Here’s the question – where in the canvas will one find processes represented?

Recently I had a conversation with a colleague business analyst who raised a question I have faced many times before, “In Osterwalder’s business model canvas (see Business Model Generation) where does one find business processes represented?”

For more on the canvas see: Business Model Generation including a free PDF extract on the canvas.

The answer: processes are not part of the business model mapped in the canvas.

The infrastructure area of the canvas is fundamentally about ‘what’ a business does to create the value it delivers to its customers/clients, not how it does it. Items that should be described in the key activities component are focussed the capabilities required by the business. Processes are not part of the canvas as they represent ‘how’ a business works and not a ‘what’ a business does. Processes are a function of how the organization delivers on the logic of the business model, along with the organizational structure, business rules and people management.

Here is an example to illustrate this difference.

Telecom companies have to activate a new phone as part of 'what' they have to do to connect the client to their services. The process for this used to be sending a technician to your home to connect the phone at the junction box; 'how' they did it. Today the process for connecting a phone may include internet, calling from another phone, or going to a store, because how it is done is through remote access. Over the years, and with the change of technology, the “what” (business capability) hasn’t changed though the “how” (business process) has changed drastically.

So back to a fundamental business design question, why would one want to describe business by the thing that changes (the process) instead of the constant (the capability)? Well-defined capabilities rarely change. They provide a much more stable view of the business than processes. Capabilities only change when there is a significant shift in the underlying business model, which might occur through a business transformation or with acquisitions.

The following model summarizes some of the thinking I have encountered about the relationship between business capabilities and processes; most of the discussions being in the Enterprise Architecture domain. A business’ capabilities are delivered through processes by organizational units using assets, business assets (such as forms) and IT assets (such as web sites, applications, networks)

The key activities component of the business model canvas reflects those capabilities needed by business as part of the creation, delivery and capture of value. Often the business type determines core capabilities. Product-based base businesses need capabilities around manufacturing logistics, marketing, and shipping, for example. For solution-based businesses the capabilities include acquiring the problem, finding options then choosing and implementing the solution. For networking businesses the core capabilities are in connecting the various groups together, building agreements, determining the specific services to be provided and the infrastructure to support those services.

Are processes and capabilities the same thing? No, they are different levels of extraction. Capabilities are about what your business has to be able to do and can be expressed, analyzed and innovated through the business model. Processes are the operational view of the business and, in combination with organization structure and business and IT assets, explain how the business operates to accomplish the business model.

I have had occasion recently to talk with a number of people about challenges they are facing. Some of these have been business analysts working on requirements or process projects and others have been people working on innovation, entrepreneurship and business models. Strangely enough, I wind up asking them all the same question.

 “What is the problem you are trying to solve?”

It constantly amazes me how rarely that question is central to the effort people are putting in. For business analysts this should be the foundation question of any project. The answer to that question is the basis of the scope definition and the boundaries. For the business designer or entrepreneur it is fundamental to the problem-solution and the product-market fit. And there is a way to approach it systematically.

During my time as a business analyst I have often experienced, and spoken on, two of the biggest challenges a BA faces – clients who want to begin with the solution, and not defining the problem correctly. In a typical case example I was asked to step into a project already underway and when I sat with the project business owner he was a little annoyed that I wanted to step back and discuss what the specific problem was and why it was a problem that needed to be addressed; something no one had done. He felt it was unnecessary since they already knew the solution (strike one) and had someone already coding (strike two). When we finished the discussion, and he had reviewed the summary document, he was more than a little concerned as it seemed the solution his programmers had been working on contained a lot of features that had nothing to do wit the problem, and they had created a solution that the corporate IT security wouldn’t allow to be implemented on the infrastructure, a small point they never considered in designing a leading edge solution (strike three, and you’re out). They had wasted a lot of money on a solution that didn’t address the problem that was their mandate, and wasn’t usable by the corporation

The innovation or entrepreneur equivalent to “starting with the solution” is “passion for the product”. Through the past for years, as I have been working more and more in the area of business design and innovation, and lately when I have worked with entrepreneurs, I have experienced another facet of the same issue. Many people approach new businesses or innovation of an existing business on the basis of a pre-conceived brilliant idea. The problem is, the passion for a new product or an innovative idea has to be married to business acumen. The fundamental reality of business is that it is unlikely be sustainable or profitable if you are not creating a solution that is important to the customer rather than you. One of the ways to look at why it would important to a customer is helping someone solve a problem they have. That is the basis of Clayton Christensen’s job-to-be-done and need-to-be-served approach to understanding your customers.

