A pattern‐based approach to extract REA value models from business process models

Business models are economic models that describe the rationale of why organizations create and deliver value. These models focus on what organizations offer and why. Business process models capture business activities and the ways in which they are accomplished (i.e. their coordination). They explain who is involved in the activities, and how and when these activities should be performed. This paper discusses the alignment between business models and business process models. It proposes a novel systematic method for extracting a value chain (i.e. business model) expressed in the Resources, Events, Agents (REA) ontology from a business process model expressed in Business Process Model and Notation?. Our contribution is twofold: (1) from a theoretical standpoint we identified a set of structural and behavioural patterns that enable us to infer the corresponding REA value chain; (2) from a pragmatic perspective, our approach can be used to derive useful knowledge about the business process and serve as a starting point for business analysis.     

Transforming corner-office strategy into frontline action

When CEOs push decision making out to the far reaches of an organization, good things happen: fleeting business opportunities are seized quickly and workers are motivated to innovate and take risks. But it's tricky to achieve both decentralized decision making and coherent strategic action at a company. If everyone is a decision maker, things can spin out of control. In this article, Bain consultants Orit Gadiesh and James Gilbert explore the concept of the strategic principle--a memorable and actionable phrase that distills a company's corporate strategy into its unique essence and communicates it across an organization. If it's devised and disseminated properly, a strategic principle can empower employees to seize business opportunities but also focus everyone in an organization--executives and line managers alike--on the same strategic objectives. The authors outline the three defining characteristics of a good strategic principle--it should force trade-offs between competing resource demands, it should serve as a test for the strategic soundness of a particular action, and it should set clear boundaries for employees to operate within even as it grants them freedom to experiment. They explain how managers can create a strategic principle, how they should test it, and when they should revisit it. The authors present real-world examples of how companies use their strategic principles. For instance, they describe how South-west Airlines stopped flying to Denver after it measured the high costs of providing flight service in that part of the country against its strategic principle of offering customers short-haul air travel at fares competitive with the cost of automobile travel. This tool is increasingly useful in today's rapidly changing business environment, the authors conclude, and it is likely to become even more crucial to corporate success.     

The 2001 HBR list. Breakthrough ideas for today's business agenda

Business is shaped by ideas. But how do you separate enduring ideas from passing fancies? In this, the first edition of the annual HBR List, our editors spotlight five break-through ideas that are truly shaping the future of business. EVEN A GREAT BUSINESS MODEL IS NOT ENOUGH: The rise and fall of dot-coms left markets reeling and CEOs scratching their heads. The most important lesson of the debacle: squishy thinking about "business models" is no substitute for a distinctive strategy. CHANGE IS CHANGING: In recent years, pundits have urged executives to incite revolutions within their companies. But a growing group of experts now suggests that the best companies actually evolve through incremental change--change that builds on rather than subverts their heritage. EGO MAKES THE LEADER: By looking deeply into executives' psyches, we are beginning to unlock the enigma of leadership. While there will never be a single recipe for successful corporate stewardship, an understanding of the human ego can shed light on leadership's most fundamental components. ONLY CONNECT: In business organizations, what's really important about people is not their individual skills but the relationships they form with one another. By investing in "social capital," companies can often push their performance to a whole new level. THE BIOLOGY CENTURY DAWNS: In the twentieth century, product innovations tended to spring from physics. But in the new century, biology may be the central source of innovation. From genomics to biomimicry, the study of life promises to change what companies sell and even how they operate.     

