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Design, Propose, and Describe Potential Business Models for Stakeholder Evaluation and Improvement

Aug 28, 2008
In designing new business models from successful tests, respect is the most valuable currency you can use with stakeholders. Providing respect begins with asking for and listening to reactions to what you are thinking about doing . . . before you make a decision.

In many cases, respect will also mean making major changes in the direction you finally choose to reflect the reactions of stakeholders. Should you make such changes to respond to what you have heard, you must be sure that all stakeholders realize why you made the changes, and why these changes serve everyone better.

But before launching those discussions, you would do well to identify business models that maximize the benefits of stakeholders cooperating with each other, while minimizing the potential conflicts. That sounds easy to do, but is actually quite challenging. Here are some helpful steps to take:

(1) Test each potential business model for how rapidly it will grow the pie of benefits for all stakeholders as compared to the costs they will incur and burdens they will carry. Most companies look only to the financial results for the company, without considering the costs to and rewards for other stakeholders.

What is being suggested here is to look at the potential financial results last, instead of first. For example, many new business model ideas require extraordinary sacrifices in time and effort by partners, suppliers, employees, and distributors. While people are often willing to make such sacrifices, it is unlikely that they wish to do so permanently. Give them a business model that requires that sort of permanent sacrifice, and the foundation of your company's support will erode over time.

A better choice would be a business model that provides sustainable progress relative to competitors without extraordinary sacrifice. In the long run, the financial results for the company will also be higher from choosing this path.

(2) Consider how the better business models can be further improved to provide greater benefits and lower costs for the stakeholders who will be least advantaged.

For example, it may be that your business model choices will mean that the place where rewards will grow fastest is through ownership in the company. In that case, you should look at more ways to spread the benefits of ownership to more stakeholder groups than just the current shareholders.

Or, a business model may mean that employees have to make by far the greatest sacrifices. Can these sacrifices be reduced by relying more on partners and suppliers? If the community is going to be disadvantaged by needing to cover major dislocations in employment from a new business model, can the focus and timing of the business model's implementation be shifted to reduce those burdens?

In any case, is there some major new beneficiary of the new business model who should be asked to share in supporting the investment in bringing the model into existence?

For example, Cytyc's Pap smear test is much more expensive to provide than the old test. The company was able to encourage physicians to use and insurers to reimburse more for the new method, even though it took a little longer and was priced higher, because of everyone's appreciation that the ultimate solution was better for every stakeholder group. This improved sharing of economic resources allowed Cytyc to make the test available faster to more women than would otherwise have happened.

(3) Evaluate business models for how well they eliminate the appearance of conflicts between the interests of different stakeholder groups with each other and the company. A business model can be perfectly fair, but if it seems like it isn't, that reality will be undercut by the misperceptions of unfairness.

Many companies now suffer from a perceived split between the interests of executives and the rest of the company's workers. A firm may have large layoffs and salary cuts, while the top brass receive large salaries, bonuses, and stock options. Reductions in employment costs may be necessary. How can the pain be spread equitably? How can the resulting benefits be shared fairly?

(4) Eliminate any business models that will have destructive, long-term impacts on any stakeholder group.

If after making all the improvements you can think of, someone will still feel or be victimized by the new business model, you should not even propose it. To do so undermines your moral authority to help set a path that everyone can be excited about supporting.

Before you give up on a potential business model, be sure to think through your choices one more time. A leading oil and gas producer once decided it couldn't make certain changes to leave certain businesses because so much unemployment would follow. The economic value of each job lost to the company through this change was over five million dollars.

Upon more consideration, the company realized that if it was much more generous in sharing part of that five million dollars with those who lost their jobs, everyone could come out ahead. Most of the employees involved could not expect to earn more than another $500,000 from those jobs during a normal career.

Older workers might be just as glad to get enriched pensions and retire earlier. Younger workers might welcome the opportunity to get substantial education, retraining, and a salary while they were getting ready for a new career.

Upon further investigation, a suitable way of making the business model shift was developed that was welcomed by the affected employees, many of whom saw their careers and retirements blossom in unexpectedly positive ways.

(5) Look for and share the most exciting overall purpose behind each business model.

Surveys show that many people today find that their work fails to provide the meaning they want. As a result, volunteers are often attracted to organizations like the Girl and Boy Scouts, Habitat for Humanity, literacy groups, the Salvation Army, and the Red Cross that serve important humanitarian concerns. One of the best psychological rewards any company can provide for stakeholders is to be part of such a heart-warming humanitarian purpose.

How can an ordinary business attach that significance to what it does? You have to begin by looking more closely at the implications of what you do well.

Southwest Airlines offers low fares to passengers as part of its business model. The company's stakeholders have been encouraged to think of this service as a way to bring families closer together and to allow people to see parts of the United States they could not otherwise afford to visit.

Rather than seeing a plane full of low-fare passengers, a Southwest flight attendant is likely to be pleased by thinking about helping people on their way to reunions, birthdays, and weddings. A shipping company could think of itself as providing timely delivery of products and parts needed to make life run smoothly and safely for everyone. A publishing company could see a role in advancing knowledge and human progress. An entertainment firm could see itself as enriching the lives of those who have few material benefits and the morale of all. A retailer could see how its offerings allow customers to enjoy a better quality of life.

After you have considered such implications, you next need to reexamine your business model choices in order to refine the models to better match your most appealing purposes. In making these adjustments, feel free to ask stakeholders to tell you what purposes would be most exciting to them.

Feel even freer to ask how the company's direction could be shifted to enhance that excitement. In listening to this feedback, however, be sure to constrain yourself to what your business models can actually deliver. For many people, idealistic directions that are highly appealing may led to blind alleys for the company and its stakeholders, because the company is not yet in a position to accomplish the necessary improvements.
About the Author
Donald Mitchell is an author of seven books including Adventures of an Optimist, The 2,000 Percent Squared Solution, The 2,000 Percent Solution, The 2,000 Percent Solution Workbook, The Irresistible Growth Enterprise, and The Ultimate Competitive Advantage. Read about creating breakthroughs through and receive tips by e-mail through registering for free at

http://www.fastforward400.com .
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