Comment and Question

Tom, there has been a lot of interest in business modeling recently. I attended your Simulation last year and recall the New Business Model diagram in the Simulation workbook. It is nothing like the process that is being recommended in some of the recent meetings. What is your take and how is your approach different?

S.S.

Answer

I have not attended the recent meetings and can not comment on the validity of the approach. Business modeling, like innovation, has been one of the most misrepresented issues in the business “press” for the past twenty years. If it was an accurate process, the failure rate of new business start-ups would not be over 90%. So--- the question is, does the “business modeling” exercise accurately define the behavioral process of developing a successful “business?”

S. S. As you know, I wrote an entire book Transformational Change on this subject. The New Business Model is called Mass Customization. (Refer to page 138 of Stanley Davis’s book Future Perfect) Therefore, all business modeling sessions must start with that MODEL of Customer expectation. What is an ATM machine, Amazon.com, Microsoft, Wal-Mart, Harley Davidson, Facebook, Apple --- some people get caught up thinking that the business model is all about the technology or the innovation to create a new product, but the business model of any business today must be based in the underlying STRUCTURAL REALITY of Mass AND Customized. The second Structural requirement is the “Economics of Real Time.” There is “No-Float” in anything today, (Refer to pages 81-83 of Dee Hock’s book One From Many). The absolute key to business modeling is to start at the STRUCTURAL level. It is from the underlying STRUCTURE that behavior within the Business of the BUSINESS emanates. If any company is not a Mass Customized “Real Time” business today, it is domed.

Therefore, by definition business modeling is an activity that defines – at the Structural level --- the “macro behavior” of the Company and how the process of execution must be designed to serve Customers. (Our Founding Fathers developed the Constitution to define how everyone must behave.) The only consequence of a business model is to “translate” operative level behavior into beneficial service to customers. Another common mistake is to confuse Measurements for PURPOSE. The Operative level of any organization can not execute “create shareholder value” or even “make a profit.” For example, in their Business Model of 1972 General Motors articulated “10 strategies and measures” that proved to contain “false assumptions.” One example was: “Quality does not matter: it is a matter of styling.” The operative level “translated” all 10 of those strategies into operational behavior and none were designed to serve customers. They subsequently changed the word “styling” to “low cost producer” and “cost cut” to bankruptcy. (Fortune Magazine, February 20, 2006)

The approach that I describe in Transformational Change is based on simply answering the 10 Questions that people within any business/organization/City must answer in order to be aligned in executing the Business of the BUSINESS. You can see from the attached the Defective and New Business Models that have been developed from our Simulation.

S. S. Thank you for the question. This is a massive Leadership topic and very relevant as our Economy struggles to make the “transformation” from the Industrial Age Business Model to meet the challenge of Mass Customization. If you would like a presentation on this issue at your next business modeling meeting, let me know as I have a three hour presentation of the approach described in my book.