We just wrapped up our 16th business building block sprint on Informatics. In summary, the sprint for Project 1.16 on Informatics completed 2 objectives:
Defining why we need a block for Informatics in our business model canvas and the
Questions to ask on the canvas for the Informatics.
1st – Why do we need the Informatics Block?
Your Value Proposition is the means your business solves the needs of your customer’s Jobs-to-be-done – this is called Product Market Fit. Measuring your revenue growth and costs is part of good business governance, but, consider that even if you are making money if you do not measure your Value Proposition’s alignment with the Product Market Fit – then you leave yourself open to someone disrupting you. Take into account the whitespace between your Value Proposition and your customers’ Jobs-to-be-done – this is the blue ocean of your business model. Either you explore it – or someone else will. Informatics is the means with which to measure and monitor your Value Proposition.
2nd – Questions to Ask on the Canvas for the Informatics Block
In this business model building block, we ask the questions you need to gauge how well you are reaching your goals, how closely you are keeping with your vision (and when you need to pivot), and how you are maturing over your business model growth? These are the Questions that should be answered when developing Informatics componentsfor a healthcare business model.
What data is derived from your Buyer & User interactions?
What systems are needed to capture that data?
How does your business model gain and use insight from Buyer & User interactions?
How does this insight improve your Product Market Fit?
How does that insight improve your Behavioral Economics?
How does this insight drive additional Revenues?
How does this insight lower Costs?
In Conclusion
Most business model canvases do not specifically prioritize Informatics as a building block. I cannot answer for others on this topic, but for me to believe a business model is viable – I have to know how it will be measured for success. What data is required both now and as the business matures to ensure that it can pivot appropriately? What data can be mined so that new insights and new business opportunities in the whitespace can be evaluated? In my humble opinion, this is fundamental to any business, which is why we have it as a separate building block it in the modelH business model canvas.
We just wrapped up our 15th business building block sprint on Revenue. In summary, the sprint for Project 1.15 on Revenue completed 2 objectives:
Questions to ask regarding the canvas for Revenue and
Tools needed to understand your business model’s Revenue.
Ideas
Questions to Ask on the Canvas for the Revenue Block
What are the Questions that should be answered when developing Revenue models for a healthcare business model?
How will your business make money?
For what value are customers willing to pay? What do they currently pay for these services/items?
How are they currently paying? How would they prefer to pay?
What is the total addressable market size (TAM), or the revenue opportunity? The serviceable addressable market size (SAM)? The target market size (TM)?
What is the justification for your sales projections?
What is your revenue cycle and how you will manage it?
What is your pricing strategy?
What tools do you need to understand your business model’s Revenue?
This building block really presents itself as a creative problem solving opportunity. It is the exercise of defining how many ways you are able to generate money from your product, or Value Proposition.
Specifically, we are asking how your business model creates Revenue?There arefour elements that your business model canvas should focus on when describing Revenue:
Revenue Model
Price
Volume
Revenue Cycle Management
Revenue Stream
Revenue is made when you someone gives you money for something you do or sell. Revenue Streams define the mechanics of how money will pass from your buyer to you, and how many other hands or business models touch it in the process. You will need to explain the value of your product/service to the consumer and how they will pay for this value. There are many combinations of how this can happen in various revenue models, some of which are explained below.
Traditional Model – sell a product or service from your own inventory or from a Key Partner.
Value-Add Model – add value to the sale of a product or use of a service by another.
Freemium Model – offer a minimum product and charge for pro features.
Affiliate Model – direct traffic, leads or referrals to another.
Subscription Model – pay a recurring fee and/or transactional fee to access the product.
Virtual Goods Model – selling virtual goods online in a game, app or website.
Advertising Model – high traffic websites sell ads for their traffic.
It is also advantageous to ask the following additional questions as part of defining a healthcare revenue stream.
Do you expect the consumer to not pay in your Revenue model? If so, why? If the consumer does not, then who makes a payment?
What other revenue streams have you envisioned, apart from consumer payments?
Can you offer a subscription element to your Value Proposition in order to ensure repeat revenues?
Can you offer a base service for free and then charge for a premium service?
Can you have consumers pay different amounts based on how much they benefit?
The best explanation we have seen regarding the understanding of various revenue models that might exist in a business model is from our friends at Board of Innovation. You can find this very complete and detailed example here – http://www.boardofinnovation.com/business-revenue-model-examples.
Price
The Revenue Steam equation we mentioned above is made up of two items – Price and Volume. Let’s talk about price. Price is simply the calculus of how much you think your value proposition is worth, or at least how much you think someone will pay for it. How do you set price?
Price is derived from three foundational elements:
Costs – what is functionally the lowest price you can set?
Competition – how do your competitors’ price compared to you?
Value to customer – how much are customers willing to pay for your Value Proposition?
Once you set your price, there are many pricing models you can employ to maximize your revenue. The two main types are fixed pricing and variable pricing. The rest are just simply derivatives of these two.
Fixed pricing is setting a market price and taking it market – such as the price of a heart rate monitor on Amazon. Variable pricing is setting a base price and then allowing Buyers to pay what they will for it – such as the auction method on EBay. Fixed pricing is easy to understand. Variable pricing can make you more money but it puts some customers off. The more sophisticated a company, the more they can make their fixed pricing act like variable pricing. That heart rate monitor on Amazon actually changes price depending on the day and time of day of the purchase. This variance is based on sophisticated pricing algorithms that Amazon employs.
Volume
The Revenue Steam equation mentioned above is made up of two items – Price and Volume. Let’s first examine volume. Volume is impacted by your market size and growth. It really depends upon two questions – how much of the market you can capture and how fast you can capture it?
Your market size should define three things for your business model:
Total addressable market size (TAM), or the revenue opportunity available for the value proposition.
Serviceable addressable market size (SAM), or the customers that can actually be reached out of the total addressable market (TAM).
Target market size (TM), or the size of the initial focus for your minimum viable product release of your value proposition.
These can be seen in relation to each other on the graphic below.
The best explanation we have seen for market speed and understanding the various revenue models is found in Steve Blank’s Udacity class, which you can find here – https://www.udacity.com/course/ep245 . This is simple to read but also accurate and brilliant.
