CGMA REPORT

Building Resilience

An introduction to
business models
Two of the world’s most prestigious accounting bodies, AICPA and CIMA, have formed
a joint venture to establish the Chartered Global Management Accountant (CGMA )
® ®

designation to elevate and build recognition of the profession of management accounting.

This international designation recognises the most talented and committed management
accountants with the discipline and skill to drive strong business performance. CGMA
designation holders are either CPAs with qualifying management accounting experience
or associate or fellow members of the Chartered Institute of Management Accountants.
Contents

Introduction 2

What is a business model? 3

What creates and drives value in your business? 7

Innovative business models 11

When business models go wrong 15

Toughen up your business model 18

The management accountant’s role 22

1
Introduction

Every business starts with a business model.

Whether the founder articulates a formal model or at how the human factor and intellectual capital can
improvises along the way, a fundamental concept of contribute enormous value. The third, “Innovative
inputs, processes or activities, outputs and outcomes business models”, explores how some companies
underpins the belief that profits are at hand. Even a have reached beyond the traditional template to
child’s lemonade stand from bygone days required create business models better suited to the times.
lemons, water, and sugar, fixed assets including a
The fourth chapter, “When business models go
pitcher and a table, and maybe even angel investors
wrong”, presents case examples that illustrate
(the parents). Activities included mixing the ingredients
critical failures in business models, including some
and marketing. The output was a cooling summer
that once supported decades of corporate success.
beverage, and—if successful—the outcomes included
“Toughen up your business model”, suggests a
satisfied customers and additional pocket money.
series of measures that can help build resilience
Poorly structured business models can also be the into business models and provide early warnings
end of a commercial venture. The model can be when models are foundering. And we end with
flawed from the start or lack the flexibility to adapt “The management accountant’s role”, illustrating
to a changing environment. Lemonade doesn’t sell how financial professionals can become intricately
well in the arctic or as winter approaches. involved in guiding the success of their companies’
business models.
Even before the term “business model” came into
vogue, businesses have been based on an idea, Management accountants can better serve their
by whatever name, of how value is created and corporations and provide additional value by
delivered. The term itself rose to prominence at understanding more clearly the connection between
the end of the 1990s during the internet boom and the business model and commercial success. Next
has become a well-established concept in strategic to the CEO, management accountants often have
thinking. Indeed, there has been “an explosion in the most holistic perspective of a corporation’s
the number of papers published and an abundance operations. Unlike other specialists with a
of conference sessions and panels on the subject.” 1 focused view on, say, research and development
or marketing, financial professionals—especially
Understanding how business models work and how
at senior levels—gather inputs from throughout an
they create value for a company is vital for any
organisation to create an overview of corporate
manager and is essential in the higher echelons.
health. This stream of information can often hold the
Today’s commercial environment is characterised
first signs of business model stress or indications of
by rapid change. New technologies are introduced,
superior performance.
customer behaviours and desires shift, supply and
distribution chains mutate, and the influence of Management accountants contribute skills and
stakeholder groups rises and falls … all at speeds capabilities beyond straightforward financial
unprecedented in economic history. expertise. They bring to the conversation a deeper
understanding of corporate strategy, risk analysis,
In this report, we examine how business models
and economic forecasting, among other aspects of
function and the factors that contribute to their
corporate performance. Combined, these qualities
success and failure. In the first chapter— “What is
create managers who can not only identify fault lines
a business model?”—we provide a framework of the
in business models, but can also propose solutions
basic elements of a business model. “What creates
and bring the credibility necessary for their voices
and drives value in a business?” takes a closer look
to be heard.

2 Building Resilience – An introduction to business models

What is a business model?

On its face, “What is a business model?” is a simple question –

but there is no easy answer. The term, while the focus of daily press
coverage and boardroom debate, has never had a common definition.
While some see it through the lens of strategy and competitive
advantage, others apply a more encompassing perspective,
defining it as the overall impact of a business on its environment.

While the debate has left room for uncertainty, this

much is clear: the business model matters. And,
more precisely, understanding what makes your
Strategy and the business
business model sustainable matters even more in model
today’s environment where traditional products, Strategy can be defined as the course of
services and delivery channels can be rendered action, including specifying the resources
obsolete almost overnight. that are required, that an organisation
follows to achieve its specific objectives.
Organisations need to be resilient and adaptive.
How will your business react to variation in In terms of the strategic planning process,
the business model is informed by the
the quality and availability of key inputs? This
strategy, vision and mission statements
responsiveness to change is a key element of an
of the organisation:
effective and sustainable business model.
• Vision statements are future oriented
As a concept, the business model is often confused and describe the desired or ideal
with business strategy. In 2011, writing for the state of the organisation or enterprise,
Harvard Business Review, business professors Ramon answering the question Where do we
Casadesus-Masanell and Joan E. Ricart sought to want to be?
differentiate the two. 2 They wrote that a business
• Mission statements describe
model is:
the fundamental purpose of the
organisation, why it exists and what
“…the logic of the company – how it operates and it is trying to do to achieve its vision,
creates and captures value for stakeholders in a answering the question What do
competitive marketplace. That definition implies we do?
that the enterprise has made a choice about how • The business model then addresses
it wishes to compete in the marketplace. The the issue of How do we create value?
system of choices and consequences is a reflection
• Understanding these key areas help
of the strategy, but it isn’t the strategy; it’s the
organisations build a framework to
business model. Strategy refers to the contingent
formulate strategy; answering the
plan about which business model to use.... While
question How are we going to get to
every organisation has a business model, not every
where we want to be?
organisation has a strategy – a plan of action for
contingencies that may arise.” A change in desired strategy may
necessitate changes to the business model.

3
A background paper to support the work of the While this definition has been developed to support
International Integrated Reporting Council’s (IIRC) a reporting and disclosure framework, it has wider
development of an Integrated Reporting (<IR>) relevance in enabling organisations to better
framework, attempted to reconcile the various understand their business model and manage
ways in which the term “business model”’ is used their businesses effectively.
and aimed to reach a common, widely accepted
The <IR> model uses the concept of “capitals”
definition of the business model for use in, and
to illustrate the resources and capabilities an
beyond, Integrated Reporting. 3 The work of the task
organisation may require and utilise to create value.
force found two key themes; firstly, that business
models focus upon the way in which organisations The relative importance of each capital to the value
seek to create and define sustainable value, both creation process will vary by business. However,
financial and non-financial. Secondly, a business organisations need to understand how the capitals
model provides a statement of the basic logic of the interact with each other to create (or potentially
business: “How we do it”. destroy) value. A business model based on open
innovation or crowd sourcing, such as those of
The proposed definition of “business model”,
online furniture retailer Made.com and advertising
published in March 2013, was:
agency Ludvik + Partners, relies upon strong links
between the financial, human, intellectual, and social
“The chosen system of inputs, business activities,
and relationship capitals to create sustainable value.
outputs and outcomes that aims to create value over
the short, medium and long term.”

