Does it give us the level of detailed understanding to feel confident?

Let me outline some different thoughts, coming from some detailed research that is swirling around in my mind today. It’s a little complicated, but lets try.

I apologize this is a little longer than ideal so maybe take it in bite seized chunks.

Seeing an organizations business model but through whose eyes?

Is the business model important? Of course it is but how we see its value all depends on who are you, what you are looking for, knowing what provides the real value creation within that specific organization becomes important to appreciate their business model.

Understanding the business model of organizations is important, it can tell us much, if it is well designed and explained.

.Today we are stuck looking into our business organizations through a very selective window, often chosen by the leadership of the organization, designed deliberately  into what they chose to report upon.

It is what they believe they want to tell you about ‘selected’ activities and outcomes that are actually going on. Do you believe these selective opinions?  I certainly do not on many occasions regard them as transparent as I would like.

Firstly, financial numbers alone give a limited guidance, they hid so much to make it difficult for the outside to really gain full confidence in their understanding of what lies underneath.

If organizations rely simply on ‘just’ the numbers, this tend to be a ‘static’ set of figures that reflect something recent and everything in the past. That is not helpful in knowing where organizations are heading or if they are well-equipped to get there.

If financials are no real use for the future – what is?

Numbers alone do not give us confidence to invest in the organizations future; we only blindly invest in a historical position actually. We take better comfort from the forward-looking statement that is positioned to fill this future thinking space.

Is this really good enough? I don’t think so and so do plenty of others – that is way there is a serious call for changing this. We do need better knowledge and insights.

Surely we all need to recognize this reporting must change, we live in rapidly changing environments where established organizations are increasingly being caught out.

We need to understand more of the why. We need to know what is making up the present and future thinking of the leadership of organizations. For this the business model is not a bad place to gather around, decide and explore its relationship parts to form an opinion if what the leadership is thinking, is making future sense.

There is a call for a more integrated reporting structure that is forward-looking. This might help.

There is a growing argument for a more integrated reporting framework with one of those pushing for this is the IIRC. IIRC has as its objectives to enhance market and context specific insights, it wants to place a greater emphasis on the longer-term strategy and reveal the behavioral triangle of governance, risk and remuneration.

It is seeking this out through how the business model works expecting a clear linkage of the dynamics and key relationships that it depends. Now that, for me, is good news. They are suggesting this comes through business narratives.

But will this make a real difference to attempt to describe the business model (BM), unless we have a standard way to evaluate and describe this. I don’t think the IIRC is yet there in what this needs to have contained within the BM Narrative but they are moving along a good track, if it is not the best track – more on that another time perhaps.

What is driving this call for reporting change?

There are a set of issue that are driving this move towards a more integrated reporting. The open question is will it make the real difference, restore confidence, and allow stakeholders, the many and varied  investors into the ‘hearts and minds’ of our organizations to show a shared belief. Will it bring back trust within our organizations?

So who wants to see what is made up within any integrated business model?

There are so many interested parties wanting to understand our business organizations. The current proposal is to present the business model through Business Narrative thinking for telling the real story. This clearly raises a greater set of question in my mind:

• Whose context will these narratives be targeted towards, what will form the nature of them and will we see or simply ‘sense the value that lies within these BM Narratives?
• Will we gain that clarity on the leadership objective and ‘decent’ insights into their strategy and the thinking that is making this up?
• Will they be clear, not replace one set of flowery statements with another. A business model should clarify a compelling picture of how, if it is constructed well by identifying those drivers of development and future (sustaining) performance.
• We don’t want it loaded with safe haven or harbour statements with financial positions, but some forward analysis and explanations that provide the context and construct of why this business model can deliver, and what are its risks and critical aspects of the BM.

Of course we need to accept these will still be a partial understanding to retain competitive advantage.

Do our organizations want to talk about their business models or will they feel they are revealing too much? Will they lack that real confidence because sometimes they don’t know what does truly make up their business model in real value points? The business model and its related parts needs significant understanding and opening this up might reveal inherent weakness.

Forget all the present loaded documents that ‘spin’ themes, generalize on priorities and time-frames – do they offer decent explanations of actions, comprehensive and quantified information?  Do they map this back to strategic priorities?

