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Business Modelling! What Exactly Is It? An article by John Owens Creator of Integrated Modelling Method (IMM™)
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Put three business people in a room and ask then question "What is a business model?" and you will get at least four replies - none of which may be correct!
The usual picture that comes to minds of business people, consultants and analysts when they hear term 'business model' is what might be called a 'financial class' of business model, for example:
•a "dot.com" model •a "utilities" model •an "air transport" model
What these models represent is financial structures these types of business ought to have. They define how business ought to be capitalised and structured from a financial point of view, its key financial performance indicators, its anticipated profit profiles, etc. Strictly, they should be referred to as 'Financial Business Models'.
Financial business models are very important but they are only a small part of overall picture! What they miss out is essence of business - what it is that business does and information needed to do it. Without knowing these things it is unlikely that any business can be made to perform in manner that financial business models predict. And yet it is amazing how many business people try to operate without this information!
***************************************************************** Essential Map of Business ***************************************************************** If a business person has a factory he/she will have plans of this showing overall shape, entrances, exits, services, machinery layout, etc. These plans are essential to successfully managing factory. No business would think of being without them and yet factory is only place where business is carried out. Far more important than factory (and more complex) is business itself and yet few business people have a map (=model) of this - well not outside their heads! It is not surprising that most businesses fail to meet their full potential.
So again we ask: "what is a business model?". And this time we have answer - it is an essential 'map' of business. It is a model that shows (as a minimum):
•what it is a business does (or ought to do) •the structure of information it needs to do it
Additionally model can also show: •the order in which functions need to be carried out. •how information flows between business activities. •how data is changed from one state to another. •how functions, data, departments, technology are related to each other. •the manner in which functions are executed.
***************************************************************** Modelling Tool Box ***************************************************************** These models represent a modelling ‘toolbox’ that is available to business managers and to business analysts. As with any toolbox, not all of tools are used all of time. The most suitable tool for job is chosen and used with skill.
Modelling is a craft and needs to be practiced. But knowing right tool to use and correct way of using it means that, with just a little practice, business managers and analysts can achieve high quality results.
***************************************************************** Using Business ‘Map’ ***************************************************************** A map of a country can be used for many purposes, for example, to find distance between places, to find shortest routes, to calculate areas of regions, etc.
In a similar manner a ‘map’ of business can be used to work out number and type of resources required to carry out activities, number and type of departments business ought to have, activities needed to fulfill business strategy, time required to deliver a service and a lot, lot more.
***************************************************************** Function Model ***************************************************************** 'What' a business does is called a 'business function'. The model that shows what a business does is called 'Function Model'.
The function model is usually presented in form of a ‘function’ hierarchy.
Terms for Function Hierarchies
We can use hierarchy diagram to explain some basic terms for function hierarchies.
1.= Root Function 2.= Grouping Function 3.= Atomic (or Leaf) Function
Elementary business function (EBF) is a function which, once begun, must be completed or, if not completed, must be undone. EBF's are what a business does on a day-to-day basis and may or may not be Atomic functions.
***************************************************************** Hierarchy diagram visible in HTML format of this article available by sending an e-mail to: articles@smart-training.co.uk