TABLE 1: Integrated Reporting capitals

Capital Definition Examples

Financial The pool of funds available • Debt

to an organisation for use in
the production of goods or the • Equity
provision of services
• Grants

• Funds generated through operations

or investments

Manufactured Manufactured physical objects • Buildings

(as distinct from natural physical
objects) that are available to • Equipment
an organisation for use in the
production of goods or the • Infrastructure, eg roads, ports, bridges,
provision of services waste and water treatment plants

Human People’s competencies, • Support of organisational policies,

capabilities and experience, strategy and culture
and their motivations to
innovate • Ethical values

• Loyalties and motivations for improvement

4 Building Resilience – An introduction to business models

 Capital Definition Examples

Intellectual Organisational, knowledge- • Intellectual property, eg patents,

based intangibles copyrights, software, rights and licences

• Organisational capital, eg tacit

knowledge,
systems, procedures and protocols

• Intangibles associated with brand

and reputation

Natural Renewable and non-renewable • Air, water, land, forests and minerals
environmental stocks that
provide goods and services, • Biodiversity and ecosystem health
supporting the current and
future prosperity of an
organisation

Social and relationship The institutions and relationships • Shared norms, common values and
established within and between behaviours
each community, group
of stakeholders and other • Key relationships with stakeholders
networks, including an ability to
share information, to enhance • An organisation’s social licence to
individual and collective operate
well-being

Taking these six elements into account will help Failure to consider the material impact business
organisations take a broader view of the concept activities have on all capitals carries the potential
of value creation and consider the positive and for disaster. Issues related to natural capital are a
negative impacts of business operations in a wider prime example of this – and not only for the obvious
context (Table 1). industries such as fishing or extraction.

Business models create value through the conversion In early 2011, the global sportswear brand, PUMA,
of resources and capabilities, the availability became the first major multinational to issue an
and appeal of which may change over time. In environmental profit and loss account, seeking
2012, John Chambers, Chairman and CEO of to place a monetary value on the impact of the
Cisco Systems, announced plans to move away greenhouse gas emissions and water consumption of
from Cisco’s traditional focus on the design and their business and supply chain, from raw material
manufacture of hardware to a more lucrative and to sale of the finished product.4 The environmental
sustainable software and services approach. In the impact relating to these two areas was valued at
context of the <IR> model, this would represent €94.4m, Putting this into context, PUMA’s net
a shift in relative importance from manufactured earnings that year were €202m.
to intellectual capital, recognised by Cisco’s
The <IR> framework shows the business model as
recent acquisition of software developers such
a process for converting inputs to outputs through
as NDS Group.
business activities (Figure 1). These may include
product planning, design and manufacture, or the
deployment of specialised skills and knowledge in
the provision of services.

5
FIGURE 1: Creating value through business activity

External environment

Financial Mission and vision Financial

G o v e rn a n c e
Manufactured Manufactured
Opportunities Strategy and
Intellectual and risks resource allocation Intellectual

Business model

Organisation
Organisation

Society
Society

Inputs Business Outputs Outcomes

activities

Human Human

Performance Future outlook

Social and relationship Social and relationship

Natural Natural

<IR> framework showing the business model at the heart of the organisation © IIRC 2013

Understanding how value is created is a key element The net result: positive or negative?
of the business model. When thinking strategically
about their business activities and the relevance Within the <IR> framework a clear distinction
of their business models, organisations need to is made between outputs and outcomes. Outputs
consider the following: are key products or services produced by an
organisation to create value as well as the waste or
• How are initiatives influencing the effectiveness other by-products that may either create or erode
and efficiency of business activities, such as value. Outcomes, on the other hand, are the internal
process improvements, employee training and and external consequences for the capitals as a result
relationship management, contributing to long of an organisation’s business activities and outputs,
term success? including customer satisfaction, profit (or loss),
• How does your organisation differentiate itself shareholder return and contribution to the local
in the marketplace? Would a change in business economy through taxes.
model mean a gain in competitive advantage? In the case of a car manufacturer, the output is
• How does your business model generate revenue? the car, while the outcomes to the consumer may
Can you alter it to generate further revenue after be mobility, safety, reliability, comfort and status.
the initial point of sale, perhaps through Outcomes that flow beyond the customer include
extended warranties? environmental impacts arising from emissions. 5

Business activities extend beyond the generation Regular reassessment of desired outcomes against
and sale of a product or service. Culture plays an actual performance, outputs and strategic objectives
important role. A culture of innovation can be a key may prompt adjustments and changes to the business
business activity in terms of generating new products model. In this uncertain world, management
and services that anticipate customer demand, accountants have a key role to play in ensuring their
introducing efficiencies and better use of technology, organisation’s business model remains relevant,
or substituting inputs to minimise adverse social or resilient and responsive.
environmental impacts.

6 Building Resilience – An introduction to business models

What creates and drives value
in your business?

Many companies have found that adapting their business models

can lead to improved performance and competitive advantage.
For example, some companies are choosing to eliminate the
non-value-adding aspects of their business and passing the
value-creation decision back to the customer, creating new
revenue streams in the process.

No-frills airlines like Easyjet and Ryanair have been

using this approach for many years, where customers Overwhelmingly, more value is coming from people
may purchase their seat at a competitive price, but rather than financial and physical assets.
if they want “optional extras” such as refreshments,
The most significant forces shaping the future
extra legroom, or additional baggage allowance,
business agenda for organisations – customers
they must pay extra. Even the legacy carriers have
and employees – are also grounded in the
seen the appeal of this model, with many now
human dimension.
charging for refreshments. However, now, by not
following the herd, airlines that do not charge bag – Rebooting Business: Valuing the Human Dimension,
fees stand out. Southwest Airlines’ Bags Fly Free ® CGMA, 2012
policy turned what was once a common practice
into a registered trademark.
The CGMA report, “Rebooting Business: Valuing
The “upselling” concept may continue when the Human Dimension”, found that 81% of CEOs
you arrive at your destination. “All-inclusive” believe knowledge and human capital contribute
beach resorts in remote locations charge bored significantly to the overall value of the business.
holidaymakers for off-site excursions or offer the The findings also showed that these factors, together
option to eat at an á la carte restaurant rather than with customer relationships, were considered to be
the communal buffet, each for additional fees. the two highest providers of value to the business,
scoring higher than financial and manufacturing
Flat-pack furniture businesses such as IKEA have
assets. Clearly, non-financial elements have become
outsourced non-value-adding activities such as
crucial to driving value and, if managed well,
construction and delivery to the customer. Assembly
long-term sustainable business success.
and home delivery services are still available, but
at a premium. These approaches have worked well Has your organisation unlocked and maximised
for airlines and manufacturers, but what of those the value of its human and intellectual capital?
businesses which rely upon less easily measurable To illustrate further, we looked at the ways different
assets as a source of competitive advantage? organisations have recognised and leveraged these
key inputs to their business model.

