By Jeff Bell.
Scientists and statisticians are fond of telling us that all models are wrong. Nothing can capture the complexity of any interesting situation, they say.
We all know that every business is inordinately complex. There are so many moving parts and nothing stands still—the world keeps changing.
But, as they also say, some models are useful, so our challenge is to find something that represents our business.
Using the same device to presage the changes required in the search for increased value in our business would be an absolute boon.
This useful model comes from the University of St Gallen, Switzerland.
Principally, a company’s business model explains how that company makes money. That is, enough money to cover costs and provide a return to the investor(s).
The St Gallen researchers—Grassman, Frankenberger and Csik—have designed the Business Model Navigator with 4 dimensions:
- the central dimension, the primary focus, being Who (is the target customer?), then;
- What (does the target customer value? i.e. the value proposition);
- How (is customer satisfaction achieved? i.e. the processes, resources, capabilities, process management), and therefore;
- the Value created (how money is made in the business?).
The model can be applied to your business, or any other.
To manage change and implement anything successfully, you have to keep this as an equilateral triangle—so if one side changes, the others must too.
Firstly, the model can be used to describe what is, secondly to anaylyse what could be and then to make choices about what will be. Thirdly it provides a template for implementation.
But a business model is the enabler—it is not magic on its own. We have barriers to overcome if our model is to become successful:
- We are victims of our own success, or lack of it. We will find it difficult, to a lesser or greater degree to start doing something new. We are wedded to the dreaded status quo.
- We have difficulty thinking into the future, projecting ourselves and creating a new way of seeing something or creating a new something from what we have been seeing. How can we make this idea real?
- Others—those who we seek to enlist in our quest, or the very customers for whom the innovation is intended, will have difficulty taking up the new idea. They will need convincing—probably by us.
The St Gallen researchers have taken their investigation into a further phase. They isolated the existing ideas, concepts and tehcnologies which, they claim, 90% of new business models have recombined. Then they used the interative approach used in design thinking.
And our second magic triangle? Simpler, and a perennial winner, is the model beloved of project management—the triple constraints model. It’s been around for 70 years.
It contends that the quality of any given project outcome will be determined by the project scope, costs and time permitted.
As the project gets underway, the project manager will inevitably have to trade between these constraints. And like the St Gallen model, changes in one dimension will precipitate changes in the others—or the quality will suffer.
For instance, if the completion of tasks falls behind schedule, the project manager may bring in more workers to catch up. Therefore, the budget will be impacted. The PM may then need to trim the scope.
Remember the Matagarup footbridge over the Swan River at Burswood? Deadlines had not been met and costs were soaring, so instead of elegant, enclosed stainless steel stylized flying swans, we had to settle for an exposed superstructure. The quality of engineering was intact, but the aesthetics…?
We will always want good, fast and cheap, but as in this case, we may have to settle for 2 (or 1?) out of 3.
To say nothing of impact on the various stakeholders, lessons learned and user satisfaction.
British statistician George Box is credited with the “some models are useful” aphorism, but this may also be wrong in itself. Box later added:
… all models are approximations…and…the approximate nature of the model must always be borne in mind….
Our thoughts create our world. Applying these models may help clarify those thoughts and create better outcomes and better businesses.