Refining the Business ModelGeoff 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

WhoWhoWhat

What

How

How

Lead-Edge General Market

Johnson et al. propose a more detailed structure for a Business Model:

Customer Value PropositionTarget customerJob to be done

Offering

Key ResourcesPeople

TechnologyEquipmentInformation

Partners, alliancesBrand

Profit FormulaRevenue model Cost structureMargin model

Resource velocity

Key ProcessesProcesses

Rules and metricsNorms

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

Questions from Johnson reading: Describe the business model used by your organisation (explicitly or

implicitly) in terms of this framework.

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

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

“Customer” VPGovernment

WorkersEmployers

Enforce OH&S; manage compensation schemeHelp injured workersReasonable insurance costs

Enforce OH&S; manage compensation schemeHelp injured workersReasonable insurance costs

Profit Formula Invested premiums support underwriting loses

Invested premiums support underwriting loses

Key Resources Legislation LegislationStructureTransparent KPI

Key Processes Preparing reports Active management of Agents

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.

9Here is yet another take on the “Business Model” :

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

Stakeholders’ Value PropositionsMajor stakeholders

NeedsBenefits offered

Key Resources

PeopleTechnologyEquipmentInformation

Partners, alliancesBrand

Core Capabilities(Key Processes)

Metrics

Economic driversInteractive metrics

The business we are in

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.