What Is the Board's Role in Developing Business Models?

Nicholas J Price

The business model is how the board works to create and distribute a strong value proposition that motivates customers to pay a price for a product or service that nets the company a profit.

Developing the company's business model is an activity that boards spend a lot of time on. Many factors go into the business model, and it's important for the board to oversee each one of them because the business model is a key step in goal setting.

The development of the business model increases at various points of the development cycle. As the company grows, the board needs to evaluate whether the company has the proper infrastructure to support it. The process entails assessing whether distribution channels are appropriate and sufficient, assessing investment needs, assessing technology needs and much more.

Understanding the Steps to Forming the Business Model

The board and managers work together to form the business model. Managers develop the necessary steps to support the board's strategic planning. The process takes much collaboration so that the infrastructure is strong enough to support development.

The first step in developing a business model is to choose a target customer segment and describe it. Managers must repeat this step for each target customer segment, as different products and services appeal to different customers.

The next step is to outline the marketing, sales and distribution channels. These steps should lead managers to understand whether they will need to look for additional partners. This is the point to assess which products and services apply to this customer segment and discern whether there are any differences in the channels.

The overall goal is to make money, so managers need to plan for the revenue streams. This entails setting prices, how the company will charge for products and services, and how they'll collect revenue. In addition to forecasting revenue, managers will need to assess the value proposition for customers and partners. Managers will need to assess what key activities need to take place to ensure value proposition delivery and whether they'll need outsourcing to fulfill that promise.

The final issue that managers need to address is the company's resources. Will the company need to make changes in human resources, physical resources, financial resources, intellectual assets, suppliers or vendors?

The Board's Role in Developing the Business Model

Many of the intricacies of developing the business model fall on the managers. The board's role is to oversee their plan and help strategize to ensure that the managers get the model right. The board needs to take a large-scope view of the business plan and evaluate how the new business model will affect the company's infrastructure. Boards are instrumental in helping management figure out whether the company will need additional significant capital to carry out the business plan.

The business plan also has an effect on certain technologies, skills and branding efforts, and boards need to consider the resulting impact. The impact may be small or great, depending on how well the new products fit the existing business model.

Costs will vary substantially according to production and sales cycles. Boards must consider the largest costs, fixed costs, most volatile costs and variable costs related to the new business model.

The board will want to engage the risk management committee to assess any known, new or future risks and advise the board and management of their findings.

The strategic planning and marketing committees will want to get involved to understand any similar offerings by their competitors and how they can differentiate their competitive strategy from those of other companies. The board committees will need to look at strengthening their own virtuous cycles, blocking or destroying the cycles of their competitors, or setting up a complementary cycle with competitors.

Overall, it's up to the board to decide whether the new business plan covers all the important bases and will lead to profitability and shareholder support and acceptance.

The Importance of Implementing Board Governance Management Software

A flurry of activity goes on within many parts of the company as the business model is being developed. Many moving parts are happening all at once. A board portal system helps keep everyone connected and informed in real time, as it provides a central place for communication and collaboration that's highly secure. Governance Cloud by Diligent offers a suite of governance tools that support all phases of business model development from beginning to end.

Agenda and meeting software solutions help to keep board meetings productive and on track. This enables boards to spend the bulk of their meeting time on strategic planning, as they should be doing.

Governance Cloud provides a secure platform in which boards, board committees and managers can come together to share and analyze data and documents to create and maintain a strong infrastructure. Boards can then use their collaborative efforts to assure investors that everything is in proper order to move their investments to the next level.

The business development stage is an important stage for boards and managers to protect their planning process. Diligent Messenger is a secure messaging platform that prevents highly confidential information from getting into the wrong hands, unlike personal and business email accounts, which are more susceptible to hacking.

Perhaps one of the greatest benefits of using Governance Cloud products is that boards can access the system using any portable electronic device, which is a huge convenience for busy board directors.

Collaborative Efforts Needed to Develop the Best Business Development Plans

The business development plan can be described as how an enterprise works, which is what makes board oversight so important.

From the earliest stages, boards and managers must consider whether new product offerings fit the existing model. If not, the company will need to make many adaptations necessary to support the new product. Making all of the necessary changes to take new products from the innovation stage to the market means that boards and managers must revisit the business model continually to prevent costly mistakes and set the stage for financial success.

Good business models have known characteristics. Successful business models have feedback loops that reinforce whether business development is on track. It's the board's responsibility to pay attention to the feedback to ensure the business's ultimate success and prosperity.

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Nicholas J. Price
Nicholas J. Price is a former Manager at Diligent. He has worked extensively in the governance space, particularly on the key governance technologies that can support leadership with the visibility, data and operating capabilities for more effective decision-making.