Forget the flowery words; there is a time to deliver. I am trying to take a cold hard look at what and how we report in our organizations. Does it give us the level of detailed understanding to feel confident?
Let me outline some different thoughts, coming from some detailed research that is swirling around in my mind today. It’s a little complicated, but lets try.
I apologize this is a little longer than ideal so maybe take it in bite seized chunks.
Seeing an organizations business model but through whose eyes?
Is the business model important? Of course it is but how we see its value all depends on who are you, what you are looking for, knowing what provides the real value creation within that specific organization becomes important to appreciate their business model. Understanding the business model of organizations is important, it can tell us much, if it is well designed and explained.
.Today we are stuck looking into our business organizations through a very selective window, often chosen by the leadership of the organization, designed deliberately into what they chose to report upon. It is what they believe they want to tell you about ‘selected’ activities and outcomes that are actually going on. Do you believe these selective opinions? I certainly do not on many occasions regard them as transparent as I would like.
Firstly, financial numbers alone give a limited guidance, they hid so much to make it difficult for the outside to really gain full confidence in their understanding of what lies underneath. If organizations rely simply on ‘just’ the numbers, this tend to be a ‘static’ set of figures that reflect something recent and everything in the past. That is not helpful in knowing where organizations are heading or if they are well-equipped to get there.
If financials are no real use for the future – what is?
Numbers alone do not give us confidence to invest in the organizations future; we only blindly invest in a historical position actually. We take better comfort from the forward-looking statement that is positioned to fill this future thinking space. Is this really good enough? I don’t think so and so do plenty of others – that is way there is a serious call for changing this. We do need better knowledge and insights.
Surely we all need to recognize this reporting must change, we live in rapidly changing environments where established organizations are increasingly being caught out. We need to understand more of the why. We need to know what is making up the present and future thinking of the leadership of organizations. For this the business model is not a bad place to gather around, decide and explore its relationship parts to form an opinion if what the leadership is thinking, is making future sense.
There is a call for a more integrated reporting structure that is forward-looking. This might help.
There is a growing argument for a more integrated reporting framework with one of those pushing for this is the IIRC. IIRC has as its objectives to enhance market and context specific insights, it wants to place a greater emphasis on the longer-term strategy and reveal the behavioral triangle of governance, risk and remuneration.
It is seeking this out through how the business model works expecting a clear linkage of the dynamics and key relationships that it depends. Now that, for me, is good news. They are suggesting this comes through business narratives.
But will this make a real difference to attempt to describe the business model (BM), unless we have a standard way to evaluate and describe this. I don’t think the IIRC is yet there in what this needs to have contained within the BM Narrative but they are moving along a good track, if it is not the best track – more on that another time perhaps.
What is driving this call for reporting change?
There are a set of issue that are driving this move towards a more integrated reporting. The open question is will it make the real difference, restore confidence, and allow stakeholders, the many and varied investors into the ‘hearts and minds’ of our organizations to show a shared belief. Will it bring back trust within our organizations?
So who wants to see what is made up within any integrated business model?
There are so many interested parties wanting to understand our business organizations. The current proposal is to present the business model through Business Narrative thinking for telling the real story. This clearly raises a greater set of question in my mind:
- Whose context will these narratives be targeted towards, what will form the nature of them and will we see or simply ‘sense the value that lies within these BM Narratives?
- Will we gain that clarity on the leadership objective and ‘decent’ insights into their strategy and the thinking that is making this up?
- Will they be clear, not replace one set of flowery statements with another. A business model should clarify a compelling picture of how, if it is constructed well by identifying those drivers of development and future (sustaining) performance.
- We don’t want it loaded with safe haven or harbour statements with financial positions, but some forward analysis and explanations that provide the context and construct of why this business model can deliver, and what are its risks and critical aspects of the BM.
Of course we need to accept these will still be a partial understanding to retain competitive advantage.
Do our organizations want to talk about their business models or will they feel they are revealing too much? Will they lack that real confidence because sometimes they don’t know what does truly make up their business model in real value points? The business model and its related parts needs significant understanding and opening this up might reveal inherent weakness.
Forget all the present loaded documents that ‘spin’ themes, generalize on priorities and time-frames – do they offer decent explanations of actions, comprehensive and quantified information? Do they map this back to strategic priorities?
Will organizations leaders be comfortable to put their necks a little more on the chopping block? Can we, should we encourage this? Yes we should, that is why they are there, to be paid to manage risk and opportunities, to navigate and deliver and be well rewarded for these efforts. It is a different balancing act, needing deeper evaluation of all the implications of revealing the business model, without it turning into simply ‘bland’ statements that will give little fresh value.
