Your Business Model
Your business model describes the rationale of how your company creates, delivers and captures value.
A simple and helpful way of representing your business model is provided by the Business Model Canvas. This was created by Alexander Osterwalder, of Strategyzer and is explained in more detail, here.
Your business model, as defined above, sets the context and need for your operating system, and at a high level, the requirements it needs to satisfy.
This perspective helps to explain why it is at the core of the Growth Mapping framework and why it needs to be reviewed before seeking to refine your operating model: to check that the assumptions on which it was built and is expected to evolve, still apply.
External Influences on Your Business Model
These reviews are important because at any given moment, your business model can be rendered less profitable, or simply less relevant to your clients’ or customers’ evolving needs by events outside your control. In this case, trying to refine the way you operate it may not be sufficient to retain customers and secure the future of your business.
The same is true for new opportunities: they may be open to you given the resources and capabilities you have available, yet they may also require a different business model to realise them profitably and sustainably.
In the present context of the Covid pandemic, examples of this are everywhere. For example, consider Costa Coffee’s shift from an essentially retail model catering for walk-in customers backed by rewards for loyalty, to one that promotes a subscription offer that includes a radical shift in the pricing of a cup of coffee.
This shift recognises that their customers’ habits and routines have changed, which in turn directly affects how and when they buy coffee day to day, the elements of service they value most and the pricing model that both suits them best, and will entice them to stay loyal.
Using the language of the Business Model Canvas, the pandemic has shifted assumptions and responses about customer segments and the sort of relationship they each expect and want, the value proposition that will best appeal to them, the channels through which they want to engage and be engaged, revenue streams, key activities, resources and partners and the associated cost structure.
A Two-Way Relationship
One of the more unique features of the pandemic has been the way it has forced changes to operating systems onto businesses that may in turn lead to changes in their business models: the many thousands of staff in both investment and retail banking and management consulting who are now working from home are striking examples.
The operation of GP surgeries is another where the channels for consultation have had to shift rapidly to limit the risks of transmission, with potentially far-reaching consequences for the delivery of value to different patient segments and the overall economics of running a surgery.
If ever agility were an important quality in business, it is now.
Stakeholder Alignment Enables Agility
Your Business Model is a powerful and essential element in aligning your internal and external stakeholders around a common understanding of the value you are all trying to create, deliver and capture; how you are going about that today; and how you expect this to evolve moving forwards.
A really clear and shared understanding of this will enable all parties to ensure their assumptions are aligned; to offer the most effective insights and support; to better anticipate potential opportunities and risks and so take better decisions in the immediate and longer-term for the benefit of the business and all of its stakeholders.
Yet it is surprising just how many businesses we encounter struggle to articulate their business model clearly.
This is why we advocate use of the Business Model Canvas and put your business model at the heart of the Growth Mapping framework, and why we focus attention on its alignment with both your business ownership arrangements and your operating system.
Mis-alignment between any of these three levels can and usually will have a material impact on the agility of your business.
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You can read more about signs that your business model may be broken, here.