Revenue Cycle Management
This is a fancy way of saying how often you are paid and the difficulty related to collecting timely payments. For example, if you receive payment as part of someone else getting paid, you have to take into account that delays will inevitably happen. A bottleneck lies with your downstream revenue chain. Delayed payments mean you need more cash on hand to handle your operating costs. It also means your prices should reflect these delays.
In accounting, this complex structure is referred to as Receivables and Revenue Accruals. According to Investopedia, a company records receivables as an asset because it expects to receive payment for that amount relatively soon. Long-term receivables, which do not come due for a significant length of time, are recorded as long-term assets on the balance sheet; most short-term receivables are considered part of a company’s current assets. On the other hand, revenue accruals (or accrued revenues) are treated as an asset on the balance sheet rather than a liability. This reporting is important to the valuation of a company, particularly in the service industry. Billing typically occurs after the work or service is complete. Without this asset class on financial reports, the company could appear to have much lower revenues, and may not have a fair method to balance expenses associated with the accrued revenue. Since these items are industry specific, most companies may reserve for uncollectible accounts. An insurance company, however, may have to set up an account for an unearned premium reserve.
Revenue Cycle also require Key Resources. For example, most accounting systems have a billing module. This system is based on creating a receivable and corresponding invoice for a customer. However, the revenue side is a bit more complex. You can only recognize revenue when earned. Thus, many companies use a different billing/AR system than their accounting software package. This would require using Key Resources for both systems – accounting software and billing software – as well as an interface between them. As you can see, it can become very complex.
If your business model sells directly to a healthcare consumer, your revenue model might be much simpler. However, if you sell into another business model, like an Accountable Care Organization, your payments might be dependent on them. Many good business ideas have gone bankrupt due to poor cash management. Clearly defining the complexity of your revenue cycle and careful management is an important part of your business model.
In conclusion, take time to incorporate these approaches into the Revenue block in your business model canvas. You must be able to clearly articulate 1) that you have an understanding of how you will make money, 2) how big your market is and how much of it you can realistically capture, 3) how you will price to win, and 4) how you will manage your customer payments. Good luck!
Why Do Costs Matter So much more in Healthcare Business Models?
Outside of just the necessity for a good business model, there is a case to be made that Cost represents the most important part of all healthcare business model building blocks.
This idea is further supported by the fact that federal spending for health care programs is growing much faster than other federal spending in comparison to the economy as a whole. In 2011, the most recent year in which most of the countries reported data, the U.S. spent 17.7% of its GDP on health care, whereas none of the other countries tracked by the OECD reported more than 11.9%. And there’s a debate about just how well the American health-care system works. As the Journal reported recently, Americans are living longer but not necessarily healthier. This graph shows the misalignment regarding the spending of U.S. healthcare dollars (as a percent of GDP) with the rest of the world.
In 2011, total spending for healthcare in the United States was approximately $2.5 trillion — 16.4 percent of the GDP, according to the CBO. Private financing accounted for 53 percent of that spending, and public sources made up the remaining 47 percent. It has not slowed. According to the Congressional Budget Office’s 2013 long-term budget outlook report, healthcare spending will increase to approximately 22 percent of the gross domestic product by 2038 under current law. This is driven by various factors such as an aging population, new medical technologies and expanding health insurance coverage. Likewise, the CBO projects spending on federal healthcare programs including Medicare, Medicaid and the Children’s Health Insurance Program will grow much faster than the economy, increasing from their current level of 5 percent of GDP to 8 percent by 2038.
1st – Questions to Ask on the Canvas for the Key Behaviors Block
What are the Questions that should be answered when developing Costs for a healthcare business model?
What are the most important fixed Costs inherent in our business model?
What are the most important variable Costs inherent in our business model?
What drives these Costs and which ones are controllable?
What Costs can be reduced through economies of scale?
What Costs can be reduced through economies of scope?
Which Key Behaviors are most expensive?
Which Key Resources are most expensive?
Which Key Activities are most expensive?
2nd – What tools do you need to understand your business model costs?
What are the Key Costs a business model should identify and what tools do you need to show those costs?
Healthcare costs are out of control and it is hard to tell the good costs from the bad. To do so, we must first agree on what defines value within the healthcare ecosystem. Our definition of value is based on Michael Porter’s work in What is Value in Health Care? Porter explains this definition as “the patient health outcome achieved per healthcare dollar spent.” Therefore a value-based healthcare business model must result in:
Increased access to necessary care through an engaged delivery system;
Reduced aggregate cost of care, with a market-driven, balanced incentive and reward model; and
Improved consumer experience yielding an informed decision maker aligned to their risk and reward.
It is this second pillar that we are focused on.
Therefore, what are the Key Costs a business model should identify and what tools do you need to show those costs? It really depends on which side of the model you are looking at … patient, provider, payer, or purveyor. They are all inter-related.
Let’s look at this question slightly different.
In general, you have all the information you need from your business model’s P&L (aka your Income Statement). For example, if your business model is around the provision of care, your items of importance might look like this:
Revenue (what you are paid to provide that care)
Cost of Goods Sold (aka your actual medical cost)
Gross Margin (Revenue – Cost of Goods Sold)
Operating Costs (anything that is not specifically part of the delivery of care)
Operating Income (Gross Margin – Operating Costs)
Other Income and Expenses (Investment Income, etc.)
Income Tax
Net Income
Which Costs Should I Be Concerned About?
Your base costs are probably from one of these “Standard Expenses”.
Salary, Wages and Benefits
Professional Fees
Rent
Utilities
Depreciation and Amortization
Interest
Maintenance
Then you might want to layer on “Expenses Impacting Gross Margin/Profit”. These are industry specific. In insurance, for example, these are categorized as medical expenses. In Retail, this would be considered a cost of sales.
Then you will want to add in your “Expense Accruals”. These are industry specific as well. For example, insurance companies are required to book reserves for claims incurred but not reported (called IBNR). Keep in mind that Accruals are contingent upon your method of accounting – cash versus accrual accounting.
So How Can I Track My Costs?
Though your business model is still just an idea, you can build “budgeted” expenses in Excel. When your business model becomes a “business”, you need to start tracking “actual” expenses. Actual expenses are tracked in accounting software such as QuickBooks, PeopleSoft, etc.