Will organizations leaders be comfortable to put their necks a little more on the chopping block? Can we, should we encourage this? Yes we should, that is why they are there, to be paid to manage risk and opportunities, to navigate and deliver and be well rewarded for these efforts.

It is a different balancing act, needing deeper evaluation of all the implications of revealing the business model, without it turning into simply ‘bland’ statements that will give little fresh value.

You can go on and ask a series of further questions:

• Do we as outsiders really extract useful information today – is what is currently being produced and talked about really insightful or bland statements of possible intent?
• Do we really know if the present BM have a clear integration, the parts in its total design, not just work and fit with each other but actually ‘talk’ to each other.
• How much can we expect on tangible comments on sustainability, risks and impacts to existing strategies? We should.
• Will organization invest enough in decent graphics that help explain their business model or just prettify their reports?
• Can we grasp differences within the different  business units and their business models or do we just accept the top picture?

We need stuff we can relate too, that will help us understand or a narrative has no real value, just more soothing balm. There are real, significant questions any move to pushing organizations towards reporting on their business models. Today this is being explored through present trials and experimentation in a number of our top organizations.

These are the pioneers working through this. This early adopters recognize a more open, forward-looking outlook will attract more positives than keeping present stakeholders and investors in the dark. Informing them of a better business model narrative of the future intent can give greater understanding and confidence.

How would organizations go about this BM narrative task?

Should these be top down or bottom up? The top-level business model is usually made up of multiple business models underneath. The larger and more complex the organization the harder it might be to describe a ‘generic’ business model. How will this be resolved?

We would also want to search for a certain consistency across organizations offering where proirities lie, alongside some clear and measurable KPI’s to help in any assessments

 How will the leadership of organizations deal with failures? It is far more beholden of the leadership today to talk about the  failures but place these within the real learning that came out of this and actions it has taken from this so this becomes an expected rhythm of advancing the knowledge and learning.

Do we expect to understand what are the external drivers prompting discussion and informing relevant decisions? Do we get the relevant joining of the dots to provide a more integrated picture? Explicit linkages that give context to strategy to direction

The questions are many and complex.

Can this be achieved, or are we perhaps raising our expectancies way to high. I expect the way to high would be the winner here, sadly. Will the business narrative follow a prescribed format or be allowed to evolve and through a set of emerging practices become the accepted leading practice that will eventually be broadly adopted? Most probably.

We know the Business Model is made up of key resources and relationships that enable the real engagement and point towards a distinctive value proposition. What is needed in all business model narratives is the coverage of all the basic building blocks that frame the discussion as a universal starting point.

What to integrate within this business narrative might be tough:

• Provide distinctive understanding of what our brand strives to be?
• What would transmit real values and clarity to the reader?
• Provide future stories and scenarios that paint that BM canvas for what we are doing in the ‘here and know’, that gives it the ‘richness and vibrancy’ people want to here.
• Put the people side into the BM equation – to discuss the learning behaviors and intentions that will underpin the BM – our people and where they really fit within the business model design to make it work through knowledge and innovation contribution.
• Explain the make-up of the critical intellectual capitals that will generate the future value creation
• Clarify the value propositions and their key building blocks

We do need to evoke a powerful narrative as the journey that others would want to be on

The really challenging part of any move towards building and communicating the BM narrative resolve around some perhaps “hairy” internal challenges

• A cohesive team that can stay on-message
• Meets investors needs
• Offer a picture of sustainable value- actions that drive
• Offer information that is used to manage the business, not all but enough!
• It is structured and coherent
• Has alignment and consistency between actions and rhetoric
• Showing the places and activities where an organization is managing for value.

There is a really strong case to look more towards the future

Organizations by making this move to having good, helpful and well-structured constructs of their business model is a step towards being more open, more willing to engage. These moves will help the stakeholders to want to become a better knowledgeable partner wanting to get involved. Ones that by being clearer on what is making up an organizations business models today and by discussing these can reduce conflicts, help navigate in this more complex world.

What will happen if organizations start adopting a business narrative around their business models?

I am excited in what I read about what the integrated reporting is presenting as potential results. Equally I am troubled. Adopting the business model, even in just a narrative reporting form can offer really value but it needs designing well, to be a substantial advancement in our understanding of organizations view of the future.

