LEAN DECISION QUALITY CANVAS pro/vs BUSINESS MODEL CANVAS

It is something you hear everyday: your business needs to be different from your competitors in order to develop and prosper.

Innovative and brand new business models which can really address client new needs are all the rage now. Home delivery and other similar food-related services, or the sharing of a working space can be seen as a main example of this.

The rapid growth of Internet usage has encouraged many companies to pursue “omnipresence”, to take advantage of and try new business models to get closer to their client’s needs.

In order to compete and develop, your business needs to have a business placement and an unique brand so that you can stand out while being still “recognizable” and more attractive to clients.

You have, then, to make choices, to make decisions, which need to be coherent with your vision, mission and company culture while designing an effective and disruptive strategy. Strategy is the path an organization, with its values, designs to achieve their goal and purpose.

Decision makers, to design a coherent strategy, have to make strategic decisions which impact the company in the medium/long term. The following chart shows the differences between strategic, operational and tactical decisions.

Source: Graphic from Stanford University modified by Franco Zullo

• STRATEGIC DECISIONS: Choose the right path towards your goal

You focus on making Decisions

• Focus on critical problems and opportunities
• Evaluation of medium/long term perspectives and scenarios
• Evaluation of uncertainties
• Selection in a pool of significant, different alternatives

Making strategic decisions means knowing how to identify steps and features of a path towards a new goal, like trying a new market or launching a new product, evaluating any difficulties that could be faced and plan ahead to identify every possible remedy. Defining efficient business models to differentiate and grow.

• TACTICAL DECISIONS: Choose your necessary tools to reach your goal

You focus on decisions which lead to Changes

• Focus on developing an action plan based on the decisions you made
• Evaluation of short-medium term perspectives and scenarios
• Selection of the details needed to put your strategy into practice

Making tactical decisions means identifying those changes you need to make to effectively put a decision into practice, that is how the product needs to be made, which channels to use, logistic details, communication.

•  OPERATIONAL DECISIONS: Run following your right path and at your pace

You focus on Results coming from your decisions

• Focus on details
• Focus on short-term performances: “try and fix it”
• Avoid new alternatives

A typical example of an operational decision is when you have to establish production levels, take new human resources, or discontinue a certain production unit. Those managers coming from an operational area are not always used to make decisions for the future which take into account risks and innovation.

Their culture is deeply attached to results and incentives.

Operational biases coming from disjuncture, culture, pride, resistance to change can belittle Quality Decisions.

In order to correctly develop strategic and tactical decisions we will now define similarities and differences between the Business Model Canvas and the Lean Decision Quality Canvas, and how these two methods can coexist and enhance each other, giving you a tool to build confidence, coherence and alignment on your goal.

The Lean Decision Quality Canvas is a tool which allows you to make quality decisions producing confidence and alignment, and to gain much more than what you wish for.

Lean Decision Quality stems from Stanford University & SDG's Decision Quality and was defined “Lean” because it is a more streamlined, versatile and convenient process. It is the ideal tool for bigger companies and business units willing to make Open Innovation, Design Thinking, or develop enhanced Strategic/Change Management skills, as well as for Public Administrations, Universities, SMEs and Start-ups which need to make those strategic decisions which will influence their future.

The Lean DQ Canvas, also known as Decision Wheel, is made up of 5 steps: 4 steps are drawn inside the wheel and defined by the wheel's spokes while the 5th step is a wedge.

Vision, Mission and Company Culture build the wheel tread, which follow every step of the process.

Step 1 : GOAL SETTING

The aim of this step is to define your true business goal, what it is and how it is coherent with your Identity (Vision, Mission and Culture) and company strategy through strategic coaching. Roles and responsibilities are distributed, timing, desired values and compromises defined.

Step 2 : APPROPRIATE FRAME

At this stage, you build your decision frame by developing your goal, The aim of this step is to build your appropriate decision frame, outlining the useful strategic decision for our goal and by involving internal and external stakeholders.

Step 3: STRATEGIC ALTERNATIVES

The aim of this step is to use various creative tools to produce creative, doable and significantly different alternatives.

Step 4: INFORMATION AND LOGICAL REASONING

The aim of this step is to research grounded information and define uncertainties. You also analyze the various alternatives by means of analytical tools to choose the one which can maximize your business value, knowing all the possible uncertainties linked to it.

Step 5: COMMITMENT TO ACTION

Once you've decided what's best, you define a strategy which is coherent with your business model, your values, your aim and your goals, by allocating human and financial resources and putting your decision into practice. If you don't reach this final step, the wedge stopping the wheel won't be taken away and you will need to re-evaluate everything, getting back to Step 1.

Each step is linked to the following and the spokes in the Decision Wheel show the quality degree of each step. To establish the general quality of the decisions you have to examine the weakest spoke.

Let's imagine you want to take part in a Formula 1 race and that a stoke in one of the wheels is damaged, what will be the result? Soon after you start stressing the wheels, that spoke can break and the wheel's performance decrease until the wheel itself breaks and you go off the road.

