Introducing PwC’s business model types
08 December 2016
This is the second in a series of three blogs that explores and discusses the reporting of business models and follows the publication of our report Reporting your business model: emerging practices and future trends.
One of the joys of my role as head of PwC’s corporate reporting team is to witness and engage with businesses as they explain and tell their stories through their reporting. Every year my team examine in detail the reporting practices of the entire FTSE 350. One of our primary aims for this year’s research programme was to better understand how companies are communicating business models in their annual reporting. But this was easier said than done!
To help, we created four categories of business model types, each one building upon the other. These types draw upon our own research as well as FRC guidance and the International Integrated Reporting Council’s definition of a business model.
Our four business model types and what they include are captured in the graphic below.
But trying to allocate the business models we reviewed under these categories proved far from straightforward. The reality is that companies are not always clear what does, or doesn’t, sit within a definition of their business model. Some make references to a resource or relationship in their business model section, or elsewhere in their report, but exclude it from any graphic. Others make more cryptic/high-level references which infer they form part of their business model. What is clear, however, is that business model reporting continues to evolve and move along the spectrum from an overview of a company’s business towards a representation of their ecosystem.
Companies that fall into our Business Ecosystem model generally provide a more complete picture of the business, with more insight into the inputs, end-to-end business process, and outputs. Our research examined 70 annual reports and just 17 companies fall into this model.
Those companies that fall into the Business Activities model highlight some of their critical resources (for example, people, technology, customers) but tend to be more insular. 20 companies fall into this model.
The majority of companies we examined fall into the Business Process model, doing little more than explain what the business does, how it operates and why.
There’s no right or wrong answer as to where a company should be on this spectrum as it ultimately depends on variables such as the complexity of the business/industry, demand from investors, or expectations of other key stakeholders. Helpful tips are increasingly at hand and only on Tuesday the FRC Reporting Lab presented a summary of their recently published research which identifies what investors want companies to include in their business model disclosure.
But what is inevitable is that, as the corporate environment becomes ever more uncertain and disrupted, and the expectations of business ever more demanding, companies will need to ensure that their business model reporting falls, or at the very least is moving towards, the Business Ecosystem end of our scale and provides an overview of the business that includes:
- discussion around the relationships and resources it employs
- an illustration of the business process, with insight into how those resources and relationships are managed
- demonstration of the value created for key business stakeholders.
Such a shift will undoubtedly pose challenges in current thinking, systems, data sets, processes and controls as companies grapple to bring these business models to life and draw clear connections with their strategic priorities, risks and KPIs.
Our report can be found here, and you can join in the discussion on social media using the hashtag #beyondboilerplate.