With normal operating barriers suspended due to COVID-19, now is a perfect time to consider opportunities to innovate and evolve existing business models, according to BDO Australia’s Tanya Titman, Head of Strategic Innovation, and Nicholas Martin GAICD, Partner, Advisory.
Businesses operating in Australia have an “incredible opportunity” to evolve their business models and should not cut back on their innovation budgets, warns Tanya Titman, Head of Strategic Innovation at BDO Australia.
“If you've ever wanted to really push innovation and get it moving within your organisation, there is no better time than now, because all the [normal] barriers are not there,” she said while co-hosting a recent AICD webinar, Business and Financial Models for Innovation post COVID-19.
“Everyone is thinking differently. They're in survival mode, so they are just naturally wanting to evolve and change.
“It's not about spending a lot of money. It's actually about shifting mindsets and empowering your people to think differently. You have the ability to try different things and see what works and actually evolve your business model into the future.
“You also have this great willingness amongst the workforce which wants to change. People want to keep their jobs, they want businesses to be successful and they want businesses to get through. And they want to be part of the solution for that.”
Around the globe, she has seen many innovation departments shut down. “I think it's such a lost opportunity because now is the time when you can focus and rebuild and use that innovation to take you to a better place.”
Foster a culture of innovation
Businesses have been doing more with less in recent months, due to tightened resources in the crisis, and this creates a different mindset and a new way of thinking and operating. This must be maintained in order to build resilience, develop a culture of innovation and rethink the future of your business, adds Titman.
Businesses and boards should use this recovery period to explore what innovation may look like within their organisations. “I do believe it is the key for many businesses to get through this and to adapt and evolve. For those that do invest in innovation and really build this within the business through this time, I think they will come out far stronger on the other side,” says Titman.
Steps towards a new business model
Whether the evolution focuses on transforming the existing business model (to acquire a bigger market share or access new markets); service customers differently (by offering a better product or meeting a new customer want or need); or improving internal processes (to get more done with less or tap into strengths more efficiently), an important step towards transforming the business is to develop an appropriate rebuild plan that is signed off by the board, says Nicholas Martin GAICD, Partner, Advisory at BDO Australia.
Developing a new plan can be daunting but is very valuable if the following questions are asked first, he added.
“What is our role as a board and as a leadership team? What do we want to be in the new normal? Do we want to be what we always were or do we recognise that there's a need in our industry, in our geography, to do something different, whatever that might be? How will we define success?
“And so, the concept of a written plan is very much about having a healthy robust discussion to work through all that.”
In order to shape a new plan, Martin says, business leaders need to identify what has worked over the past few months during the COVID-19 period and leverage the learnings. “Then we need to identify what are the four or five things that we need to embed within the organisation and how we do that? And importantly, how should we measure it?”
The challenge for leadership teams will be to set the right milestones and key performance indicators, which may take the organisation down a slightly – or even materially – different path, using the right data. “We can't just be writing the end of month reports. We need to utilise real-time KPIs,” he said.
Key considerations when developing a ‘rebuild’ plan
- Plan ‘the new normal’ for your business
- Develop a fit-for-purpose financial model
- Understand your capital base including working capital
- Conduct contingency planning (assess all options including recover/restructure)
- Have robust discussions culminating in a written plan approved by the board
- Monitor and refine implementation of the plan
- Set key milestones (e.g. September 2020 when concessions end)
- Plan to cover leadership skills gaps
- Conduct scenario planning around capital required and creditor management
- Identify resources needed for success
Measure what matters in ‘real time’
Now is the time to revisit the appropriateness of board dashboards – to debate and measure what matters.
Identify the five or six levers that deliver 80 per cent of required output, says Martin, and consider how these can be measured. Live, breathe and continually adapt cashflow forecasting. Set KPIs for both financial and non-financial targets. Look at the data available and develop metrics that resonate, are relevant and are timely. Ensure board packs and dashboards reconcile to the plan and the key levers.
Non-financial KPIs include:
- Key short-term events / milestones
- Stakeholder feedback
- Relevance of product offering
- Pipeline / forward-order book / demand
- Key supplier confirmations
- Staff engagement
Financial KPIs include:
- Working capital – movement
- Cash to OpEx (operating expenditure) coverage
- Source and application of funds
- Bank facility headroom
- Balance sheet
Questions to challenge thinking
The questions below can help with reimagining the business model and developing the rebuild plan.
- Are we working on the right things for today's challenges?
- What are the new business outcomes and priorities?
- What impact does this have on current processes?
- What culture changes are required to handle the crisis?
- How can we empower stakeholders and employees?
- What action is needed to drive through each phase?
- Technology capabilities
- What new capabilities do we need?
- How can we scale up and down throughout the crisis lifecycle?
- What digital transformation opportunities exist?
- Operating model
- What new capabilities do we need?
- What changes need to be made to ensure continuity?
- How can we optimise the costs of running the business?
- How can we reduce waste?
- What does the business of the future look like?
What success looks like
Businesses that foster a culture of innovation and challenge the business norms can expect increased revenues, increased competitive advantage and increased efficiency. Whereas those that don’t are more likely to be left behind.
Article originally published on AICD: https://aicd.companydirectors.com.au/resources/covid-19/10-steps-to-innovate-your-business-model