You can go on and ask a series of further questions:
- Do we as outsiders really extract useful information today – is what is currently being produced and talked about really insightful or bland statements of possible intent?
- Do we really know if the present BM have a clear integration, the parts in its total design, not just work and fit with each other but actually ‘talk’ to each other.
- How much can we expect on tangible comments on sustainability, risks and impacts to existing strategies? We should.
- Will organization invest enough in decent graphics that help explain their business model or just prettify their reports?
- Can we grasp differences within the different business units and their business models or do we just accept the top picture?
We need stuff we can relate too, that will help us understand or a narrative has no real value, just more soothing balm. There are real, significant questions any move to pushing organizations towards reporting on their business models. Today this is being explored through present trials and experimentation in a number of our top organizations.
These are the pioneers working through this. This early adopters recognize a more open, forward-looking outlook will attract more positives than keeping present stakeholders and investors in the dark. Informing them of a better business model narrative of the future intent can give greater understanding and confidence.
How would organizations go about this BM narrative task?
Should these be top down or bottom up? The top-level business model is usually made up of multiple business models underneath. The larger and more complex the organization the harder it might be to describe a ‘generic’ business model. How will this be resolved?
We would also want to search for a certain consistency across organizations offering where proirities lie, alongside some clear and measurable KPI’s to help in any assessments
How will the leadership of organizations deal with failures? It is far more beholden of the leadership today to talk about the failures but place these within the real learning that came out of this and actions it has taken from this so this becomes an expected rhythm of advancing the knowledge and learning.
Do we expect to understand what are the external drivers prompting discussion and informing relevant decisions? Do we get the relevant joining of the dots to provide a more integrated picture? Explicit linkages that give context to strategy to direction
The questions are many and complex.
Can this be achieved, or are we perhaps raising our expectancies way to high. I expect the way to high would be the winner here, sadly. Will the business narrative follow a prescribed format or be allowed to evolve and through a set of emerging practices become the accepted leading practice that will eventually be broadly adopted? Most probably.
We know the Business Model is made up of key resources and relationships that enable the real engagement and point towards a distinctive value proposition. What is needed in all business model narratives is the coverage of all the basic building blocks that frame the discussion as a universal starting point.
What to integrate within this business narrative might be tough:
- Provide distinctive understanding of what our brand strives to be?
- What would transmit real values and clarity to the reader?
- Provide future stories and scenarios that paint that BM canvas for what we are doing in the ‘here and know’, that gives it the ‘richness and vibrancy’ people want to here.
- Put the people side into the BM equation – to discuss the learning behaviors and intentions that will underpin the BM – our people and where they really fit within the business model design to make it work through knowledge and innovation contribution.
- Explain the make-up of the critical intellectual capitals that will generate the future value creation
- Clarify the value propositions and their key building blocks
We do need to evoke a powerful narrative as the journey that others would want to be on
The really challenging part of any move towards building and communicating the BM narrative resolve around some perhaps “hairy” internal challenges
- A cohesive team that can stay on-message
- Meets investors needs
- Offer a picture of sustainable value- actions that drive
- Offer information that is used to manage the business, not all but enough!
- It is structured and coherent
- Has alignment and consistency between actions and rhetoric
- Showing the places and activities where an organization is managing for value.
There is a really strong case to look more towards the future
Organizations by making this move to having good, helpful and well-structured constructs of their business model is a step towards being more open, more willing to engage. These moves will help the stakeholders to want to become a better knowledgeable partner wanting to get involved. Ones that by being clearer on what is making up an organizations business models today and by discussing these can reduce conflicts, help navigate in this more complex world.
What will happen if organizations start adopting a business narrative around their business models?
I am excited in what I read about what the integrated reporting is presenting as potential results. Equally I am troubled. Adopting the business model, even in just a narrative reporting form can offer really value but it needs designing well, to be a substantial advancement in our understanding of organizations view of the future.
I do hope the central change aspect of reporting, based on the business model suggested by the IIRC, is managed well, otherwise we miss a further opportunity to change a rather broken down, out of date reporting mechanism that is “not fit for today’s or tomorrows purpose.” We do need to be more forward looking and understand the relationships that make up the value within our organizations, the business model helps in this.
What do you think? Any thoughts on this? We are arriving a different point on reporting and the business model and its understanding will become even more important to our future.
Main References here:
Steve Denning- Mastering the discipline of business narratives.
PwC- Trust through Transparency
Integrated Reporting (IIRC)
* This article was extensively revised on 15th February from the original.