The same applies to a Decision Quality process: a low-quality step influences the final decisions and it is the step showing the lowest degree of quality that defines the process quality.

The Business Model Canvas is a tool made up of 9 blocks which helps clients creating new business models, without taking into account any competitors, and new value and profit mechanisms.

The Business Model Innovation process is made up of 5 steps. At each step, you highlight goals and focus.

Step 1: MOBILIZE

Goals: prepare for a new business model

Focus: set the foundations. Create a group of different people of great experience, at a management level and coming from different areas, people of different age and, if necessary, who are not part of your business

Step 2 : UNDERSTAND

Goals: research and analyze elements needed to design your business model (clients, technologies, environment). If you lack a clear business model idea you dissipate energies by oversearching

Focus: Immersion

Step 3 : DESIGN

Goals: generate and test viable business models and choose the best one. The best business model is reached by assessing the big picture and then using a SWOT analysis and a checklist for each block

Focus: inquiry

Step 4 : IMPLEMENT

Goals: implement the business model in the field

Focus: execution

Step 5 : MANAGE

Goals: adapt and modify the business model to respond to market reactions

Focus: evolution

 

These steps are rarely followed in an ordered manner. The Understand and Design steps, especially, tend to work in parallel and prototyping starts at the Understand step. During the design and prototyping step a new idea usually comes out and you go back to the Understand step. During the Manage step you experience an ongoing process of evaluation, modifying and adaptation of business models.

We now assess the similarities/differences between the Lean Decision Quality Canvas and the Business Model Canvas.

First of all, the Lean Decision Quality tool concerns strategic decisions while the Business Model Canvas tool concerns tactical and, partly, strategic decisions (idea choice); they intertwine and overlap at some point.

Chart by Franco Zullo

Business Model Canvas: each new business model is unique and challenging, with its own set of obstacles and success critical factors. Each business starts from a different need (e.g. focus on how to reduce costs, increase profit, offer a better costumer experience) when it comes to innovation, and each has its own context and goals in deciding how to re-draw its business model.

You use a Business Model Canvas to generate innovative business models, for example:

• Launch a new product/technology
• React to a crisis
• Create new development opportunities
• Open a new market

 

Lean Decision Quality Canvas: it is an organized process which comprises a set of steps, one the consequence of the preceding, and each step has a quality rating. You start from a specific problem you have to solve or a specific opportunity you want to catch, and then you check if it is the real problem/opportunity.

The Lean Decision Quality Canvas is used to generate decision confidence and coherence and achieve more than you wish for, for example:

• Launch new product/technology
• React to crisis
• Create new development opportunities
• Open a new market
• Limit investment risks
• Generate decision process confidence

 

So, what really are the differences?

The real difference is how you approach the problem/opportunity if you choose one tool over the other and the different results you can obtain :

Business Model Canvas is “ Design Attitude”

Lean Decision Quality Canvas is “ Decision Attitude”

BMC – Design Attitude

The challenge here is creating an innovative business model which is not confused and unpredictable even if you try and use some kind of process. You need to be able to manage ambiguities and uncertainties until you find a good solution. It takes time and the participants have to be willing to invest time and money to explore various possibilities, without hastily reaching a solution. Your group could end up stuck in an Analysis Paralysis, in other words being overwhelmed and paralyzed by too much information. Your reward is a possible new business model generating value for your business.

The Design Attitude phase includes 4 steps:

1. Define a raw idea – idea, value proposition, main income sources
2. Elaborate canvas – define your logic, potential market, any relationship between the blocks
3. Elaborate a business case – define key data, costs and turnover, profit, idea related scenarios based on different hypothesis
4. Field test – analyze how and if clients accept the idea and if it is viable, value proposition test, channels, pricing and any other fundamental element

LDQC – Decision Attitude

The challenge here is defining your real business goal, its values and trade-offs, in order to be coherent and in sync with you Vision, Mission, company Culture and strategy.

While the BMC starts from something you don't know to get to something you know, the LDQC starts from something you know to get to something bigger and you are more aware of.

The challenge here is the strategic innovation, in other words how to make great changes and create value. The decision making process comprises a set of steps, one the consequence of the preceding, and each step has a quality rating. The ultimate quality of the decision will come from the step with the lowest value. Once you have decided on your idea and you have defined your frame, Creativity kicks in to generate creative, doable and significantly different alternatives. Then, you start the analysis phase, to decide on the best alternative (business model) and why it is the best one.

The process is set from the beginning and the result – that is the creation of business models (the alternatives) – is still unpredictable because Creativity is applied. The Creativity phase, which generated various business goal solutions, is followed by the analysis phase to define value and risks. This way of working requires times and those taking part in the process have to be willing to invest time and energy in exploring the various possibilities (alternatives), without hastily finding a solution. You need to find the best balance between creativity and analysis in the various phases to create valuable insights. The difference is that you now start from something you know and not from something you ignore, this gives you a direction.

