P3 Business Models

Refining the Business Model Geoff Eagleson

Roadmap for the session:

 Different formulations of the “Business Model” – Margetta – Johnson, Christensen & Kagermann

 Turnaround of the Victorian Workcover Authority  A more general map of the “Business Model”

A Business Model describes how an organisation can achieve its strategic objectives.

In particular:

 A business model identifies the three fundamental elements of a business: – WHO the customer is (in Kawasaki’s words “defining your customer”); – WHAT is to be provided (in Kawasaki’s words “defining the pain your customer feels”); – HOW a profit will be generated (in Kawasaki’s words “creating a sales mechanism to ensure that your revenues exceed your costs”).

 “Every viable organisation is based on a sound business model” (Magretta, 2002, p.91)

Business Model Maps

Who

Lead-Edge

How

What

Who General Market

What

How

Johnson et al. propose a more detailed structure for a Business Model: Customer Value Proposition Target customer Job to be done Offering

Profit Formula Key Resources People Technology Equipment Information Partners, alliances Brand

Revenue model Cost structure Margin model Resource velocity

Key Processes Processes Rules and metrics Norms

Source: Johnson, Christensen & Kagermann (2008) – Reading 1

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Would it have been more useful to use a category of “Key Organisational Capabilities” to replace the “Key Resources” and “Key Processes”?



Describe the business model used by your organisation (explicitly or implicitly) in terms of this framework.



Questions from Johnson reading:

Does anyone have more than one set of “customers”?

Let’s see if we can describe the VWA turnaround in terms of Business Models. Before

After

Enforce OH&S; manage compensation scheme Help injured workers Reasonable insurance costs

Enforce OH&S; manage compensation scheme Help injured workers Reasonable insurance costs

Profit Formula

Invested premiums support underwriting loses

Invested premiums support underwriting loses

Key Resources

Legislation

Legislation Structure Transparent KPI

Key Processes

Preparing reports

Active management of Agents

“Customer” VP Government Workers Employers

Some things become clear from this comparison:  Rather than a “Customer Value Proposition”, it is worthwhile thinking about “Stakeholders’ Value propositions”.

 There can be “Unit of Analysis” issue that can cloud the analysis. Are we talking about VWA, its Rehabilitation and Compensation Division or the Agents?

 There is a need to articulate the high level “Nature of the Business”. In the case of VWA this went from being – “The regulators of the compensation scheme” to (at least for the Rehabilitation and Compensation function) – “The managers of a huge outsourcing contract”. – The Business Model is clearer when “Core Capabilities” are shown as the mediators between the Organizational and Positioning Strategies.

Here is yet another take on the “Business Model” : The business we are in Stakeholders’ Value Propositions Major stakeholders Needs Benefits offered

Core Capabilities (Key Processes)

Key Resources

Metrics

People Technology Equipment Information Partners, alliances Brand

Economic drivers Interactive metrics

Adapted from: Johnson, Christensen & Kagermann, HBR, 2008

9

Which description of the Business Model do I use? They are all capturing the same information with differing degrees of specificity. It is a case of ‘horses for courses’. What do you want to communicate to whom?

 For a high level view, use the “WHO, WHAT, HOW”  Use a Business Model Map to expose the interdependencies and the logic.  The Johnson et al. version ensures that the owner’s needs are explicitly discussed.  Our alternative puts Capabilities at the centre and emphasizes the Interactive Metrics to provide a ‘line-of-sight’ to the frontline.