Strategies for developing a business model: Top-down business model generation, Bottom-up business model generation

1. Develop a true vision.

Vision is an abstract word that means different things to different people. Classically, a vision or vision statement is a snapshot into the future. It should include aspirations of what type of company you want to be, and, unlike a mission statement, articulates what success looks like in clear terms (customers, markets, volume, etc.).

2. Define Competitive advantage.

At the essence of strategy is identifying how a company can deliver unique value to its customers. In many sectors of the economy, companies are stuck in a sea of sameness. A well-thought-out business strategy should consider how a company can create space from competition in its service offering, pricing model, delivery system and more.

3. Define your targets.

One of the most significant barriers to growth is poor targeting. Absent of very specific targets, companies suffer from unclear messaging and thus misalignment between sales and marketing. Defining niches and specialties allows companies to focus resources (of course, some companies are generalists by design).

Clear target markets give a company the ability to create an integrated sales and marketing approach, where marketing enables sales productivity. Sales and marketing plans are executed more effectively when targets are tight.

4. Focus on systematic growth.

As one of our Vistage member clients says, “A thriving company is a growing company.” It is only through growth that companies can afford to invest in things like technology, the best people and new equipment. The strategic plan should identify in which segments a company will grow and in what proportion, so that the product mix yields a specific net margin result.

Only after coming to such conclusions could a company know how much it can afford in terms of capex, overhead expenses and so on.

5. Make fact-based decisions.

Strategy is a garbage in, garbage out exercise. Executives often complain about a lack of good data, but we consistently find information that is useful in the formation of strategy.

We once worked with a Vistage member who was trying to quantify the value of various segments served. By accessing the public records of a nearby port, we were able to quantify actual shipments of merchandise by potential customers.

6. Think long term.

In the face of constant change, planning horizons are shorter than they used to be. However, only thinking quarter to quarter is a trap that may rob companies of their ability to see around the bend. Best-in-class companies create processes designed to treat strategy as an annual cycle rather than a one-time, static event.

7. But, be nimble.

Companies can think long term and still be nimble. For example, a critical component of strategy is an external forces analysis. Companies should be evaluating long-term external forces, and adapting based on new information (meeting regularly-perhaps quarterly) to pivot.

Jeff Bezos of Amazon holds a strategy meeting every Tuesday to keep it front and center with his management team.

8. Be inclusive.

To be nimble, companies are including different people in their strategy than in the past. At a time when companies are hiring more millennial employees, there is greater transparency. While I am never one to advocate that companies open their books (as that is a personal decision for the entrepreneur), there is certainly movement toward more inclusion and transparency.

Deciding who to include in strategy formation is a critical selection. We recommend business owners include people they can trust and that can think strategically.

9. Invest time in pre-work.

If you want your managers to take strategy seriously, make them conduct research and prepare relevant information in advance of your strategy meetings.

10. Measure your results and execute excellently.

Every strategy should be actionable. Companies that are best-in-class:

• Have a strategic action plan that they track often (usually monthly).
• Promote common ownership of the plan across executives and departments.
• Utilize key performance indicators (KPIs) that are predictive and align directly with the strategic plan.
• Have cascading goals that reach every department and resonate with employees so they understand how their role contributes to the greater good.
• Set up their corporate calendar to promote productive meetings, and establish a performance management cycle that supports cascading goals and objectives to every employee.
• Rinse and repeat their strategy cycle every year.

Top-down business model generation

During Business Process Management trainings, people often ask me about the best modeling technique: How to model a process model? Where do I begin? Top-down or bottom-up process? Questions that many of you have asked yourselves when beginning to design a process model. In this blog I would like to take you along with me to the world of top-down or bottom-up modeling. Let me start by clarifying some frequently used terms. Then, I will share several personal experiences and my preferred method of working.

Before elaborating on the complete process model in terms of work processes and process steps, I want to mention a couple of items the process designer should pay close attention to.

First, the designer should always determine what the aim of the process is, and which customer the process will be targeting. We determine the modeling goal and ask ourselves: Why are we making this process model? And Who is the customer?

