Yesterday I was interviewed by Richard Hunter and Bob Akerley of Gartner in the context of a project on "communicating the business value of IT". They were interested in how Chief Information Officers (CIOs) can effectively communicate the nature of a business model because their research led them to the conclusion that:
Executives who do not understand the strengths and weaknesses of their business model have poor appreciation for the value of information technology. Because they don’t understand the business model, they don’t understand how technology (or almost anything else) can be used to improve it.
Quite an interesting departure on a topic that Their first question was whether a business model should be perceived and documented in terms of processes because many CIOs think in terms of processes—inputs, outputs, and transformations.
- To me there is a clear distinction between a business model and a business process model. The latter is mainly a consequence of the former. A business models is about business logic (what do we do, with whom, how do we make money), while a process model is about business execution (how do I implement something best). As such it should be built on the basis of the business model
- Both models aim at different goals. Business process models are a very good tool to improve efficiency, while business models are a very good tool to improve efficacy and competitive positioning.
- In the 90s business process re-engineering BPR and TQM were a big topic. Today innovation is the big topic. The last IBM Global CEO Study, for example, highlights the importance of business model innovation as a strategic differentiator. Sometimes I call this business mode re-engineering BMR.
- The CIO’s can contribute to both BPR and BMR. However, to communicate with senior executives about technology-based business model innovation business processes are the wrong language.
Richard and Bob also asked me how a CIO and his team can understand and document the business model of a company? Of course I'm biased and recommend using our simple business model template with 9 building blocks to describe the business. Then the question of how to best gather the relevant information about the business model remains. To me there are basically two approaches (of which I prefer the second):
- The interview approach: A team of the CIO’s office tries to describe the business model by interviewing the relevant people (e.g. for distribution channel design, value proposition, revenue streams, etc.)
- The workshop approach: The CIO gets the relevant people together in one or several workshops to describe the company’s business model or aspects of it. For example: he assembles a group that can elaborate the company’s different value propositions (e.g. with a group method like the strategy canvas - by using our template - from Kim & Mauborgne’s book blue ocean strategy).
Once the business model has been sketched out it's much easier for a CIO to analyze and describe how IT contributes to a company's business. The visualized business model will allow him to outline which applications and what IT infrastructure the business model builds on. At this point he as a perfect tool in his hands to communicate with CxOs about the business value of IT because he has made it explicit.
Finally, the visual model will allow a CIO and his department to analyze how they can improve the business model through IT. Experimentally we do this at arvetica and in our research by describing for each business model building block which application portfolio and which IT infrastructure services make a contribution. But that's enough material for another blogpost.