Business musings

Articles and thoughts about business modelling

Earlier this year, we were busy researching, writing and designing the challenge for the 2014 WBS International Healthcare Case Competition.

Held on 25-26 April by Warwick Business School, the competition brought together multi-disciplinary teams from 12 university-based business schools across Europe. In a close-run contest, Saïd Business School, University of Oxford emerged victorious, walking away with both the title and the £4,000 prize.

Sponsored by global providers of transformational medical technologies and services, GE Healthcare, and global business and technology leader, IBM, the competition was focused on a big data solution designed to both stimulate progress in clinical neuroscience and improve outcomes for those with a neurological disorder.

Taking up the challenge to recommend a scaleable business model for this digital product were teams from Aston Business School, Cranfield School of Management, ESADE (Spain), HEC Paris (France), IE Business School (Spain), Lancaster University Management School, Manchester Business School, Mannheim Business School (Germany), SDA Bocconi (Italy), University of Nottingham, University of Oxford, and Warwick Business School.

Photo and Twitter collage from the 2014 WBS International Healthcare Case Competition showing the welcome icebreaker event on Friday night, the kick off of the competition day itself, and case materials.

On hand to act as a sounding board for participants as teams developed their ideas were experts from GE Healthcare, IBM, KPMG, the NHS Health & Social Care Integration Centre, University Hospitals Coventry & Warwickshire, Warwick Medical School, and WebMD.

Adding another invaluable perspective were Ken Howard and Dorothy Hall, to whom we were introduced by client and changemaker, Gill Phillips, creator of the award-winning Whose Shoes? approach.

Ken describes himself as an old biker, sci-fi fan, granddad, music lover and free thinker. He was diagnosed with dementia around 8 years ago but has been living with its effects for much longer. Although little can be done medically, Ken is determined to fight dementia every day by challenging himself and staying involved as much as he can.

I am conscious that I have a short shelf-life. It makes me impatient and frustrated that progress is so slow. I am trying to achieve as much as I can. There is life after diagnosis.

Dorothy is an Independent Social Worker and Practice Educator. Like Ken, and having had personal experience herself caring for a close relative with dementia, she is passionate about increasing awareness. Dorothy is also an advocate for flexible, personalised, imaginative care arrangements.

Together, experts and advocates prompted participants to an awareness of multiple perspectives and the vast array of complex challenges involved. Neurological conditions include not only Alzheimer’s disease and dementia but also stroke, epilepsy, traumatic brain injury, Parkinson’s disease and more. Collectively, such conditions are estimated to affect up to one billion people worldwide and the World Health Organization believes these disorders represent one of the greatest threats to public health today.

Photo and Twitter collage from the 2014 WBS International Healthcare Case Competition showing participants meeting with experts, teams working on the challenge and a team as they presented.

Not only was it timely to focus on neurological conditions but big data solutions to global health challenges are extremely current. Enterprises of all sizes are grappling with demanding technological, regulatory and market challenges, and the business models required continue to be disruptive. Neither the participants nor the judges had an easy task ahead!

In a twist on last year’s format, teams were judged over two rounds. Mannheim Business School, ESADE and Saïd Business School, University of Oxford emerged as semi-finalists, after which the three teams were given one final challenge to reconcile against the clock.

Photo and Twitter collage from the 2014 WBS International Healthcare Case Competition showing  the three semi-finalists (Mannheim Business School, ESADE and Said Business School, University of Oxford) in action.

After much deliberation by a judging panel that included senior industry experts and leading academics, Saïd Business School, University of Oxford were pronounced the winning team.

With combined experience in medicine, pharmaceuticals, neuroscience and computer science, the team not only delivered a strong presentation but were able to answer all the judges’ questions with persuasive reasoning and supporting evidence. Together, Grace Lam, Yen Nyugen, Marco Pimentel, and Sindhura Varanasi presented a well thought out approach to a tough challenge.

And although there could only be one winner, all were worthy contestants.

Photo and Twitter collage from the 2014 WBS International Healthcare Case Competition showing the winner's announcement, judging in action, and experts, judges and the WBS Executive Team..

