Management by Business Models (MBM): A Better Way to Design, Analyze, and Manage Businesses

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"A business model describes the way a business sustainably makes profit." Rod King

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Throughout the decades, there have been myriad approaches for designing, analyzing, and managing businesses. One of the most popular and enduring approaches is "Management By Objectives (MBO)." Popularized by Peter Drucker in his 1954 book, "The Practice of Management," Management By Objectives refers to a system of business, project, and performance management that uses a hierarchy of objectives.

Although the term Management By Objectives is not so often heard nowadays, the paradigm and thinking pervade deliberate business planning and strategy where goals are set from as high a level as Mission and Vision, which cascade through Goals, Objectives, Strategy, and Tactics to Action Plans and Projects. The paradigm of Management By Objectives assumes that problems as well as solutions are knownBut how relevant is the approach of Management By Objectives in today's environment which is largely volatile, uncertain, complex, and ambiguous?

In the 1950s and 1960s when Management By Objectives was at its peak, the world was generally stable and predictableBusiness problems were considered to be routine and "tame." Businesses and industries could be clearly defined and had longer lifecycles. Consequently, the classic strategy of Management By Objectives was relevant especially for corporations or established organizations. However, as the current environment is increasingly turbulent, it's becoming clearer that different strategies are needed for different levels of unpredictability in an environment. Martin Reeves et al strongly make this argument in their recently published book, "Your Strategy Needs a Strategy."

Below, the Butterfly Strategy Roadmap presents a visual summary of key ideas from Martin Reeves et al's Strategy Palette as well Dave Snowden's Cynefin Framework. A key idea of the Butterfly Strategy Roadmap is that the strategy of a sustainable organization evolves or metamorphosizes like in the lifecycle of a butterfly.

A more dynamic and actionable view of the Butterfly Strategy Roadmap is presented below as the "Butterfly Strategy Lifecycle."

From the perspective of a startup in an unpredictable environment, the approach of Management By Objectives is rigid and has weak relevance. A startup in an unpredictable environment faces "messy" or "wicked" problems with unknown unknowns as well as unknown knowns. Rather than a Classic Strategy that favors approaches such as routine problem solving, traditional business planning, deliberate strategy, forecasting, and Management By Objectives, startups are focused on Emergent Strategy and the practice of effectuation. More specifically, startups use Adaptive and Shaping Strategies as their business model evolves to one which requires Visionary and Classic Strategies. The emerging paradigm in the startup world is "Management by Business Models (MBM)."

Startups are increasingly using the unit of a "business model" for activities of design, analysis, and management. I believe that as the world becomes more turbulent and unpredictable, the holistic approach and "wave" of Management by Business Models would dominate the startup world. And like a tsunami, Management by Business Models would eventually assimilate the good parts of the rigid approach of Management By Objectives, or at worst, sweep away into oblivion the approach of Management By Objectives. However, there is currently no consensus in the business world of what the term of a "business model" means. So, what's your interpretation and visualization of the term, "business model"?

Below, I present my 1-page textual and visual definition of a business model.

I've extensively used the above definitions to design, analyze, and manage business models. Nevertheless, it would be great to hear your own perspective and interpretation of a business model.

As Martin Reeves et al note in their excellent book, Your Strategy Needs a Strategy, the environment or context should define the relevant strategy for an organization. Strategy should not be cast in stone. Strategy should not be constant throughout the lifecycle of an organization that meanders in environments of varying levels of unpredictability. Irrespective of an organization's strategy, the business model as a unit of design, analysis, and management should remain constant. A business model can be seen as a dynamic skeleton or scan of an organization. However, without having a shared understanding of what a business model means, a lot of money, energy, and time are wasted when designing, analyzing, and implementing strategies for businesses.

Having a shared understanding starts with having a shared textual and visual language for business modeling. Practicing the approach of Management by Business Models requires both explicit and tacit knowledge of a business model. In short, if you are interested in rapidly improving the performance of your organization and especially using the approach of Management by Business Models (MBM), the organization should start by collaboratively exploring one question: "What is a business model?"

So, has your organization collectively answered the one question for facilitating and accelerating Management by Business Models (MBM)?

We look forward to hearing from you.

 

 

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