Systems Engineering applied to Business Model Analysis

One of the most important thing you can do as a competitive analyst is to figure out and understand the business model or at the tactical level, business case of your competitors. After doing this for many years I see a lot of people struggle with just trying to figure out what a business model is or is not. I finally have learned to tell people, the business case is how companies make money. It may seem simplistic, but it’s the truth. To work through a competitor’s business model or business case I have learned to apply some systems engineering techniques that have always served me well: I break everything down into discrete components and then analyze the interfaces, cause and effect and the overall inter-reaction of the model.

Sounds complicated doesn’t it? Well its not. Let me show you a simple way to do this. A few years back I came across a book called “Business Model Generation” by Alexander Osterwalder & Yves Pigneur that described a business tapestry used to help anyone wanting to build a successful business model from ground up. I has a lot of good concepts but after going through it I tossed it aside, after all this was a process to build a business, not tear one down for analysis. Then one day working on a competitor profile I started going through a supply chain analysis and kept thinking, I have seen this somewhere before, and then I remembered the tapestry. The tapestry is not much different from standard supply chain analysis only that the tapestry had two key elements that were specifically focused on answering that business case question “How does a company make money?” and the answer was in cost structures and revenue streams.

So putting on my systems engineering hat I took the company I was researching, broke it down into discrete parts, only this time the buckets included cost structure and revenue streams and bingo, the light bulb went on. It was if I was seeing things from a totally new perspective, and I was. Now it was just a simple matter of examining all the elements, their interfaces and how they inter-react, or more specifically, cause and effect of each element on the whole.  Below is an example from Business Model Generation (dot com) that illustrates how you would break down the discrete components of a business for analysis.

google-business-model1

I have used this technique before when I was a quality adviser and was working process improvement for business units. I would always start off with what I called COPIS focus. In this exercise I would break down each business unit into their discrete process functions, in this case Customers, Outputs, Processes, Inputs and Suppliers (COPIS) to run my analysis. Again much like a supply chain analysis but focused internally on satisfying the customer. Again a systems engineering approach where you first define the customer needs and requirements and then proceed on with designing and validation. Every part of the design process is a discrete step built upon the previous.

So that’s my slice on business model or business case analysis, keep it simple: Its all about how an organization makes money; based on cost basis and revenue streams. The rest is analyzing the discrete functions that feed into the cost and revenue functions of the organization.

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