All models are wrong but some are useful

The lovely statement that, 'All models are wrong but some are useful', I first heard from one of my bosses when I was showing him a systems model that he wasn't impressed by. I later found out that the phrase is attributed not to him but to a statistician, George Box. So although the phrase was originally generated around statistical models, it is relevant to any abstraction of the real thing.

The phrase stuck with me – it's been one of the most useful tests to apply when being presented with a model. And over the last few weeks we've been working with a business design model: not the well- known Osterwalder Business Canvas Model but one developed by a consulting company. There are many business models to choose from (look at Google images) several from competitor companies to the one we're working with and many others from various sources.

Tim Kastelle in his blog Eight Models of Business Models, and Why They're Important has done a great job of picking out the key points on each of his chosen eight. He also summarizes from a couple of sources what the function of a business model is:
1. Describing different kinds and types of businesses: critical if we are trying to study them analytically.
2. Providing short-hand descriptions of how firms operate: the primary value here is that you can use the business model to ensure that you have strategic fit across activities.
3. Role modeling: you can use them to describe how you want your organisation to function.
4. Hypothesising about how your organisation might be able to create value for customers

Joan Margretta in her article Why Business Models Matter adds in another idea: business models are essentially about writing a new story one that 'represents a better way than the existing alternatives.' Perhaps it does this by offering more value to a discrete group of customers and/or by completely replacing the old way of doing things and becoming the standard for the next generation to beat.

I haven't done an exhaustive analysis of the various business models but I have used a variety of organisational systems models in my work. I've compared seven or so of them in my book, and I have others from the major consulting companies that I haven't compared in the book but have for my own purposes. Having this experience, I find that they are all equally 'wrong' and for the most part I find that some are, indeed, useful. So I'm going to assume that since a business model isn't a million miles from an organization model – in fact, I'm constantly being asked what the difference is – that they too are simultaneously 'wrong' and some are useful.

In the situation I am in it seems to me that the model we are working with is 'wrong' in three key aspects:

It is generating frustration. This is not, perhaps, the fault of the model but rather the way we are using it. If you consider the suggestion made in an excellent article from Harvard Business School Competing through Business Models that a business model consists of: (1) a set choices and (2) the set of consequences arising from those choices, then you can see that there could be an issue if a series of questions are posed around choices to be made without simultaneously including information about the consequences of the choices. The proposition on the table is that we present the set of choices – framed as questions. Those proposing this approach say that the consequences cannot be fully understood until the set of choices is made. An alternate view is that we cannot determine a business model until we know, at least at a high level, the consequences of the choices.

It is not explicit enough on the political/social/emotional relationships, interdependencies, and complexities inherent in the situation. It is fine to look at a sheet of paper with the model on it but essentially it shows concepts, for example 'capabilities', that entirely miss the human aspects of the business: both positive and negative and this to my mind is a significant gap. I'm reminded of the work around organisational network mapping that I discuss in my organisation design training. I show a traditional organisation chart and beside it the same set of people as a network mapped according to the information flows between them. The differences invariably result in prolonged and intrigued discussions on how this information could influence/impact on the organisation's design. A business model could/should include discussions and input on choices and consequences that include the human dynamics and interactions that propel the business operation.

There is not clarity on what the business model's primary function is in our situation. Are we using it to tell a new story? Hypothesize? Role model? Compare current model with a possible future model? Provide a description of where we have/haven't got strategic fit in the current a/or future state? This lack of clarity may be why we are seemingly getting bogged down in repeated 'go-rounds' or 'laps' of the work as each person we talk with has a different perspective and a relevant viewpoint.

However, the model is also useful in three aspects:

It is challenging the current way of doing things by raising the difficult questions that need reflective and considered answers. But in this challenge comes the protection of sacred cows, the need to work through/with legacy systems and structures that pose insurmountable difficulties in dismantling (or is that just a perception?) and the fear of slings and arrows from various quarters. There is a lot of work going on with collective and individual members of the leadership group to encourage and develop the discussion of an appropriate business model for the context of the ongoing efficiency, effectiveness, 'do more with less' requirement that we are charged to meet now and onwards.

It is highlighting 'leadership alignment' variability at all levels in the organisation. The question is how to find all the stuff going on that is connected to a new/different business model then find out which of this various people hold dear and cling on to, and then think of ways of encouraging them to relinquish their pet whatever to get some kind of whole organisation coherence and simplicity. (I'm contemplating a Christmas carol blog in an organisational 'Partridge in a Pear Tree' vein which will include verses on 8 target operating models, 7 cultural challenges, 6 ways we do things, 5 core values, 4 customer promises, etc.) So still some way to go on leadership alignment and 'buy-in' but it's definitely a requirement if we want to implement a new business model.

It is revealing data issues. Although we are swimming in governance structures, reporting mechanisms, risk ratings, oversight bodies, and other control systems the ability to share meaningful data across the whole organisation is limited – the data that feeds into the control systems is collected in different ways for different purposes through different means which makes it hard to get a useful whole system 'dashboard' of organisational metrics that will give good insight into the various consequences of the business model choices we face. Good data sharing that could produce a single clear set of cross-organisation performance metrics would make all the difference to our ability to assess the consequences of the business model choices we make.

If any of the above sounds familiar then you may be asking yourself the question: business models are they wrong and are some useful? Let me know.

Long Range Planning (Special issue with 19 articles + editorial on business models)
Volume 43, Issues 2–3, Pages 143-462 (April–June 2010)
Business Models

Analyzing the Flow of Knowledge with Sociometric Badges
Procedia – Social and Behavioral Sciences
Volume 2, Issue 4, 2010, Pages 6389–6397
The 1st Collaborative Innovation Networks Conference

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