The biggest source of risk is to be unaware of them.
One of the most neglected aspects in both the design of our business model and in its subsequent operation is also the one holding the greatest potential impact: risk analysis.
While it is essential for the design of our business model we do something that makes sense or it has some value to someone and in a profitable way, it is almost as important to be able to determine the “what’s” and the “how’s” may impact, positively and negatively, key aspects of our relationships and resources that compose our value proposition.
The term “risk” is easy to grasp when dealing with a relatively small number of somewhat possible and specific events holding a known impact potential to our economy, our physical integrity or the viability of a particular activity, as in:
“In 53% of traffic accidents with victims, involved vehicles were equipped with heavily weared tyres and this ratio climbs up to 72% when considering tyre blowouts”
In this simple example, depending on our risk appetite or recklessness degree, one may mitigate these factors (tyre condition or vehicle immobilization) to reach an acceptable level of residual risk.
Risk Analysis and Business Model Innovation
Piece of cake. But what if we new think about the key risks affecting each of the nine building blocks of our business model in the BMI Canvas, for example. This is certainly not as straightforward as in
the previous example, not in the actual materiality potential evaluation nor in the side effects or aggregated consequences on the other blocks. Not to mention if we plan to consider, as we should:
- The risks/opportunities derived from high-impact key uncertainties that conform the four strategic scenarios our business model might eventually face.
- The different risk profiles (appetite) of certain vital stakeholders such as Regulators, Capital, NGOs, etc. that, hopefully, will influence ours.
While Osterwalder in his great book (Business Model Generation, 2009. p201-211) explicitly mentions the importance of checking our business model resilience and “fit” against the four strategic scenarios and the four external macro factors, his Canvas and reference to supporting methodologies covers all this as “external forces” as the Canvas is not intended to provide support for Risk.
Business Model (Risk) Canvas
In the classic definition of risk management (RM), risk management is focused towards negative events but current approach to risk require us to include, in addition to the hurdles, opportunities towards a “Thrive On Risk” model. Only in this way we can see RM as a business discipline that helps to embrace uncertainty, in general.
There are plenty of frameworks, bodies and specific standards to identify, assess, quantify and relate risks to the Business objectives. But even having developed the best analytic ammunition, it will not very useful if we fail to engage it holistically and visually as key factors to take into account, whether as promoting or moderating factors, at each of the building blocks of our business model.
In a similar line of thought, according to the latest PwC reports about Integrated Reporting, in order to increase the level of confidence of key stakeholders in the quality and credibility of our information, it is becoming mandatory to incorporate way more risk related information. Not only from a materiality-mitigation standpoints, but directly related to the business model and its context.
My one-cent proposal (and why not an open challenge):
To overlay on each business model and for each strategic scenario or context a companion Risk Canvas containing especially relevant risks and their potential impacts (positive and negative) to the reference model in its capacity to achieve stated objectives.
I think bridging these two domains will help very much in visualizing risks and key uncertainties for business designers as well as increasing business impact awareness on risk professionals.
I’ve already made my first face test on few Client engagements using a first version of the modified Canvas. If this seems useful to you too, I kindly invite you to join in!
I hope this might help its users in their quest towards “Thriving On Risk”… Profitability and Reliability while Innovating or exploiting market Opportunities.
Like to download the modified canvas?