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BUSINESS MODEL ANALYSIS
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introduction
Much can be learned about a business by analyzing its
business models. There are several different
techniques for business model analysis—techniques
appropriate for different business situations. This chapter
explains how to analyze a business model.
Business model analysis is the work of analyzing
existing business models to learn more about the
business.
Business model analysis is about reaping value from
models, using the models to discover new insights.
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introduction
a customer at x restaurant claimed he became sick
after eating at the restaurant.
The restaurant settled the suit for $3.4 million.
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introduction
The restaurant attorneys want to reduce the risk of being sued
the business processes and business rules are already
modeled for other purposes
The Mykonos attorneys want to reduce the risk of being sued.
Mykonos food is already safe; all the restaurants comply with
all the local health regulations. But the attorneys want to
reduce the legal risk, so they create a small task force to
change policies and business processes, a disease lawsuit task
force.The models are useful for determining what to do about
the risk of lawsuits.
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introduction
They consider the menu creation process and
introduce a new activity into the process to review
new menu items for legal risk.
They examine the new server hiring process and
decide to add some new training for servers, so the
servers can explain food preparation to customers.
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introduction
Much can be learned about a business by
analyzing its business models. There are several
different techniques for business model analysis—
techniques appropriate for different business
situations.
This chapter explains how to analyze a business model.
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introduction
In chapter 7 we were concerned with improving the
model
The business model analysis described in this chapter
is analysis with the purpose of improving the business
being modeled
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analysis techniques
There are several different analysis techniques, several
different ways to wring insight from an existing
business model. Each analysis technique has its
own methods.
Each technique is used for a different business
purpose.
Business change is the common thread among the four
model analysis techniques
There are four different analysis techniques, several to
wring insight from an existing business model.
• All four techniques are about business change
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introduction
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analysis techniques
The table is not intended to be exhaustive. There are
other model analysis techniques not listed and not
described in this chapter.
Simulation is one way to realize the model analysis
techniques.
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improvement analysis
No business is perfect; there are always opportunities
to make business processes faster, to improve the
accuracy of
decisions, or to change the organization structure in ways
that
improve customer satisfaction.
Business improvement is a neverending
task.
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improvement analysis
Even when a business is well designed for a particular
environment, it never stays that way. The business
environment continually changes.
A business that fit the environment yesterday will fail to fit
today. Business improvement is a never-ending task.
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IMPROVEMENT ANALYSIS
A business model can be analyzed for improvement
opportunities—opportunities to improve the business that is
modeled. The analysis of a business model to discover
improvement opportunities is called improvement analysis
(naturally). The goal of improvement analysis is to find ways to
improve the business, to use the model to better the business.
Improvement analysis is not about improving the model.
Improvement analysis is different from the techniques
explained in Chapter 7 for making more accurate and more
useful models, although sometimes opportunities for improving
models are found along the way, as a side effect of performing
improvement analysis.
Improvement analysis is not about improving the model
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procurement of equipment
improvement analysis
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improvement analysis
Can some of the handoffs be eliminated? Why are all the activities in
Figure 10.1 performed? Are they all truly necessary? These questions
can be answered by analyzing the motivation behind each activity.
Figure 10.2 relates activities in Figure 10.1 to elements in the Mykonos
business motivation model. In Figure 10.1 the restaurant general
manager decides what new equipment to buy in the activity Decide
What to Buy. This activity realizes the Mykonos strategy of creating
kitchens that are customized to the needs of the individual
restaurants. Each Mykonos restaurant is different, with a different
menu. So each Mykonos restaurants has a unique kitchen, one
individually customized for the needs of that restaurant, reflected in
the strategy Individually Customized Kitchens. The activity Decide
What to Buy realizes that strategy. The same strategy is also realized
by the activity Prepare Equipment Request and much later in the
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process
when the equipment is actually ordered from the vendor in the
activity Order Equipment.
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improvement analysis
Mykonos has some financial objectives and tactics to achieve those objectives. One
such tactic is avoiding unnecessary investments, modeled in Figure 10.2 as Avoid
Unnecessary Investments. Many of the activities and gateways in Figure 10.1 are
performed solely to realize this tactic. For example, the procurement specialist performs
the activity Analyze Equipment Request to determine whether the investment can be
avoided. Similarly, the procurement manager plays a role avoiding unnecessary
investments with the activities Examine Equipment Request and Explain Decision and
the gateway Approve Request? Altogether seven activities and gateways in the
equipment procurement process realize the tactic of avoiding unnecessary investment.A
third course of action is also realized in the Figure 10.1 process. Mykonos
has established the tactic Find Cheaper Alternatives. The procurement specialis
attempts to find those cheaper alternatives in the activities Research Equipment
Alternatives and Prepare Alternative Request and in the gateway BetterAlternative? In
Figure 10.2 those three model elements all realize Find Cheaper Alternatives.
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improvement analysis
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Business process simplification
Business process simplification is changing a business
process, typically removing activities but also sometimes
replacing activities with others.
Business process simplification is performed for a
business reason, either to reduce the cost of the
business process, improve the quality, reduce the endto-end cycle time, or for some other reason.
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Business process simplification
Model simplification(Ch7) is an important objective but
different from our focus now: business process(Ch10)
simplification.
Chapter 7’s focus was about creating a better model. Our
focus now is creating a better business.
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Business process simplification
Often a business process will have some activities and
gateways that are not justified by any courses of
action.
The process includes activities that are performed for no
apparent reason, no reason beyond tradition: we have
always done it this way.
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Business process simplification
We see no vestigial activities or gateways in the
procurement process.
Every gateway realizes some course of action so does
every activity.