This process of budgeted versus actuals will be repeated for as long as you run your business – at least we hope that you follow this method. As such, as you mature, we recommend using the same system for building your budgets that you do for tracking your actuals. This will make tracking your variance analysis much easier.
As an additional exercise, it is interesting to compare the costs in a proposed business model versus the costs when doing nothing. For example, what are the costs of not changing the old business model – and are they more or less to the User, Buyer, and System. If they are less, you should question the value of your business model beyond your own financial benefit.
In conclusion, we offer this one word of advice. Accuracy and clarity on your finances will make the difference between your success and your failure. You cannot run a business – any business – without an accurate and timely understanding of where your money is being spent. Having started several healthcare companies, some successful and some not, my biggest learning has been two fold:
Utilize a trustful and qualified financial expert who understands the business you are in, and
Involved that expert from the start.
Take time to incorporate these approaches into the Costs block in your business model canvas. Regardless if your business model is aimed at Patients, Providers, Payers, and or Purveyors, defining the Cost is a fundamental discipline you need in order to make your idea into a successful company.
We just wrapped up our 13th business building block sprint on Key Partners. In summary, the sprint for Project 1.13 on Key Partners completed 2 objectives:
Questions regarding the canvas for Key Partners
Understanding what delivery components to give to Key Partners
1st – Questions to Ask on the Canvas for the Key Partners Block
We defined the questions that should be added to our business model canvas for helping practitioners define their Key Partners.
Who are our Key Partners and what do they do for our business model?
Are there any Key Intermediaries that we need to make into Key Partners?
Are there any Key Influencers that we need to make into Key Partners?
Which Key Resources are we acquiring from partners?
Which Key Activities do our Key Partners perform?
2nd – How to Know What You Should Give To Your Key Partners
An alliance by definition is a relationship between your company and another – formed to tackle a common business objective, yet each remaining independent in their structures. It is through this cooperation on a joint project that two companies can share risks and rewards. Alliances can be something as simple as Channel partnerships all the way to the complexity of joint ventures. Business models can use strategic alliances to:
Reduce costs through economies of scale,
Enter new markets through shared insights,
Reduce cycle time for product launch,
Improve research and development efforts, and
Improve product quality and customer experience.
How to Form a Key Partnership
Partnerships usually fail because there is a disconnect on the work done by the partner regarding the business model requirements. Unfortunately, this leads to damaged relationships between the groups and creates a vicious cycle that leads to an unfavorable ending. Vantage Partners estimate that up to 79% of the potential value of the partnership is lost once the alliance turns corrupt.
Forming a good partnership is simple to understand in these 3 steps. Mastering them is obviously much more difficult. This can be somewhat alleviated if these elements are defined within a business models’ Key Activities.
Define how the Key Partner fits into the business model canvas and list objectives that will be measured for its delivery.
Select a Key Partner based on the commitment and fit with the business model canvas, both today and as the company grows.
Sign a formal and well-written agreement that includes well-understood protocols for measuring mutual performance.
How to Manage a Good Key Partnership
After this stage, it is a matter of managing the business objectives met through the Key Partner, as you would organize your own Key Activities. This means actively and consistently evaluating how thepartnership is actually performing according to the binding objectives and performance measures.
Again according to Vantage Partners, a partnership should have 10 key components. Depending on your company size, this may be spread across multiple resources or lumped into one role. But no partnership will last the impact with the market unless these components, or something similar, are in place.
Building and maintaining internal alignment.
Evaluating and considering relationship fit with potential partners.
Building strong working relationships while negotiating optimal deals.
Establishing common ground rules for working together.
Having dedicated alliance managers.
Having collaboration skills in alliance employees.
Having a collaborative corporate mindset.
Managing multiple relationships with the same partner.
A Business Model Canvas is a strategic management template that is widely used for developing new or documenting existing business models through a visual language. It is designed to portray the alignment of business activities that produce value by illustrating potential trade-offs.
This video is Alex Osterwalder’s 2 minute overview of his Business Model Canvas built in 2002. This method from the bestselling management book Business Model Generation.
modelH Canvas
Expanding on Alex Osterwalder’s original 9 building blocks, modelH integrates aspects of Michael Porter’s definition of shared value and Clayton Christianson’s concept of “jobs-to-be-done”. It measures the value of a business model in its feasibility to deliver value, as well as its ability to deliver on the patient health outcome achieved per healthcare dollar spent.
modelH is a business model canvas designed specifically for healthcare. The modelH canvas creates a common language for describing, visualizing, assessing and changing the key elements of every healthcare business model. It is complex enough to evaluate an entire business model but simple enough for all parts of the paradigm to be understood.
modelH Building Blocks
Evaluation of each building block in a business model promotes consideration of the model’s strengths and weaknesses. Likewise, the structured layout of the canvas encourages thoughtful reflection regarding how the individual building blocks fit together. As a strategic management tool, modelH can be utilized to design, describe, challenge, invent, and pivot your healthcare business model. The 17 building blocks in modelH deal with 6 key business functions.
modelH Building Block Definitions
The modelH canvas is comprised of 17 key building blocks.
Users are the customers that a business model serves.
Buyers are the customers a business model sells to & may also be the User.
Intermediaries affect how a Value Proposition is seen and paid for by the Buyer.
Jobs-to-be-Done (JTBD) are high-level goals the customer is trying to accomplish.
Value Propositions are products & services offered to customers to solve their JTBD.
Key Behaviors are the activities required of the User to complete their JTBD.
Key Influencers affect the User’s understanding & ability to complete of their JTBD.
Channels are the way a company brings its Value Proposition to market.
Customer Relationships are connections a company creates with their Buyers & Users.
Experience is how Buyers and Users perceive Channels and Customer Relationships.
Key Activities are the most important tasks required to create the Value Proposition.
Key Resources are the internal actors required to deliver the Value Proposition.
Key Partners are the external actors required to deliver the Value Proposition.
Costs are the most important financial drivers of a business model.
Revenue is the way a company makes money from its customers.
Platform contains the data and analytics needed to deliver the Value Proposition.
Externalities are the external forces & regulations imposed upon a business model.
