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Rethinking the Business Model 2016 Rethinking the Business Model CGMA white paper 2016 List of Tables Rethinking the 1. Stakeholder needs and contribution to the organisation Contents 2. Comparison of eight reporting frameworks business model Welcome 3. Six capitals of <IR> 2016 Executive summary List of Figures Introduction By Dr Noel Tagoe FCMA, CGMA 1. High-level depiction of the business model The organisation in its 2. Unilever business model operating environment 3. The networks, relationships and risks Defining value in a organisation’s environment Creating value About the author 4. Example of a PESTLE analysis used for Coca-Cola Delivering value As executive director of CIMA Education, Dr Noel Tagoe oversees 5. The business model and its ecosystem the formulation and implementation of CIMA’s research strategy, Capturing and sharing residual value 6. Stakeholder analysis the development of CIMA’s qualifications and related assessment. Business models, strategy and He was previously head of research and development at CIMA. 7. Ranking stakeholders on power, legitimacy and urgency attributes the role of the board Prior to joining CIMA, Noel taught at University College Dublin 8. Deutsche Post DHL stakeholder map Conclusion: in Ireland and the universities of Manchester, Reading and Oxford Accounting for the business model in England. Between academic appointments he held senior 9. Figures of value creation accounting and strategy positions with BP and Elf Aquitaine (now References 10. Technology-enabled customer purchasing journey part of Total Oil) in Africa. In addition, Noel established and led About CGMA KPMG’s financial advisory consulting practice in West Africa for 11. Capturing and sharing residual value at SSE three years. 12. The business model – putting it all together Noel is a chartered accountant from Ghana. He holds an 13. Value-added creation and distribution undergraduate degree from the University of Ghana and postgraduate degrees from the universities of Dundee and Oxford. 14. The balanced scorecard compared to the business model 15. The IIRC integrated reporting framework diagram 16. Inform to transform 17. Global Management Accounting Principles 2 CGMA.org/BusinessModelConsultation 3 CGMA.org/BusinessModelConsultation Figure 1 Welcome Executive We focus on how value is: Defined by customers, I am delighted to be sharing CIMA’s thinking on the Our reset of the business model will define how the summary investors and other business model. As the value engine of the organisation, objectives are met and how value is created today. But stakeholders. it is critical that the business model can be flexed to address the sustainability of the organisation over Created through the in line with changing external and internal forces, time the board needs to consider: It may be one of the most common harnessing of key resources while enabling a shared vision of how the organisation terms used in the corporate and relationships. defines, creates, delivers and captures value. • Its objectives and for which stakeholders. dictionary, but the frequency and Delivered to ever-more vagueness with which “business • The values to be adopted, particularly in meeting the demanding and Simply put, the focus for all organisations should be model” is used suggests that a needs of customers, suppliers, partners and staff. sophisticated customers. achieving success over time. To achieve this they need rethink is needed. to meet the needs of their customers and other • How the value derived from customers will be shared Captured for reinvestment stakeholders, including society as a whole. A critical between investors, employees, investment in With this in mind, an influential and distribution to stakeholder is the long-term investor but their the business, and society, mainly through taxation panel of experts has worked with shareholders and wider return is dependent upon meeting customer needs in and regulation. CIMA to produce a business society. return for a fair consideration. Our thinking provides model that brings strategy and a unique framework, within which all of these aspects The board must also focus on the forecast changes in operations together in a framework can be considered by both the board and management. the external environment driven by technology, and that places value at its heart. Figure 5 It takes the following points into account: it must also focus on the implications for the delivery The organizational ecosystem of products and services, and for the expectations CIMA’s business model considers the whole areas of co-determination • The objectives of the organisation, in particular the of society. It must flex its approach using a series of We also recognise the and co-creation, where value sits products or services to meet customer needs. lenses, such as values and behaviours, risk and risk ecosystem within which this and what value is to anyone at appetite, and of course value creation for the investor all operates. Businesses • How these objectives will be met. any moment. and other stakeholders. are dynamically linked to • Through which channels. markets and society, for Our research follows in-depth and rigorous data For the first time, an uncluttered example, while technology • How the surplus arising will be shared. collection and analysis. Four in-depth interviews with approach ensures that the drives innovation, opening CEOs and CFOs from both the public and private difference between strategy and up risk and opportunity. sector were conducted. Twenty randomly selected FTSE operations is clearly defined. 100-annual reports were also tested to uncover how CIMA’s reframing of the business they defined the concept of the business model, how it model is set out below in a three- shaped their strategy and operations and how it was step build to the final concept. used to report on performance. This is just the start of our journey. By sharing our thinking with you, as well as other business leaders and academics, we aim to generate further discussion, and in doing so refine our thinking on the business model. In a world where prefinancial value by far Figure 12 outstrips financial value, the business model must Putting it all together: The CIMA Business Model conceptually keep pace and be able to represent and enable an integrated vision with a focus on the whole business as opposed to just the balance sheet. Please do share feedback on our research to [email protected] Charles Tilley OBE, FCMA, CGMA Chief Executive CIMA 4 CGMA.org/BusinessModelConsultation 5 CGMA.org/BusinessModelConsultation Introduction Why business models? What is a business model? The concept of the “business model” is widely used in Lastly, to some organisations the use of business There are many definitions of business models. They This gives us four parts of the business model: business and academia for three main reasons. First, models represents best practice in managing depict “the content, structure and governance of organisations define value (ie make decisions about some regulators require some organisations to describe fast-changing operating environments and even transactions designed so as to create value through the value), create it, deliver it and capture residual value for their business models when reporting to shareholders. organisations that are not required to use or disclose exploitation of business opportunities” (Amit and Zott, themselves and others (Fig 1). To define value, The requirement by the UK Companies Act for their business models are doing so. They are often 2010) or represent “the logic of the organisation, the organisations look at who they create value for and what organisations to include a strategic report as part of responding to disruptions in their operating way it operates and how it creates and captures value counts as value for them. To create value the focus is their annual report, and the Financial Reporting Council’s environments, particularly from organisations who for its stakeholders” (Baden-Fuller, et al, 2008). Business on how resources are sourced and turned into outputs (FRC) “Guidance on the Strategic Report” that places have new or better business models. models are also stories that explain how organisations that customers and others desire. Delivering value the business model at the heart of the strategic report, work, including how they make money and how means finding ways to get value to those it was created is an example of such regulation. This is reinforced in This report seeks to clarify and develop the concept they deliver value to customers at an appropriate cost for. To capture value is to ensure that there is adequate Section C1.1 of the UK Corporate Governance Code, of business models. It is primarily intended for board (Magretta, 2002). They are “a set of key decisions residual value to share between the organisations, their which requires directors to “state that the annual report members, senior executives and finance people that collectively determine how a business earns its shareholders and others. and accounts … provides the information necessary who help them to understand, develop, deploy and revenue, incurs its costs and manages its risks” (Girotra for shareholders to assess the company’s position and report their business models. and Netessine, 2015) and embody “nothing less than Each part of the business model is aimed at a range performance, business model and strategy”. the organisational and financial ‘architecture’ of a of stakeholders. All stakeholders are in view when It aims to use the business model to explain how value business”(Teece, 2010). organisations define value, although the customer is Second, there is a presumed link between business is created, delivered and shared between stakeholders. often prioritised. Those who provide resources and help models and the long-term performance of companies. Although it stresses both customer and investor Value creation is a common theme in the definitions of turn them into outputs (eg suppliers and employees) Business models are the means by which the value, it argues for a wider concept of shared value.
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