The Decision Attitude phases consists of 5 steps:

1. Define a business goal – verify with your decision makers if it is the real goal you want to achieve, after having assessed the values you want to reach and the trade-offs
2. Define a Frame – Vision, who to involve, which strategic decisions to choose to implement such business goal
3. Define goal alternatives – decision makers involve those who will be going to be affected by the business goal, either in or out of your company. You create creative, doable and significantly different alternatives through a set of tools. You then value risks, strong and weak points of each alternative.
4. Create a model analyzing the various alternatives (business models) – define uncertainty variables, value which can significantly influence the values you want to achieve, define what you know and what you don't know about each alternative. During this phase you have one single model analyzing the various alternatives (the various business models) in terms of values (that is profit, NPV, etc...) and risks, so that you can compare the alternatives and decide which one is the best and why.
5. Commitment to action – after making your decision, you allocate financial and human resources to define a plan, made of tactical and operational decisions.

LDQC AND BMC: MAIN DIFFERENCES

Chart by Franco Zullo

Let's make an example to better understand the difference between these two tools.

A company known for its high quality products decides to sell a cheap product. The issue is, now, to decide whether to do it by creating another brand or not. Decision makers involve their team and ask them to find the solution.

Business Model Canvas Approach

We are now going to examine the two business models related to this new economic product, by assessing its impact on the corporate image and profit through 9 blocks. Once the best model is defined, decision makers are offered the idea.

Solution is: find the most suitable and profitable business model for that specific product. The product will be marketed as cheap.

Lean Decision Quality Canvas Approach

First, you have to check whether the business goal is coherent with Vision, Mission, company Culture Strategy.

Decision makers need to be asked some questions:

• Why are you launching a cheap product?
• Is your goal coherent with your corporate identity and do you have the necessary skills to back up such a project?

Decision makers surely have different reasons when launching this economic product: diversify, follow an imitative policy, react to a crisis.

The right question a decision maker should ask their partners is: find me the best solution to this problem not simply the solution to this problem.

Then, at the alignment phase, you and your decision makers judge if it is a real/false problem that you are trying to solve. You can verify a priori if everything is coherent and if you might have to explore other paths as well (launching a not so affordable product).

This is how you can give your team the right instruction to explore the various possibilities, to find the best solution among the various alternatives.

If your company has always made high quality products, the difference that will make a difference is launching a product not cheap but affordable (with a great price/quality ratio), always following your company culture, your specific financial situation and so on.

Simply imagine the difference in terms of Value Generated at this early step.

Second step: define frame. If you don't have a well-defined frame your decision making process will be poor. At this phase you have your Vision, the definition of the team and of the strategic decisions. In the BMC, this phase relies on the creativity which produces the best business model for that economic product.

Third step: strategic alternatives. You evaluate possible business models taking into account the economic product: an affordable product or investing money in enhancing or creating a market/channel. In the BMC you choose the best economic-product-oriented idea, rejecting other business models.

Fourth step: Information and Logical Reasoning. At this phase you value all the alternative-related information, the values generated (that is NPV, work, etc...) and the trade-offs, working on the most uncertainty-generating variables (in terms of value and risks generated) and on how value can be increased and risk reduced (deterministic and probabilistic analysis). Comparing the alternatives, you choose the most suitable to your business goal.

Let's not forget that the future is a probability (deterministic and probabilistic analysis) and a possibility (alternatives generation).

The BMC explores systems to make the chosen idea (that is the only alternative) better by testing it with a 9-block SWOT analysis.

Fifth step: Commitment to Action. At this phase you are already aligned with your decision makers, because you have shared the alternatives they need to evaluate with them. You make a pitch, assess the financial and human resources and implement a marketing and operational plan. The BMC is handy at this point to define channels and communication and decide how to attract clients.

It is easy to see how the BMC finds the best business model starting from an out-of-the-box idea and this idea can be wrong from the beginning, while the LDQC investigates upstream, inside the decision maker's brain to find any biases or fears which can undermine quality decisions.

The two models, then, can be mixed, using the LDQC for strategic decisions and the BMC at Implement and Manage phases, for tactical/operational decisions in order to create value.

To create exponential value you have to create first an exponential mindset. The incremental mindset focuses on making something better, while exponential mindset focuses on making something different. Incremental is satisfied with 5%-10%, exponential is out for 10x (Mark Boncheck – Shift Thinking)

A decision process culture produces alignment, coherence and confidence. But most of the managers are used to and focus on making decision instead of empowering the decision-making process.

When a strong knowledge of organized and proven decision-making processes so that rationality override intuition is lacking, managers lose control. Research by Tversky and Kahneman have led to a groundbreaking conclusion on how the mind works: when a person has to make decisions in an uncertain condition they use “intuitive thinking” most of the time, resorting to heuristics, mental shortcuts which are the result of evolution. In your everyday life, heuristic decisions are correct most of the times but when situations get complex, heuristics produce distorted judgments (biases) which lead to wrong decisions.

You can, then, replace “behavior” controlling processes for “empowering decision making” processes.

“Control is nothing without empowering decision-making culture”

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