Stop making plans; start making decisions

Many executives have grown skeptical of strategic planning. Is it any wonder? Despite all the time and energy that go into it, strategic planning most often acts as a barrier to good decision making and does little to influence strategy. Strategic planning fails because of two factors: It typically occurs annually, and it focuses on individual business units. As such, the process is completely at odds with the way executives actually make important strategy decisions, which are neither constrained by the calendar nor defined by unit boundaries. Thus, according to a survey of 156 large companies, senior executives often make strategic decisions outside the planning process, in an ad hoc fashion and without rigorous analysis or productive debate. But companies can fix the process if they attack its root problems. A few forward-looking firms have thrown out their calendar-driven, business-unit-focused planning procedures and replaced them with continuous, issues-focused decision making. In doing so, they rely on several basic principles: They separate, but integrate, decision making and plan making. They focus on a few key themes. And they structure strategy reviews to produce real decisions. When companies change the timing and focus of strategic planning, they also change the nature of senior management's discussions about strategy--from "review and approve" to "debate and decide," in which top executives actively think through every major decision and its implications for the company's performance and value. The authors have found that these companies make more than twice as many important strategic decisions per year as companies that follow the traditional planning model.     

What's wrong with strategy?

Why is it that successful strategies are rarely developed as a result of formal planning processes? What is wrong with the way most companies go about developing strategy? Andrew Campbell and Marcus Alexander take a common sense look at why the planning frameworks managers use so often yield disappointing results. Companies often fail to distinguish between purpose (what an organization exists to do) and constraints (what an organization must do in order to survive), the authors say. Many executives mistakenly believe, for example, that satisfying stakeholders is an objective that drives thinking about strategy. In fact, it's a constraint, not an objective. Companies that don't win the loyalty of stakeholders will go out of business. Strategy is not about plans but about insights, the authors add. Strategy development is the process of discovering and understanding insights and should not be confused with planning, which is about turning insights into action. Furthermore, because executives develop most of their insights while actually doing the real work of running a business, it is important for companies not to separate strategy development from implementation. Is there a better way? The answer is not new planning processes or more effort. Instead, managers must understand two fundamental points: the benefit of having a well-articulated, stable purpose and the importance of discovering, understanding, documenting, and exploiting insights about how to create value.     

The power of product integrity

In the dictionary, integrity means wholeness, completeness, soundness. In products, integrity is the source of sustainable competitive advantage. Products with integrity perform superbly, provide good value, and satisfy customers' expectations in every respect, including such intangibles as their look and feel. Consider this example from the auto industry. In 1987, Mazda put a racy four-wheel steering system in a five-door family hatchback. Honda introduced a comparable system in the Prelude, a sporty, two-door coupe. Most of Honda's customers installed the new technology; Mazda's system sold poorly. Potential customers felt the fit--or misfit--between the car and the new component, and they responded accordingly. Companies that consistently develop products with integrity are coherent, integrated organizations. This internal integrity is visible at the level of strategy and structure, in management and organization, and in the skills, attitudes, and behavior of individual designers, engineers, and operators. Moreover, these companies are integrated externally: customers become part of the development organization. Integrity starts with a product concept that describes the new product from the potential customer's perspective--"pocket rocket" for a sporty, subcompact car, for example. Whether the final product has integrity will depend on two things: how well the concept satisfies potential customers' wants and needs and how completely the concept has been embodied in the product's details. In the most successful development organizations, "heavyweight" product managers are responsible for leading both tasks, as well as for guiding the creation of a strong product concept.     

The five competitive forces that shape strategy

In 1979, a young associate professor at Harvard Business School published his first article for HBR, "How Competitive Forces Shape Strategy." In the years that followed, Michael Porter's explication of the five forces that determine the long-run profitability of any industry has shaped a generation of academic research and business practice. In this article, Porter undertakes a thorough reaffirmation and extension of his classic work of strategy formulation, which includes substantial new sections showing how to put the five forces analysis into practice. The five forces govern the profit structure of an industry by determining how the economic value it creates is apportioned. That value may be drained away through the rivalry among existing competitors, of course, but it can also be bargained away through the power of suppliers or the power of customers or be constrained by the threat of new entrants or the threat of substitutes. Strategy can be viewed as building defenses against the competitive forces or as finding a position in an industry where the forces are weaker. Changes in the strength of the forces signal changes in the competitive landscape critical to ongoing strategy formulation. In exploring the implications of the five forces framework, Porter explains why a fast-growing industry is not always a profitable one, how eliminating today's competitors through mergers and acquisitions can reduce an industry's profit potential, how government policies play a role by changing the relative strength of the forces, and how to use the forces to understand complements. He then shows how a company can influence the key forces in its industry to create a more favorable structure for itself or to expand the pie altogether. The five forces reveal why industry profitability is what it is. Only by understanding them can a company incorporate industry conditions into strategy.     