We just wrapped up our 12th business building block sprint on Key Resources. In summary, the sprint for Project 1.12 on Key Resources completed 2 objectives:
Questions to ask on the canvas for the Key Resources and
Locating Key Resources
1st – Questions to Ask on the Canvas for the Key Resources Block
We defined the questions that should be added to our business model canvas for helping practitioners define their Key Resources.
What Key Resources do our Value Propositions require?
What Key Resources do our Customer Relationships require?
What Key Resources do our Channels require?
What Key Resources do our Revenue Streams require?
What level of Key Resources will your Cost model support?
What employment Value Proposition can you offer to your Key Resources?
What staffing model will you use to ensure the right amount of resources?
What sourcing model will ensure you get access to the right level of talent?
2nd – Locating your Healthcare Key Resources
We outlined methods and factors associated with determining the right amount of skill level necessary for Key Resources in your business model. Determining the right amount of Key Resources for your business model to succeed requires considerable planning, estimating and forecasting (and sometimes lucky guesswork). We noted that for any business – startup or legacy – employee labor represents one (if not the most) of the most significant drivers of cost. Managing these costs appropriately so that your business succeeds over the long-term also requires a focused and significant investment in planning, estimating and forecasting. Additionally, hiring too many workers will result in unnecessary cost to your business and ultimately to your customers. That will enable too few workers which will likely result in overworked and stressed-out individuals, unable to deliver on your value proposition. Eventually, they will look for other places to use their talents.
We shared that while your company might not be ready for a full-blown staffing plan, hiring the right number of individuals requires some form of in-depth planning. Foremost, it is important to clearly listing the specific outcomes, objectives or dependencies that are linked to each phase and value stream associated with your Value Proposition. Similarly, establishing multiple assumptions about the growth path of your business, accounting for busy times, slow times, seasonality, product demand, etc. and then estimating the number of individuals required to deliver each component of the value proposition were all cited as essential in building your staffing model(s). The accuracy in determining the right number of resources was noted to be largely dependent on how well each phase of the value proposition was defined. Be aware of the questions (listed above) in the Questions to Ask on the Canvas for the Key Resources Block section: What Key Resources are required (not nice to have) by your Value Proposition, Customer Relationships, Channels, and Revenue streams? What Key Resources will your cost model support that allows your business to grow and thrive?
Finding the right skill level for Key Resources was noted as being more complex than determining the staffing models or framework most appropriate (and cost effective) for your business. As is the case with building accurate staffing models, determining and finding the right level of Key Resources is highly dependent on clearly defining the work and the requirements (education, skills, competencies, experience) to do the work (a job or role description). The job description, whether formally or informally described, is viewed by most organizations as the foundational component for the sourcing, recruitment, and acquisition. And that – in many ways, the job description is the common language that allows your company to communicate to the sources of talent what your company needs. We also cautioned you (the reader) – that while the job description is key to understanding the specific requirements of a job or role, no individual or job operates entirely independently. While considering the people skills involved for a particular job, pay particular attention to understanding how a certain set of job requirements complements or duplicates those of other roles.
When scouring for talent, the numbers of resources available to assist any size healthcare company are countless. The sources range from free, or nearly free web postings of your talent needs to the enlistment of a highly specialized recruiting firm to find unique and scarce skill sets. Social networking sites such as LinkedIn have become for many companies across the maturity spectrum, an invaluable source (and often the first source) for locating highly skilled and experienced healthcare and other types of talent.
In summary, the tasks of sourcing, recruiting, acquiring, deploying, managing, engaging, and retaining your talent (Key Resources) are often cited as the most critical aspects for any business’s success. I advocate that you ensure your Key Resources mirror the Key Activities required by your business model building blocks. If you ensure that your Key Resources are clear on the business model as a whole, and on how their role helps bring it to market, you will create the single most positive impact on the delivery of your value proposition. It takes one person to come up with an idea – but it takes a team acting in concert to make it into a successful business. Make sure you allow your great idea to flourish through the good work of your Key Resources.
What is Next?
I will be publishing the learning from 1.13 Key Partners next week. Next up on the modelH Collaboration Forum, we are going to do a short two-week sprint on Costs and Revenue.
Interested in what we are doing? Step up to the plate and become involved.
We just wrapped up our 11th business building block sprint on Key Activities. In summary, the sprint for Project 1.11 on Key Activities completed 2 objectives:
Questions to ask on the canvas for the Key Activities
Explanation regarding how to define and stick to only the necessary Key Activities
1. Questions to Ask on the Canvas for the Key Activities Block
We defined the questions that should be added to our business model canvas for helping practitioners define their Key Activities.
What Key Activities do our Value Propositions require?
What Key Activities do our Channels require?
What Key Activities do our Customer Relationships require?
What Key Activities do our Revenue streams require?
2. Do Only the Right Key Activities
The first part of this sprint is about defining the work tasks you need to do to deliver your Value Proposition. However,there are a lot of ways you can waste time doing the wrong things as your work scope begins to creep. So how do you go about keeping to only the right actions that you defined in the Key Activities block? I advocate that you apply the rigors and methods of the Lean Startup to your healthcare business model – including all technology, process, and business functions.
By definition, Minimum Viable Product (MVP) is the version of a product that is made through one cycle of a ‘build-measure-learn’ loop, done as quickly as possible. Accordingly, the work tasks (Key Activities) that are required for a build must include only those that meet the minimum viable product. Although this methodology was first applied to the world of software engineering, I recommend using it across the board for all work tasks.
The term Minimum Viable Product gives some people pause. Many default to the adage that to deliver value, we must give our customers the maximum product, not the minimum. Sometimes our attempt to provide maximum value results in bloated or inconvenient products loaded with useless features that diminish, rather than enhance, the value of the product. Think of a product in its two basic value points: form and function. Stylistically speaking, function is what a product does and form is how it does it. We discussed the need to build an “expected” form, or what we call Experience, in our building block on Experience. This expected form also implies Key Activities on your part. Be prepared to collect necessary information and build it into the Key Activities in your business model.
