News from Cass Business School

UK Boards are failing in designing and renewing their business models

More awareness needed of how to explain the business model

Wednesday, 28 July, 2010

If a company cannot articulate its business model clearly and robustly which is the case with two thirds of all UK listed companies - that is a sign that trouble is brewing according to a panel debate at Cass on Thursday 15 July. The debate was led by Mark Goyder, Director of Tomorrow’s Company; Ian McDonald Wood, Chairman of SPS; together with Cass Professors Charles Baden-Fuller and Bob Garratt, all with extensive expertise with UK boards.
The event was organised around a special issue of Long Range Planning on Business Models, which was recently published.  The research published in this issue of the highly-rated journal says that a business model is the explanation of today’s system of how value is delivered to customers and how value is captured, usually via cash.
It also deals with the question of how tomorrow will be different: that is how the business will scale the company and how sustainability will be maintained. The Business Model is more than an explanation; it deals with the integrity of the value system that must run deep into the company and across the value chain of suppliers and partners.
The panel debate was attended by more than 120 people, and the panellists agreed that in the current uncertain times, when companies are internationalising, being coherent about the business model is vital. And this is no less important for a diversified firm, where the company as a whole needs a business model that integrates the business model of its units.
According to the panel, the role of the board and its strategy making is to probe the robustness of the company’s business model and pass it as being fit for purpose. The board is also responsible for communicating the business model to all stakeholders both inside and outside the company, and making sure the company is engaged in a coherent programme of business model renewal.  These tasks are substantive and challenging.
Some recently published research from Future Value states only one third of UK listed companies explain their business model robustly and coherently and have a coherent explanation of how renewal will take place, which suggests that two thirds of UK boards are not doing a proper job leaving their companies vulnerable to shocks. A good business model story that explains the company’ strategy is a vital activity for UK boards in their quest for better performance

Professor Baden-Fuller said: The recent FRC directive on Annual Reports which requires companies to explain the business model is a step in the right direction, but a more general awareness is needed by firms of what is a good business model, and how it can be developed better. 

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