Business Model Canvas and the Horizon Model
The Business Model Canvas #BMGEN and Horizon Thinking ....
In our recent London Master Class the question came up about how the Business Model Canvas (BMC) can be used in conjunction with strategy tools. It was a topic that generated a lot of interest and, in response I can offer the following suggestion.
The strategy tool in question is the McKinsey Horizon Model #HORIZONMODEL. Although it was developed in the mid 1990’s, the Horizon Model has stood the test of time as a strategic planning tool. Its integration with the BMC asserts its relevance, with both tools working in partnership to create a shared language within any organisation that supports core business, new initiatives and idea generation.
Simply, the Horizon Model challenges organisations in their thinking across three horizons, namely:
Horizon One (H1) - defending and securing core business. Building on existing foundations and ensuring the “right to grow” by focussing efforts on good business operations that are well equipped to absorb change and opportunity.
Horizon Two (H2) – building emerging businesses. Focusing on those ideas or initiatives that are ready to be executed, have been tested and will extend existing business into parallel or new areas. H2 often involves the development of new business models.
Horizon Three (H3) - market making. Always dedicating some effort or thought to challenging business around what is truly market defining.
One of the challenges in adopting the Horizon model is to:
· For H1 - truly understand the business and the areas for improvement to build the best foundations
· For H2 - define and manage the impacts on the business through implementing initiatives from H2
· For H3 - have the ability to quickly test or recognise those ideas or opportunities arising from H3 that will work and generate new markets.
Enter the Business Model canvas – a single framework that offers a consistent language working across each Horizon. Brilliant!
We use the BMC with H1 to better understand the business, with a renewed interest in the customer and value proposition. It enables us to recognise the areas or actions that need to be addressed to improve operations. The BMC offers a framework to readily understand business, break it down to simple terms and introduce a shared language across the organisation – no matter the audience.
The BMC also supports H2 activity. H2 initiatives can challenge organisations due to the unfamiliarity of new business opportunities, the need for new business models and the demand for major change initiatives as a way to enhance current business.
The main challenge of H2 is that it requires a different style of thinking and execution for a the new initiative to gain traction, The BMC offers a discussion and planning focus point to navigate the complexity of new business models, frameworks or processes that the organisation is looking to enhance or change.
The use of an established BMC offers the potential to better understand the business impacts that will arise through any proposed implementation of H2 initiatives. For initiatives focused on existing business change we can consider impacts on customers, resources, partners, value propositions and revenue streams just to highlight some of the components.
With new business initiatives we can utilise the framework to define an additional or new business model for customer testing prior to an absolute acceptance of the initiative into core business.
Regardless of which, the BMC offers a tool that can potentially reduce the risk of H2 initiative implementation through a deeper understanding of the business model and the opportunities or change impacts associated with the success of the initiative.
In many ways the adoption of the BMC as a test mechanism for the introduction of H2 initiatives offers a continual improvement and revision cycle for existing Business Models themselves. This may lead to even further opportunities or improvements and ideas up through the Horizon Model.
In market making H3 ideation or creation we often search for a quick way to evaluate the “back of the napkin” ideas to pursue those that make sense. We don’t want to stifle creativity but we do want to challenge the “value” an idea may possess.
The BMC offers a framework where ideas can be prototyped through utilising the “value” aspects of the canvas. Defining for each idea the Customer Segment, Value Proposition, Channel, and Relationship through to the Revenue stream can provide a consistent yet relatively simple method for prototyping or evaluating the “value” for each new idea.
Having considered the “value” to perhaps shortlist ideas, we can then extend analysis into the “infrastructure” components of the canvas to further test and ready those ideas for progression into H2.
Consistent Language
One of the greatest benefits the Business Model Canvas offers is the introduction of the consistent framework and language that can be utilised when considering each horizon. The BMC can be used across all 3 horizons, enabling all stakeholders to readily participate in critiquing, exploring, expanding and testing business growth concepts and the models that support their introduction.
In many ways, the BMC offers a meeting of the minds. The crafty creative people within an organisation, charged with idea creation in H3 are different to the troops serving the pursuit of core business, or the “right to grow” in H1. The BMC offers a mid point for shared expression and conversation – the “creatives” and “left-brainers” can share through the canvas.
The BMC may possibly uncover a new kind of hero within an organisation. Those previously rare employees able to understand, mobilise and assess the readiness for execution of a H2 initiative. The BMC assists by providing a method to assess and articulate such a change through the organisation - effectively building a bridge from H1 and H3.
Whilst it is easy to think that most organisational challenges are process, capital or people generated, a little farther below the surface the issues arise around communications - the absence of common purpose or shared meaning.
The BMC is one of those special tools that link purpose, language and meaning for any group of stakeholders – enabling the business to focus on the real issues of growth and sustainability. At the very least, the introduction of a consistent business related framework offers an enhanced ability to communicate and get buy-in throughout the organisation.