Once again, feedback on the day was incredibly positive, and as Warwick MBA student and competition organiser, Corinne Montefort, said: “The competition was a great success.”

As always, it has been our absolute pleasure to be involved. The work of both WBS staff and the Case Competition’s student Executive Team was outstanding and we’ve been privileged to work alongside such an array of great people, from sponsors to experts and judges. Thanks must go to all.

Looking forward to next year and watching the competition grow once again!

In the meantime, we leave you with kind words from two members of the final judging panel…

Debbie and Matt of Stocker Partnership prepared the case study which formed the basis of the Warwick Business School International Healthcare Case Competition 2014. The quality of their preparation and investigation was impeccable and the case set up a highly engaging and challenging scenario on which the whole competition revolved. I’d have no hesitation in recommending Stocker Partnership for this or related specialist support and I’d be delighted to work with their team again!

Dr Jagdeesh Singh Dhaliwal
Medical Advisor, Healthcare Technology & Innovation, Global Government & Health
BT Global Services

I really enjoyed the case presentation, and given the time constraints, the scope was judged very well. Complex and with sufficient detail, the literature review, ambiguous data, overview of the environment, and the setting of some true and false trails for the students all worked well. If the participants worked well as a team, with the right experts – as Oxford did – then they could make a very good showing.

Alan Davies
Medical Director, Global Medical Affairs
GE Healthcare

Coverage elsewhere around the web

Warwick Business School: Said win £4,000 and WBS Case Competition

University of Oxford: CDT in Healthcare Innovation student Marco Pimentel and team from Said win WBS International Healthcare Case Competition

Mannheim Business School: MBS participants succeed at renowned Warwick Business School Case Competition

23
Mar
Posted by Matt Stocker, stored in: Business Modelling  

On the one hand, there is an idea for a new product, service, revenue stream or business.

On the other, there is the business model that exploits it.

Entrepreneurs, management teams, businesses and organisations often fall into the trap of making no distinction between these two. They have no process for separating the two elements from one another and frequently fail to untangle their core idea from the business model it first arrived with.

It is easy to assume that because an idea arrives along with some logic for how money can be made from it, that’s the way its going to be. The idea and the business model become neatly packaged up as one and the same. It’s difficult for people to break out of their norms and assumptions to look at their idea from a different perspective.

By only considering one business model however, organisations run the risk of ruining a perfectly good idea with a less than ideal business model. Usually, there are many potential business models and many different ways that money can be earned from the same idea—at least one of which may be your key to substantial success!

Allow me to demonstrate with an example.

An idea…

Clothes Horse is a New York start-up that helps online shoppers choose the right size clothes for their body shape even when a shopper is unsure about sizing variations and quirks between different brands.

If an online store is using the Clothes Horse platform, Clothes Horse has access to sizing data about their clothes. As an online shopper, you can then use the Clothes Horse app to discover your sizing by answering a few simple questions about your height, weight and body type. Clothes Horse then puts these two pieces of information together using some clever algorithms and calculates which size will provide the best personal fit. On top of that, Clothes Horse is also able to compare your sizing to a whole bunch of data about the average sizes of a plethora of brands to provide you with a more accurate recommendation. (Click on the image below to enlarge it).

Three screen shots of Clothes Horse in action. Each shows a rectangular pop-up box. The first has the title 'Tell us about your body' with questions about height, weight and body type. The second has the title 'Tell us about your favourite shirt' with questions about brand and fit. The last has the title 'Size recommendation' with details about size and how it is likely to fit.

In testing, they’ve found that this intelligent sizing increases online conversion rates by around 13% and reduces costly returns too (normally, more than 60% of clothing returns are driven by fit).

Can have many different business models…

At present, Clothes Horse works by adding a ‘What size am I?‘ button to each product page and, with the backoffice data entered by the retailer about their clothes, they are able provide an effective service to both the online consumer and the store. From recent reports, they are also working on developing a full shopping profile for users based on brands they like on Facebook—a profile that consumers will eventually be able to take with them as they shop across the web.

