Clarifying the business model
Once a strategy has been effectively translated into operational terms and before an organization can define the operating principles that should guide organization design, it is vital to reach clarity and agreement with the senior team on the business models that will drive financial success. Defining the business model answers the question as to how the organization makes money—now and in future.
The business model is a way of expressing the business logic for a specific company. It provides a description of the value a company offers to customers and a network of partners for creating, marketing and delivering this value, to generate profitable and sustainable revenue streams.
Hay Group works with the executive team to:
- define the specific business model for the company and the ‘formula’ that generates value at each stage in the model, so that it is clear where money can be made and lost and how much leverage is involved
- clarify the value propositions that the company offers now and in future to its chosen market segments and respective target customers and the distribution channels through which this value will be delivered
- clarify the revenue structures and cost structures that operate across the business model
- clarify the nature of the organization’s core capabilities—both now and for the future—and how perceptions of this translate into where to make money
- examine the internal value configuration; how core capabilities and external partners cooperate
- clarify the nature of the key business partnerships required to deliver this value
- benchmark their own business model with successful industry business models
- establish the design criteria derived from the business model, that will guide subsequent operating principles
A key outcome from this phase of work is to provide the executive team with a common language and framework when describing how it makes money and adds value for its stakeholders. This ensures that subsequent discussions about organization design are firmly grounded in a shared understanding that any changes must support improved business and financial performance and should leverage core strengths.