How business schools lost their way

Business schools are facing intense criticism for failing to impart useful skills, failing to prepare leaders, failing to instill norms of ethical behavior--and even failing to lead graduates to good corporate jobs. These criticisms come not just from students, employers, and the media but also from deans of some of America's most prestigious B schools. The root cause oftoday's crisis in management education, assert Warren G. Bennis and James O'Toole, is that business schools have adopted an inappropriate--and ultimately self-defeating--model of academic excellence. Instead of measuring themselves in terms of the competence of their graduates, or by how well their faculty members understand important drivers of business performance, they assess themselves almost solely by the rigor of their scientific research. This scientific model is predicated on the faulty assumption that business is an academic discipline like chemistry or geology when, in fact, business is a profession and business schools are professional schools--or should be. Business school deans may claim that their schools remain focused on practice, but they nevertheless hire and promote research-oriented professors who haven't spent time working in companies and are more comfortable teaching methodology than messy, multidisciplinary issues--the very stuff of management. The authors don't advocate a return to the days when business schools were glorified trade schools. But to regain relevancy, they say, business schools must rediscover the practice of business and find a way to balance the dual mission of educating practitioners and creating knowledge through research.     

What really works

When it comes to improving business performance, managers have no shortage of tools and techniques to choose from. But what really works? What's critical, and what's optional? Two business professors and a former McKinsey consultant set out to answer those questions. In a ground-breaking, five-year study that involved more than 50 academics and consultants, the authors analyzed 200 management techniques as they were employed by 160 companies over ten years. Their findings at a high level? Business basics really matter. In this article, the authors outline the management practices that are imperative for sustained superior financial performance--their "4+2 formula" for business success. They provide examples of companies that achieved varying degrees of success depending on whether they applied the formula, and they suggest ways that other companies can achieve excellence. The 160 companies in their study--called the Evergreen Project--were divided into 40 quads, each comprising four companies in a narrowly defined industry. Based on its performance between 1986 and 1996, each company in each quad was classified as either a winner (for instance, Dollar General), a loser (Kmart), a climber (Target), or a tumbler (the Limited). Without exception, the companies that outperformed their industry peers excelled in what the authors call the four primary management practices: strategy, execution, culture, and structure. And they supplemented their great skill in those areas with a mastery of any two of four secondary management practices: talent, leadership, innovation, and mergers and partnerships. A company that consistently follows this 4+2 formula has a better than 90% chance of sustaining superior performance, according to the authors.     

Designing high-performance jobs

Tales of great strategies derailed by poor execution are all too common. That's because some organizations are designed to fail. For a company to achieve its potential, each employee's supply of organizational resources should equal the demand, and the same balance must apply to every business unit and to the company as a whole. To carry out his or her job, each employee has to know the answers to four basic questions: What resources do I control to accomplish my tasks? What measures will be used to evaluate my performance? Who do I need to interact with and influence to achieve my goals? And how much support can I expect when I reach out to others for help? The questions correspond to what the author calls the four basic spans of a job-control, accountability, influence, and support. Each span can be adjusted so that it is narrow or wide or somewhere in between. If you get the settings right, you can design a job in which a talented individual can successfully execute on your company's strategy. If you get the settings wrong, it will be difficult for an employee to be effective. The first step is to set the span of control to reflect the resources allocated to each position and unit that plays an important role in delivering customer value. This setting, like the others, is determined by how the business creates value for customers and differentiates its products and services. Next, you can dial in different levels of entrepreneurial behavior and creative tension by widening or narrowing spans of accountability and influence. Finally, you must adjust the span of support to ensure that the job or unit will get the informal help it needs.     