Okay, so I guess all this begs the question of how one approaches understanding a problem in a systematic, repeatable way. Here’s where other people’s brilliance can help.

Years ago I came across the Kellogg Foundation’s approach to evaluating proposals for funding. Their required documentation contained a Logic Model that included a ‘Theory of Change’ sub-model, used to describe what it was you want to accomplish by the project. That model became my core approach to understanding problems and potential solutions. The approach is based on the six fundamental questions that have to be answered to ‘define’ the problem space:

1 – What is the problem you are specifically trying to address? Here you have to be very specific on what is causing the pain you want to change?

2 – Why is it a problem now? What are the drivers that make is something that you need to address at this time?

3 – What do you want to accomplish by solving the problem? What are the objectives of your project, how will things be different?

4 – What is out there that affects the solution? What are the rules, strategies, initiatives that are in the environment that would influence a potential solution?

5 – Are there other solutions already? Are there existing approaches or solutions that you could learn from – are there competitors in the marketplace.

6 – What are the assumptions you may have to deal with? Here it could be risks, or hypotheses that have to be tested.

By addressing each of these questions one can get a very clear picture of the problem space and some good guidance on potential solutions. In our Business Analyst Centre of Expertise we built on those six questions to establish the scope of any project before work began. In business design projects these questions are the foundation of understanding the client-value proposition equation and help to establish some of the hypotheses that need to be validated through the customer development process.

So take some time in your busy schedule of thinking about creative solution, to reflect on the problem – it will be well worthwhile.

This past weekend I was WOW’d by an article I read in the Ottawa Citizen newspaper, writer Kim Covert, about the Toronto Zoo's new program to support ecological responsibility and cost savings for businesses - ECO Executives. The program was initiated by Dave Ireland (curator of conservation and environment) and supported by the Ontario Government. I wanted to share with you the terrific business model innovation.

The Toronto Zoo has created a program aimed at connecting corporate and government organizations with nature and the principle of environmental footprint. More importantly, the program can show them a business case for improving their bottom line through improving the efficiency and green-energy of their operations. The strategy is to take executives out of the boardroom, bring them to the zoo and immerse them in a close-up encounter with endangered species, and provide workshops and presentations on innovations and new technology on green-energy, and the business’ environmental footprint.

The Ontario Ministry of the Environment provides the funding for the program, and it is delivered in partnership with external content providers and companies developing new technologies. The Zoo leverages its most important resources (the structure and animals) at a cost of re-directed staff time, communications and administration. Events are structured in two ways, company-specific sessions for larger corporations and sector-specific for small to medium businesses. They have gone as far as building an ECO Executive club with a newsletter to build a community around this initiative.

Below I have posted my understanding of the business model. Please note this representation has been developed without consultation with the Toronto Zoo, and is my understanding of their approach. 

The reason the English / American languages have two words for many of our food animals dates back to the Norman invasion. 

The animal herders and farmers were English/Saxons and knew the animals by the English names. But the Lords who ate the food produced were Norman and knew the meat by the French names. That is why today we have the word ‘cow’ for the animal and ‘beef’ (boeuf) for the meat; likewise with sheep and mutton, pig and pork.

That interesting factoid has me thinking about business models and enterprise architecture. Is this clash of cultures occurring in our business world?

I recently worked with a client who has been struggling with creating innovation and re-designing the way it does business. They had brought in the Enterprise Architecture people to lead the senior management in a discussion of the way the business operated and how it could be changed. The result was a very complex mapping of the business including process maps, IT infrastructure architecture, information and application architectures and lots of recommendations how the business could be run more effectively and efficiently by maximizing the IT portfolio.

This was a conversation about meat.

Enterprise Architecture has an enormous amount to say about how a business can be delivered and supported through information and communications technologies. But that is a ‘how to’ conversation, not a ‘what is' conversation. The net effect was a frustrated Executive who had difficulty understanding the complex models and lacked sufficient knowledge of EA to take ownership of the conversation and to extract the value of all the work in a practical way to improve the business.

What I didn’t see in any of the results was a discussion of the needs and jobs of their clients. There wasn’t even an analysis of who their clients were and how they are segmented. No one talked about how to manage the relationships with the clients and understand the best ways clients want to communicate and do business with the organization. Nowhere did I see anyone discussing potential partnerships, or understanding how partnerships could be leveraged to change the way business was delivered.

This is a conversation about the nature of the animal.

This is the value of business model innovation; understanding the logic through which the business can create and deliver value for the customers/clients and capture back value for the stakeholders.

