There are only 3 “Business Functions” for every business. And they are always the same

The “Value Chain” is one the most famous frameworks in Strategy, and it’s been around for a long time now. We’ve been used to dividing the activities of businesses into two categories: “Primary activities” (Inbound Logistics, Operations, Outbound Logistics, Marketing & Sales and Service) and “Support activities” (Firm Infrastructure, HR Management, Technology and Procurement). The objective of those sets of activities is supposed to be the “Margin”.

But the business world has changed:

• What was thought mostly for industrial businesses is not relevant anymore for the variety of businesses we are now familiar with. Primary activities may not be relevant in the digital world.
• Performance is not measured in terms on margin anymore (notion that may not even exist in some digital-based businesses). The richness of business models brings new performance schemes (based on cashflow, WCR, M&A transactions etc.).
• The value of a company may consist mainly in specific resources that it is building (think of Uber), which is not reflected in the Value Chain.
• Businesses are much more interconnected than before: the view of a single linear process cannot always reflect reality.
• More and more business models rely on synergies between activities: they cannot be separated from one another. Although processes may be distinct, they can share activities (Facebook delivers a service to its user and gets data from them through the same operations).

The verdict is simple: the “Value Chain” is obsolete. It is not relevant for our business world anymore. There is a need for a new approach in which we classify processes, and that reflect the fundamental functions of any business.

In the Bm2 framework, we consider 3 “Business Functions”:

• The “Market Function”: providing products (goods & services) to the external world.
• The “Capture Function”: capturing value (revenues or supplies) through transactions.
• The “Industry Function”: building and maintaining resources.

Any process belongs to a Business Function. To stick to our example above, let’s consider the basic level of Facebook’s activity:

• “Market” processes: Facebook provides services to its users, and provides access to those users to advertisers.
• “Capture” processes: Facebook gets the attention of users as well as personal data, and it also captures part of the marketing budget of advertisers.
• “Industry” processes: Facebook builds and maintains user profile databases.

The 3 Business Functions make a coherent whole for any business. Balancing those Business Functions is one of the most important things when defining one’s Business Model. Activities, unlike with the Value Chain approach, can be shared between processes.

The “Process Quadrant” illustrates the way processes work for any business, and shows the 4 fundamental components of the managed value: Products, Revenues, Supplies and Resources.

As shown by the Process Quadrant:

• All Processes use Resources and Supplies as inputs
• The output of Market processes is Products (Goods & Services)
• The outputs of Capture processes are Revenues and Supplies
• The output of Industry processes is Resources

Another way to visualize the same concept is to consider Business Functions as independent Business Units that have their own inputs and outputs:

 

In a future post, I will show how that approach allows us to see the value-added of any business as the sum of 4 terms (and in that process, I will introduce the notion of “BM value-added”):

• The Market Function value-added
• The Capture Function value-added
• The Industry Function value-added
• The « BM value-added »

Welcome to the Bm² theory web site!

The Bm2 theory was developed to fill in a gap in the conceptual world of Business Models (BM). Everybody familiar with BM knows about the Business Model Canvas (BMC). The BMC is a great tool to sketch the general logic of a BM in a simple and practical way, as well as a useful way to communicate or collaborate about a BM. In addition to that approach, there is a need for a complementary tool. When it comes to describing more specifically the logic of the BM, identifying and analyzing the fundamental sources of performance, evaluating the different BM options, a complete “theory of BM” is needed. That’s what this web site aims at presenting.

The Bm2 theory was developed as a conceptual tool for strategy consultants and for managers with advanced background in strategy to design and analyze BMs. Its main characteristics are:

   - Universality: for any business (and not only standard for-profit companies: also for business units, cost centers, administrations, NGOs, consortiums, temporary partnerships...),

   - Completeness: for any fundamental source of performance, that can be identified and analyzed,

   - Versatility: for business design, business analysis and business management.

But the Bm2 theory is more than a framework that depicts BMs: it is a “Body Of Knowledge” (BMBOK) that provides the necessary concepts and tools to manage all aspects of BMs: how does the business actually work? What is the logic behind it? What are the fundamental sources of performance? How can it work better? This BMBOK is built on:

   - 3 Business Functions

   - 7 Building Blocks, assembling:

        - 9 Strategic concepts with associated tools

        - 12 Tactical classes with associated elements

   - 3 Layers of Analysis

Not all aspect of the Bm2 theory will necessarily make a difference in your BM. But they may. Each one of those aspects should allow you to ask the right questions, explore the right options, find the best solutions, forget nothing, in a systematic manner.

The Bm2 theory extends and enhances the traditional practice of Strategy, to adapt to a new business world. Strategy is about securing a lasting competitive advantage: in a moving business world, this becomes impossible or irrelevant. Strategy is about optimizing the value chain: in an interconnected business world, we have to think about networks and resource building. Strategy is about satisfying the needs of the customers: in a business world where value has to be captured everywhere, it is not enough. Strategy is about ensuring a sufficient margin: in a business world based on the Internet, the margin-based approach may be the wrong one. Strategy is about long-term goals: in a fast changing business world, the right temporal perspective should be based on “business phases”.

CEOs now consider that BM innovation is more important than process or product innovation. It is time to have a Body Of Knowledge about BMs, for when you need to design an innovative and relevant BM for the development of a new business, or for when you need to make changes to strengthen or optimize an existing business. That is what the Bm2 theory provides.

Don’t be scared by the number of elements that composes the Bm2 theory: take the time to get familiar with each one of them. Begin with the 3 general BUSINESS FUNCTIONS. Then check the elements of the BUSINESS SYSTEM that compose the BM. This will give you the right level of understanding to use each one of the 9 fundamental concepts of the BUSINESS ACTIVITY.

I wish you a pleasant journey in the world of the Business Models through the Bm2 theory!