基于企业战略的税收筹划优化思考

企业战略与税收筹划是目标与手段的关系,企业战略是企业的整体和长远目标,税收筹划是实现该目标的具体手段,应服从于企业战略。应从市场竞争战略、投资战略、成本战略、价值链角度四个方面,优化税收筹划,以有效实现企业战略目标。     

Strategy and the Internet

Many of the pioneers of Internet business, both dot-coms and established companies, have competed in ways that violate nearly every precept of good strategy. Rather than focus on profits, they have chased customers indiscriminately through discounting, channel incentives, and advertising. Rather than concentrate on delivering value that earns an attractive price from customers, they have pursued indirect revenues such as advertising and click-through fees. Rather than make trade-offs, they have rushed to offer every conceivable product or service. It did not have to be this way--and it does not have to be in the future. When it comes to reinforcing a distinctive strategy, Michael Porter argues, the Internet provides a better technological platform than previous generations of IT. Gaining competitive advantage does not require a radically new approach to business; it requires building on the proven principles of effective strategy. Porter argues that, contrary to recent thought, the Internet is not disruptive to most existing industries and established companies. It rarely nullifies important sources of competitive advantage in an industry; it often makes them even more valuable. And as all companies embrace Internet technology, the Internet itself will be neutralized as a source of advantage. Robust competitive advantages will arise instead from traditional strengths such as unique products, proprietary content, and distinctive physical activities. Internet technology may be able to fortify those advantages, but it is unlikely to supplant them. Porter debunks such Internet myths as first-mover advantage, the power of virtual companies, and the multiplying rewards of network effects. He disentangles the distorted signals from the marketplace, explains why the Internet complements rather than cannibalizes existing ways of doing business, and outlines strategic imperatives for dot-coms and traditional companies.     

The Influence of Integrated Reporting on Business Model and Strategy Disclosures

Business model (BM) and strategy disclosures could provide investors with relevant information. This study offers a platform for future research on BM and strategy disclosure and is the first to analyse the change in BM and strategy disclosures after the introduction of an integrated reporting (IR) requirement, to propose a framework for disclosure quality analyses, and to analyse how companies disclose the relationship between their BM and strategy. The findings show that BMs and strategy were not disclosed before the requirement to publish an integrated report in South Africa, but were disclosed thereafter. By 2014, companies used diagrams, flow charts, and informative narratives of business plans and value chains. Companies now disclose their strategic goals more transparently, but still do not link these goals to BMs, key performance indicators, risks or opportunities. The findings provide insight into disclosures that improved since the IR requirement and matters that are still not fully disclosed, which would be of interest to regulators tasked with investor protection.     

Diversity as strategy

IBM's turnaround in the last decade is an impressive and well-documented business story. But behind that success is a less told people story, which explains how the corporation dramatically altered its already diverse composition and created millions of dollars in new business. By the time Lou Gerstner took the helm in 1993, IBM had a long history of progressive management when it came to civil rights and equal-opportunity employment. But Gerstner felt IBM wasn't taking full advantage of a diverse market for talent, nor was it maximizing the potential of its diverse customer and employee base. So in 1995, he launched a diversity task force initiative to uncover and understand differences among people within the organization and find ways to appeal to an even broader set of employees and customers. Gerstner established a task force for each of eight constituencies: Asians; blacks; the gay, lesbian, bisexual, transgendered community; Hispanics; white men; Native Americans; people with disabilities; and women. He asked the task forces to research four questions: What does your constituency need to feel welcome and valued at IBM? What can the corporation do, in partnership with your group, to maximize your constituency's productivity? What can the corporation do to influence your constituency's buying decisions so that IBM is seen as a preferred solution provider? And with which external organizations should IBM form relationships to better understand the needs of your constituency? The answers to these questions became the basis for IBM's diversity strategy. Thomas stresses that four factors are key to implementing any major change initiative: strong support from company leaders, an employee base that is fully engaged with the initiative, management practices that are integrated and aligned with the effort, and a strong and well-articulated business case for action. All four elements have helped IBM make diversity a key corporate strategy tied to real growth.     