But at the same time, when it comes to function we advocate that you only need to do the work to build the minimum viable version. This reasoning examines your Customer Relationship, built on the premise that you have a Value Proposition that will solve your customers’ Job-to-be-done (JTBD). Your Value Proposition should do that and no more than that, otherwise you are throwing energy and resources after an unknown. If you agree with this logic, then you must apply this rigor to what work tasks, or Key Activities, you set out to do as part of the functional delivery of this Value Proposition. Focus on function rather than form. The basis of your trust relationship with the customer is a two-way exchange of value. If your product is all style and no substance, then you will lose your customers. If your substance far exceeds your customers’ needs, then you are similarly doing more harm than good, as the extra value is unrealized. An even worse case is that customers end up confused drop it altogether. Ultimately, only do what is necessary to build your MVP.
Do not forget that you are running a business and that there are laws around compliance, fillings, and finance that you must follow. These are part of your Key Activities. If you do not list the work on these core operational fronts, you have an incomplete picture of the workload and resources required, which will inhibit you from determining the Key Resources and Key Partners you will need for a concise delivery. Therefore, as is often the case, you will find out too late, and it will either shut your business down or cost you an exponential amount to resolve.
In Summary
In conclusion, we advocate that you identify your Key Activities by identifying your MVP, and adding in the other required business tasks you needs to remain compliant with laws and financial transactions. By only building what is deemed most valuable to the customer, and progressing through iterative builds, you ensure speed to market and successful releases. When you are wrong, you fail fast (and cheap). MVP assumes that you iterate until you find the ideal solution. Start small and gradually add on, based on your customers’ needs.
Take time to incorporate these approaches into the Key Activities block in your business model canvas. Regardless if your business model aims at Patients, Providers, Payers, and or Purveyors, defining the Key Activities will keep you focused on doing what is relevant to your Customer Segment’s Jobs-to-be-done and your Value Proposition. Anything else is a distraction and will lead to straying from your business model.
What is Next?
I will be publishing the findings from 1.12 Key Resources and 1.13 Key Partners over the next few weeks. Next up on the modelH Co-Creation Forum, we are going to do a short two-week sprint on Costs and Revenue.
Interested in what we are doing?
Step up to the plate and become involved. We have just a few key modules left to discuss in the proposed modelH canvas. Please join us, make your contribution, and be recognized for helping to develop a sustainable future for the US healthcare system.
We just wrapped up our 10th business building block sprint on Experience. In summary, the sprint for Project 1.10 completed 3 objectives:
We defined the questions that should be added to our business model canvas for helping practitioners define their Customer Relationships.
What is the lowest common denominator Experience your Customer Segment is looking for?
Where does your Experience exceed these minimum expectations?
Where does your Experience miss these minimum expectations?
Which of your Key Activities drive your Experience?
Which part(s) of your business model creates “hassles” for your Customer Segments?
What makes it hard for your Customer Segments to find you?
How do your Customer Segments feel about you?
How easy is it for your Customer Segments to work with you?
What keeps your Customer Segments from recommending your Value Proposition?
What keeps your Buyers from shifting some or all of their business to another?
How likely are the Buyers to consider purchasing more from you in the future
Where are there hassles that keep Buyers from buying your Value Proposition?
Where are there hassles that keep Users from using your Value Proposition?
Where does your Value Proposition waste your Customer Segment’s time?
Where does your Value Proposition require extra or unnecessary steps?
Where does your Value Proposition waste your Customer Segment’s money?
Where does your business model create confusion for your Customer Segments?
Where does your business model generate avoidable risks?
How Do You Build Your Customer Experience?
Customer Experience is how you create great engagements for consumers as they buy/use or even consider using your products and/or services. Great healthcare companies of the future must quickly become great customer experience companies today, and for the foreseeable future. This requires a comprehensive Experience building block in your business model that:
1) Identifies the areas for change within the current business model,
2) Defines the change(s) that must happen, and
3) Helps the business block owners implement changes across the organization.
Even if your business is just a cog in a value chain, and/or you have no direct access to healthcare consumers – you must remember Porter’s sense of shared value. In the healthcare ecosystem, all business models have an impact on the User – good or bad. You should know how your Value Proposition plays out in this larger picture, and help to build your own Experience building block to ensure it is a good one. Fred Weirsema in his book How to Design a Great Experience highlights questions (listed below) for determining whether your business model (and the way you approach the market) is “in tune” with the customers you are trying to touch or impact (what Weirsema calls a Design Rule – the things a company must do to ensure it is attuned with its customers). Can my customer find me?
What is the top-level decision frame?
Does my company come up at the top of that list?
How does my company make sure our name appears at the top of the list?
Can they find my company through the channel they prefer?
Can they discover my company thru several channels?
Are SEO and SEM efforts effectively managed – to match keywords?
What is the bounce or abandonment rate?
2. When they find my company – is it unique? Is the impression memorable?
How do they find their JTBD?
Does that tie into my company’s uniqueness?
Does my company build with eye to new customer and what barriers they perceive?
Is the customer’s instant judgment positive about my company’s products and services?
Is my company’s website clear, reassuring and confident?
Does the website remove barriers?
3. Do your company’s processes get in the way of a purchase?
What is the abandonment rate online?
Does your company make it hard to buy or do you bait and switch?
Has your company gone through a buy process step by step (exactly as the customer would) – and is it smooth and predictable or is it jolting?
4. Does your company send unintended messages?
Is the boilerplate type of message giving off a legalese gotcha moment?
Has your company considered how its actions will be perceived?
5. Are your company’s products and services intuitive?
Do customers need an instruction manual to navigate your company’s processes?
Does your company build on the Minimal Viable Product (MVP)?
Do your company’s processes, products and services keep with what is expected?
Have you avoided unwanted advanced, or too many, options?
6. Does your company’s approach to the market have threaded channels?
Is “same customer – same data” readily and consistently available?
Are your company’s messages and behaviors synchronized?
Does your company’s treatment and approach stem from your unique brand promise?
How Do You Measure Customer Experience?
It seems plausible that you should identify and know your Customer Segments before you create products and services for them. Likewise, once you have products and services tailored especially for them – you create winning Experiences for them through the various Channels and Customer Relationships. The flow can be seen visually here.
Customer Segment Development – know your customers, (who they are, and what they want) and most importantly learn their values.
Value Proposition Management – create value that your customers perceive because it effectively solves their jobs-to-be-done.
Customer Behavior Management – understand your customers health needs and comprehension so you can directly and indirectly mange them.
Customer Experience Management – know how your customers want to experience your products and services and create favorable engagements for them as they discover, consider, buy and use them.
