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Business Modelling! What Exactly Is It?
An article by John Owens
Creator of the Integrated Modelling Method (IMM™)
Put three business people in a room and ask then the question "What is a business model?" and you will get at least four replies - none of which may be correct!
The usual picture that comes to the minds of business people, consultants and analysts when they hear the term 'business model' is what might be called a 'financial class' of business model, for example:
•a "dot.com" model
•a "utilities" model
•an "air transport" model
What these models represent is the financial structures these types of business ought to have. They define how the business ought to be capitalised and structured from a financial point of view, its key financial performance indicators, its anticipated profit profiles, etc. Strictly, they should be referred to as 'Financial Business Models'.
Financial business models are very important but they are only a small part of the overall picture! What they miss out is the essence of the business - what it is that the business does and the information needed to do it. Without knowing these things it is unlikely that any business can be made to perform in the manner that the financial business models predict. And yet it is amazing how many business people try to operate without this information!
Essential Map of the Business
If a business person has a factory he/she will have plans of this showing the overall shape, entrances, exits, services, machinery layout, etc. These plans are essential to successfully managing the factory. No business would think of being without them and yet the factory is only the place where the business is carried out.
Far more important than the factory (and more complex) is the business itself and yet few business people have a map (model) of this - well not outside their heads! It is not surprising that most businesses fail to meet their full potential.
So again we ask: "what is a business model?". And this time we have the answer - it is an essential 'map' of the business. It is a model that shows (as a minimum):
•what it is a business does (or ought to do)
•the structure of the information it needs to do it
Additionally the model can also show:
•the order in which functions need to be carried out.
•how information flows between business activities.
•how data is changed from one state to another.
•how functions, data, departments, technology are related to each other.
•the manner in which functions are executed.
Modelling Tool Box
These models represent a modelling ‘toolbox’ that is available to business managers and to business analysts. As with any toolbox, not all of the tools are used all of the time. The most suitable tool for the job is chosen and used with skill.
Modelling is a craft and needs to be practiced. But knowing the right tool to use and the correct way of using it means that, with just a little practice, business managers and analysts can achieve high quality results.
Using the Business ‘Map’
A map of a country can be used for many purposes, for example, to find the distance between places, to find shortest routes, to calculate areas of regions, etc.
In a similar manner a ‘map’ of the business can be used to work out the number and type of resources required to carry out activities, the number and type of departments the business ought to have, the activities needed to fulfill the business strategy, the time required to deliver a service and a lot, lot more.
Function Model
'What' a business does is called a 'business function'. The model that shows what a business does is called the 'Function Model'.
The function model is usually presented in the form of a ‘function’ hierarchy.
Terms for Function Hierarchies
We can use the hierarchy diagram to explain some basic terms for function hierarchies.
1. Root Function
2. Grouping Function
3. Atomic (or Leaf) Function
Elementary business function (EBF) is a function which, once begun, must be completed or, if not completed, must be undone. EBF's are what a business does on a day-to-day basis and may or may not be Atomic functions.
Hierarchy diagram visible in HTML format of this article available by sending an e-mail to:
articles@smart-training.co.uk
The function model is also referred to as the Function Catalogue. This is the standard name used in the Integrated Modelling Method (IMM™)developed by John Owens.
For more information on Integrated Modelling Method (IMM™) go to: www.smart-training.co.uk/imm.htm
Data Structure Model
The model that shows the information needed to support the business functions is called the 'Data Structure Model'.
This not only describes the data required but also its structure, i.e. how elements of data are linked to each other. This is a vital model for a business to have before it computerises its business, either by purchasing a software package or by building a computer system. This is also referred to as an Entity Relationship Diagram (ERD).
Data structure diagram visible in HTML format of this article available by sending an e-mail to
articles@smart-training.co.uk
Process Model
The model that shows the order in which functions need to be carried out is called the 'Process Model'.
Process model diagram visible in HTML format of this article available by sending an e-mail with to:
articles@smart-training.co.uk
Information Flow Model
The model that shows how information flows around the business is called the 'Information Flow Model'.
The flow of information is shown by the arrows between the functions. Each arrow is labelled with the information flowing.
Information can flow between business functions or between business functions and 'External Entities', i.e. organisations outside the business, e.g Government.
Information flow model diagram visible in HTML format of this article available by sending an e-mail to:
articles@smart-training.co.uk
Data State Model
The model that shows how information is changed from one state to another is called the 'Data State Model'.
The activities that move data from one state to another are functions from the function catalogue.
The diagram on the right shows how the state of a theatre booking is moved through its various stages.
Data state model diagram visible in HTML format of this article available by sending an e-mail to:
articles@smart-training.co.uk
Matrix Model
The model that shows how functions, data, departments, technology are related to each other is called the 'Matrix Model'.
A simple matrix model is shown on the right. This is know as the CRUD matrix as it describes which functions Create, Read, Update and Delete items of data.
'Swim Lanes' on process models represent a special type or matrix model in that they show the departments in which functions are carried out.
Matrix model diagram visible in HTML format of this article available by sending an e-mail to:
articles@smart-training.co.uk
Procedure Model
The model that shows the manner in which functions are executed as part of a process is called the 'Procedure Model'.
A simple procedure model is shown on the right.
Procedure models are very much the same as ‘flowcharts’.
Procedure model diagram visible in HTML format of this article available by sending an e-mail to:
articles@smart-training.co.uk
Summary
A Business Model is different from a Financial Business Model. The business model an essential Map of the business. The core element of the business map (model) is the Function Catalogue because all other models are based on this.
The optional elements of the business model are:
•Data structure model
•Data state model
•Process model
•Information flow model
•Procedure Model
•Matrix Model
How all of these models interrelate is described in detail in the Integrated Modelling Method (IMM™).
All of the models and techniques described in this article are described in detail in his e-books that are available at:
www.smart-training.co.uk
John Owens, the author of this article and the creator of the Integrated Modelling Method (IMM™), can be contacted at:
john@smart-training.co.uk
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Hope you have enjoyed this article.
Regards
John
About the Author
John specialises in developing and training in the latest structured methods and techniques in business analysis.
It is this specialisation and John's wealth of experience, that has inspired him to develop and publish the Integrated Modelling Method - IMM. This is currently taking the form of e-books, seminars, training courses and consultancy.