Second, determine the process scope. Where does the process start and end? The start is the input of the process and is often called the ‘start trigger’. The end of the process is the output, or the result, and is referred to as the ‘end trigger’.

Next, the designer should determine which enablers the process has. The enablers are the actors that works with and in the process. For example roles or systems.

Finally, should any preconditions applicable to the process be taken into account? Keep in mind legislation or internal guidelines. The process model should adhere to each of these preconditions or guides.

How to start modeling

After having looked into the items above, the process model can be further worked out. We can distinguishes two modeling methods to design a model. The first modeling method is top-down, where we work from work process to process steps. The second modeling method is bottom-up, where we work from the process steps “upwards” by clustering the step in work processes. Both methods are describing how to design a process model.

Top-down process modeling

The top down method is often used by process designers who need a total and broad overview of the process model. In complex organizations this method will reduce the complexity of the process. The top-down modeling method we first defining the work process (number 2 in de figure top-down method) of the process model after having modeled the start and end-trigger (number 1 in the figure top-down method). As soon as we have modeled the highest level of the model, we can begin modeling a level below that. Each of the work processes in the different process steps is being modeled according to the related declaration and data carriers (number 3 in the figure top-down method). The other work processes will be developed in a similar manner. Next, we will determine which process steps need to be developed into a work instruction level. Finally, each process step will be assigned its role and possible system. As you can tell with this type of modeling, we start from the top with the work process and slowly work our way downwards towards the bottom level. To design with the top-down method we make a stratification within the model. In this way the process designer is able to structure the process model.

Strategy

Top-down organizations don’t involve subordinates in planning. Instead, the owner generates the company vision, mission, strategic goals and plans and then communicates these to the ranks below. The front line translates goals into daily action to achieve the desired results. It’s important for owners to remember that a strategic course cannot be chosen properly without a grounding in the company’s accumulated experience; mining the first-hand knowledge of subordinates helps ensure wise goals and plans. This bottom-up context in making a budget plan, for instance, helps an owner incorporate practical information that could have been overlooked.

Justification

The top-down approach unifies a company behind one purpose, direction, command and standard, dictated from above and spread throughout the organization. This offers several advantages. It allows a business to reliably give customers the same experience or product. Standardized products and services can be rolled out on a grand scale and more cheaply than non-standardized goods, and standardization facilitates quality control. Unity of command, meanwhile, allows a company to avoid confusion in a crisis. With its clear lines of authority, the top-down approach encourages obedience.

Structure

The company’s organizational structure assembles employees into departments to facilitate work and resource sharing. Choices lead to organizational characteristics such as ordered or creative. Owners usually establish a formal structure when employee ranks have grown enough to demand organization. Based on a strong management hierarchy, the structure that best matches the top-down approach is the functional organizational structure. It segregates employees by function all the accountants and their tools work in one department, for instance. In the functional structure, departments each have a manager who is supervised, all the way up the ladder to the owner.

Pitfalls

By emphasizing management, the top-down approach de-emphasizes employees, who become passive. Without control, they have little room to show initiative or creativity. Because approvals must climb the chain of command, top-down businesses respond slowly to market challenges. In an unstable or dynamic environment, the top-down approach cannot stay apace with nimble rivals based on teams and employee empowerment.

Bottom-up business model generation

The bottom-up method is used by process designers that design a process model throughout their substantive knowledge. A process model can also be modeled according to the bottom-up method, by first defining each of the process steps in the model. Beginning with the start-trigger (number 1 in the figure bottom-up method), the designer will develop each of the process steps until the end-trigger is reached (number 2 in the figure bottom-up method). The process steps are further developed in a declaration and are saved on the relevant data carriers. Once each of the process steps between start and end-trigger have been completely developed we can begin introducing a structure within the model. We begin by grouping the process steps, which will further along again be grouped in a work process (number 3 in the figure bottom-up method). This modeling method is working from the bottom to upwards, starting with the grouping of the process steps and only then introducing a particular structure (grouping of the process steps into work processes at the highest level).