7
Driving value: the human factor Working - before working a paid shift in one of
the Prêt stores. Existing staff vote on whether
The British entrepreneur Richard Branson wrote, new applicants should stay, helping to ensure new
“A company’s employees are its greatest asset, members are a good fit with the existing team.
particularly in service-based operations where your Regular mystery shopper visits are made to each
people are your product”.6 This view is reflected store to ensure that core behaviours are upheld,
throughout Virgin Group companies. At Virgin for which the entire team are rewarded, and staff
Trains it has been recognised that employees are the who are promoted or pass training milestones are
key to identifying customer-focused improvements. given rewards to pass on to the teammates who
The Virgin way of working encourages employees helped them. While Prêt’s approach to developing
to interact with customers to improve the customer an enthusiastic and cheerful workforce who clearly
experience and understand customer needs. This demonstrate personality (unusual for the fast food
“friendly face” approach has a higher strategic industry) has been criticised by some as “enforced
purpose. Employee empowerment allows staff to happiness”, it is clearly successful, with profits of
feed their insights into decision-making processes, more than £61m in 2012 and plans to open a further
which, in turn, increase the employee’s feelings of 50 stores in 2013.
value to the company. Virgin Media’s vision for
its employees – to “create a place where people Value can also be created through developing strong
love to work, and a community of people who feel customer relationships, a challenge which has been
inspired to deliver a brilliant customer experience”7 taken up by internet retailers such as Amazon.com
- is supported by a cloud-based e-learning and and Asos.com, which lack the personal interface
performance management system, linked directly advantage of high street stores like Prêt a Manger.
to career development.

Branson has said one of the secrets of Virgin Group’s “...Our energy at Amazon comes from the desire
success, including an innovative expansion into to impress customers rather than the zeal to best
space and ocean tourism, is to recognise the value competitors. We don’t take a view on which of
of its staff and to create a culture of empowerment. these approaches is more likely to maximise
This creates additional value “by giving employees business success. There are pros and cons to both
the same freedoms that the senior managers and I and many examples of highly successful competitor
give ourselves. Our team can successfully take on focused companies.
projects that other brands can’t.”8 “We do work to pay attention to competitors and be
On a smaller scale, the sandwich chain Prêt a inspired by them, but it is a fact that the customer-
Manger, which operates 320 stores in France, Hong centric way is at this point a defining element of
Kong, the United Kingdom and the United States, our culture.”10
recognises the importance of staff buy-in to creating
– Jeff Bezos, founder and CEO of Amazon,
and driving value through freshly-made quality
Annual Letter to Shareholders, April 2013
products and a positive customer experience.

“Prêt is a private company determined never to

Amazon’s customer relationship focus has led to
forget that our wonderful hardworking people make
the development of automated services, such as
all the difference. They are our heart and soul.
book and film recommendations based buying and
When they care, our business is sound. If they
browsing patterns. Customers have the facility to
stop caring, our business goes down the drain”. 9
look and search inside books that they are interested
With the “people” element so fundamental to in and are encouraged to contribute to the site’s body
their business model, Prêt goes to great lengths of knowledge by writing product reviews, which
to employ the right people to join their in-store other customers are then able to rate or comment
teams. Applicants are assessed against three core upon. In this way, customers begin to create value
behaviours – Passion, Clear Talking and Team for each other.

8 Building Resilience – An introduction to business models

Continual improvement of the customer experience exclusive luxury lifestyle market, appealing to new
continues beyond the online interface, with Amazon fashion-forward customers, as well as the traditional
currently building capability for a same-day delivery base. A flagship store opened on London’s New
service. This customer-focused approach, combined Bond Street, adjacent to leading fashion brands
with technology, competitive pricing and a huge such as Versace, Chanel and Prada, and advertising
range of products, has enabled Amazon to become campaigns featured top models such as Kate Moss.
the world’s largest online retailer.
By understanding and leveraging the value of its
Organisations may also choose to leverage other uniquely British brand, Burberry was able to rescue
aspects of human capital to create value. Examples its 157-year-old business from stagnation. Today,
of this include people development, including it follows a “one company, one brand” philosophy,
succession planning, talent management, open earning revenue through the retail, wholesale and
innovation and collaborative relationships with licensing of clothing, accessories, fragrance and
customers and suppliers. beauty products. Adjusted operating profit in 2012
was £377m, a 25% increase on the previous year.
Driving value through intellectual
High-end fashion labels such as Burberry are able
capital to exercise strong controls over their manufactured
Intellectual capital is defined in this report as products and to maintain quality and brand
“organisational, knowledge-based intangibles”, integrity. However, for some businesses, particularly
including intellectual property such as patents, in the technology sector, no physical product
copyrights, software, rights and licences; exists. They focus instead upon the development
organisational capital, such as tacit knowledge, of intangible assets. The FTSE 100-listed
systems, procedures and protocols; and intangibles semiconductor and software design company
associated with the brand and reputation that an ARM Holdings operate a collaborative business
organisation has developed. model in which the product is intellectual property
(IP) and the monetary value is created through
Different types of organisations place higher licensing this product to manufacturers. Royalties
values upon specific types of intellectual capital. then provide an additional revenue stream.
A consumer goods company, for example, may
consider their brand critical to value creation,
while a software development company will have “The ARM business model involves the designing
an intellectual property focus. and licensing of IP rather than the manufacturing
and selling of actual semiconductor chips. We
The luxury fashion company Burberry, designers license IP to a network of over 2,500 partners,
of the original trench coat during the First World which includes the world’s leading semiconductor
War, had failing fortunes during the late 1990s. and systems companies. These partners utilise
Poor distribution and licensing strategies meant ARM IP designs to create and manufacture
that products of inconsistent quality were being sold system-on-chip designs, paying ARM a license fee
in inappropriate retail outlets, leading to a loss of for the original IP and a royalty on every chip or
cachet. Counterfeiting added to the devaluation of wafer produced.
the brand, while reliance on a small, conservative
product range brought a moribund image. “In addition to processor IP, we provide a range of
tools, physical and systems IP to enable optimised
In 1997, Burberry embarked upon a radical system-on-chip designs”.
realignment of its business model, strengthening
controls over management and distribution and – ARM company profile
expanding the product portfolio. Crucially, this
included a repositioning of the brand into the

9
By focusing on research and development rather People: the critical success factor?
than manufacturing, ARM is able to offer significant
savings, which are estimated at around $20bn It is important to realise that a business model which
industrywide, by licensing the result of their centres on the creation of value through intellectual
R&D efforts to semiconductor companies, who capital, such as IP, patents or software, cannot afford
then design smart, low-energy chips. Ultimately, to take one specific aspect in isolation. Organisations
this brings down the cost of digital electronics to must also recognise the value, both present and
the end user. future, of their people and that their competitors may
have an eye on their biggest assets. ARM’s people
ARM’s product is used in a wide variety of strategy demonstrates this recognition, aiming
electronic applications, from mobile handsets and “to provide an engaging environment for ARM
digital set-top boxes to car braking systems and employees where they can fully develop personal
network routers. Chips using its technology are used and collective potential better than elsewhere”.
in 95% of smart phones, 80% of digital cameras, and
35% of all electronic devices. Profit from operations It can be argued that the human dimension in itself
in 2011 was £148.9m and in 2012, £208.1m, is the critical success factor of the business model.
highlighting the growth in consumer gadgets. To return to the Rebooting Business report: “One thing
we can be sure of in this uncertain world is that
people – their ideas and relationships – will be
more important than ever before”.

