Business models: rediscovering the heart of business

At the heart of every company lies its logic - how it operates and creates and captures value for stakeholders in a competitive marketplace - the business model. In times of change, the need for evolution even of the business model is inescapable and the CIMA CEO forum, 'Business models for tomorrow's companies' held on 6 November shone the spotlight on this need.

Introducing the forum and the speaker, Kasturi Wilson - Managing Director, Hemas Transportation Sector, reiterated the need to 'open, more innovative ways of creating shareholder value.'

Within integrated reporting, there is a simple definition of a business model, which is an organisation's chosen system of inputs, activities, outputs and outcomes which create value over time.

"A business model is always about value creation, but the question you have to ask yourself is, 'Who is that value for?'" Charles Tilley - CEO, CIMA reminded the audience of over 100 CEOs of leading businesses in Sri Lanka of the fundamental principle of business - value creation. So how does an organization create value? The concept is simple. Meet your customers' needs, ensuring that what you do is efficient. An essential element is social concern, as Charles Tilley pointed out, 'Today, very importantly, you need to think about how you are minimizing your impact on the environment, and how you are being a good corporate citizen, which is something that our customers in today's world are very much looking towards.' Finally, make sure you differentiate yourself.

Speaking of the need for re-invention, he said, "The changes that we are seeing in the world are all driven through technology, but what we ourselves need isn't really changing. What's changing is the way that things are being delivered."

Underscoring the importance of relationships, he cited Burberry's return to success which can be attributed partly to its changing its appeal to the young but essentially to taking its supply chain in hand.

Innovative models may also involve expanding horizons and looking outside of the environment. For example, shampoos have been developed which use less water, with the double pay-off of being environmentally friendly, and appealing to customers in developing markets with less access to water.

Other models such as the Freemium provide a basic service free of charge, giving customers the option of paying for value addition if they require it. In today's environment of connectivity it is important to acknowledge the contribution of peer to peer business models which make use of connectivity driven by technology such as Buzzcar. There is also the possibility of combining online with physical and taking the 'bricks to clicks' to expand business dramatically (as was done by Tesco). All this opportunity comes with a caveat, however, and it is a must that businesses embrace change, Charles pointed out, noting that this cannot be done slowly and resistance to change & underestimating its urgency could be fatal to a business.

The CGMA report, 'Building resilience: an introduction to business models' emphasizes that companies worldwide that have faced the challenge of redrawing their business model have become stronger in the process.