Putting business models under the microscope

The most advanced corporate performance measurement systems, such as balanced scorecards, are now built around "business model" or "strategy maps" that incorporate a number of beliefs or assumptions about cause-and-effect relationships between and among the measures. In most comp...

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Bibliographic Details
Published in:Financial Management 2011-07, p.54
Main Authors: Merchant, Kenneth A, Sandino, Tatiana, Huelsbeck, David P
Format: Article
Language:English
Subjects:
Business models
Disclosure
Noise
Reagents
Research & development expenditures
Securities markets
Stock exchanges
Stockholders
Validity
Value creation
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Summary:The most advanced corporate performance measurement systems, such as balanced scorecards, are now built around "business model" 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. Even if the time-series is long and environmental noise is filtered out, the relations among the performance measures themselves can be very noisy. Managers in the firm the authors' studied expressed no surprise at the lack of ability to explain stock market movements. The company was a mid-cap firm. Managers noted that stock movements sometimes lagged significantly behind disclosures about material company events and they described a number of specific examples to illustrate the point.
ISSN:1471-9185