I haven’t been able to glean the exact business model they are using but, as we shall see, there are many different models that could be used to turn Clothes Horse into a profitable venture, each of which would potentially result in a radically different business. Clothes Horse could…

  1. Sell their app and reference database to retailers as an installable software combination that sits on the retailer’s web servers and integrates with their website. This would incur a one-off fee and the Clothes Horse database would be updated on a regular basis in much the same way as Microsoft and Apple release regular software updates.
  2. Sell an app direct to consumers for whom it would act as a single profile through which consumers could shop at any retailer. This would incur a one-off fee for each consumer in the same way as apps are bought through iTunes or Google Play.
  3. Sell their app to retailers as a software as a service (SaaS) tool that integrates into the database of each retailer. This could be charged for on a monthly subscription and priced dependant upon volume of use or size of retailer.
  4. Give away the app and reference database to retailers as a free SaaS tool but take a small percentage cut of each online sale that Clothes Horse facilitates.
  5. Offer the app and reference database to retailers as a pay-as-you-go SaaS tool whereby the retailer is only charged each time an online customer users the Clothes Horse functionality.
  6. Offer retailers an end-to-end service wherein Clothes Horse measures sample clothes from a retailer (saving the retailer the effort of adding their own sizing measurements to the Clothes Horse database). Clothes Horse could then charge the retailer for both this personal service and the use of the app and reference database.
  7. Operate a franchise model in which the reference database remains central but Clothes Horse franchisees receive commission on every retailer they sign up to Clothes Horse. This model could also be combined with the end-to-end service above, whereby franchisees could receive commission for each new item of clothing they measure and add to the reference database.
  8. License their intellectual property to one or several major clothing retailers for exclusive use online.
  9. License their intellectual property to one or several major e-commerce developers for integration within their backend systems.
  10. Approach manufacturers of the clothes themselves, charging for sale of the data that Clothes Horse gathers on consumer body sizing and best fit to enable the manufacturers to improve garment sizes.
  11. Offer consumers a sophisticated sizing service (similar to that of the Left Shoe Company) in which each consumer is measured using a full body scan, after which they use the Clothes Horse app to obtain almost perfect sizing recommendations. This could even be extended to allowing consumers to try clothes on using their own personal online avatar.

The list of business models here is not definitive nor exhaustive, nor is each individual business model necessarily mutually exclusive from another, but it’s clear from this list alone that there are all manner of business model configurations that could deliver for Clothes Horse. The central idea is the same throughout—a huge database of clothes, covering lots of different brands, that is matched to individual consumer sizes—but this one idea can be exploited in many different ways.

Which means that…

It is vital to separate your central idea from your business model. Doing so will enable you to maximise your idea’s potential and to avoid ruining it with a weak or less than optimal business model. You may have immediate gut reactions as to which models in the list above would be the most viable and/or the most profitable for Clothes Horse but it’s clear to see that without exploring the full range of possibilities, the organisation could miss a truly lucrative opportunity.

So, next time you’re exploring an idea, take the time to exhaustively explore the different business models that you could use to exploit it. Think about which model will best maximise your revenue, meet your risk profile and deliver the best value to your customers. You never know what opportunities are out there until you start uncovering them!

16
Feb
Posted by Matt & Debbie Stocker, stored in: Business Modelling  

Writing about business models and business modelling feels a little like dangerous territory. While the terms are intuitively understood, trying to pin down a definition is very difficult. For years, academics have been writing and re-writing their definitions, each with their own vagaries. And, as Alex Osterwalder neatly demonstrates in his lecture about business models (31:56), ask a room full of people “What is a business model?” and you’ll receive a multitude of answers. We shall nonetheless brave this field.

Attempting a definition

Personally, I find Osterwalder’s approach to defining what a business model is both simple and useful.

As the term business model intuitively suggests it has something to do with business and it has something to do with models. A quick lookup in the online version of the Cambridge Learner’s Dictionary (Cambridge 2003) returns no result for the full combined term but the following definitions for the two separate terms:

  • business: the activity of buying and selling goods and services, or a particular company that does this, or work you do to earn money.
  • model: a representation of something, either as a physical object which is usually smaller than the real object, or as a simple description of the object which might be used in calculations.