10 Building Resilience – An introduction to business models

Innovative business models

Business models function in a dynamic environment, and the models

themselves must change and adapt to deliver continued success. New
models are emerging, and a review of the innovations being explored
can prompt a reinvigorated perspective of business models that
position these models as an integral part of strategic planning.

A number of key drivers are making new business Internet platform models
models possible, including primarily:
The internet has spawned many new business model
• Global economic integration. possibilities based on:
• New technologies.
• Customers as product-makers. For example,
• Greater (and faster) connectivity. Facebook relies on user-generated content in
For example, Harvard Professor Clayton which users create their own experiences. Apple
Christensen established in his work on The invented the iPod and iPad, but users here also
Innovator’s Dilemma and The Innovator’s Solution that create their own experiences by loading their
it was not necessarily technology that upended products with content. Co-creation of products
companies such as Wang and Kodak, but the new is not a choice but a necessity for many business
business models embraced by their new competitors. models because the product choices are infinite
Technology alone is rarely the key to unlocking and cannot be conceptualised or delivered by
economic value since “companies create real wealth a single “producer”.14
when they combine technology with new ways of • A changing price-cost-product interface. For
doing business”.12 example, consumers do not pay for the product,
and revenues are generated from other sources
However, it is important to be aware that business
such as advertising. Many free smart phone
model change is subject to many other drivers and
applications work on this model.
new influences are constantly emerging.
• Peer-to-peer consumption. This approach is
Further examples are: a refinement of the traditional “cut out the
• The impact of an ageing population. middleman” model, for example where owners
can rent their assets, such as holiday homes,
• “Democratisation” of innovation, where greater
directly to individuals.
consumer access to technology is spurring
development. But how do such innovative business models make
• Regulation, deregulation, or both. money? An important concept here is “stickiness”,
which is the notion of strong customer engagement
• Environmental resource constraints.
and experience driving users to a site. Some of
Systematic scanning of the horizon, for example the challenges of this approach are exemplified by
through political, economic, social, technology Facebook and Google, which both use advertising-
analysis,13 can help to identify the key drivers and supported business models.
how changes in each area can impact the business
The primary challenge is that the advertising itself
model should be assessed.
can spoil the customer experience. Users may
Internet platforms, hybrids, marketing-driven, become concerned about data privacy and turned
modular and category creator models are some off by the advertising. It is important to ensure that
examples of business model innovation. the advertising is targeted effectively by matching

11
preferences with sellers. Google’s business has been example is Nike+ sensor, which is compatible with
based around the combination of a search product Apple iOS devices, and allows runners to track
and a keyword advertising model and it is argued mileage and upload data to a web site.17
that advertising is more effective when users have
“purchasing intent”, which is more likely when using Hybrid bricks-and-clicks models
a search function than social networking.
In internet and software-driven business models,
Peer-to-peer businesses are emerging models the links between revenue and costs are often
which build on the internet’s capacity to facilitate disconnected, but in the retail industry the cost-
connectivity. For example, car owners who do not and-pricing model has remained conventional: the
need to use their vehicle all the time can rent it out consumer pays for the product purchased and used.
through firms such as Buzzcar or Getaround. And Even under such a conventional linkage, however,
if they have free time, they could also earn extra business models have evolved in the face of new
income by offering a taxi service. There are also choices in delivery channels. In the early years of
examples of accommodation being rented out in this the internet, the idea formed that all shopping could
way, and the model can be extended to other items move online. The reality that unfolded has been
such as expensive gardening and DIY equipment. more nuanced, creating room for the “bricks and
In essence, the concepts of ownership and rental are clicks” or multi-channel model in which retailers
being reframed, and incumbents in the car market combine the best of both environments to address
such as Avis and GM are investing in this area. the different needs and preferences of consumers,
Avis, for example, paid $491m in January 2013 to depending on what and when they are buying.
acquire the hourly rental firm ZipCar.15
For example, the successful UK clothes retailer,
A further example is Freemium, in which a basic Next, combines high street sites where it can
product or service is offered free of charge and showcase its latest lines together with the Next
a fee is based on the “added-value” premium Directory catalogue, which carries a much larger
product, a common approach with software where range, including furniture and houseware, that can
the manufacturing costs are low. Examples are be delivered to residences or retail outlets. Apple and
LinkedIn, Skype and children’s game networks such Staples are also successful bricks-and-clicks retailers.
as “Club Penguin”. By offering the basic service free,
Similarly, supermarkets such as Tesco and Walmart
a large customer base can be built quickly.
are combining large out-of-the-way sites and internet
Another interesting variant on the premium pricing ordering with home delivery and small, convenient
model is Amazon Prime, where subscribers pay an stores in city centre locations to reflect changing
annual subscription fee—$79 in the United States shopping patterns.
and £49 in the United Kingdom—for unlimited
1- or 2-day shipping. Subscribers have doubled their Marketing-driven business models
annual spending at Amazon because they start
Marketing-driven business models are ones built
buying items that they would have normally bought
around a very strong brand with the core product
elsewhere and they want to get as much value as
or service almost an incidental added bonus.
possible from their Prime subscription.16
Such organisations commonly outsource all
A recent McKinsey & Company article argued manufacturing and logistics activities. Drink maker
that software has become so important for every Red Bull, for example, has been called “just a media
organisation’s performance that any organisation company who happen to sell energy drinks?”18
can turn to software companies for lessons in terms The drink brand is built around the development
of how they have built new business models. It cited of its own media content and activities, especially
examples including Freemium to illustrate how in the field of extreme sports. Examples of its
new revenue streams have been created through efforts include films featuring snowboarding and
the integration of software into products. A further skydiving from near-space, together with prominent

12 Building Resilience – An introduction to business models

sports sponsorships such as Formula 1. Red Bull’s successful category creation examples are when
investment in marketing stands at 30-40% of breakthrough products are combined with a new
revenues, but it is the strong brand awareness that business models. For instance, the Microsoft Xbox
has allowed Red Bull to charge premium prices for Live gaming system combines a traditional video
its energy drinks. game with a subscription-based online service.