This section is about measuring Experience as a business function. In as much, we should not just rely on the standard Net Promoter Score or Customer Satisfaction Score and call it a day. We must add revenue and cost elements into Experience measures because it is 1) a prudent thing to do for all business functions, and 2) critical for identifying how components of Experience drives overall revenue and impacts overall costs. When Experienceis implemented properly across a business model, it will produce:
An agreement and a common understanding regarding the importance and impact of Consumer Experienceacross all business efforts and business outcomes. (Strategy)
A clear mapping and organizational (entire workforce) understanding of the Consumer ExperienceJourney across all touch points. (Culture)
A set of Consumer Experienceguides incorporated into all products, channels and messages. (Brand)
A defined Consumer Experience Teamorganized around successful and consistent strategy execution. (People)
A common model and process for using and ensuring Consumer Experience principlesacross the organization. (Process)
An established set of Consumer Experiencemetrics that include revenue generation and cost consideration/understanding/containment. (Financial)
A set of Consumer Experiencemetrics focused specifically on experience accountability across the organization. (Customer)
Consumer Experience Success Indicators
The following measures are across the key dimensions of a company and its business model.
Strategy
A measure indicating how well Consumer Experience is embedded into the corporate strategy.
A clearly defined, agreed to, and commonly understood Consumer Experiencestrategy
A clearly defined Consumer Experienceplan of implementation (change agenda)
A defined maturity curve (that defines current customer experience) for how Consumer Experiencewill create value for the company
Culture
A measure indicating how much Consumer Experience is emphasized as a critical area by all employees/internal stakeholders.
A measure of overall organizational effectiveness related to Consumer Experience(e.g. Number of employees who have consumer experience as a key area of focus in their individual performance plans)
A shared executive measure for collaborating on Consumer Experienceinitiatives
Shared measure (connection) with Customer Development/Sales group
Shared measure (connection) with Channel Owners
A single Consumer Experiencemeasure in the annual company performance scorecard (KPI – key performance indicator)
A Consumer Experiencedashboard with agreed upon metrics that is widely communicated to internal stakeholders and actively managed by the senior team
Brand
A measure indicating the alignment of Consumer Experience with your company’s brand promise.
A measure for Customer Brand Loyalty
A measure for Brand Experience
A measure for “likelihood to recommend”
People
A measure indicating the development of the roles that lead and drive continuous improvement for the Consumer Experience function.
Hiring the VP of Consumer/Customer Experience who has the ability to impact organizational strategy and operational processes
Designing, developing the Consumer Experience roles and responsibilities
Hiring the Consumer Experience Team
Process
A measure indicating the clarity and utilization of the Customer Experience process.
Publication (communication) of a documented Consumer Experience Process
A documented Consumer Experience Standards Guide that is referenced throughout organizational processes and policies
A Customer/Member Journey Map that outlines how organizational roles and responsibilities impact each point on the journey map
Completion of regular Experience Audits for all channels, touchpoints, and communications
Implemented Experience Improvement Plans for top prioritized channels
Evidence of ongoing measurement of, and reduction in, cycle-time for Consumer Experience Projects
Financial
A measure indicating the effect that Customer Experience has on corporate financial performance.Revenue (attributable to Consumer Experience)
Wallet Share
Customer Profitability
Customer Lifetime Value
Market Share
Average Revenue per Customer
Number of New Customers acquired each period
Value of New Customers
New Sales Driven by Word of Mouth
Costs (attributable to Consumer Experience)
Customer Retention Rate
Customer Churn Rate/Number of Lost Customers
Value of Lost Customers
Cost to Serve Customers (total service and support costs)
Cost to provide differentiating value (perceived as what competitors do not offer)
Cost to Satisfy Customers by channel (email, chat, online, telephone, in person)
Ratio of Cost to Serve / Total Revenue
Customer
A measure indicating the Customer Experience and its affect across the customer lifecycle.Single Measures
New/Existing customers by channel (examples below)
phone calls can be tracked using Google provided phone number
digital click thru on SEO versus SEM
bounce rates on keywords
retail visits and revisits
Multi-channel decision making by segment and number of touchpoints used
Time thru touchpoints used (channel completion rate and average time in channels)
Random survey reports from customers
How easy is it for customers to stay with you?
Reluctance to Switch score
Win-back After Loss (number/percentage)
Random survey reports from customers
How do customers feel about you?
Brand Trust Indicator
Emotional response survey
Random survey reports from customers
Perception of your company/organization by competitors
How well do customers listen to you?
Call center data (if applicable/available)
Customer compliance indicators
Customer understanding of your communications
How easy is it for customers to work with you?
Speed of application/entry process
Speed of issue resolution process
Number of customer complaints
Number of customer kudos
Customer satisfaction with specific touch points
Next up, we are going to look at Project 1.11, 12, and 13 – Key Activities, Resources, and Partners. Interested in what we are doing? Step up to the plate an get involved.
We just wrapped up our 9th business building block sprint on Customer Relationships. In summary, the sprint for Project 1.9 completed 3 objectives:
What questions to ask about Customer Relationships on the modelH canvas
Defining how to build Customer Relationships for healthcare companies
A look at how to measure Customer Relationships for healthcare companies
1st – Questions to Ask on the Canvas for the Customer Relationships Block
We defined the questions that should be added to our business model canvas for helping practitioners define their Customer Relationships.
Which Healthcare Customer Relationship Dimensions do you use in your business model?
What type of Customer Relationships do your customers expect you to maintain with them?
How costly are your various Customer Relationships models to maintain?
What is your plan to market your Value Proposition to consumers?
When a consumer uses your Value Proposition and has a positive Experience, how do you imagine them sharing this experience with their friends/colleagues?
How will you receive consumer feedback and what is your plan to act on it?
Who is the greatest Key Influencer for your Customer Segments and how will you use them?
How will you get, keep and grow customers?
2nd – How to Define Healthcare Customer Relationships
We also built a model for helping practitioners define and build their healthcare Customer Relationships. We reviewed seven different dimensions of healthcare customer relationships. We added seven Dimensions of Healthcare Customer Relationships to the standard BMC: Information, Navigation, Coordination, Connection, Transition, Motivation, and Monetization.
