A business reinvention's success depends on its revenue and cost model when operating its value ecosystem to deliver the desired value. In particular, an innovative revenue model is important once the operational productivity has already been achieved by using specific digital operants and strategic digital architecture. Accordingly, this chapter provides different types of revenue sources followed by straightforward guidance for preparing a business reinvention model.
TopIntroduction
One of the core factors for a successful business reinvention is its revenue/cost viability when operating in its ecosystem. In particular, an innovative revenue model is important when operational productivity can be achieved by utilizing digital operants and digital architecture once they can be feasibly implemented. A viable business reinvention can then be manifested through a business model that describes the rationale behind how the reinvention creates, delivers, and captures value.
In other words, the surplus has to be in place to ensure the viability of the business reinvention. Otherwise, it implies the presence of key risks (KR), regardless of the risks being value-adoption-oriented, technology-oriented, or business/team-oriented. Consequently, the value ecosystem operational designs (VEOD) will be adjusted and tested until the viability is acceptable, as depicted in Figure 1. When the VEOD has acceptable viability, it will increase the valuation of VEODs while decreasing the KRs associated with those VEODs (i.e., the first key risk KR1 refers to the most obvious risk identified from VEOD1 that would result in the most expensive consequence if VEOD1 not properly adjusted).
Figure 1. Iteration of VEOD adjustments for business reinvention viability
TopBusiness Reinvention Viability
The viability mainly rests on the cost and revenue models for the business being reinvented. The cost model refers to how capital is used to finance business operations. In contrast, the revenue model serves to fundamentally systematize the different forms of revenues. Given a design of value ecosystem operations, the cost model is assumed to be straightforward and estimable. Nevertheless, the revenue model has a lot of room for innovation.
Table 1. Four forms of revenue examples
Table 1 shows an exploratory framework of revenue sources that can help executives design and identify their innovative revenue sources (Wirtz, 2001). This framework shows four possible forms of revenue that can be explored and differentiated along two dimensions of the contextual market environment: new to customers and new to businesses. These depend on the direct/indirect generation of revenue and transaction‐dependent or transaction‐independent generation of revenue. Transaction-dependent revenues are triggered by the interrelation of the business and the customer who consumes the respective services (versus transaction-independent revenues that are of no relevance to these service consumption transactions). Direct revenues are the revenues that are generated without the interaction of a third party. Indirect revenues are then earned through third parties such as agents.
The proper choices of revenue forms depend on the contextual economic and market environment. Furthermore, it is worthwhile to think about questions, such as, to what extent a revenue differentiation can be used to reduce the market risk. Figure 2 illustrates such a business contextual market environment (Booz et al., 1982), in which these two dimensions (new-to-company and new-to-market) serve as a good way to delineate a business reinvention positioning. New-to-company refers to offering completely new customer benefits relative to the previous service or product generation in the industry, while new-to-market refers to its ability to create completely new businesses.
Figure 2. Contextual market environment of new-to-business and new-to-market