Had a very interesting exchange with Kay Plantes about the problems at Toyota. As Kay points out the problems over quality exceed the re-calls for faulty manufacturing, they seem to have lost their internal commitment to the claim of quality as their primary driver. The situation leads to two considerations about Toyota’s apparent abandoning of their quality heritage.

The first comes from Joseph Pine's work on consumers. What consumers want today is authenticity. With all the advertising and information overload, an easy way to compromise your customers is to not be true to yourself and your heritage, thereby repudiating that heritage. You can be a 'real fake' like Disneyworld, or you can be a 'fake real' like Universal Studios Walk, as long as you stay true to what that heritage says you are and people can trust your authenticity.

Pine's three rules of authenticity:

1. don't say you're authentic unless you are

2. it's easier to be authentic if you don't say you are

3. if you say you are authentic you better be authentic

One can see how Toyota's leadership has clearly compromised their authenticity. They have forgotten their heritage of building on quality. They have continued to proclaim their status as quality driven though their recalls contradict that and now, with more revelations coming about its internal focus being lost, the public perceives the lack of authenticity. They have gone from a hugely successful company saying who they are and delivering on that promise, to not being true to their customers, saying they are committed to quality when quality is compromised, to not even being true to themselves, not believing or committing to what they say they are. Ask Tiger Woods about the risks of compromising your integrity with your customers and the public.

The second thought comes from a program I watched some time ago (forgive me for not remembering the exact program) that talked about why smart people do stupid things. Often the pattern begins when they are faced with challenges or crisis and they manage to contain or survive the crisis. When this happens a number of times they begin to feel like they are invulnerable. The world tends to come crashing down around them when they don't take these challenges as a motivation for change and begin to believe they are infallible, from can't be harmed by mistakes to can't make a fatal mistake. Right about that time the fatal mistake happens and the death spiral sets in.

In the face of the failure of their authenticity and the rising storm over badly handled problems, can Toyota avoid the spiral and re-establish their customers' belief in them?

Here's the question, are the people who are modifying or making additions to the business model canvas really helping matters?

As I noted in a tweet earlier this week, I have been re-visiting Garr Reynolds material on Presentation Zen. It got me thinking about the business model canvas and why I believe it is such a powerful tool. The graphic I posted earlier this week stems from a session with an organization (government) that was having trouble understanding itself as a business. They were wrapped up in the complexities of their business and couldn't grasp the concept of what a business model is. As Reynolds would suggest, it was time to reduce the signal to noise ratio, and thus I sketched the Zen graphic of the business model on the fly to simplify the conversation. Thinking about simplifying brought me to this post. 

A few years ago I was working on a Business Architecture project and had the good fortune to meet with John Zachman and and work with his Canadian associate Stan Locke. For those of you unfamiliar with the Enterprise Architecture domain and JZ, he is the grandfather of architecture thinking and one of its most enduring success stories. JZ began working on Business Systems Planning in the 1970s and by the late 1980s had evolved this into the first iterations of the Zachman Framework for Information Management, the bedrock of Enterprise Architecture.

John once expressed to me his belief that the true strength of the Framework was in its design to describe the business by its six fundamental components, what he called "primitives"; information, process, locations, organization, cycles and motivations. One then understands the operation of the business by the interaction of these components, he called these the "composites". In his article on Fatal Distractions, JZ identified one of the key points of failure was to describe the business by its composites. The Zachman framework is still vital, powerful and influential 20+ years later.

When I first read Alexander Osterwalder's Ontology (his Phd thesis) I recognized the same strength in this approach to understanding business models. His many years of research and work with Yves Pigneur had helped him to isolate a set of 9 core elements which formed the ontology, the proto-canvas: clients, value proposition, channels, relationships, key activities, key resources, partners, costs and revenues. It was how he has dealt with these nine components that is the most interesting part of the evolution in his thinking.

In the ontology Alex focussed on a vertical analysis of business models, understanding and analysing them. To do this he established, what I called his 'descriptive' model of the 9 components, and a series of 'analytical' models to understand the dynamic - e.g. the configuration model, the channel model - and some individual models to understand the components in depth - e.g. the partnership model, activity models based on 'types' of businesses. The channel model was one of my favourites because it resonated so strongly with business people.

With the effort to write Business Model Generation, Alex's thinking turned from the vertical to the horizontal. How to design and change business models. He evolved the ontology into the canvas. He added patterns as a mechanism for understanding potential design and change. He solidified the thinking around the process. He also extended influences and analysis by the SWOT and environmental factors (both covered in a different way in the ontology). 

