Putting Business Models under the Microscope: Business Models Are Now at the Heart of Many Corporate Performance Business Models. to Test the Validity of Such Models a Research Team Has Been Monitoring One Organisation's Performance

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The most advanced corporate performance measurement systems, such as balanced scorecards, are now built around "business models" or "strategy maps" that incorporate a number of beliefs or assumptions about cause-and-effect relationships between and among the measures. In most companies these business models are developed intuitively and their validity is rarely, if ever, subjected to formal, empirical tests. If some of the beliefs underlying their model are wrong, managers could then focus on the wrong things. They could endeavour to improve performance factors that are not important, or possibly even harmful.

But how should managers test the validity of their business models? Is it easy to do? Our CIMA-spon-sored study sought to test one company's business model to provide insights, both about how to conduct these tests and what to expect from them.

Our site was a medium-sized medical test equipment manufacturer with a single operating unit. We gained access to the entire set of data that was monitored on a quarterly basis by the company's board of directors and top management over an eight-and-a-half-year period (1Q98-2Q06). Conditions seemed favourable for conducting business model tests. The company operated in a single line of business with only one business model (or …