Reviewing your business model

Time for change – adjusting your business model

A company’s ability to change determines its long-term success. But when is the right time for a company to realign its business model? And what are the biggest challenges that SMEs face in doing so? We explain.

10 May 2024 8 min read
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Key points in brief:

  • There are many reasons for a new business model: market changes, new technologies, changed customer needs or internal structural reasons, to name just a few.
  • It makes sense to seek expert advice when making such fundamental adjustments.
  • Resilient companies are less impacted by external events.

Successful companies never stand still. They are always endeavoring to meet current market requirements, customer needs and economic conditions. This sometimes necessitates an adjustment to their business model.

Changes to business models are often only made in the event of negative financial developments. However, falling revenues are frequently a symptom of problems that have existed for some time. Ideally, the need to adapt a business model will be recognized at an early stage.

For entrepreneurs, the question arises as to when exactly they have to adapt or further develop their business model.

1. Reasons for realigning your business model

1.1. Market changes

The market is subject to fundamental change. Such change can mean that a company’s business model may have to be revised. Triggers can include the following:

  1. New market dynamics: depending on the sector in question, every market passes through cycles of growth, maturity and sometimes even contraction. Understanding these cycles helps companies to revise their strategies accordingly and enjoy success in the long term.
  2. New competitors: the emergence of new competition can threaten the market share of established companies. After all, these newcomers often come with innovations, services or business models that challenge the status quo. It is key for existing companies to observe these new market players and, if necessary, adjust their own offerings or strategies.
  3. Changed needs: customers needs change. What is relevant today can already find itself outdated tomorrow. Companies have to maintain constant dialog with their customers and, where appropriate, conduct market analyses to enable them to adjust their offering in a targeted fashion.

1.2. Technological developments

New technologies and innovations can turn the business world upside down. They open up new opportunities for products and services, simplify processes and change customer relationships. Disruptive technologies can quickly change or replace established technologies and processes.

1.3. Regulatory changes

New laws, regulations and political decisions can have a major impact on markets. Stringent environmental regulations, for example, can put smaller companies at a disadvantage, as they do not have the necessary financial resources at their disposal to meet these requirements. Data protection rules, in turn, have a direct impact on how companies handle data.

1.4. Global trends and macroeconomic factors

Global events such as recessions and pandemics can also impact local markets. Observing these trends in a forward-looking manner can help to minimize risks.

1.5. Internal structural reasons

A further reason why continuous corporate development is necessary are changes in internal structures or dynamics.

  1. Changes within the workforce: the world of work is changing. Trends such as working from home and new working methods mean that companies are having to change their business model.
  2. Change in management: new managers bring fresh ideas and objectives to the table that can lead to new approaches being adopted.
  3. Partnerships or acquisitions: while new cooperations can boost efficiency, they often also require a change to existing business processes.

1.6. Management errors

It is neither easy to always make the right decisions for your company, nor is it simple to recognize all important market changes at an early stage and respond to them correctly. Nevertheless, if the management of an SME does make the wrong decisions, these have to be corrected afterwards. This sometimes goes hand in hand with a realignment of the business model.

Wrong decisions at a management level may include, for example, over-the-top growth targets that were formulated without taking account of real market conditions, the company’s own capacities or its resources. Failing to recognize market dynamics, competitive situations or technological trends are also errors that can have long-term consequences.

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2. Risks of failing to recognize the need for action

Companies that fail to adjust their business model in good time run the risk of not being viable in the long run. The following direct consequences may arise:

  • Decline in turnover
    A lack of adaptability can lead to a decline in turnover, as the company may find that it is no longer in a position to meet the needs and requirements of its customers (complaints, customer churn, etc.).
  • Loss of competitiveness
    If a company is unable to keep pace with the changing needs of customers or ignores new technologies, it risks being overtaken by more competitive companies.
  • Cost increases
    A company that fails to adapt may persist with less efficient processes or outdated technologies, leading to higher operating costs and weighing on its profitability.
  • Loss of innovation
    Companies that fail to innovate or adapt may miss out on the chance to tap into new markets or develop new products and services that could drive their growth.

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3. How to review your current business model

  • Conduct an analysis
    A thorough internal and, if necessary, external analysis or your company's strengths, weaknesses, opportunities and threats (SWOT analysis*) can help in ascertaining which resources and skills are available for adapting your business model.
  • Set clear goals
    It is important to define clear goals and milestones for the adjustment of your business model, for example with respect to your company’s structure, culture and employees. These goals should be specific, measurable, achievable, relevant and time-bound in order to provide a basis for successful change.
  • Implementation and continuous review
    The process of adapting your business model should not be viewed as a one-off undertaking. Companies should continuously review how well the new business model is working and make any necessary adjustments to ensure that it meets changing market conditions.
  • Draw on expert advice
    The benefits of external support in the area of change management are obvious: change experts contribute specialist knowledge and experience, understand the complexity of change and the interactions it involves, ask the right questions and are familiar with proven methods for making the transition as smooth as possible. In performing their work, they can also provide an objective and unbiased opinion and help in developing clear and convincing messages – without the risk of being professionally blinkered.

* A SWOT analysis examines a company’s strengths, weakness, opportunities and threats and thus provides a strategic planning tool.

4. The recipe for long-term success: make your company more resilient

The ability of companies to deal with challenges, change and crises and to recovery from them falls under the term “resilience”. Resilient organizations are less at risk of being overrun by change and are less overwhelmed by a sense of urgency when it comes to change processes. There are number of factors that can boost a company’s resilience:

  • Building up reserves: ensuring sufficient liquid funds and building up reserves can ensure a company’s financial stability during uncertain times.
  • Continuous monitoring and adjustment: regularly reviewing and adapting business strategies, plans and processes can help a company to respond quickly to unforeseen events.
  • A well-functioning finance area: a carefully planned budget, solid financial planning and meaningful controlling (including costs controls and post calculation) are good tools for recognizing developments in good time.
  • Risk analysis and management: a risk management plan assesses internal and external risks and defines risk minimization measures. This means that a company is better positioned to deal with unforeseen events.
  • Diversification: by diversifying its business, for example by tapping into new markets, products or services, a company can protect itself against possible risks.
  • Flexibility and agility: companies that are both flexible and agile are better able to adjust to changing circumstances and successfully implement change processes. Promoting a corporate culture that welcomes change and is able to responds quickly to new challenges is valuable.

And a final note: as important as it is to be proactive in bringing about change, it is also important not to jump the gun or make constant changes to your business model without having clear indicators or reasons for doing so. Excessive or ill-considered change can lead to confusion and have a detrimental effect on the company’s core business. Every change should therefore for be carefully considered and strategically planned.

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Jürgen Mayer

UBS Credit Solutions

Jürgen Mayer works in the credit risk area at UBS. He provides corporate clients with advice on complex financial and sophisticated succession solutions.

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