If my tax adviser can explain healthcare reform to me in simple terms, how come my health insurance company cannot? Worse yet, when they try, they just make me more confused and mad!
If my phone company can send me a personalized video bill, how come my doctor and insurer are still sending me those unreadable explanations of benefits?
These are simple questions to ask, with a profound underlying sentiment. With each touch, business models can improve, maintain, or deter a customer relationship. WIKI says that customer relationship management (CRM) is a model for managing a company’s interactions with current and future customers. In healthcare, the customer relationship must be around more than just your Value Proposition. Good business models must take into account both the Buyer and User in regards to their presence, trajectory, and destination within the healthcare ecosystem. modelH advocates there are 7 fundamental dimensions of healthcare Customer Relationships that exists in healthcare. They can be employed in various degrees and in various combinations to yield the best outcome for a particular Customer Segment.
In each of these dimensions, customers have preferences for both channel and message. It usually requires some form of both emotional support and physical comfort thatcan also be tracked and measured for progress and completeness.
Dimension
Definition
Information
Provides value to the customer often in the form of news, articles, Q and A, keyword search entries, videos, and/or pictures and assists in both help solve their job-to-be-done and in manifesting your value proposition to your customers.
Navigation
Moves people in a new and positive directions and helps customers ultimately solve their jobs-to-be-done. Navigational guides can help shape and influence new choices and behaviors for people. Other examples of navigational guides could include providing customers with personalized action plans with expert suggestions (products, services or other activities) regarding their Jobs-to-be-done (JTBD).
Coordination
Simplifies the logistics associated with your customers’ jobs-to-be-done. Effective coordination should enhance your value proposition. Examples of coordination could include helping people with their health To/Do’s, scheduling appointments, health records management (PHR), monitoring & alerting on key health notifications, and streamlining support to service providers.
Connection
Interpersonal relationships with others, which positively benefit relationships with your customers and further enhances your value proposition. Do the channels through which you interact with your customers also seek to connect your customers to other individuals or other complementary solutions?
Transition
Over time – meeting your customers jobs-to-be-done will require maintaining relationships with them across multiple channels and potentially multiple key partners and key suppliers. What principles of effective transitioning have you considered in continuously strengthening relationships with your customers?
Motivation
Critical for creating change and sustaining new behaviors. What role do principles of motivation play in building relationships with your customers? Depending on your value proposition – one example of motivation in regards to strengthening customer relationships may be providing customers/users the ability to earn points when they accomplish an incentivized goal or task. Incentive providers such as employers, plan, and family can contribute to encouraging change for a customer/user. Points earned by a customer/user can be converted into buying power that can be spent on products in the marketplace. Points can also be donated to charities tapping into a person’s motivation for promoting goodwill. You can even reward your most passionate consumers for becoming evangelists.
Monetization
Knowing what customers value, what customers experience are both critical to any successful business. Knowing how to monetize both your Value Proposition and your Customer Relationships is foundational to sustaining any business model.
3rd – How to Measure Healthcare Customer Relationships
We also built a model for helping practitioners measure their healthcare Customer Relationships by outlining various options for metrics in the strategy, process, people, brand, financial, customer and culture domains.
It seems plausible that you should identify and know your Customer Segments before you create products for them. Once you have products selected specifically for them, you then create winning Experiences through various Channels and Customer Relationships. The flow can be seen visually here.
Customer Segment Development – know your customers, who they are, and what they want, and (most importantly) what they value.
Value Proposition Management – create value that your customers can perceive because it effectively solves their jobs-to-be-done.
Customer Behavior Management – understand your customers health needs and comprehension so you can directly and indirectly mange them.
Customer Experience Management – know how your customers want to experience your products and services and create great engagements for them as they discover, consider, buy and use them.
This section is about measuring Customer Relationship as a business function. In as much, it should be well past the standard call volumes and issue resolutions, and look to something deeper. We must add revenue and cost element into Customer Relationship measures because it is 1) prudent to do for all business functions, and 2) feasible to identify how Customer Relationship both drives revenue and lowers costs.
When Customer Relationships are designed into a business model, they produce these results:
A clear alignment of Customer Relationship to the business model and its implementation.
A set of Customer Relationships standards incorporated into all Value Propositions and Channels.
A defined set of Key Resources organized for consistent execution of the Customer Relationship.
A Platform that organizes, automates, and synchronizes Customer Relationships across the model.
A set of metrics to measure Revenue generation and Cost containment, as well as health outcomes.
Customer Relationship Success Indicators
The following measures are across the key dimensions of a company and its business model.
Strategy
A measure indicating how well Customer Relationships are embedded into the corporate strategy.
A clearly defined Customer Relationship Management strategy
A clearly defined Customer Relationship plan of implementation (change agenda)
A defined maturity curve for how Customer Relationship will create value for the company and for the customer
Culture
A measure indicating how much Customer Relationships are emphasized as a critical area of focus by all employees/internal stakeholders.
A measure for the organizational effectiveness of Customer Relationship focus
A shared executive measure for collaboration on Customer Relationship initiatives
Shared measure (connection) with Consumer Experience group
Shared measure (connection) with Customer Development/Sales group
Shared measure (connection) with Channel Owners
A single corporate-wide Customer Relationship measure in the annual company performance group of measures
A Customer Relationship dashboard with agreed upon metrics by the senior team and understood by internal stakeholders
Brand
A measure indicating the alignment of Customer Relationships with your company’s brand promise.
This needs to be developed after conversation with leadership
People
A measure indicating the development of the roles that lead and drive continuous improvement for the Customer Relationships function.
This needs to be developed after conversation with leadership
Process
A measure indicating how clearly understood and utilized the Customer Relationship process is.
Feedback loops from providers in place
Feedback loops from customers in place
This needs to be further developed after conversation with leadership
Financial
A measure indicating the effect that Customer Relationship has on corporate financial performance. Revenue (attributable to Customer Relationship)
This needs to be developed after conversation with leadership
Costs (attributable to Customer Relationship)
Cost to Serve Customers (total service and support costs) to meet their job-to-be-done
Cost to Satisfy Customers by channel (email, chat, online, telephone, in person)
Ratio of Cost to Serve / Total Revenue
Customer
A measure indicating the Customer Relationship and its affect across the customer lifecycle.