Bridging Sustainability and Finance: The Value Driver Adjustment Approach

Even though most large corporations view sustainability considerations and concerns as having the potential to affect their revenue and profits, and studies have shown that sustainability can affect stock returns, investors and corporate managers continue to struggle to incorporate such concerns into their financial decision‐making. As a consequence, the valuation effects of sustainability issues are not fully reflected in either the valuation of companies by investors or in capital investment decisions by corporate managers. The author argues that sustainability can be integrated into both of these kinds of financial decision‐making by linking it to business models, competitive positions, and value drivers using what the author calls a “value‐driver adjustment” (VDA) approach. The basic idea is simple: material sustainability issues affect business models and competitive positions, which in turn affect the company's value drivers—notably, sales, margins, and capital. The VDA approach explicitly considers these linkages by taking three steps: (1) identifying a company's material sustainability issues; (2) analyzing how these issues are expected to affect the company's business model and competitive position; and (3) quantifying the effects of such changes in business model and competitive position on the company's value drivers, including its cost of capital. In the first part of the article, the author provides an investor perspective that shows how sustainability can be integrated into investment decisions by asset managers. There he explains how and why ESG integration has so far failed to become mainstream, and what needs to be done to make it successful. The second part of this article takes the corporate perspective and shows how sustainability can be linked to value drivers using much the same ingredients as in asset management, but slightly different tools that can help corporate managers incorporate sustainability concerns into strategy and operations, including the finance function. And in closing, the author brings together corporate and investor perspectives while showing how sustainability programs can be used to make the relationship between companies and their shareholders both stronger and longer‐lasting.     

Buyout Transactions in the German‐speaking Region: Determinants of Abnormal Performance and Unlevered Returns

This is one of the first comprehensive studies of drivers of private equity performance in the German‐speaking region known as the DACH, made up of Germany, Austria, and Switzerland. It contributes three things to private equity research: First, it explains how operational value drivers affect operational performance (operational alpha) and unlevered rates of return. Second, it whether the same relationships hold across different kinds of private equity business models (those with either organic or inorganic growth strategies; or whether PE investments are small‐cap or mid‐to‐large‐cap). Third, it distinguished between the periods before and after the global financial crisis of 2008. The authors found that (1) annualised benchmark‐adjusted EBITDA margin growth (i.e. improvement in EBITDA margin) is the most significant determinant in abnormal operational performance and unlevered returns, regardless of the business model; (2) private equity firms executing a buy‐and‐build strategy generate lower unlevered returns than those executing an organic growth strategy when the benchmark company is clearly outperformed, most likely because of limited PE managerial resources; (3) mid‐to‐large‐cap private equity firms generate higher unlevered returns and operational alphas than small‐cap private equity firms when the benchmark company is clearly outperformed, because, we believe, larger companies have a higher fixed cost leverage than smaller ones; and we have found that (4) buyout transactions exited during or after the financial crisis yield higher operational alphas but lower unlevered returns compared to buyout transactions exited before the crisis, when the portfolio company underperforms its benchmark company.     

Telling tales

A carefully chosen story can help the leader of an organization translate an abstract concept into a meaningful mandate for employees. The key is to know which narrative strategies are right for what circumstances. Knowledge management expert Stephen Denning explains that, for optimal effect, form should follow function. Challenging one professional storyteller's view that more is better, Denning points out that it's not always desirable (or practical) to launch into an epic that's jam-packed with complex characters, cleverly placed plot points, an intricate rising action, and a neatly resolved denouement. True, if listeners have time and interest, a narrative-savvy leader can use a vividly rendered tale to promote communication between management and staff, for instance, or even to foster collaboration--especially when the story is emotionally moving. However, if the aim is to motivate people to act when they might not be inclined to do so, it's best to take an approach that's light on detail. Otherwise, the particulars can bog listeners down and prevent them from focusing on the message. Drawing on his experiences at the World Bank and observations made elsewhere, the author provides several dos and don'ts for organizational storytellers, along with examples of narratives that get results. The sidebar "A Storytelling Catalog" presents seven distinct types of stories, the situations in which they should be told, and tips on how to tell them. Many of these aren't even stories in the "well-told" sense--they run the rhetorical gamut from one-liners to full-blown speeches--but they succeed because they're tailored to fit the situation. So even though it's common in business to favor the analytical over the anecdotal, leaders with the strength to push past some initial skepticism about the enterprise of storytelling will find that the creative effort pays off.     