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Business process simplification
There are five activities and two gateways in the
procurement process to achieve the tactic of avoiding
unnecessary investments.
Of the 13 model elements in the end-to-end process,
more than half are there solely for that purpose.
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Business process simplification
The restaurant general manager decides himself
whether the equipment is needed. Once he decides
to purchase, the procurement specialist determines
whether there are cheaper alternatives and then
purchases the equipment.
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Business process simplification
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Business process simplification
Instead of being realized by six activities and two
gateways, the same tactics could be realized by a
single gateway
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Business process simplification
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Course of action valuation
A course of action is a set of tactics that the business will
maintain while performing the business process. It is a
strategy
Some strategies might sound good in theory but in
practice are not worth the effort of the business
process activities that implement them.
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Course of action valuation
With the model, we know what courses of action are
realized by which activities and gateways.
We could then determine the value of maintaining or
improving the strategy
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Course of action valuation
We can measure the cost of a course of action by
summing the costs of all the activities and gateways
that realize that cost.
Then the total cost of efforts toward the course of action
can be weighed against the benefits.
This improvement approach is called
course of action valuation.
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Course of action valuation
Is the tactic Find Cheaper Alternative useful?
On every procurement we save $100-$200
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Course of action valuation
Yet, the activity Research Equipment
Alternatives consumes 3.2 hours of work.
the total amount of time for the business
process could be calculated through simulation
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Course of action valuation
The simulation reveals that the simplified model
takes 2.7 days more than the original
process
WHY?
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Course of action valuation
Because if the owner of the task is engaged in
many business process then the current
activity will wait in queue.
The more activities the higher the waiting and the
higher the delay for the process
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Course of action valuation
Does the value of pursuing this course of action
really justify the cost and time to pursue it?
The restaurant might be better served by letting
the restaurant general manager make the
purchase
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Course of action valuation
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Course of action valuation
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Course of action valuation
But there are some costs of making the change
the costs of training the general managers
the cost of changing the application that
supports today’s process
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Course of action valuation
And there are risks as well
 The general managers might not make good
business decisions about their kitchen equipment.
They might be swayed by the allure of owning the
best restaurant kitchen and fail to properly consider
the costs to Mykonos.
 holding him responsible for the financial
results,and performing an occasional audit to
guard against corruption
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Impact Analysis
The attempt to understand the impacts of a
proposed change before acting on the change
is called impact analysis.
- Impact analysis is looking before leaping.
 What unintended consequences will result?
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Impact Analysis
When a single change is made to a business,
many consequences can occur.
A new governmental regulation, seemingly
simple, can lead to three new policies, a new
organization to monitor compliance, and 13
changes to business processes.
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Impact Analysis
A small business process improvement can
lead to one organization being underutilized
and another far too busy.
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Impact Analysis
a change could be initiated by the organization or
by the environment
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Impact Analysis
When an organization initiate a change
a change could have unforeseen impacts
avoiding making a bad change
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Impact Analysis
When change is enforced
The business must comply with a new regulation.
Impact analysis allows the business to
understand the consequences before they
happen, and prepare for those consequences.
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Impact Analysis
Businesses are complex, with many
organizations, rules, and processes that
interrelate in hundreds of ways.
Without models, even the most thoughtful and
thorough executives will miss some impacts.
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Impact Analysis
Example
Reducing risk of lawsuit
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Impact Analysis
The analysis begins by considering the existing
motivation model.
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Impact Analysis
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Expand Geography
But the third strategy is a problem: Expand to South Florida. The South
Florida courts are known to be sympathetic to tort innovation, and
multimillion-dollar awards are common. The task force decides to
abandon the strategy of expansion into South Florida.
When Expand to South Florida is abandoned, other motivation elements
are affected. Figure 10.7 shows how the tactic Scout for So FL location
implements the strategy Expand to South Florida. This tactic is
abandoned with the strategy Expand to South Florida. It makes no sense
to scout for locations when no restaurant will be opened there.
Similarly, the tactics Recruit So FL
Chef and Visit So FL Competition also implement the same strategy
and are eliminated with it.
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Impact Analysis
 An innovative menu with unusual combinations of
ingredients is more likely to attract a lawsuit than a
menu of steaks and grilled fish. But the task force
does not want to abandon the strategy Create
Innovative Menus as they abandoned the strategy of
expanding to South Florida.Innovative menus are
just too important. In this situation the cure is
worse than the disease.
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Impact Analysis
Instead the task force adopts a new business policy
to govern this strategy.
Legally Safe Menus: All menus must be reasonably
safe
from
lawsuits.
The new policy Legally Safe Menus is intended to
reduce the risk of a lawsuit by creating legally safe
menus—menus that are (probably) not going to lead
to lawsuits.
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Impact Analysis
This policy is the basis for several business
rules that check aspects of legal safety.
For example, a new business rule is created to
ensure that all meat is sufficiently cooked.
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Impact Analysis
Rule
Meats Sufficiently Cooked: It is obligatory that
each menu item is thoroughly cooked if the
menu item contains meat.
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How to perform impact analysis
There is no magic in performing impact analysis. In our
example the Mykonos disease lawsuit task force simply
examines each of the business models to check which are
impacted by the new legal risk.
 Impact analysis takes time.
Consider the change and then examine model elements
one by one to see which are affected by the change.
When a model element is affected by a change, the
impact can have one of several different results.
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How to perform impact analysis
policy or business rule may be required as
illustrated by previous example
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How to perform impact analysis
A business process activity might be
eliminated
or modified.
For example, if pagers are to be installed, the
host still greets and seats customers but now
does so differently because a pager system is
used.
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