Modular or standardised While category creation is one of the most effective

ways for organisations to achieve growth, large
business models companies hesitate when faced with category
Another useful model is the modular business creation opportunities, believing, for example,
model where companies standardise core aspects that start-ups are better at such innovation or
of their activity to provide other benefits, such as that customers might not be receptive to trying
cost savings. Low-cost airlines, for example, might new things. 23
operate exclusively with just one aircraft model
to make maintenance more efficient. Southwest Facing the challenge of innovation
Airlines runs a fleet of Boeing 737s to gain such
Change is often difficult. The same inertia that
advantages.19
keeps a stone steady unless a force is applied can
Volkswagen is another example. The German immobilise a company. A first step could be to reflect
carmaker has been better than its rivals at reducing on a series of questions:
the number of common platforms for its line of
• How does your organisation’s business
automobiles. The measure has helped it offer a
model work?
large variety of brands and styles, while slashing
manufacturing costs. 20 • How could it be modified to create
additional value?
A more recent variant of this flexible approach
• How could a new entrant disrupt the model?
is localised modularisation. Chinese motorcycle
manufacturers, such as Longxin and Zongshen, • Where are the points of vulnerability?
needed a simpler, more flexible model because, If the answers suggest a new business model could
unlike competitors like Honda, they did not have bring benefits, management accountants can play
major foreign partners with substantial resources. a valuable role in testing the waters and helping to
As part of the solution, rather than specifying every break the inertia. For example, they can re-examine
detail of the parts they needed from suppliers, they the company’s approach towards costing and pricing
specify only the essentials such as size and weight. in cases when, for instance, revenue sources are
The approach has delivered cost savings and quality separated from product costs or producers and
improvements. 21 Such tactics and others have consumers are indistinguishable. Such a disconnect
enabled new entrants into the market, but can implies altered cost objects and altered cost
also help established companies consider whether management objectives. Rather than following a
their own processes could be modified to capture traditional model of pricing, which may be cost-plus
cost benefits. based or market based, pricing may have to tie into
the strategy of the firm along different parameters.
Category creator business models Such trends suggest management accountants will
Some innovative business models may involve need a broader vision of their role to thrive in more
creating a new class of products that can be sold complex organisational contexts, such as a move
using traditional methods. For example, Under towards greater business partnering and a greater
Armour used new synthetic fabrics to invent a new involvement in decision making and strategic
category of sports clothing. However, according to implementation. 24
a recent Harvard Business Review article, 22 the most

13
Multi-channel retail strategies or marketing-
driven approaches would require management
accountants to entertain a revised approach to cost
allocation and profitability analysis. As business
models become more innovative, it may become
more difficult to identify the sources of revenue.
Management accountants must work closely with
their financial accounting colleagues to ensure that
internal metrics continue to be aligned with external
accounting requirements, particularly when the
latter are subject to change as is currently the case
with revenue recognition. 25

As we’ve asserted in earlier reports, management

accountants have a key role to play on initiating,
partnering and providing constructive challenges
to the innovation process. 26

14 Building Resilience – An introduction to business models

When business models go wrong

On screen or on paper, all business models look rock solid and

built for success. But unleashed into the real world, these models are
buffeted by exogenous and endogenous forces that can cripple or
even completely undermine a company.

Many models fail immediately. Business parks and While strategies that misfire can cripple companies,
cyberspace are littered with companies that shut often the culprit is the business model. How do
down within a few years or hobble along without business models – especially those with some track
covering initial investments. The carnage includes record – run afoul?
not just small businesses, but also efforts backed by
serious money. In 2012, Harvard Business School Five forces
senior lecturer Shikhar Ghosh looked at more than
Michael Porter’s five forces analysis offers some
2,000 start-ups in the United States that generally
clues. In late 1979, Porter, then an associate
received $1m or more in venture capital funds and
professor at Harvard Business School (and now
found that about three quarters failed to cover initial
one of the premiere business management experts),
investments and, indeed, about a third shut down
published his framework describing the five
entirely. 27
factors that weigh upon a company’s performance
At the same time, business models that have been (Figure 2). 30 While some modern critics suggest the
successful – at times stunningly so – can collapse, framework is too simple for today’s complex web of
often catching investors and managers by surprise. industry relations, the five forces analysis remains
In their ground-breaking 2001 book, Creative an essential tool for understanding how companies
Destruction, authors Richard Foster and Sarah prosper or whither.
Kaplan reported that of the companies listed in the
original 1957 S&P 500, only 74 were still on the
Figure 2: Michael Porter’s five forces framework
list 40 years later (and the vast majority of these
survivors had underperformed the index over the
Threat of
course of those four decades). 28 In his blog, Carpe new
Diem, University of Michigan economic professor entrants
Mark Perry noted that of the Fortune 500 companies
in 1955, only 67 were still on list in 2011. 29 Among
those dropped were American Motors, Detroit Steel
and Maytag. He wrote: The industry
Bargaining (jockeying for Bargaining
power of position among power of
“Almost 87% of the companies have either gone suppliers customers
current competitors)
bankrupt, merged, gone private, or still exist but
have fallen from the top Fortune 500 companies….
Most of the companies on the list in 1955 are
unrecognisable, forgotten companies today. That’s
Threat of
a lot of churning and creative destruction, and it’s substitute
probably safe to say that many of today’s Fortune products/
services
500 companies will be replaced by new companies
in new industries over the next 56 years.”

15
The intensity of these forces varies across industries, More importantly, even ahead of the IPO, some
but they are each present when a company is analysts were sounding warning about the
founded and change constantly over the years. company’s model, but few were listening. Weeks
A business model that overlooks any of them – or ahead of the public offering, The Associated Press
takes the benevolence of any for granted – could quoted Sucharita Mulpuru, a Forrester Research
face severe challenges. analyst, saying, “Groupon is a disaster… It’s a shill
that’s going to be exposed pretty soon.”32 The article
Groupon, an internet wonder that went public with
summarised:
much fanfare in November 2011, was brought to its
knees after being buffeted from all sides by these “Now Groupon faces concerns about the viability
forces. Groupon, founded in Chicago in 2008, of its daily deals business model. The novelty of
offered daily deals for products or services that were online coupons is wearing off. Some merchants
valid only if a minimum number of coupons for are complaining that they are losing money – and
the deal were sold. Groupon took half the purchase customers – on the deals. And competitors are
price as a commission, with the remainder going swarming the marketplace.”
to the merchant. It was a sensation, and within two
years Groupon had spread globally and boasted of Caught in the crosshairs
tens of millions of registered users. Internet giants
Companies with much longer histories than Groupon
took note, and in 2010 Groupon rejected a $6bn
can find their business models outdated and unable
buyout bid by Google. A year later, the company
to generate profit if they aren’t continually vigilant
went public with a debut price of $20 a share for
to market changes. After more than a century,
a valuation of about $13bn. Immediately, the share
Eastman Kodak, the US photography company,
price jumped briefly to more than $31.
filed for bankruptcy protection in 2012, hobbled
And then the bottom fell out. A year after the irreparably by the advent of digital photography,
IPO, company shares were trading at about 13% which ironically Kodak had helped pioneer.
their debut price, and in February 2013 co-founder
Kodak was founded in 1888, and by the late 1970s
Andrew Mason was ousted, leaving behind one of
the company was supplying 90% of the photographic
the most quoted executive goodbye notes:
film sold in the United States and 85% of the
“After four and a half intense and wonderful years as cameras. 33 Innovation had always been a strategic
CEO of Groupon, I’ve decided that I’d like to spend priority for the company, and indeed the digital
more time with my family. Just kidding – I was fired camera was invented by a Kodak engineer in 1975.
today. If you’re wondering why… you haven’t been But in its last decades, the company could not turn
paying attention.” ideas into cash and was eventually overcome as
film and snapshot cameras became more and
Commentators have pointed to several factors more obsolete.
contributing to Groupon’s straits, many linked
directly to its business model. 31 Customers, for More than anything, the company was afraid to
example, had little incentive to be loyal to the risk its highly profitable film business by embracing
merchants who were offering coupons and most the new age of digital photography, a former R&D
were satisfied just taking the one-off discounts. At leader at Kodak, David Glocker, told the Wharton
the same time, merchants received little benefit from School of Business. 34 He explained:
their discounted offers because revenues were shared
“I believe the single biggest mistake that Kodak
with Groupon and sales didn’t necessarily bring
made for two decades or more was the fear of
repeat business at full prices. And finally, the model
introducing technologies that would disrupt the
was easily copied, leading to dozens of imitators.
film business. There were excellent scientists and
At least three of Porter’s five factors were working
engineers … who generated some of the world’s
against Groupon.
leading innovations. The company, however, was

