The model business model

The world in which companies operate has become increasingly complex. The days of factories and simple supply chains have long disappeared. Nowadays, companies are virtual, global, highly collaborative, and complex.

The success of today’s companies is determined by their interaction with a growing number of stakeholders who expect more from them. Additionally, a rapidly changing business environment driven by new technology, smaller and more agile competitors, and environmental factors such as climate change has complicated the situation. The need for investors to better understand a company’s business model has never been greater.

The challenge

Companies must demonstrate how they create value, their resilience to change, and the quality and sustainability of the business and its performance. Reporting a business model that captures all aspects of a company takes time and effort to get right. An increasing number of companies have risen to this challenge and communicate clearly how they operate, what they rely upon, and the value they create. Yet, many others need help to articulate their purpose and how they generate benefits for shareholders and other stakeholders. The reporting of business models remains inconsistent, often generic, and seemingly static rather than reflective of market dynamics. The Financial Reporting Council’s 2022 Guidance on the Strategic Report recommends that the description of the business model should cover:

– how it generates value over the long term.

– what the entity does and why it does it.

– what makes it different from its peers.

It should also include:

– a high-level depiction of how the entity is structured.

– the markets in which it operates.

– how it operates, e.g. in what part of the market’s value chain, products, services, customers and distribution.

And, most importantly:

– an understanding of the relationships, resources and other inputs necessary for success.

– provide context for the strategic report and the annual report more broadly.

That’s a lot to pack in, eh?

Better business model reporting

Business model reporting is undoubtedly becoming broader in scope – incorporating, for example, purpose-driven definitions of the business and how that sits within an ecosystem of relationships. But as they do so, they pose challenges to existing disclosures around strategy, risk and key performance indicators, all of which tend to remain grounded in the traditional financial reporting model.

Too few reports weave a thread from purpose to business model, strategy, and KPIs. This is a rallying call for strategic reports to show how companies can flex to respond to market trends, how the strategy supports what drives value, and how the impact on critical resources and relationships is measured.

Our top-tips:

1. Highlight what makes you unique.

– More information, less graphic: explain each business model component and avoid industry jargon.

– Be specific. Avoid high-level or broad generic statements.

– Articulate how value creation is measured and who benefits.

2. Show how and why you keep good company.

– Determine the resources and relationships material to the business.

– Explain how you determined them and their material issues and concerns.

– Consider how including resources and relationships sets the

expectation for more meaningful stakeholder engagement disclosures.

3. Join your business model to your never-ending story.

– Link it to market drivers.

– Explain how it might evolve, e.g. the reprioritising of specific resources or relationships in the transition to a net zero economy.

– Examine the connection with strategy, risks, KPIs, governance, and other information.

If you’d like to discuss this, or any other subject, please get in touch with Richard Costa, Senior Corporate Communications and Reporting Consultant at richardc@gather.london

We’d love to know what you think.