CEO’s and Business Models

CEO’s and Business Models

September 6th, 2014 // 3:21 pm @

business-model-examples-nggid0226-ngg0dyn-420x340x100-00f0w010c010r110f110r010t010As CEO you are the keeper of the business model, its development, its communication, and the key decisions that it drives.

A Business Model is to me the rational of how a company works, and from that it is simple to understand what are the critical inputs to drive success and what are the critical performance indicators to be measured.

Such models can easily get complicated and that is when the hard work needs to be done to simplify them into things people can grasp, unless the key parts of a business model are easily understood it is unlikely to be useful in decision making and focusing the company. If that is not possible to have a simple core business model then it may be time to split the business into parts where simple business model can be devised for each part of the business, so they can focus that part of the organization.

As CEO H.J.Heinz in Hungary we made amongst other products Baby Food, and canned vegetables. The business model for these two products is radically different and it was only when we started thinking about them separately that we were able to understand what drove each ones business model, and thereby build them into successful but different business’s.

Without a clear understanding of how the business model works it is impossible to know where to invest time and money to obtain results.

For example the canning of a vegetable such as sweet corn efficiently is much driven by using the expensive canning machinery as efficiently as possible during the finite season for sweet corn. Therefore running the plant 24 hours a day during the season, and using as few can sizes as possible to reduce changeover time, drives efficiency.

The production of jars of baby food is driven by safety and quality as that is what mothers demand. Efficiency in the use of machinery is much less significant. Therefore we devised very different plans for these two parts of our business and drove both to success. This was only possible by understanding each Business Model separately.

The creation of effective business models requires independent thought, and by that I mean one must avoid “Norms” which are so alluring. People will tell you that for example sales costs should be 5% of the price regardless of the business type. That is almost certainly wrong, I have run H.J.Heinz in Hungary where if our sales costs hit 1% of our revenue we would have been in trouble, and I have run fast growing Internet companies where sales costs of 50% of revenue were too low to drive the growth in revenue that drove our market valuation.

A good Business Model can be put at least in essence on one piece of paper, and if correct and well understood will be instrumental in driving all key decisions.

 

 

 

 


Category : Blog &CEO

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