December 2007
Sunningdale Institute
Delivering Practical Wisdom
Effective Business Models:
What Do They Mean for Whitehall?
December 2007
Executive Summary
One of the common themes to emerge from the first round of capability reviews was a lack of clarity in government
departments about their business models. In response, the Sunningdale Institute created an Effective Business
Models Network and members of the network met on six occasions during 2007 to explore the use of business
models in the public sector. This paper presents a summary of these discussions:
1. The value of business models in terms of their (organisational structure and accountabilities)
ability to help people in departments articulate and targets (public service agreements and
clearly what their department will do and what associated metrics).
it will not do.
6. Essential elements that are often under-developed
2. In addition, business models: include (i) an understanding of departmental
context, (ii) the behavioural aspects of a
a. Explain how internal processes and external
department, (iii) the diverse nature of the customer
requirements are integrated.
base, (iv) operational detail concerning the
“One of the common themes to emerge from the first departmental b. Highlight the coherence between processes, mechanisms for delivery, (v) the dynamic nature
requirements and wider strategic objectives. of organisations and organisational change and
capability reviews… we were too inclined to settle for the legacy c. Illustrate the financial implications of the design of (vi) the need for coherence and clarity across the
the delivery chain. entire delivery chain.
structures and systems we inherit from the past, and not good
d. Support the diagnosis of the need for change and 7. The practical challenges of articulating business
enough at going through a design process that selects and ways change might be achieved. models in the public sector are considerable, yet
these are increasingly recognised, through reports
tailors delivery systems that are capable of delivering the required e. Facilitate communication – both within and
such as Take-Off or Tail-Off and practical help is
without the department.
at hand through processes such as the PMDU’s
outcome, drawing on a repertoire of approaches to structure, 3. Articulating business models in the public sector mapping delivery chains methodology. Additionally,
is difficult for two sets of reasons. First – as with as demonstrated in the report, some government
incentives, delivery, relationships, governance and so on…”
every abstraction of reality – there are some departments have given considerable attention to
shortcomings in the concept of business models. design of their business models, with promising
Sir Gus O’Donnell, 2006.
Specifically business models rarely take account results. We include illustrations from Defra, DfCSF,
of context, often ignore the dynamic nature of DWP and the Home Office.
organisations and rarely pay sufficient attention
8. Business models are the means to an end.
to operational detail.
Departments – and increasingly collections of
4. Second, further complexity is added in the public departments given the new cross-cutting Public
sector when one considers the heterogeneous Service Agreements – face a key challenge in
nature of many government departments, the rate broadening and deepening their conceptions of
of structural change that occurs in government – business models. They have to explore how their
note the recent machinery of government changes own departmental business models link with those
– and the political context within which government of other departments if business models are to be
departments operate. an effective first step toward the overall goal of
achieving better delivery of public services.
5. The most important conclusion from the network’s
deliberations was the need for the public sector to
broaden its conception of what a business model
constitutes. Too often government departments
think about business models primarily in terms
of resources (financial flows), governance
The tranche 2 reviews have raised similar issues. memoranda of understanding, etc that are in place 8. Cost structure – the financial consequences of the adopted business model.
They show the importance of a coherent approach to support clear accountability for delivery;
9. Revenue model – the revenue flows that are associated with the products and services the company offers.
to delivery through arm’s length bodies, and the n The
arrangements or levers – rewards, incentives,
synergies that can be achieved from a more joined- penalties, management information flowing within
up approach. They also show that there is scope the business and between its respective business
for improving the understanding of appropriate units; and,
business models, how they link together and,
n Crucially,
whether the department understands its
ultimately, the effectiveness of different levers
business model and how it fits together”. Figure 1: Defining Business Models
to improve delivery to the public.”
These elements are essentially structural in nature. Yet
(Cabinet Office, 2006).
in the private sector, where the concept of business Infrastructure Offer Customer
models was originally developed, organisations tend to
adopt a broader definition such as: Value Configuration Target Customer
While questions are being asked of departments’
business models, it is far from clear what a business “A business model is a conceptualisation that describes
model constitutes. This comment applies equally to the business logic of a specific firm. It includes a Core Capabilities Value Proposition Distribution Channels
the public and private sectors, for the phrase ‘business description of the firm’s: (1) value propositions;
model’ is proving to be as loosely defined as it is (2) target customers; (3) distribution channels; (4)
Partner Network Customer Relationship
popular. One could argue that the language used to customer relationships; (5) value configurations; (6)
describe business models in the capability reviews is core capabilities; (7) partner network; (8) cost structure
rather narrow. and (9) revenue model” (Osterwalder, 2004).