That brings me to the key piece of this musing. There have been of late, lots of attempts to adapt the canvas by adding components to it, or modifying the individual components. There have been other attempts to build out the components of the canvas into much more complex constructs.  There have been alternate frameworks presented, up to an including Johnson's 4-box model in Seizing The White Space. I can see a lot of value in some of the 'adaptations', others I just can't grok the need or benefit of the complexity. Overall, I think they are making a fatal error in their approach when they try to change the canvas.

By adding complexity into the canvas itself the thinkers are attacking its core strength - its simplicity and adaptability. These extensions of the thinking of the BMG would be better served as add-on models; independent analytical or design considerations that layer on the framework. Allow the canvas to do its job, describe the fundamental components. This thinking is evident in the work currently being done between Alex and Steve Blank. The integration of the Customer Development Model and the BMG is a shining example of collaborative support, rather than re-building the fundamental concepts. 

But that is just my opinion.....I may not be right.

This weekend I read an article by Gary Hamel on typing innovative businesses: Who’s Really Innovative: http://blogs.wsj.com/management/2010/11/22/whos-really-innovative/. I’m a big fan of Gary’s ideas and highly recommend his book “The Future of Management”. The article got me thinking about the basic conundrum of innovation in the Government of Canada. I also wonder how common these challenges are in the government domain around the world.

For the past four years I have been working with the federal government in Canada on the idea of bringing innovation and business models into an environment that hasn’t been particularly successful in re-thinking the way it does business. I have had a range of successful and not-quite-so-successful projects. Some thoughts have occurred to me about why it has been so hard.

Gary identifies five ‘types’ based on his view of their importance to understanding successful innovation. I’ll leave it to you to read this very interesting article for the details. The basis of his typology is how these companies have embedded an innovation mindset and practices into their management DNA. One particular phrase in the article struck a note of familiarity; “no matter how hard they try, penguins can’t fly”. I believe this is the core failure point of the government’s attempts to create innovation.

The Canadian government epitomizes Gary’s description of organizations driven by management practices defined and formulated a long time ago. This is a DNA structured in control, error management through blame and train, risk avoidance, standardization and predictability. The management philosophy of the federal public service is set by the Deputy Minister of each department – effectively the CIO – but the constraints and expectations around “the front page of the press” test, or the directive of “never putting the elected government into a questionable position", have created a culture that is counter-intuitive to the delivery of innovation. It is an environment which is typified by DMs who will rarely make a move unless there is sign-off by Legal, the Chief Financial Officer and the Chief Risk Officer; the bastions of status-quo. Management apparently gives staff encouragement to think innovatively but effectively constrains their behaviour to never challenge or step outside policy limitations.

Paired with this constraining management philosophy is a significant barrier to innovation; transient leadership with short-term windows for creating results. Here we have a key driver taking the ambitious goals of business transformation and reducing them to operational reform; from thinking about how to fundamentally change the way the government does business, to process streamlining and improvement for cost savings. It reduces the conversations from “what effect will open innovation, and open data have on the future?” to “how do I accomplish short term gains in the next six months because I’ll be somewhere else soon?”.

This culture continues to flourish in spite of rhetoric about the dire need for the Government of Canada to create new and innovative business models for the delivery of service to Canadians. The Budget Speech, the Speech From The Throne, major reports from the Chief Clerk of the Privy Council and the Advisory Committee to the Prime Minister have all, in some form or other, made reference to the need for new approaches, innovation, and a re-think of the government’s business models.

This is not to say there are no success stories in the government. That would be as wrong as saying it always rains in Wales. There is plenty of sunshine – it just tends to be unpredictable, patchy and irregular, (my apologies to all my wife’s Welsh relatives). I had one such experience on a project to re-define the business model for how the government does procurement. We had the benefit of enlightened leadership who recognized (though three failed previous attempts) that one can not change a large, entrenched organization in 6 months to 2 years. The initiative has a five-year view and a portfolio of projects that run from 6 months to 5-7 years.

So here’s the bottom line of my thinking, the fundamental conundrum of the government’s desire for change and its behaviour towards innovative thinking will doom it to a struggle that ultimately leads to failure until the leaders recognize this conflict, and move to change the DNA of management. If they can do this perhaps they will one day achieve “Born Again” status as a type of innovator. The Government of Canada must decide whether it wants to continue to be a penguin, and if so, give up its aspirations of flying and accept the fact it is bound to the ground.