Serving on a board is a serious responsibility. You need to be able to interrogate data, proposals and strategies, and evaluate them against goals, priorities and the external environment. This is a complex process which requires deep thinking and business acumen.
This task has become more complex in recent years. A 21st-century century business succeeds by creating value for all its stakeholders, including the customer, the long-term investor and the wider society in which they operate. Board members need to be able to think about the consequences of their decisions on all these levels, while always relating them back to the fundamental purpose of the organisation.
Business models have developed as conceptual frameworks to help leaders think in these terms. The idea is to equip decision-makers with a complete picture of the business before they start making decisions. Developing this deep understanding, and using it to interrogate proposals, makes strategic success more likely.
For this reason, AICPA & CIMA developed the CGMA Business Model Framework to help leaders develop a complete picture of their business model using a multi-capital lens. The central concept of the framework is about how to define, create, deliver and capture value. A CFO, or indeed any other senior leader, should be able to apply the framework to their own organisation to gain a deeper understanding of how its activities relate to its core purpose.
This understanding allows board members to perform their roles in a much more thorough and systematic manner. By analysing proposed activities and evaluating existing programmes in light of the framework, board members should be able to ask the questions which cut to the heart of what matters to the organisation and reach better decisions in consequence.
Let us take each element of the framework in turn, and look at the type of questioning which will follow from it.
This is where you analyse for whom and with whom the organsiation creates value. This analysis should prompt questions about the effects of a proposal on various stakeholder groups, as well as those it directly impacts. Key to success is identifying the needs of these groups, be they financial, social, natural or intellectual.
How and with what do you create the products, services and experiences that meet customer needs? Ask if a proposal risks undermining trust in the business or breaching the spirit of a regulatory framework. Ask about procurement as well as production. Applying a systematic approach to your thinking means you will be alert to ideas which might be plausible on their own, but which do not fully relate to the way the organisation creates value. Proposals and strategies which change the business model are likely to introduce unnecessary complexity and raise the risk profile. These should be treated with the utmost caution.
How do you match and deliver products and services to the right customer at the right time, place and price? Ask if an idea will aid building a healthy relationship with the customer, and if that customer continue to transact with you in the long term. You should also be examining how unique and innovative the business model is, and what external factors could be a threat to its effectiveness. The possibility of technological disruption is something to be aware of when asking about this.
How do you share the benefits of value creation to incentivise key stakeholders to continue to partner with you to continue to create and deliver value? Ask how you are measuring the value of a proposed activity and how that value is shared with stakeholders. You should also be asking about how the company strategy relates to its business model. The goal is to develop a strategy which keeps the business model relevant and up to date.
Taking these concepts together, I hope you can see how it is possible to apply the CGMA Business Model Framework to form the basis for a board-level analysis of problems and proposals. The key is to base your questioning on a systematic analysis of how the organisation creates and distributes value. In this way, board members will be able to guide a business to success through the complexities of the modern commercial environment.
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