I do hope the central change aspect of reporting, based on the business model suggested by the IIRC, is managed well, otherwise we miss a further opportunity to change a rather broken down, out of date reporting mechanism that is “not fit for today’s or tomorrows purpose.” We do need to be more forward looking and understand the relationships that make up the value within our organizations, the business model helps in this.

What do you think? Any thoughts on this? We are arriving a different point on reporting and the business model and its understanding will become even more important to our future.

Main References here:

Steve Denning- Mastering the discipline of business narratives.

PwC- Trust through Transparency

Integrated Reporting (IIRC)

* This article was extensively revised on 15th February from the original.

The post Seeing a business model through whose eyes? first appeared on Building Your Innovation & Ecosystem Intelligence.

To achieve this we consciously have to set about the value capture and what contributes to its realization. This is where innovation plays such a vital part. If we don’t build our innovation capital we will certainly have a much harder, perhaps even impossible time of realizing new value.

We are more than likely to just maintain our existing value or see it steadily decline. So a constant focus upon renewal is always needed. Do we consciously do that on a daily basis or just once a year at annual review time?

Value-adding activities need to be central in nearly all of our decisions. The how we can turn our resources into being more productive, more creative is increasingly becoming one our biggest strategic areas of  future investment decision.

Our resources are those all-inclusive assets, capabilities and processes that make up the Enterprise.

Yet it is clear management is spending far more of their discussion time and focus on the ‘harder assets’ that are made up of land, buildings, equipment and machinery – the ‘heavy’ financial capital investment decisions.

Any new investment in IT, processes, software are usually well identified in the accounting or discussed within the narratives that support the reported numbers. We constantly report on these in our annual reports to validate and justify management’s decision.

Where we still seem to remain far too silent upon is our ‘softer capabilities’ Of course we extol the virtues of our employees for their hard work, for their vital role within any result, yet we still struggle to go beyond ‘simple’ articulation and quantify this value. Why is that?

Managing the innovation ‘stock’ and ‘capital’ potential

We do need to know our ‘innovation stock’, a large part of our wealth generating capital and where it can be best put to use. We are valuing the knowledge perspective far more and with this we are increasingly recognizing the importance of the intellectual capital that makes up the organization.

We are still caught in old world value reporting systems. We are not assessing our organizations for their true ‘invested’ worth. As the more intangible side is completely under-reported we make educated guesses.

We are valuing firms on what we ‘feel’ they will generate in future innovation value but those internally as well as us externally lack the real ability to measure this. Yet we can if we took the same amount of time to understand the ‘make up’ of these.

We are needing to value the knowledge perspective far more. Far more intangible assets and the knowledge available is being recognized as the valuable aspects of the potential future of a business.

These are the more ‘dynamic’ parts that come under human capital (competency, sharing, collaborative, learning quickly, collective competence and enduring value for the future), creative capital (creativity, fast prototyping, design and development, replacement & renewal), the relationship capital (responsiveness, retention, absorption, empowerment, networking), customer capital (the customer base, engagement, the potential and the ability to connect), entrepreneurial capital ( risk- taking, venturing and exploring)  and finally, the process capital (productivity, cycle time, process yield, on time delivery) are becoming far highly valued today. It is these contributing capitals that make up the unique mix we find within our innovation capital. These significantly deliver the value creating abilities.

We need to know the multiple capitals that make the true value of a business.

It is these different capitals that together are making up the intellectual, wealth generating parts. It is those that are more dynamic, the contributing parts of our capitals that should be highly prized today for the investment premium.  Yet often this ‘premium’ is often no more than an educated guess on what we suspect on past track records, assumed as the basis for the possible ‘promise’ in the future.

We need to change this guessing into much more harder validation. Lets move away today from those traditional assets ‘seen’ and well measured on a balance sheet (buildings, machinery, the physical more static assets) and capture and report on the real value generating ones that create the innovation growth.

We need to make much more of a concerted effort to identify these intellectual and knowledge providing capitals and perhaps ‘house them’ under this broader innovation capital. As it is innovation that renders that different, unique set of value outcomes far more.

Surely it is this innovation capital that is at the core for future wealth, that value creation potential. Innovation capital must be treated as the essential strategic asset and is it is central it needs to be far more reported upon by the management of organizations.

Of course it constantly gets mentioned within the narratives by management today but often lacks quantifiable and substantive validation.