Finance
Cost Structure Revenue Model
Directorate
& Equality
DEFRA Delivery Network
customers and;
Welfare
Pension
Work,
Client
#,)%.43
• shows that the ‘arrows’ Ministers priorities
Child Support
Government
The Pension
Directorate
Disability &
Jobcentre
Deliver
are what we need to
Agency
Service
Management Policy
Carers
Plus
work on to improve. Board Teams
Partner Engage
influence
Support Groups
EU
International
Customers
INFLUENCERS
to explain, this model highlights four particularly commitment needed for effective relationships. The
Customer Proposition
}
1. How will we deliver customer
important features. First, it explicitly emphasises ‘Deal’ articulates the shared principles between Defra proposition from within an
(Customer Groups & Needs & Services)
the role of the strategic centre, suggesting that it and each delivery partner in simple and explicit terms Agency Structure?
focuses on management, policy and support. Second, and also outlines the main activities required of each
the revised model highlights the contextual factors party to deliver in practice. Customer Interface
4. Where do agencies need
to move towards a shared
that have significant influence in Defra, including agency operating model
to deliver customer
the priorities and influence that cycle between 2. What activities in front office,
proposition or continuous
the Department and ministers and government. The DWP Journey back office, and support
functions need to support the
Front Room Activities improvement?
delivery of customer
Third, the revised model makes reference to both DWP is a good example of the complexity of proposition and continuous Back Room Activities
improvement
the beneficiaries of Defra and the Department’s organisation that is found particularly in large 5. What activities need to be
3. Where do activities need to be
influencers. Both beneficiaries and influencers clearly Whitehall departments. One of the major challenges specialist/differentiated? Support Functions
sourced differently based
on Contestability &
provide important additional context for Defra. it faces is in ‘joining’ up its delivery mechanisms
Commissioninig (C&C)
recommendations?
Fourthly, it shows, in the form of ‘partner’ and ‘deliver to ensure clients receive a coherent and consistent
Corporate Support Functions
engage’ arrows, where the Department is focusing its response. In meeting this challenge, business models
efforts in enhancing the effectiveness of its relationship can help through providing a schematic representation
}
with delivery partners and customer service. of how the Department’s activities come together
Key here is the development of the concept of a but also in providing a way of making sense of what
‘Deal’ with each of its delivery network members needs to change. Thinking in terms of ‘before’ and Scope of the Target Operating Model Work:
that focuses on key areas of behaviour and mutual ‘after’ simplifies the continuity and longitudinal nature Five questions that will be answered to put in place a Target Operating Model
with the public and improved partnership working. It provides a highly visual and stimulating environment
These ‘organising Delivery Groups
Office for As a result, the Home Office is well down the path where those debating policy can test theories and
principles’ are central Office for Respect Crime Reduction Criminal
Home Office
of implementing a business model as described in hypotheses in real time using data gathered from
Professional Services
(Trilateral)
Figure 5, opposite. the front-line. This clear line of sight, between central
actually happens inside
strategic objectives and front-line delivery enables a
organisations but are often Delivery Agencies
far stronger engagement from the centre in pragmatic
overlooked in more Criminal
Records
Border and
Immigration
Identity and
Passport
Delving into Detail: DfCSF’s Bridge
Bureau Agency Service questions about how to improve the educational
formal and mechanistic
As discussed earlier, one of the common critiques of experience of children. The value of the bridge has
attempts at describing
business models is that they fail to provide sufficient been recognised through the Civil Service Award for
business models. Making Delivery Partners
operational detail. The Department for Children, Strategic Analysis. It is these forms of demonstration
these principles explicit Counter- NDPBs Inc.
Terrorism SOCA & NPIA
Schools and Families has adopted a novel approach that can both ‘bring to life’ the dry and schematic
means that the Home Partners
Local
to dealing with this issue, developing the ‘bridge’, representations that are common in business models
Office framework can Partnerships
a physical space where performance data linking and also begin to move the use of the business model
address challenges at the 43 Police
Forces
high level strategic objectives, encapsulated in Public toward understanding delivery and operational issues
operational level of detail
Service Agreements, to front-line delivery are displayed in more depth.
while retaining a ‘bigger
picture’ view of how the (see Figure 6, above ). The DfCSF bridge is used as a
meeting and briefing space for ministers, officials
Department functions Front-line service delivery to the public
across its activities. and visitors.
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