Business Model
The Business Model of a company is more than just the "vision", "mission", "strategic plan" or any one of the many other names for (typically annual) processes that serve to bring a general focus to the overall activities of a company. It includes all those things, but it is more. It is rather like a corporate instruction book that explains how management and all the other employees are supposed to act to drive the company to achieve success, however success is defined for that particular company.
If we assume that the purpose of a company is to maximize the benefits it provides to its various constituencies, then the Business Model is a summary of the way it structures itself and behaves in order to do so. A carefully constructed Business Model will
- Define the constituencies served, together with guidance on setting the priorities on the allocation of company resources among those constituencies;
- Set out the success factors for the markets served;
- Provide an analysis of the competitive strengths and constraints of the company with respect to those success factors;
- Consider and choose from among the numerous structures available to the company as it executes its plans; and
- Establish the behaviors and business practices that should give the company the best chance to achieve its definition of success.
Each of these bullet points is itself a very meaty topic and deserves a great deal of quiet thought. Unfortunately, it is a fact of modern corporate life that the people that need to engage in that process are extremely busy running the company, so the whole topic of Business Model development and updating often lies dormant for long periods of time.
Having recognized all that complexity, however, the final product of the process, the Business Model itself, must be sufficiently simple and easy to understand that it can be useful in developing a common understanding in the mind of each employee of who we are and what we are doing. If it is carefully constructed and communicated, the Business Model can provide a powerful unifying force for the company's employees, as their increased understanding of it allows them to see their role and how that role fits in with the roles of those around them.
Unfortunately, this process doesn't often include much input from the Board of Directors, notwithstanding the fact that its members could bring a wealth of experience and knowledge to its development. In many cases, the Chesterfield Group can help the Board review and evaluate a company's Business Model in order to promote productive dialogue with Management on the subject. Hopefully, this will bring about improvements over time in the company's prospects for achieving success.