16 Building Resilience – An introduction to business models

almost never willing to risk the high film margins • Business model innovation will be the next CEO’s
by introducing them. The irony is that many – CCD problem: The urgency of the challenge is often
arrays, digital X-rays, etc – eventually did Kodak in.” underestimated.

The 2008 collapse of British retailing giant • Product is king; nothing else matters: Services
Woolworths Group is widely seen as collateral that support the product can be neglected.
damage from the global financial crisis: Almost 100 • Information technology is only about keeping
years old, “Woolies,” as it was known locally, was a the trains moving and lowering costs: Legacy IT
victim of an exogenous disruption that was, for the systems may be favoured over updated and more
most part, outside its control. But why Woolworths productive technologies.
and not other global retailing giants like Walmart, • Cannibalisation is off the table: Leaders may fear
Carrefour or Tesco – or even the Woolworths Ltd., harming current businesses even if new offerings
which remains the largest retail chain in Australia have substantial potential.
and New Zealand? “Woolworths’ collapse … was
one of the defining events of the credit crisis,”
• Nowhere near enough connecting with unusual
suspects: Insular attitudes can keep executives
The Telegraph reported in 2009. “But questions have
isolated from new trends and ideas.
been asked about whether Woolworths’ failure can
purely be put down to a brutal recession.”35 • Line executives hold your pay card: Attracting
capable managers to a new project can be
Jim Prior, CEO of London branding consultancy difficult if bosses linked to the old model
The Partners, concluded that Woolworths failure to control their career.
keep up to date with its rivals on High Street and
elsewhere played a critical role in the company’s
• Great idea, what’s the ROI? New models often
require new ways of analysing ROI that could be
downfall. 36 Despite the national anguish over its
contrary to the current model.
closing, Woolworths was “a relic of a bygone age,”
he wrote, explaining: • They shoot business model innovators, don’t
they? New models and their supporters are often
“It has big stores with tightly packed aisles of disruptive and face significant corporate inertia.
seemingly randomly merchandised, cheap-priced
goods. No clear sense of what the store stocks,
• You want to experiment in the real world, are
you crazy? Stepping from white board to launch
or why. It is a soulless experience reflected in a
takes courage.
naïve brand identity and bland interior design that
have clearly not been invested in for decades…. Management accountants are uniquely positioned
Woolworths hasn’t changed in over 20 years, and to watch for fault lines in a company’s business
it shows and this is why it has failed.” model. Combining financial expertise with critical
capabilities in risk management, they can sound an
Key fault lines early warning when forces essential to a company’s
How are problems that seem so obvious in hindsight success – whether the arrival of new entrants, the
missed by executives in the thick of battle? For advent of substitute products or services, changes
an ongoing business, a key failure is an inability in customer or supplier behaviours or an evolving
to recognise or react to changes that impact a industry environment – begin to work against the
company’s business model, shifts in the five forces. company’s best interests. By remaining vigilant,
Writing for The Guardian, Saul Kaplan, author of The management accountants can be key players in
Business Model Innovation Factory, recently suggested bringing a company away from the abyss of failure.
ten reasons companies can be blindsided: 37

• CEOs don’t really want a new business model:

Leaders focus on performance improvements
rather than real change.

17
Toughen up your business model

Corporate success is a moving target. Customer behaviour can shift quickly.

Suppliers rise and fall. Aggressive new entrants appear on the horizon,
and new technologies and processes threaten established systems.
Meanwhile, incumbent rivals are driving and reacting to these changes.

A business model that worked yesterday or even Airbnb, another San Francisco peer-to-peer service
today could spell ruin tomorrow. backed by venture capital, also faced a corporate
crisis that arose from overestimating the integrity
Companies must continuously review their business
of its clients. Airbnb was founded in 2008 to
model to ensure that they remain relevant for the
connect individuals seeking to rent their homes for
current and foreseeable business environment
short periods to others looking for a place to stay.
and to make any necessary adjustments before
In 2011 two rented apartments in San Francisco
they step onto a burning platform. “Even the best
were ransacked and jewellery, electronics and
business models eventually become obsolete,” the
other items were stolen, triggering a wave of bad
management consultancy Deloitte wrote in a recent
publicity. Rather than raising the white flag, Airbnb
report. 38 “Yet we have found that companies are
responded by giving property owners using the site
often reluctant to tinker with something so crucial
a $50,000 guarantee against theft and vandalism
to their business – particularly if it has served them
and by expanding its customer services centre.
well in the past.”
In Spring 2013, the company boasted more than
Looking at two peer-to-peer web businesses – 300,000 properties listed in more than 33,000 cities
companies that connect individual sellers to worldwide.40
individual buyers – illustrates how vigilance and
In a corporate blog, Airbnb CEO and co-founder
change can help safeguard a company. Backed by
Brian Chesky summarised: 41
venture capital, the car-sharing club HiGear.com
was founded in 2011 to bring together luxury car “In the last few days we have had a crash course in
owners with people wanting to rent a sleek ride for crisis management. I hope this can be a valuable
a day or two. Owners got value from cars that were lesson to other businesses about what not to do
often just sitting in garages, while renters got steep in a time of crisis, and why you should always
discounts from rates charged by traditional car uphold your values and trust your instincts…. We
rental companies. should have responded faster, communicated more
sensitively, and taken more decisive action to make
HiGear, with operations in San Francisco and Los
sure [the home owner] felt safe and secure. But we
Angeles and plans to expand further, closed after
weren’t prepared for the crisis and we dropped the
just a few months. In a widely distributed email, the
ball. Now we’re dealing with the consequences.”
CEO explained that a car theft ring had used false
credit card information to steal four cars valued As part of its risk management and damage
together at about $300,000. Even though insurance control response Airbnb – unlike HiGear – made
claims were being processed and some of cars were adjustments to its business model to include better
recovered, the email said, “This incident exposed us protection for its clients. The company not only
to the worst case risks inherent in our service. Even created a model more resilient to harmful customer
by improving security and processes, we are not behaviour, but also gained positive press for its
completely sure we can prevent an incident of this handling of the situation.
sort from happening again given the peer-to-peer
nature of our service.”39

