Recently four newer business models have become important, models that com- plement the classic models. These new models do not displace financial state- ments and org charts. Income statements are not going away, not in our lifetime. Instead the four new models focus on some different parts of the
complex reality of business. Just as a financial statement and an org chart can show two views of the same business, these new models open up some new views of business—new views for new purposes.
The four new models are business motivation models, business organization models, business process models, and business rule models.Business motivation models describe business goals and the means to accomplish those goals. What are we trying to achieve at Cora Group? What strategies are we using to achieve those goals?Business organizationmodels describe what groups exist and who interacts with whom to get the work done. Who at Portia interacts with the third- party bakeries? Business processmodels show the step-by-step tasks to accom- plish the work. How does our waitstaff serve the customers through a dinner?
Three years ago
Two years ago
Last year Revenue
Portia 1,175,811 1,579,116 2,246,780
Nola 691,061 1,293,099 2,141,021
Viola 817,218 1,274,524
Zona 720,760 1,923,590
Adelina 231,039 671,789 1,447,909
Total revenue 2,097,912 5,081,982 9,033,825 Less
Gratuities 293,708 660,658 1,517,683
Net revenue 1,804,204 4,421,324 7,516,142 Expenses
Personnel 920,144 2,210,662 3,833,233
Food 360,841 840,052 1,352,906
Beverages 72,168 221,066 300,646
Pastries and desserts 144,336 265,279 450,969
Premises 205,000 425,000 420,000
Depreciation 72,168 132,640 150,323
Insurance 61,000 92,100 104,000
Telecommunications 4,200 3,291 2,919
Marketing 15,922 25,929 18,299
Other expenses 8,299 3,999 5,999
Total operating expenses 1,864,078 4,220,018 6,639,292 Net income before taxes −59,874 201,306 876,850
Income taxes 0 60,392 263,055
Net income −59,874 140,914 613,795
FIGURE 2.2 An income statement
Four Model Disciplines 23
How do we hire a new assistant chef? And business rule models describe the laws, policies, and other guidance that constrain the work. What health rules do we enforce? What guidance do we give our waitstaff on how to satisfy unhappy customers? Together these four kinds of models describe much that is important about Portia, or about any business.
Each of these four kinds of models is a model discipline. A model discipline includes a set of constraints for determining whether a model is valid. The constraints are different from one model discipline to another. For example, the constraints for business process models are different from the constraints for business motivation models. A valid business process model of hiring a new assistant chef at Portia is not a valid business motivation model of anything.
We describe each of the four model disciplines in Chapters 3–6, with one chapter on each discipline. Some of our description is about the validity constraints for the dis- cipline. For example, Chapter 3 describes business motivation models, and some of Chapter 3 is about explaining what makes a valid motivation model and when a model is invalid. The rest of Chapter 3 is devoted to explaining how to build a busi- ness motivation model and how to interpret a motivation model once one is built.
Each model discipline has a different focus, different questions that it can answer, and different analyses that it supports. When modeling a business, you usually build models in several different model disciplines, to look at the business from different angles. Recall that you examined both financial statements and org charts for Cora Group acquisition: models from two classic disciplines.
The four new business model disciplines complement each other. With a busi- ness motivation model of Cora Group, we can look carefully at the goals and influ- ences that have led to the company’s success. With a business rule model of the same restaurants, we can examine the particular policies they use to guide menu creation and customer service, and how those policies lead to a good customer experience. The two models provide different perspectives on the same business.
The four model disciplines also complement the classic accounting and organiza- tional disciplines. Some people believe that everything important about a business is reflected in the accounting—in the dollars and cents of the income statements and balance sheets. That is true, if you wait long enough. Everything important eventu- ally shows up in the accounting, but sometimes not until it is too late to fix. For example, a restaurant can have good books this year but be slow to seat and serve guests. This will lead to customer dissatisfaction and lower demand. Accounting will show this next year, as the revenues decline. A business process model of how peo- ple are seated and served will illuminate the problem today.
Maturity and the Model Disciplines
The four model disciplines are powerful—particularly in combination, describing a business using all of them—but all four are still evolving. In this book we describe a snapshot of current best practices, but we expect best practices to continue to improve over the coming years.
By contrast, accounting is the gold standard of business model disciplines.
Accounting is mature, with a long history and hundreds of thousands of profes- sional practitioners around the world, accountants who focus their efforts on cre- ating and interpreting accounting models. Over its history, accountants have developed Generally Accepted Accounting Principles (GAAP), a framework for how to create accounting models for different real-world situations. GAAP is a standard for accounting fidelity, for judging when an accounting model is an accu- rate enough reflection of the company modeled. GAAP is a kind of threshold for fidelity; if a financial statement complies with GAAP, it is high enough fidelity for professional accountants to put their seal of approval on it.
Perhaps each of our four model discipline should have thousands of profes- sionals and its own GAAP. There should be a business process GAAP that governs whether a particular business process model is an accurate enough reflection of a business process as practiced by a specific organization. Such a business process GAAP might include guidance—for example, that an unusual situation that occurs 0.1% of the time need not be modeled, but if the situation occurs 5 percent of the time, it must be modeled.
No such business process GAAP exists. Business process modeling is not mature enough yet. Until then, we must content ourselves with degrees of fidel- ity, without any professional consensus about how much fidelity is enough. Until consensus is achieved we must rely on our own judgments.