VISION AND LEADERSHIP Figure 5.4 Are strategy and KPIs linked? 57% 41% 11% 21% 25% 57% 25% 12% 20% ’09 63% 23% 16% 24% ’10 KPIs identified and linked directly to priorities KPIs identified and linked to overall strategy KPIs identified but link is tenuous Different approaches reinforce the fact that the term ‘business model’ is subject to many different interpretations. Some companies use the business model to explain how the business is structured and how it delivers its products and services, others explain the business model in the context of the overall strategy, often using the two terms interchangeably. Others focus specifically on ‘how they make money’ with explanations of sales and distribution strategies, and finally, a number of companies use a description of their value chain to demonstrate value creation. Whatever the approach, communicating a company’s business model well is an opportunity for boards to give their view of the company and the evolution of the business model to meet the challenges which the company faces. This disclosure can then provide a platform for better engagement with investors on the basis of a mutual understanding of what the organisation is trying to do. GOVERNANCE MARKET TRENDS AND OUTLOOK BUSINESS DESCRIPTION Increase in business model reporting Although the new reporting requirements of the Code, which focus on the idea of explaining how a company generates revenue and preserves value over the longer-term (the business model), were not technically required by any companies in our sample group, a large number have attempted to meet this new provision. Reporting on business models, more than any other issue, has dominated the discussion surrounding the Annual Report over the last few months and there has understandably been some trepidation as to how best meet the challenge. As the discussion gains momentum as to ‘the definition of a Figure 5.5 Is there a mention of business/economic model? 42% * 9% 6% 24% * 3% ’07 ’09 68% 14% 10% 14% 30% ’08 ’10 business model and how best to report on the business model’, a growing number of companies address the challenge with at least a mention of their business model; 68% up from 42% last year. Of those however, half just give a mention or a very basic description. A quarter are making an effort to provide a detailed or very detailed explanation of their business model and how it connects the different elements of a company’s story – objectives, segmental reporting, risk, governance and CR. Resources is still an area that companies struggle to report on. For many, reporting on the business model is an opportunity to explain to investors what key resources, relationships and enablers are in place to facilitate delivery on the strategy. STRATEGY RISK CORPORATE RESPONSIBILITY PERFORMANCE Figure 5.6 Figure 5.7 Companies identifying the nature of the risks in their business model: How many companies specifically identify key resources? Very detailed Detailed Basic Just mentioned 11% APPROACH TO REPORTING 43% 33% 15% 18% ’08 21% ’09 22% 40% 20% 20% ’10 Resources linked to strategy Resources identified www.blacksunplc.com © Black Sun Plc 2011 21
