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CHAPTER TEN

Learn how to analyze and improve business models to maximize value and reduce risks. Explore different techniques for business model analysis and discover improvement opportunities for your organization.

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CHAPTER TEN

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  1. Dr. Rami Gharaibeh CHAPTER TEN BUSINESS MODEL ANALYSIS

  2. Dr. Rami Gharaibeh CHAPTER TEN introduction Much can be learned about a business by analyzing its business models. Thereare several different techniques for business model analysis—techniques appropriate for different business situations. This chapter explains how toanalyze a business model. Business model analysis is the work of analyzing existing business models to learn more about the business. Business model analysis is about reaping value from models, using the models to discover new insights.

  3. Dr. Rami Gharaibeh CHAPTER TEN introduction a customer at x restaurant claimed he became sick after eating at the restaurant. The restaurant settled the suit for $3.4 million.

  4. Dr. Rami Gharaibeh CHAPTER TEN introduction The restaurant attorneys want to reduce the risk of being sued the business processes and business rules are already modeled for other purposes The Mykonos attorneys want to reduce the risk of being sued. Mykonos food is already safe; all the restaurants comply with all the local health regulations. But the attorneys want to reduce the legal risk, so they create a small task force to change policies and business processes, a disease lawsuit task force.The models are useful for determining what to do about the risk of lawsuits.

  5. Dr. Rami Gharaibeh CHAPTER TEN introduction They consider the menu creation process and introduce a new activity into the process to review new menu items for legal risk. They examine the new server hiring process and decide to add some new training for servers, so the servers can explain food preparation to customers.

  6. Dr. Rami Gharaibeh CHAPTER TEN introduction Much can be learned about a business by analyzing its business models. There are several different techniques for business model analysis—techniques appropriate for different business situations. This chapter explains how to analyze a business model.

  7. Dr. Rami Gharaibeh CHAPTER TEN introduction In chapter 7 we were concerned with improving the model The business model analysis described in this chapter is analysis with the purpose of improving the business being modeled

  8. Dr. Rami Gharaibeh CHAPTER TEN analysis techniques There are several different analysis techniques, several different ways to wring insight from an existing business model. Each analysis technique has its own methods. Each technique is used for a different business purpose. Business change is the common thread among the four model analysis techniques There are four different analysis techniques, several to wring insight from an existing business model. • All four techniques are about business change

  9. Dr. Rami Gharaibeh CHAPTER TEN introduction

  10. Dr. Rami Gharaibeh CHAPTER TEN analysis techniques The table is not intended to be exhaustive. There are other model analysis techniques not listed and not described in this chapter. Simulationis one way to realize the model analysis techniques.

  11. Dr. Rami Gharaibeh CHAPTER TEN improvement analysis No business is perfect; there are always opportunities to make business processes faster, to improve the accuracy of decisions, or to change the organization structure in ways that improve customer satisfaction. Business improvement is a neverending task.

  12. Dr. Rami Gharaibeh CHAPTER TEN improvement analysis Even when a business is well designed for a particular environment, it never stays that way. The business environment continually changes. A business that fit the environment yesterday will fail to fit today. Business improvement is a never-ending task.

  13. A business model can be analyzed for improvement opportunities—opportunitiesto improve the business that is modeled. The analysis of a business modelto discover improvement opportunities is called improvement analysis (naturally).The goal of improvement analysis is to find ways to improve the business,to use the model to better the business. Improvement analysis is not aboutimproving the model. Improvement analysis is different from the techniquesexplained in Chapter 7 for making more accurate and more useful models,although sometimes opportunities for improving models are found along theway, as a side effect of performing improvement analysis. Dr. Rami Gharaibeh CHAPTER TEN IMPROVEMENT ANALYSIS Improvement analysis is not about improving the model

  14. Dr. Rami Gharaibeh CHAPTER TEN procurement of equipment improvement analysis

  15. Dr. Rami Gharaibeh CHAPTER TEN improvement analysis Can some of the handoffs be eliminated? Why are all the activities inFigure 10.1 performed? Are they all truly necessary? These questions can beanswered by analyzing the motivation behind each activity. Figure 10.2 relatesactivities in Figure 10.1 to elements in the Mykonos business motivation model.In Figure 10.1 the restaurant general manager decides what new equipment tobuy in the activity Decide What to Buy. This activity realizes the Mykonos strategyof creating kitchens that are customized to the needs of the individual restaurants.Each Mykonos restaurant is different, with a different menu. So eachMykonos restaurants has a unique kitchen, one individually customized for theneeds of that restaurant, reflected in the strategy Individually CustomizedKitchens. The activity Decide What to Buy realizes that strategy. The samestrategy is also realized by the activity Prepare Equipment Request and muchlater in the process when the equipment is actually ordered from the vendor inthe activity Order Equipment.

