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Our innovation business model framework comprises five primary components: markets, products, processes, people and economics (see Innovation business model). In this paper, we explore the third component of this framework – processes.

For an introduction to how the model was developed and how it compares to others, see What is a business model?  A new approach. For an overview of the first component see Selecting and understanding markets for technology innovation, and for the second component see Developing a winning product offering.

By “processes”, we mean all the activities a business undertakes to create, market and deliver its product to its market.  It is essentially the same idea as Michael Porter’s value chain or McKinsey’s business system ^{1, 2}. The processes or value chain within your business are a subcomponent of the industry value chain (which Porter calls the value system and Henry Chesbrough calls the value network³).
The goal of the processes component of a business model is to define the optimal way for the business to provide its products to its markets. This paper presents a framework and guidelines to enable you to do just that.

Why are processes an important component of the business model?
Processes are a key concept in business model design, because your processes determine whether or not you can successfully and profitably offer and deliver your product to your market. Basically, they define your ability to execute, down to the detail of what everyone in the businesses is doing every day.

In mature businesses, where the market is well understood and shared between several competitors all of whom have broadly similar offerings , processes are even more important. In these environments, implementing good processes – those that effectively accomplish the right quality results as efficiently as possible – are often the difference between success and failure.

For many innovation-driven new ventures, however, the key to success is identifying a new “blue ocean” market⁴ or coming up with a radically better value proposition. Yet even here, processes are often still a critical factor in the business model. For example, for Southwest Airlines or Starbucks to be able to deliver on their game changing product market innovations, they both needed to develop and implement innovative value chains. 

For some innovation-driven businesses, processes are the predominant factor. Arguably the core innovation of many web-based business models is to do with processes, rather than markets or products. For example, online retailing, online banking and electronic medical records were all made possible by a disruptive process innovation – the Internet.   

What are the typical problems with processes?

Many entrepreneurs and corporate innovators struggle to implement good processes.  It is common to see new ventures waste substantial amounts of time and capital on poorly designed and executed process models. Key problems that we have seen repeatedly include:

• Not doing things that need to be done.
• Doing things that don’t need to be done.
• Doing things badly or inefficiently (or both).
• Having the wrong people do things.
• Failure to properly understand the revenue and cost impact of each activity.
• Failure to understand the total industry value chain.
• Failure to think through where the business should sit in the industry value chain.

One common cause of many of these problems is that we all see the world through the perspectives of our experience, values and personal skills. In many cases, managers of new ventures simply try to implement the recipe they learned in previous companies, even though it doesn’t fit. (This happens a lot more than you might expect. Don’t be surprised when that experienced senior sales executive, previously at GE, Siemens and IBM, struggles to sell your innovative social networking concept to small businesses).

Another cause is that few managers have a clear, holistic understanding of all the processes, disciplines and key activities needed in a business. For example, your VP Product Development has an engineering background, so doesn’t properly understand and cannot implement effective product management, or your VP Sales and Marketing is really a salesperson, and has only a superficial knowledge of marketing. These functional backgrounds and biases are visibly at work even amongst CEOs. Take three companies led respectively by CEOs from finance, marketing and engineering backgrounds, and you will see how their core processes reflect their leaders’ biases.

Primary processes

In order to address these concerns, and to enable venture managers to think through the design of their processes systematically, we created the process framework discussed in the rest of this paper. This framework has been developed through extensive experience designing the core processes for dozens of businesses.  It has been developed specifically for technology-based businesses offering products and services, but it could be modified to reflect the processes within other types of businesses.

The framework comprises five primary processes:  Develop, Market, Deliver, Manage and Support.

Each of these processes has a primary role. The three central processes reflect the core value creating activities in a business:

• Develop - research and development: understanding customers and creating the right solutions
• Market - sales and marketing: attracting, winning and growing customers
• Deliver- operations and customer service: producing, delivering and supporting solutions.

This idea was created by McKinsey in 1988 as an evolution of their business system concept. They called it the value delivery system ⁵. In our experience, it remains the simplest and most powerful way to think about the central, critical processes in a business.

In addition to these three central processes from the McKinsey framework, we have added two other primary processes to ensure our processes framework encompasses everything in the business:

• Manage – general management: leading the team and ensuring business success
• Support - finance, HR, IT, legal, facilities: managing the business’ resources.  

While these Support activities are clearly important, it is really the four primary processes of Develop, Market, Deliver and Manage that determine the success or failure of the business.

What makes this framework powerful is that we have broken down each of the four primary processes into two disciplines, and each discipline into three core activities. In total therefore, there are eight key disciplines and twenty four core activities that collectively create value in technology-based businesses (Table 1).

Any experienced technology business manager will recognize the disciplines listed, and will probably be familiar with many, if not all, the core activities listed.  While clearly it should be adapted to each individual business, what is useful about this tool is that it is a definitive list of everything that needs to be done, and does not include anything that does not need to be done, in a typical technology business. Furthermore, it defines processes at the right level of detail for business model design.

In practice, we have used this tool with many businesses to quickly analyze the strengths and weaknesses of their current processes, rapidly identify where improvements are needed, and clearly define the right processes that need to be put in place.

Table 1: the primary processes, key disciplines and core activities in technology businesses

Primary processes	Key disciplines	Core activities
Develop (research and development)  understanding customers and creating the right solutions	Engineering	Design: technical, usability and aesthetic Development: prototype, component, system, alpha, beta Testing: functional and usability
	Product management	Market analysis: market requirements and competitive analysis Product definition: definition of whole solution including pricing Product marketing: solution expertise for sales / marketing
Market (sales and marketing) attracting, winning and growing customers	Marketing	Messaging: branding, website, collateral, presentations Relationship development: one-to-one and community Reputation building: third party media and events
	Sales	Direct sales: direct to customer, usually high value Channel sales: through middleman, usually intermediate value Self-service sales: customer buys online, usually low value
Deliver (operations and customer service) producing, delivering and supporting solutions	Operations	Production: sourcing / converting inputs into products / services Delivery: delivering products / services to customers Orders: managing customer orders and returns
	Customer service	Value realization: helping customer get full value from solution Problem resolution: solving customer problems Proactive care: ongoing monitoring to add value / solve problems
Manage (general management) leading the team and ensuring business success	Planning and control	Strategic planning / control: business model and strategy Operational planning / control: tactical execution management Governance: policies, procedures and compliance
	Stakeholder management	Engage: identifying and attracting team / investors / partners Manage: team / investor / partner contributions Motivate: team / investor / partner rewards
Support (internal services) managing the business’ resources	Finance, HR, IT, legal, facilities	Each support discipline comprises a number of core activities, but usually not necessary to define them for business model design

 

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