18 Building Resilience – An introduction to business models

Building resilience to success. Raphael Amit and Christoph Zott,
respected authors on business strategy, explained in
The market environment is changing faster today a MIT Sloan Management Review report: 44
than ever before, and it’s likely to change even
faster tomorrow. From day one, business models are “Our research shows that in a highly interconnected
buffeted by these changes, and more often than not, world, especially one in which financial resources
the winds are blowing against a model’s success. are scarce, entrepreneurs and managers must look
Changes in customer attitudes, shifting supply beyond the product and process and focus on ways
chains, moves by competitors, new products and to innovate their business model. A fresh business
services, and new entrants can all impact the value model can create and exploit opportunities for new
generated by any business model. Generally, the revenue and profit streams in ways that counteract
value of a model erodes slowly – sometimes almost an aging model that has tied a company into a
imperceptibly until it’s too late – but at times the cycle of declining revenues and pressures on
ground shifts quickly beneath a company. profit margins.”

A survey of more than 4,000 senior executives The two professors suggest managers ask six
globally by the Economist Intelligence Unit critical questions as they consider changes to
underscored the importance top managers their business models:
give to business models that adapt to changing • What perceived needs can be satisfied through
environments. In the 2005 survey, about 55% of the the new model design?
respondents said they expected new business models
• What novel activities are needed to satisfy these
to be a greater source of competitive advantage
perceived needs?
through 2010 than new products or services.42 The
report said: • How could the required activities be linked to
each other in novel ways?
“The rising importance of business models is a
• Who should perform each of the activities that
logical reaction to too many choices in the market.
are part of the business model (the company, a
For consumers and companies alike, it’s getting
partner, a customer)? What novel governance
harder to distinguish between many products
arrangements could enable this structure?
and services on a purely functional basis…. By
2010, companies in many sectors will distinguish • How is value created through the novel business
themselves by innovative business models – be they model for each of the participants?
new pricing models, a shift to selling products as • What revenue model fits with the company’s
services or another model that will differentiate their business model to appropriate part of the total
offering from those of global competitors.” value it helps create?
For example, more recently, a report from the IBM Business models can be recrafted in a wide variety
Institute for Business Value43 shows that cloud of ways, and the right approach depends largely on
technology has the potential to be a major driver of which force in the business environment are most
business model innovation. relevant to a company’s success and how they are
changing. For example, customer interactions can be
Tinkering with a business model can be
shifted by incorporating auctions that allow them to
intimidating, especially if the model has brought
set their own prices, by offering lease arrangements
success in the past. Overhauling a business model
in addition to purchases, or by bundling together
completely can be frightening. But company after
related goods and services, among many other
company have discovered the dangers of trusting the
possibilities.45
status quo. Along with avoiding potential pitfalls,
business model innovation can open new avenues

19
Companies that have faced business with lower prices, Hyundai allowed buyers
to return their new cars within a year if they lost
the challenge their jobs. While most other car makers saw sales
Companies worldwide have faced the challenge of drop in 2009, Hyundai enjoyed an 8% increase in
redrawing their business model and became stronger sales. (The offer was discontinued in 2011.) 48
in the process. Whether spurred by a crisis, a slow
US bookseller Barnes & Noble had to move quickly
trek to oblivion or perspicuous leadership, these
to meet the threat posed by Amazon.com. Not
companies have taken a hard look at their business
only were online sales eating into revenues from
model and future and moved forward with a new
traditional channels, but Amazon’s Kindle ebook
plan. Apple can be counted among these.
reader, launched in 2007, was making bound
Apple started in 1976 as a computer company, and volumes seem obsolete. Along with its own online
in the 1980s pioneering buyers of home computers presence, Barnes & Noble responded by refocusing
generally faced a choice between an Apple or an its stores on higher margin products, like children’s
IBM and the IBM-compatible clones. Apple was books, coffee table books and gifts, launching Nook,
driven by innovation, offering a graphical computer its own ebook reader with superior technology and
interface well before its competitors did, and by the possibility of trying it in a store, and improving
the early 1990s it had become one of the most its capabilities in branding, customer intelligence
profitable corporations in the United States.46 Then and merchandising. 2012 revenues were $7.1bn, a
the company went sour. Between 1995 and 1997, 35% rise from 2007, and Nook had gained a 27%
sales plunged 36% and the company was reporting share of the ebook market.49
a billion-dollar annual net loss. Shares were trading
at less than half their 1980 IPO price, even after Ready for the change
adjusting for a 1987 share split. Identifying when it is time to re-evaluate or change
Buffeted by a series of CEOs with differing views, a business model requires a keen awareness of
part of Apple’s problem was misdirection on whether a company’s goals, strategy and competitive
to compete on cost or regain its premium status, and advantages. The management consultancy Deloitte
another part was competition from the Windows offers a series of questions that should be asked to
operating system which was being used on IBMs and determine whether it’s time to change a company’s
their clones. In 1997, co-founder Steve Jobs returned business model. 50 Does the model:
to the helm of Apple and helped the company • Support your company’s business strategy?
rediscover its footing as a technology innovator.
• Support your go-to-market strategies?
The Harvard Business School noted: 47
• Enable timely adjustments or changes in response
“Despite a strong brand, rapid growth and high to market shifts such as competition and cost
profits in the late 1980s, Apple almost went bankrupt pressure?
in 1996. Then Jobs went to work, transforming
• Serve a key element of your company’s
‘Apple Computer’ into ‘Apple Inc.’ with innovative
competitive strategy?
non-PC products starting in the early 2000s…. In the
2009 fiscal year, sales related to the iPhone and the • Provide for continuous improvement in vendor
iPod represented nearly 60% of Apple’s total sales and supplier relationships?
of $43bn.” • Help interact with customers effectively and
efficiently?
Of course, companies don’t have to face the abyss
to change their business models. South Korean • Support the most efficient and effective cost
automobile maker Hyundai tweaked its model in structure?
response to the 2008 global financial crisis that • Support the company’s desired culture?
brought depressed demand for cars and other
consumer purchases. Instead of trying to retain

20 Building Resilience – An introduction to business models

• Take into account alternative service delivery
models such as shared services, outsourcing, and
offshoring?
• Help leverage processes and organizations
globally or internationally?
• Support clear, effective, and efficient decision
making at different levels of the company?

The consultancy advises that too many “no” answers

may signal it’s time to do something different.

21
The management accountant’s role

The impetus to change a business model can come from any direction
or from multiple directions. A siloed view of a company’s operations
and situation is unlikely to provide adequate insights.

