Why you need to understand your business model

Don’t become another Blockbuster.

Popularising the term ‘business model’, the internet has provided new ways of doing business — such as ‘clicks and bricks’ to describe retail businesses with an online and offline presence. Traffic across the business’ digital ecosystem is now more important than location and footfall.Now there are disruptive online-only retailers with global reach. Amazon originally sold books online. And now its digital platform and logistics enable it to sell anything from data services to groceries.There are disruptive platforms that allow people to order food and taxis (Just Eat and Uber), enabling providers to sell services that others deliver, all via their digital ecosystem.If a business is aware of disruptive technologies and continuously reviews its business model, it can grow and succeed. Unfortunately, there are examples of organisations that used to dominate their space but paid the price by ignoring new technologies and their business model. For example, Kodak developed but failed to recognise the potential in digital photography^vi and Blockbuster turned down the opportunity to partner with Netflix.^viiNew web-enabled business models also provide opportunities for entrepreneurs and small businesses to go from small beginnings to become major online retailers.A widening gap is emerging between digital leaders and laggards. Amazon accounts for over 45% of online sales in the USA, and in the first quarter of 2018 controlled 33% of the cloud infrastructure services market.^viii Amazon continues to disrupt, recently introducing
tech-reliant brick-and-mortar stores that are completely self-service.

What do digital finance leaders have in common?

Building blocks that put the
customer first
Professionals need to be alert to the potential in new technologies to provide further opportunities for new business models. They must also understand how the finance function can use new technologies to enable them to contribute more to their success and their business’s success in a digital age.Research conducted by the AICPA and CIMA for Oracle, published in the Agile Finance Unleashed: The Key Traits of Digital Finance Leaders white paper, considers how finance functions are transforming and the business model’s preparedness to a finance function’s transformation.^ix

A business model tells the story of how a business creates value,
usually by focusing on:

1. Its value propositions for the customer segments it serves and the needs it aims to meet.

2. External resources and relationships

3. Internal processes or operations and the intangibles needed to deliver the value proposition

4. How the business makes money

The CIMA ‘building blocks’ framework (Figure 2) puts the customer first and positions accounting information at its base. Additional blocks represent how:

5. The structure, scale and culture of a how a business influences to adapt.

6. The business model is dynamic. How it is managed and developed must be considered.

7. The digital ecosystem enables communication and digital transactions with customers, suppliers and its environment. Generating data to provide valuable insight into the customer journey etc.

Figure 3 reports on global research surveying 725 businesses in diverse sectors. Answers to questions about each block show that only a minority had achieved significant progress in transforming their business model. And businesses whose finance functions are further advanced in transformation had made significantly more progress.

Further advanced finance functions are
better-positioned to support business agility
and the ability to achieve digital ambitions.
This suggests there is great potential for management accountants to play an influential future role.

“Unfortunately, there are examples of major organisations that used to dominate their space but paid the price by ignoring new technologies and their business model.”