Plenty of organisations understand how to create value for their stakeholders today. The organisations that will thrive in the future, however, are thinking beyond their next day or their next annual forecast. They are aware of their current business model and are changing or preparing to change to a different model in the future.
A framework for improving the decision-making around future business models can assist organisations that may not be as future-ready as they need to be.
That is the goal of the CGMA Business Model Framework, released recently by the Association of International Certified Professional Accountants and open for public comment until September 6th. Respondents can visit here to make comments.
Several companies have gone through the exercise of applying a framework to their thinking about business models, said Paul Parks, CPA, CGMA, an associate director for business, industry, and government at the Association. The results have been eye-opening for the businesses.
“Going through this process as a project can identify a lot of opportunities but also highlight a lot of risks,” Parks said in a recent presentation that introduced the framework. “It answers the question, ‘What does your business model look like today?’ And it prompts action to start talking about what your business model is going to look like in the future. That’s where we see opportunity.”
The CGMA framework says a business model “shows how an organisation defines, creates, delivers, and captures value for, with, and to its key stakeholders in a consistent and coherent manner.” The framework is based on a 2016 white paper called Rethinking the Business Model.
A business model can be divided into four elements or steps: defining, creating, delivering, and capturing value.
Define: Organisations look at whom they create value for and what counts as value for them. The white paper cites the example of international courier company Deutsche Post DHL, which ranks its stakeholders on a map of four categories: marketplace (customers and competitors, eg), workplace (employees), financial community (investors), and environment/society (regulators or the media, eg). Entities also can ask several questions to help them better define value, according to Parks: “What is your unique competitive advantage that you’re delivering to your customers? What solutions are you providing? What problems are you solving?”
Create: Organisations focus on how resources are turned into products or services that customers and other stakeholders desire. The white paper lists five features that must be connected for an organisation to create value: partners, resources, processes, activities, and outputs.
Deliver: Organisations find ways to get value to those for whom it was created. This may be the fastest-changing part of business models, as customers, aided by technology, expect a smooth, personalised experience that likely involves no visit to a store and no interaction with a company employee. “Organisations need a multi-channel integrative customer model that delivers customer value and significant return on investment,” the white paper said.
Capture: Organisations ensure that there is adequate residual value among entities, shareholders, and others. “The three main issues to consider when capturing value are the cost model, revenue model, and distribution of surplus,” the white paper said.
—Neil Amato (Neil.Amato@aicpa-cima.com) is a CGMA Magazine senior editor.