  16. Dr. Rami Gharaibeh CHAPTER TEN improvement analysis Mykonos has some financial objectives and tactics to achieve those objectives.One such tactic is avoiding unnecessary investments, modeled in Figure 10.2 asAvoid Unnecessary Investments. Many of the activities and gateways in Figure10.1 are performed solely to realize this tactic. For example, the procurementspecialist performs the activity Analyze Equipment Request to determinewhether the investment can be avoided. Similarly, the procurement managerplays a role avoiding unnecessary investments with the activities ExamineEquipment Request and Explain Decision and the gateway ApproveRequest? Altogether seven activities and gateways in the equipment procurementprocess realize the tactic of avoiding unnecessary investment.Athird course of action is also realized in the Figure 10.1 process. Mykonos has established the tactic Find Cheaper Alternatives. The procurement specialis attempts to find those cheaper alternatives in the activities Research Equipment Alternatives and Prepare Alternative Request and in the gatewayBetterAlternative? In Figure 10.2 those three model elements all realize FindCheaper Alternatives.

  17. Dr. Rami Gharaibeh CHAPTER TEN improvement analysis

  18. Dr. Rami Gharaibeh CHAPTER TEN Business process simplification Businessprocess simplification is changing a business process, typically removingactivities but also sometimes replacing activities with others. Business process simplification is performed for a business reason, either to reduce the cost of the business process, improve the quality, reduce the end-to-end cycle time, or for some other reason.

  19. Dr. Rami Gharaibeh CHAPTER TEN Business process simplification Model simplification(Ch7) is an important objective but different from our focus now: business process(Ch10) simplification. Chapter 7’s focus was about creating a better model. Our focus now is creating a better business.

  20. Dr. Rami Gharaibeh CHAPTER TEN Business process simplification Often a business process will have some activities and gateways that are not justified by any courses of action. The process includes activities that are performed for no apparent reason, no reason beyond tradition: we have always done it this way.

  21. Dr. Rami Gharaibeh CHAPTER TEN Business process simplification We see no vestigial activities or gateways in the procurement process. Every gateway realizes some course of action so does every activity.

  22. Dr. Rami Gharaibeh CHAPTER TEN Business process simplification There are five activities and two gateways in the procurement process to achieve the tactic of avoiding unnecessary investments. Of the 13 model elements in the end-to-end process, more than half are there solely for that purpose.

  23. Dr. Rami Gharaibeh CHAPTER TEN Business process simplification The restaurant general manager decides himself whether the equipment is needed. Once he decides to purchase, the procurement specialist determines whether there arecheaper alternatives and then purchases the equipment.

  24. Dr. Rami Gharaibeh CHAPTER TEN Business process simplification

  25. Instead of being realized by six activities and two gateways, the same tactics could be realized by a single gateway Dr. Rami Gharaibeh CHAPTER TEN Business process simplification

  26. Dr. Rami Gharaibeh CHAPTER TEN Business process simplification

  27. A course of action is a set of tactics that the business will maintain while performing the business process. It is a strategy Some strategies might sound good in theory but in practice are not worth the effort of the business process activities that implement them. Dr. Rami Gharaibeh CHAPTER TEN Course of action valuation

  28. With the model, we know what courses of action are realized by which activities and gateways. We could then determine the value of maintaining or improving the strategy Dr. Rami Gharaibeh CHAPTER TEN Course of action valuation

  29. We can measure the cost of a course of action by summing the costs of all the activities and gateways that realize that cost. Then the total cost of efforts toward the course of action can be weighed against the benefits. This improvement approach is called course of action valuation. Dr. Rami Gharaibeh CHAPTER TEN Course of action valuation

  30. Is the tactic Find Cheaper Alternative useful? On every procurement we save $100-$200 Dr. Rami Gharaibeh CHAPTER TEN Course of action valuation