For years there has been this call for a far more integrated reporting mechanism, one that ‘accounts’ for identifying the intellectual capital to provide this better understanding. The struggle with this argument is it still seems to be a ‘pipe dream’ as management seemingly fails to understand the mechanisms within these. Can this change, if so how?

 Maybe we should reframe the measuring of intangibles differently?

Today we are operating in business environments that are highly diverse, specific and subject to rapid change. This reacting to this volatility and our ability to spot new opportunities is what is often keeping management up at night and certainly giving the investors equally sleepless nights, trying to second guess organization’s performance so as to make the decision to continue to invest or begin to divest.

The value creation being created simply needs articulating better. Markets and investors need the value generating perspective far better framed and explained.

Today this is often random, ad hoc, left to individual interpretation in their presentation; it needs some form of uniformed framework to bring this together to allow for clearer, more transparent comparison and judgement of real value. It does need a more integrated framework of value creation.

The focus should be on value creation through the business model

Last week I read an excellent paper written by Vivien Beattie and Sarah Jane Smith called “Value Creation and Business Models: Refocusing the Intellectual Capital Debate”. I was kindly sent this by Vivien Beattie after the abstract caught my eye. It has triggered much of my thinking in the last week.

Of course! The Business Model, this is the place for us to gauge measure and gather a real sense of the dynamics that are making up the organization. Today there is certainly far more of an emphasis upon understanding the business model, so why not make this even more central to reporting?

The quality of the business models is paramount to the value proposition to the customer and this triggers even more of value identification within the value proposition, so central to the Business model canvas.

Within the business model we need to gain a real sense of the dynamics that make this up. Where is the intellectual capital being applied to create new innovation, where are the new business opportunities?

It is the abilities to ‘connect’ these, in how we acquire, combine and utilize those unique and valuable resources with the business idea. It is this dynamic ‘combination effect’ that delivers the value (proposition) to the customer.

The Business model is the new unit of analysis for evaluating future value

Arguably the business model is holistic and is becoming increasingly the new unit of analysis, that spans the organization and ‘articulates’ its capital and strategic value capturing parts.

Can we achieve a more integrated set of disclosures that combine the Business model, its strategic approach, what makes this up and clarifying its value creating process?

This potential approach does need to place a much heavier emphasis on the innovation capital and all the knowledge creating aspects that make up intellectual capital. It would need a significant shift in management’s understandings as they would need to articulate the critical components far more, they would have to find a common communicating language. Where better than the ‘heavier’ use of the business model canvas or the layering structures that makes this understood?

Externally we can also judge far more the potentials within the stated ‘interactions’ between the critical components of the business model. Management does not have to ‘give the store away’ in their competitive position to its competitors but they certainly can do a better job to convey much of the dynamics that make this up, in better, thoughtful ways. Make this more financial contingent for future investments.

Beyond narrative reporting, we need to push further.

Narrative reporting has been suggested as the step for this to happen. To make the business model an essential mandatory part of the management reporting. I think this can even be pushed further. Whenever management has been ‘pushed’ by regulatory forces it has taken the time to learn and understand the parts that make this up.

Our intellectual capitals are part of this learning as equally knowing the ‘dynamics’ that make up the innovation capital becomes essential.

The business model, the intellectual capital and the innovation capital simply make up such a significant part of the Value Creation process. Realization of this ‘make up’ and understanding its critical connections is needed far more today to understand. Knowing these can move us towards value our organizations far better than we can do at present.

Communicating the value creation and business model is critical today

Today and in the future, it is the ones that can articulate and ‘point towards’ what makes up the value creation will attract and command investors premium. Those that can describe how they are setting about sensing and seizing opportunities by knowing the more dynamic ‘interactions’ will be in a far better shape to exploit and capitalize on them.

The organizations that understand their unique mix of capitals and how it is made up in this broader sense, will be able to deploy their innovation capital towards the ‘value proposition points’ far better.

These will will be through constantly evolving business models, to convert opportunity to their gain, repeatedly by directing their innovation capital far more effectively.

The key today is they need to know what to invest into as the critical resources and this is far less the ‘hard’ assets but more the softer competencies, capabilities and capacity parts that are made up through knowing what contributes into the innovation capital.

The post Value realization comes through innovation and our business models. first appeared on Building Your Innovation & Ecosystem Intelligence.