LEVERAGE IT TO CREATE BUSINESS ADVANTAGE

Part IV
Analyzing Value

Company business value evaluation can be done by looking at its financial statements. Financial ratios that involves comparison with other companies and historical performance are used to provide answers to questions regarding the economics of the business model. These ratios can help to understand the impact of the strategic decisions. Example of the financial metric is using the DuPont Formula to determine return on equity (ROE):

ROE = (Profit margin)*(Asset turnover)*(Equity multiplier) = (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)= (Net Profit/Equity)


ROE is important to understand business model performance.

If company is growing rapidly the financial return is not enough to understand its value. Drivers for value creation needs to be understood. The ability to offer value-added services to customers can be a key driver to revenue growth.

In business model value audit there are 3 ares which are listed below.

Identify internal and external stakeholders:  assess the internal and external stakeholders interests and expectations. Question to answer:

• What do stakeholders require and what they are willing or able to provide?
• Can company attract, retain, and motivate key customers?
• Are these customers willing and able to pay?
• How do the interests of other stakeholder groups (e.g. employees, partners,
• government, society)
• What are the objective and subjective benefits that every key stakeholder receives while doing business with the company?

Identify business model drivers and alignments: assess the insights gained. Questions to answer:

• What are the key opportunities and threads identified during the strategy audit?
• What are the key strength and weaknesses during capability audit?

The SWOT analysis can help to identify key revenue, cost, and asset efficiency drivers.  If you develop a business model dashboard, you can show the linkage and alignments between different components. You can identify how IT can help to enable every key driver of economic value.

Develop the financial model and determine financial needs: - after the business model drivers and value delivered to key stakeholders is identified, you can develop the financial model for the company.

In summary, the power of business model audit comes from linkage between strategy, capability and value drivers of business performance. According to S. Shapiro, when strategy, capabilities and value are aligned with each other and external environment, a business model can create a "virtuous cycle" of innovation, productivity and increasing returns. The contemporary dynamics of business models makes it even more important to understand these linkage to be able to adjust to the environment.

Resources:
L. Applegate, R. Austin, D. Soule. Corporate Information Strategy and Management, 2009