Management accountants, with their holistic perspective of a company’s

strengths and weaknesses, may be best positioned to identify when a
business model should be revisited. Untangling the root causes of subtle
shifts in the financials and spotting changes in risk exposure can be
invaluable to identify when the seas have changed.

In addition to the skills and capabilities honed Raising these questions, even if their answers seem
through traditional financial activities, management obvious, can initiate an internal conversation
accountants will have to discover creative ways that not only spotlights the value delivered by
of viewing a company’s current and potential management accountants, but also can help steer
profitability, while remaining faithful to the high a company onto a more successful and profitable
standards of the profession. At times, examining the course. For more insights on how to balance the
benefits of a new business model may require a less risks of innovation, see also Managing Innovation –
conservative view of risk management with a clear, harnessing the power of finance.
objective perspective of the trade-offs involved in
But above all, management accountants need to
following a new course.
ensure they are keeping a close eye on business trends
In looking at changes to corporate business models, and developments with the constant question in
management accountants could take the lead by their minds, “Could this disrupt our business and if
considering a series of questions that could generate so, how?” Only then will their organisations be in a
vibrant and informative discussions. better position to avoid the fate of those consigned to
history through failure to adapt their business models.

22 Building Resilience – An introduction to business models

Questioning the model
• Are the outcomes of the current business • Do legacy accountancy practices
model being measured appropriately? appropriately capture potential sources
• Is the value of non-traditional assets such of revenue for models that feature more
as human and intellectual capital accurately diverse revenue streams?
reflected in the current model? • In evaluating a new business model, should
• Do changes in a company’s financials cost allocation methods be revised to reflect
suggest shifts in Porter’s five forces that a more complex business environment?
indicate either threats or opportunities? • Should traditional pricing models such
• How do the financial risks of pursuing as cost-plus be re-examined for modern
the new model compare to the risks of business settings in which, for example,
following the status quo? producers of value and consumers are
almost indistinguishable?
• Is the perceived magnitude of the risk
coloured by an overly conservative • Is a new way of calculating return on
approach to business or a reluctance investment needed?
to change? • Should forecasting models be adjusted to
most accurately capture the potential of an
innovative business model?

23
Footnotes
1 A
 leš Novak, “Business Model Literature overview”, 17 H
 ugo Sarrazin and Johnson Sikes, “Competing in a
presentation at Accounting Renaissance: Lessons from digital world: Four lessons from the software Industry”,
the Crisis and Looking into the Future, Venice, Italy, McKinsey Quarterly, February 2013.
Nov. 4, 2012.
18 
Simply Zesty Blog, “Are Red Bull just a media
2 
Ramon Casadesus-Masanell and Joan E. Ricart, company who happen to sell energy drinks?”
“How to design a winning business model”, blog entry by Niall Harbison, Nov. 24, 2011.
Harvard Business Review, January-February 2011.
19 
At March 2013, all 574 planes in Southwest Airlines’
3 
“Business Model Background paper for <IR>,” fleet were Boeing 737s, and the carrier was the world’s
International Integrated Reporting Council (IIRC), largest operator of 737s, according to Wikipedia.
2013.
20 “VW conquers the world”, The Economist, July 7, 2012.
4 “ Apocalypse H20 case studies on Rio Tinto and
21 
Vijay V. Vaitheeswaran, Need, Speed and Greed: How the
Puma”, CIMA, 2011.
New Rules of Innovation Can Transform Businesses, Propel
5 
I IRC, 2013. Nations to Greatness, and Tame the World’s Most Wicked
Problems, HarperCollins Publishers, New York, NY,
6 R
 ichard Branson, “Richard Branson on passing USA, 2012.
the bad-news buck”, Entrepreneur, December 2010,
accessed at www.entrepreneur.com. 22 
Eddie Yoon and Linda Deeken, “Why it pays to be a
category creator”, Harvard Business Review, March 2013.
7 Virgin Media web site, “Looking after our people,”
accessed at www.virginmedia.com/about/cr/people.php. 23 
For further information about supporting innovation,
see “Managing Innovation – harnessing the power of
8 
Richard Branson, “Richard Branson on giving your finance”, CGMA, May 2013.
employees freedom,” Entrepreneur, December 2012,
accessed at www.entrepreneur.com. 24 
Manyika et al, quoted in A. Bhimani and
M. Bromwich, 2010.
9 P
 rêt A Manger web site, “Good jobs for good people”,
accessed at www.pret.co.uk/us/about_our_company/ 25 
IASB and FASB are expected to publish new
our_team.htm. guidance on revenue recognition soon that focuses on
the identification of discrete performance obligations
10 J effrey P. Bezos, letter to shareholders, Amazon.com, as measurement criteria.
April 2013.
26 
CGMA, May 2013.
11 A
 RM web site, “company profile”, accessed at
www.arm.com/about/company-profile/index.php. 27 
Wall Street Journal Small Business Blog, “The Venture
Capital Secret: 3 Out of 4 Start-Ups Fail”, blog entry
12 
Manyika et al, quoted in A. Bhimani and by Deborah Gage, Sept. 19, 2012.
M. Bromwich, “Management Accounting: retrospect
and prospect”, CIMA Publishing, 2010 28 
Richard Foster and Sarah Kaplan, Creative Destruction,
Chapter 1, Doubleday, New York, NY, USA, 2001.
13 
Political, economic, social, technology (PEST) analysis
is a common tool for performing an assessment of the 29 
Carpe Diem Blog, “Fortune 500 Firms in 1955 vs. 2011;
factors impacting strategic decisions. 87% Are Gone”, blog entry by Mark Perry, Nov. 23, 2011.

14 
Manyika et al, quoted in A. Bhimani and 30 
Michael Porter, “How competitive forces shape
M. Bromwich, 2010. strategy,” Harvard Business Review, July-August, 1979.

15 
“All eyes on the sharing economy”, The Economist, 31 
Among the analyses of Groupon’s problems were
March 9, 2013. Harvard Business Review Blog, “The Problem with
Groupon’s Business Model”, blog entry by Rita
16 
Brad Tuttle, “Amazon Prime: Bigger, more powerful, McGrath, July 13, 2011, and “How to Save Groupon”,
more profitable than anyone imagined,” Time, Business and blog entry by Rafi Mohammed, Dec. 10, 2012, and
Money, March 18, 2013, accessed at business.time.com. Forbes Markets Blog, “Groupon’s Problem”, blog
entry by Panos Mourdoukoutas, Aug. 14, 2012.

24 Building Resilience – An introduction to business models

32 
Michelle Conun, “Groupon’s fall to earth swifter than 41 
Airbnb blog, “Our Commitment to Trust & Safety”,
its fast rise”, The Associated Press, Oct. 21, 2011. blog entry by Brian Chesky, Aug. 1, 2011.

33 
Jasper Rees, “The end of our Kodak moment”, 42 
Economist Intelligence Unit, “Business 2010:
The Telegraph, Jan. 19, 2012. Embracing the challenge of change”, February 2005.

34 
Knowledge@Wharton Strategic Management Blog, 43 
I BM Institute for Business Value, “The power of
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