It is difficult to improve your business model, if you don’t know what you want to achieve.
Do you want happy customers, more profit or leaner operations?
In this post I will explain how clear and precisely defined outcomes help you to focus on your business model innovation.
After this post, you can specify expected outcomes.
These outcomes need to be measurable.
Therefore we talk today about Business Model metrics.
I will give examples of metrics related to different Business Model components.
And in order to achieve clear objectives, I will teach you how to define `metrics’ in a smart way.
Over the years we have learned that forcing people to have clearly defined metrics helps them to focus on their business model innovation.
So what are examples of metrics?
Of course you know the financial indicators.
Like profit, turnover, cash flow, variable and fixed costs and so on.
But there is more!
So lets start again with the core Business Model questions:
What, Who, How, and What is in it?
So the What question concerns the value proposition, the Who question is related to customers. The How question covers technology, and organization aspects. And the What is in it question is related to financial issues.
Now suggested metrics, as you can find at the additional literature page,
are aligned with these Business Model components.
Value propositions are often qualitative in nature, so no metrics here!
Instead you need short descriptions of about seven words that make clear what value is offered.
Think about a slogan in advertisements.
An example of value propositions is for instance McD .
They propose to offer Pure, Healthy and Funky Burgers.
While Holland Container International offers foldable containers to save costs and space.
So, value proposition is the exception to the rule:
no quantitative metrics here but qualitative statements only.
The first group of metrics is related to your target group.
What percentage of the potential group of customers do you want to reach?
Or what percentage of customers would you want to reach in a certain region?
Others are for instance ARPU : average revenue per customer per month.
Technical metrics can be for example 24/7 availability of IT systems.
Uptime, the time that a system is available, is another indicator.
System reliability for instance is indicated by the mean time between failures,
while throughput says something about capacity used.
Metrics can also be related to key activities within the organization.
For example the number of people needed with some specific skills,
as for instance expressed in the proportion of marketing employees,
or the number of Big Data experts.
Other examples are a reduction of the number of people temporary hired ,
or a reduction of the number of suppliers.
A classic example is Dell that used to have 200 suppliers but succeeded to bring this number back to 50.
So now that we know what the objectives of your business model innovation can be,
the next issue is how to make these objectives as measurable as possible.
A common problem is that the objectives of Business Model innovation are vague and broad.
Maybe they’re clear to you, now, but not to your colleague next week.
Therefore, we make use of the SMART reasoning.
SMART stands for Specific, Measurable, Achievable, Realistic and Timely.
To put it simply, SMART helps you to come up with metrics that are precise and testable.
Specific: when describing your objectives, you have to be very focussed and clear, for example:
as a result of the Business Model Innovation we expect to increase our number of local customers.
Measurable: for instance we want customer satisfaction to increase with 10%.
However sometimes you cannot measure concepts directly.
For example, imagine that we state that we want user experience to be fantastic.
That is hard to quantify.
Or is it?
Perhaps you can say you want 10% less complaints per month.
Or 10% happier faces in your shop.
Or we can state that due to the user experience, we want to see an increase of recurring customers with 20%.
Achievable: Nothing is more demotivating than goals you cannot achieve.
Achievable means that your goals are possible to accomplish in a certain period in time.
For instance, if you want to increase sales.
A 10% increase within six months in a new market would be considered achievable.
However in a well-established, mature market this will be almost impossible.
Realistic: Don’t promise something you can’t logically do.
For instance, becoming a market leader, without increasing your amount of sales is impossible.
Imagine that you have a great idea, but you don’t have a working proof of concept yet.
Then you cannot expect that your market penetration will be 100% in the next two years.
The last criterion is time-bound.
Make clear when or over which period you want to achieve your goals:
next quarter, in a year, or two-years?
A timeline indicates the urgency, and it shows if you are on track.
Make your expectations with regard to your Business Model Innovation as explicit and precise as possible.
Making use of SMART metrics will help you.