…Thus, in the case of a business model, the model (i.e. representation) shall help understand, describe and predict the “activity of buying and selling good and services” and “earning money” of a particular company. But as the notion of buying and selling seems too narrow, I try to extend it. So differently put, the business model is an abstract comprehension of the business logic of a company. And under business logic I understand an abstract comprehension of the way a company makes money, in other words, what it offers, to whom it offers this and how it can accomplish this.

I also find it useful to think of business models in much the same way as Joan Magretta describes them: “They are, at heart, stories—stories that explain how enterprises work.”

In many ways, there is no right or wrong definition of what a business model is, but it is useful to develop a shared understanding and to that ensure we are all on the same page.

A very brief lesson in history

Business models have, in essence, existed since the beginning of time. Although a business model is not always explicitly stated nor actively used for prediction and evaluation, every organisation has a logic to the way in which they do business and, in this sense, every organisation has a business model.

Many academics have charted the evolution of our present day concept(s) of business models and Anders Sunderlin has even created an impressively comprehensive timeline of the business model concept. We shall not attempt to reproduce such a history here!

Rather, we hope to fill in the broad brush strokes and to provide a background to the new generation of business modelling that we find ourselves with today.

According to several reviews, the term ‘business model’ first appeared in an academic article in 1957 and then appeared again in the actual title of a paper in 1960—Educators, electrons and business models: A problem in synthesis (written by Jones and published in Accounting Review).

However, Magretta observed that the term only really came into widespread use “with the advent of the personal computer and the spreadsheet.” Spreadsheets and computing power gave us the ability to more easily model the behaviour of our businesses. By using mathematical formulas and equations to calculate the interactions between each component of a business, it became possible to test out assumptions and to determine how individual changes impacted the whole. Questions about price sensitivity, choice of channel, cost structure and more, could now all be answered with the tap of a few keys. Not only that but, in the words of Magretta, “By enabling companies to tie their marketplace insights much more tightly to the resulting economics—to link their assumptions about how people would behave to the numbers of a pro forma P&L—spreadsheets made it possible to model businesses before they were launched.” Theoretical modelling became tied to real numbers.

Interest in the idea of business modelling truly boomed however from 1995 onward. Suddenly, the expression ‘business model’ began to appear in numerous contexts and forms, both in academic and non-academic publications—although as Osterwalder observed, “it can be said that the expression was inflated through journalists, business people and academics that used it in relationship with e-commerce, start-up companies and high tech companies.” A genuine interest in business modelling is nonetheless apparent. Sunderlin’s timeline shows that, since 2000, multiple attempts have been made to understand what exactly a business model is and to create a clear business modelling framework.

A fly in the ointment

Despite growing interest, there have historically been several problems with the business modelling concepts and frameworks that have been developed.

  1. Many business model concepts were financially based, particularly those that relied on spreadsheets and mathematical modelling.
    Inherent within mathematical or financial models is an inability to create or invent a business model—in order to program a mathematical model, the model must have already been created at a conceptual level. Therefore, agile prototyping is difficult, if not impossible. Similarly, such models are only as good as the assumptions on which they are based, meaning that any conceptual errors prove at best misleading and at worst disastrous. Laborious and time consuming, these models are also somewhat limited to the realm of those who have either mathematical or computer science expertise.
  2. Those concepts that weren’t financially based were often academic, complex and inaccessible.
    Many of the models depicted in Sunderlin’s timeline are somewhat impenetrable for anyone without a business degree and would certainly be very difficult to use on a day-to-day basis in the real world.
  3. In general, the concepts lacked a shared language and there was little standardisation.
    Although in theory many people were attempting to contribute to the same idea, each new concept was distinctly different from the last. Not only that but even a single framework could generate models that were almost unrecognisable from one another even when modelling the same business. This made it difficult to draw comparisons between different business models and prototyping or evaluation of models was very difficult.