  31. Yet, the activity Research Equipment Alternatives consumes 3.2 hours of work. the total amount of time for the business process could be calculated through simulation Dr. Rami Gharaibeh CHAPTER TEN Course of action valuation

  32. The simulation reveals that the simplified model takes 2.7 days more than the original process WHY? Dr. Rami Gharaibeh CHAPTER TEN Course of action valuation

  33. Because if the owner of the task is engaged in many business process then the current activity will wait in queue. The more activities the higher the waiting and the higher the delay for the process Dr. Rami Gharaibeh CHAPTER TEN Course of action valuation

  34. Does the value of pursuing this course of action really justify the cost and time to pursue it? The restaurant might be better served by letting the restaurant general manager make the purchase Dr. Rami Gharaibeh CHAPTER TEN Course of action valuation

  35. Dr. Rami Gharaibeh CHAPTER TEN Course of action valuation

  36. Dr. Rami Gharaibeh CHAPTER TEN Course of action valuation

  37. But there are some costs of making the change the costs of training the general managers the cost of changing the application that supports today’s process Dr. Rami Gharaibeh CHAPTER TEN Course of action valuation

  38. And there are risks as well The general managers might not make good business decisions about their kitchen equipment. They might be swayed by the allure of owning the best restaurant kitchen and fail to properly consider the costs to Mykonos. holding him responsible for the financial results,and performing an occasional audit to guard against corruption Dr. Rami Gharaibeh CHAPTER TEN Course of action valuation

  39. The attempt to understand the impacts of a proposed change before acting on the change is called impact analysis. - Impact analysis is looking before leaping. What unintended consequences will result? Dr. Rami Gharaibeh CHAPTER TEN Impact Analysis

  40. When a single change is made to a business, many consequences can occur. A new governmental regulation, seemingly simple, can lead to three new policies, a new organization to monitor compliance, and 13 changes to business processes. Dr. Rami Gharaibeh CHAPTER TEN Impact Analysis

  41. A small business process improvement can lead to one organization being underutilized and another far too busy. Dr. Rami Gharaibeh CHAPTER TEN Impact Analysis

  42. a change could be initiated by the organization or by the environment Dr. Rami Gharaibeh CHAPTER TEN Impact Analysis

  43. When an organization initiate a change a change could have unforeseen impacts avoiding making a bad change Dr. Rami Gharaibeh CHAPTER TEN Impact Analysis

  44. When change is enforced The business must comply with a new regulation. Impact analysis allows the business to understand the consequences before they happen, and prepare for those consequences. Dr. Rami Gharaibeh CHAPTER TEN Impact Analysis

  45. Businesses are complex, with many organizations, rules, and processes that interrelate in hundreds of ways. Without models, even the most thoughtful and thorough executives will miss some impacts. Dr. Rami Gharaibeh CHAPTER TEN Impact Analysis

  46. Example Reducing risk of lawsuit Dr. Rami Gharaibeh CHAPTER TEN Impact Analysis

  47. The analysis begins by considering the existing motivation model. Dr. Rami Gharaibeh CHAPTER TEN Impact Analysis

  48. Dr. Rami Gharaibeh CHAPTER TEN Impact Analysis

  49. Expand Geography But the third strategy is a problem: Expand toSouth Florida. The South Florida courts are known to be sympathetic to tortinnovation, and multimillion-dollar awards are common. The task force decidesto abandon the strategy of expansion into South Florida. When Expand to South Florida is abandoned, other motivation elements are affected. Figure 10.7 shows how the tactic Scout for So FL location implementsthe strategy Expand to South Florida. This tactic is abandoned with thestrategy Expand to South Florida. It makes no sense to scout for locationswhen no restaurant will be opened there. Similarly, the tactics Recruit So FL Chef and Visit So FL Competition also implement the same strategy and areeliminated with it.

  50. An innovative menu with unusual combinations of ingredients is more likely to attract a lawsuit than a menu of steaks and grilled fish. But the task force does not want to abandon the strategy Create Innovative Menus as they abandoned the strategy of expanding to South Florida.Innovative menus are just too important. In this situation the cure is worse than the disease. Dr. Rami Gharaibeh CHAPTER TEN Impact Analysis

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