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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 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,
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 end-to-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.
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
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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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