Enter the Business Model Generation

In 2004, a new generation of business modelling began to emerge that was, in large part, aimed at solving these dilemmas. Driven initially by Alex Osterwalder’s PhD dissertation on the topic of business model innovation and ontology, the approach he outlined started to be applied around the world.

Image of the cover of the book 'Business Model Generation'.In 2006, Osterwalder and Professor Yves Pigneur embarked upon a project to create a book that accompanied their business modelling methodology, resulting in the publication of Business Model Generation.

Now used by over 100,000 people and organisations from start-ups right the way through to giants such as 3M, Capgemini, Ericsson and Deloitte, Business Model Generation provides a practical, easy-to-understand framework for anyone interested in improving an existing business model or creating a new one.

Interestingly, Alex and Yves felt that they couldn’t “credibly write a book about business model innovation without an innovative business model.” Rather than following a traditional publishing route, they instead launched the Hub, an online platform through which they could share their writings and gather feedback from day one. Not only did this finance the book’s production as people had to pay to join the platform but it also meant that the book was co-created by 470 practitioners from 45 countries.

Highly visual in its approach, the central premise of Business Model Generation is the Business Model Canvas.

Image of the Business Model Canvas

Explained in just over 2 minutes in the video below, the canvas is a simple but rigorous business model framework that visually represents “the nine basic building blocks that show the logic of how a company intends to make money.” Not only is the canvas easy to use but it also enables a shared language for  business modelling—both ‘quick and dirty’ and systematic prototyping, comparison and evaluation have now become possible. Teams can, at long last, see, interact, engage with, share and compare their business model in a very tangible way.

And, if all that wasn’t enough, there is even a Business Model Toolbox for the iPad and a web version of the toolbox is on its way soon! Old school can be good though too—we’ve found that printing the canvas onto A0, blu-tacking it to a wall and sticking Post-it notes all over it works really well in a team environment.

Although the Business Model Generation is certainly not the end of the story and there have been further conceptual developments in recent years, for us, Business Model Generation remains the clearest, most practical framework available and it is our concept of choice to date.

What does all this mean for you?

A business model isn’t just a theoretical construct or a nice thing to explore on a management away day—rather, it describes the fundamentals of what makes your business competitive. By mapping out your business as a whole, it becomes possible to design and assess new opportunities, to innovate and evaluate, and to question, transform and challenge without losing sight of the bigger picture or getting bogged down in endless number crunching.

In our experience, the Business Model Canvas enables owners, managing directors and teams to ‘see and touch’ their business model. It gives visual clarity to thoughts and ideas that would otherwise remain conceptual and difficult to pin down, enabling you to gain a clear sense of how everything works together and to assess the strength of your own model. The canvas also enables quick and easy comparisons to be made between alternative business models or even between your model and that of your competitors’—now that’s one way to stay ahead of the game!

Whether you’re sketching out the seed of an idea or assessing an organisation that has been doing business for years, business modelling enables you to prototype, develop, evaluate and test as you strive to enhance your competitive edge. Use business modelling and the Business Model Canvas to:

  • Discuss, create, clarify and communicate strategy within your organisation
  • Create a single view of your business that anyone can understand
  • Map out your competitors’ business models and compare them to your own
  • Design and invent innovative new business models
  • Communicate your business model to your stakeholders
  • Easily create a business plan having mapped out the fundamentals

In the words of Osterwalder and Pigneur themselves:

…the scale and speed at which innovative business models are transforming industry landscapes today is unprecedented. For entrepreneurs, executives, consultants, and academics, it is high time to understand the impact of this extraordinary evolution. Now is the time to understand and to methodically address the challenge of business model innovation.

And for those of you who like the research…

Magretta, J. (2002). Why business models matter. Harvard Business Review.

Osterwalder, A. (2004). The business model ontology: a proposition in a design science approach.

Osterwalder, A. & Pigneur, Y. (2010). Business Model Generation. New Jersey: John Wiley & Sons.

Sunderlin, A. (2010). The evolution of the business model concept. The Business Model Database.