality’ element, e.g. if we add a whole new customer group, we would likely need more capacity to fulfil the added demand, and more staff to support those customers.

If we were, instead, to extend by adding a new product category, then we would duplicate the upper-left section of the model. But this, too, implies additional marketing/selling, a distinct price/sales/revenue section, and once again a need for more staff and capacity.

Categories: : business modeling, related course, strategy