Business Thinking For Designers
1. Definition and Importance of Business Models and Strategies
A business model outlines how a company intends to create and capture value, detailing what is valuable to customers, how that value will be produced and delivered, and why it will generate revenue for the company. Business models form the foundation for business decisions and describe the values designers are expected to help provide. While business models explain how value is created and captured, business strategies focus on how an organization aims to perform these tasks better than its competitors. Multiple viable business models may exist within a market, but strategies determine success or failure.
2. Strategic Questions for Companies
Companies develop their strategies by answering two fundamental questions:
- Where does the company play? Identifying target customers, territories, and channels.
- How does the company win? Determining what will create a competitive advantage.
These questions help companies decide whether they are focused on growth or profit:
- Growth focus: Aiming to gain market share or diversify offerings, often at the expense of short-term profits.
- Profit focus: Maintaining profits while keeping an eye on new growth opportunities.
Startups typically focus on growth, while established companies focus on profit.
3. Evaluation of Business Health
To evaluate a company’s overall health, business leaders set objectives, measures, and targets across multiple perspectives:
- Financial: Traditional view of company success, looking at monetary results of past decisions.
- Customer: Focuses on the people who buy the company’s products and the value provided to them.
- Operational: Concentrates on efficiency and smooth running of processes and teams.
- Learning & Growth: Focuses on employees’ development, core processes, and cultural environment necessary for success.
Balancing these perspectives is crucial for informed business decision-making.
4. Actual vs. Perceived Value
- Actual value: Quantifiable elements such as costs, prices, salaries, and hours needed for development.
- Perceived value: Qualitative elements like excellence, ease of use, and beauty, which are equally important but harder to calculate.
Both values reflect the total value expected from products or services. Designers historically focused more on perceived value.
5. Business Model Innovation Framework
Developed by Oliver Gassmann and his team, this framework uses a simple diagram to capture a business model, helping confirm assumptions about a business. It answers four questions:
- Who are the target customers?
- What value does the company offer?
- How is this value produced?
- Why does it generate value for the company?
The diagram involves drawing a triangle with a circle at each point and in the center, each representing one of the questions. Two to three answers per question should be provided.
6. EcoSystem Map
An EcoSystem Map shows all the actors involved in a business and the flow of value between them. It is a flow chart of transactions, illustrating exchanges such as “We give you X and in return you give us Y.” This visualization helps in mapping the big picture, guiding discussions, and is quick and cheap to develop.
7. Behavioral Elements for Success
Behavioral change occurs when three elements converge at the same moment:
- Motivation: Sufficient inspiration to engage in a behavior.
- Ability: Capability to perform the behavior.
- Prompt: Cue or trigger to act at the right time.
8. Role of Empathy in Business
Trust is foundational in relationships. Understanding who you’re working with and what they are trying to achieve is crucial for building trust and effective collaboration.
9. Updated Venn Diagram for Competitive Advantage
Ryan Rumsey’s updated Venn diagram shifts the focus to:
- Viability (Business): Good for the business.
- Feasibility (Engineering): Can be executed by the team.
- Desirability (Design): Will be adopted by customers.
Moving towards desirability means addressing actual customer needs and wants rather than focusing solely on aesthetics.
10. Return on Investment (ROI) Considerations
Executives and sponsors want to know:
- What do I get?
- How much do I get?
- When do I get it?
- How much will it cost me?
ROI must be calculated using math to avoid guesswork. Designers should highlight how desirability impacts the numbers and the risks of not using math.
11. Storytelling in Business
Narrative storytelling is used to connect colleagues with customer perspectives, inspire actions, and create compelling visions. Analytical storytelling explains the rationale behind recommendations and is used to persuade, inform, and highlight risks and opportunities. Both types should be used together to show the value delivered.
The Pyramid Principle involves three sections: what (the problem), why (root causes and impacts), and how (solution). The Situation-Complication-Resolution (SCR) Framework follows a similar structure: situation (current state), complication (reasons for action), and resolution (specific action).
The most basic approach for presenting business rationale with SCR is to highlight one situation, introduce three complications that require action, and conclude with a resolution to solve the problem. I like to think about it like an equation:
- S + C + C + C + R = Business Rationale
From the pyramid structure, the situation is the “what,” the complications the “why,” and the resolution the “how.” With this basic format, a few best practice guidelines can help you develop a more complete SCR story.
12. SOAR Analysis
SOAR stands for Strengths, Opportunities, Aspirations, and Results, focusing on the positive aspects of an organization. It differs from SWOT by emphasizing strengths and opportunities over weaknesses and threats.
Use the SCR structure for trusted partners, and include SWOT or SOAR analysis for partners who want to be involved in decisions. Be prepared to present multiple scenarios to address different perspectives. ```