Quick, Describe Your Company's Business Model

Last Updated Mar 31, 2010 11:32 AM EDT

If your employees (or you) can't answer this question immediately, your organization is, to use the latest jargon, seriously misaligned. This query should be as easy for staffers to answer as, "Quick, describe your company's mission" and "Quick, who are your companies most valued customers?"

Yesterday, when top-down management was in style, it was OK if only the suits in the C-suite knew the answers. After all, they were the ones making all the critical decisions. The peons way down the org chart, like you and me, were just the crew pulling the oars. But in today's fast, flat, and -- more to the point -- empowered organizations, everyone has to understand the company's critical values, strategies and even tactics, because everyone is making important decisions.

Back to business models. The superb question in the headline starts off an insightful HBR.org post titled A New Framework for Business Models, by Mark W. Johnson. To cut to the chase, he suggests a business model must answer a number of key questions including:

  1. Why would someone want to buy something from you? Identify your customer value proposition.
  2. How will you make money selling it? Articulate your profit model.
  3. What, exactly, are the important things you need to do to succeed with the plan? Identify which company resources and which processes are essential to delivering your customer value proposition.
"Identify this model," Johnson writes, "and you will go a long way toward understanding why your company is successful in what it's doing (or at least what it was doing before the recession). And unless you know that, you'll have little chance of working out what you need to change to be successful doing something else -- like meeting whatever challenges the post-recession economy creates this year."
Because it so succinctly ties together strategy and execution, Johnson's business model becomes a central business document every employee should have some grasp of. It reveals much more about an organization than a mission statement, org chart or customer list possibly could.

My advice: Heed Johnson's insights into rethinking how your business plan is put together, then share this information with the rest of your company.

How about you? Do you understand how your company makes money (not just sells products) and attracts customers? How can you expect to advance your career if you don't?

(Business model image by mundo resink, CC 3.0)

  • Sean Silverthorne

    Sean Silverthorne is the editor of HBS Working Knowledge, which provides a first look at the research and ideas of Harvard Business School faculty. Working Knowledge, which won a Webby award in 2007, currently records 4 million unique visitors a year. He has been with HBS since 2001.

    Silverthorne has 28 years experience in print and online journalism. Before arriving at HBS, he was a senior editor at CNET and executive editor of ZDNET News. While at At Ziff-Davis, Silverthorne also worked on the daily technology TV show The Site, and was a senior editor at PC Week Inside, which chronicled the business of the technology industry. He has held several reporting and editing roles on a variety of newspapers, and was Investor Business Daily's first journalist based in Silicon Valley.