UNIVERSITY OF TEXAS ROUNDTABLE ON ENERGY DERIVATIVES AND THE TRANSFORMATION OF THE U.S. CORPORATE ENERGY SECTOR

In this roundtable, a successful oil entrepreneur and a group of ex‐bankers whose careers have taken them into the energy business discuss the deregulation of energy markets and the emergence of energy derivatives, and how these two developments have affected both the way companies do business with each other, and how the companies themselves are organized internally. The first part of this two‐part discussion explores how derivatives and corporate risk management have produced a strikingly new business model for a number of once traditional energy companies, including Enron Corp. and Mirant Corporation (until recently, Southern Energy). In addition to its ability to change corporate strategy, the panelists also consider how the hedging of price risks can affect a company's financing strategy and cost of capital. A notable feature of the new business model is a corporate structure that differs greatly from that of conventional large energy companies. And in the second half of the discussion, the focus shifts from risk management and strategy to issues of corporate structure, such as: How do companies divide themselves into business centers for reporting and accountability; how much decision‐making authority is entrusted to the managers of those divisions; and how many layers of corporate management are necessary to coordinate and control the activities of the business units? Also discussed at great length are questions of performance evaluation and incentive compensation: How do companies evaluate their own performance on a year‐to‐year basis? And what basis do they use for rewarding their managers?     

BIG Writing: The Fundamental Discipline of Business Writing

BIG Writing presents a strategy for creating a culture of disciplined business writing within a large organization. In today's service‐oriented economy, virtually everyone is doing some form of writing on the job. Yet there is no organized effort to train people in this important skill. Universities don't do it, nor does it typically happen on the job except among a handful of branding specialists—and most books on business writing focus either on grammar and style or how to overcome writer's block. BIG Writing addresses the need for guidelines on business writing as it is actually practiced in the workplace. The article describes how organizations should connect their top‐level messages—their statements of mission, business strategy, and value proposition—with more routine writing activities such as annual reports and sales letters. At a time when CEOs and CFOs are held accountable for the accuracy of every line item in their financial reports, companies are responding by implementing complex systems of financial controls. BIG Writing can help senior management secure better control of its core messages by defining the way in which they are created and disclosed.     

How to acquire customers on the Web

Most retailers on the Web spend more to acquire customers than they will ever get back in revenue from them. Many think that sky-high spending on marketing is necessary to stake out their share of Internet space. But is it really? How do retailers know how much to pay? Consider CDnow, which has developed a multifaceted customer-acquisition strategy that reflects a clear understanding of the economics of an on-line business. At the heart of its strategy is affiliate marketing, a concept the company pioneered. Under its BuyWeb program, anyone can put a link to CDnow on his or her Web site, and if a customer uses that link to arrive at CDnow and make a purchase, the referring site owner gets a percentage of the sale. CDnow pays no money if no sale is made, which makes the marketing program completely efficient. But CDnow didn't stop there. Being a Web store, it had complete data on the number of visitors to its site and what they bought, which it used to work out the lifetime value of an average customer. CDnow used that figure to determine how much to wager on the expensive and risky world of traditional advertising to reach a wider audience that wasn't already on-line. CDnow's experience, still a work in progress, contradicts John Wanamaker's oft-quoted lament: "I know half the money I spend on advertising is wasted, but I can never find out which half." As the CDnow example demonstrates, there is a way to find out which half really works.