We just wrapped up our 8th business building block sprint on Channels. In summary, we completed 2 objectives:
What questions do we ask for the canvas regarding Channels?
How do we treat the development and optimization of the Channels that help our Customer Segments find our Value Proposition?
Your Channel (communication, distribution, or service) is where your Value Proposition is delivered to your Customer Segments. Channel development starts with understanding the Buyer’sPurchase Journey, defined by the specific steps a buyer takes while deciding to purchase a given Value Proposition. But healthcare business models must also consider which Channels are relevant to how a User actually “uses” a given Value Proposition. Finally, we’ll explore the effect that Key Influencers and Intermediaries have on a Channel’s outcome to achieve optimization.
Customers often use multiple Channels to decide upon and purchase (or consume) a given Value Propositions. Consumers have the expectation that retailers with multiple channels should have alignment across channels for both service and sales. Channel Threading is the intentional connection of multiple Channels with the understanding of how they will be used to complete an outcome for your Customer Segment.
Doing this well creates distribution channels that are linked together in a meaningful wayand also enables healthcare companies to create personalized products and messaging. Market leaders in retail health first focus on helping consumers navigate through the maze of health options available. Market disrupters work to remove the maze altogether. As the maze is different for every individual, the most successful healthcare business models will know and understand their customers’ preferences for successful channel “navigation.”
Our canvas should help practitioners both:
1) Design business models that optimize Channel mix based on Customer Segment preference, and
2) Thread Channels together to create a meaningful purchase journey.
1st – Questions to Ask on the Canvas for the Channels
What are the Questions that should be answered when developing Channels for a healthcare business model?
Through which Channels do your Customer Segments want to be reached?
Through which Channels are you touching your Customer Segments now?
Do your Customer Segments use multiple Channels, and if so how?
Which Channels work best for your target Customer Segments? How are you integrating your Channels with your Customer Segment routines?
Which Channels are most cost-efficient for your target Customer Segments?
Are there Intermediaries in your Channels?
How do you engage your Key Influencers into your Channels?
2nd – How to Optimize and Thread Your Healthcare Channels
How do you design business models that optimize Channel mix based on Customer Segment and preference by threading them together to create a meaningful purchase journey? It is critical for healthcare business models to correctly use their multi-channel strategy. It is necessary to know your total traffic amount from each channel. Moreover, you must be able to trace how consumer transactions take place – across multiple channels. Most importantly, you need to make it as easy possible for the consumer to navigate where they need to go and convert.
Channel Threading is the intentional connection of multiple Channels with the understanding of how they will be used to complete an outcome for your Customer. It is tying together the touch points that exist today, as well as areas that are not being addressed but are desired by your Customer Segment. Furthermore, the modern customer uses multiple Channels to decide upon and purchase (or consume) a given Value Propositions. To do this well, it creates methods of distribution that are linked together in a meaningful way. This enables healthcare companies to create personalized products and messaging.
Channel Threading starts with understanding the consumer’s purchase journey. The purchase journey is comprised of the steps a customer takes in deciding to buy and use a given Value Proposition (product). It involves the Channels in which the steps take place as well as the affect that Key Influencers and Intermediaries may have upon the outcome. However, healthcare it is very complex. There are two parts to the journey: the purchase and the use of the purchase. Both of these parts matter equally in healthcare business models, but, unfortunately, do not have equal treatment. Traditionally, more time has been spent on the sale than on the use side of the equation.
Ultimately, the winning healthcare business models will not focus on helping consumers navigate through the maze of health options available but instead remove the maze altogether. As the maze is different for every individual, the most successful models will know who their customers are ahead of time and will understand their preferences.
Before You Begin
Keep in mind that you cannot be all things to all people. Increasingly complex consumer behavior is strategic to understand and address in your actual channel strategy. This strategy should stem from what your Customer Segment desires, instead of what you believe it needs. When you pick a channel, you must also pick an “EST” which creates a focused experience. For more on the theory of EST, I suggest you read Winning at Retail: Developing a Sustained Model for Retail Success by Willard Ander and Neil Z. Stern. The upshot of this theory is that the best retail channel companies intentionally create a defined market position for themselves, and reinforce this position in the customer’s mind. In short, they dedicate themselves to being the best at one of the “EST” models, and then defend that advantage against the competition.
Winning at Retail: Developing a Sustained Model for Retail Success by Willard Ander and Neil Z. Stern
A Simple Plan
Basically, it is very simple to implement. First, pick which Customer Segments are most important to you. Then build what Channel(s) matters most to your customer. Put them in a priority list according to their needs and what is perceived as Value. Then craft an orchestrated Experience across the list. Devise what adds value to your Value Proposition (both known and unknown) in an iterative fashion.
Building the appropriate channels for any business starts with identifying the jobs-to-be-done (JTBD) for each of the consumer purchase journey categories, or “bubbles” as shown above.
The next step is to identify all possible channels that the consumer can use to complete their JTBD. This includes channels inside and outside of your control.
After all possible channels are identified, consider the degree of fit for each selected channel: product and customer fit, profitability, goals and objectives, and sales goals.
By definition, a “hassle map” defines all of the actual steps that characterize the negative experiences of the customer. For our work, we will use the term but understand that it does not necessarily equate to all negative experiences. In this situation, we will define the Hassle Map as the “steps that characterize the various channel experiences of the customer in completing their JTBD.” The goal is to create the actual journey of the customer across all selected channels.
The next step is to create the desired “channel threads” from the representative gaps in the process. These threads show how the customer uses your channels in combination or sequence to complete their JTBD, planned or otherwise. The redesign requires accentuation of the existing positive experiences and improvement of those negative experiences that represent what is most appealing to the customer. This minimum viable product approach to channel improvement is necessary because 1) there is a limited amount of work that can be accomplished at any given time, and 2) the customer’s needs and wants for a channel will change over time as they acclimate to the process (and like it). An example for this is the migration from retail banking to online banking. This work also includes clearly stating what is being “left out of the process so that manual workarounds can be developed and communicated”.
The final task is to create a channel development plan. This is in conjunction with the channel owners and other internal stakeholders, for the tasks needed to modify and/or link channels to optimize the consumer JTBD flow.
Build with the End in Mind
What happens when you Channel Thread without regards to good Experience design? This is a key question. Watch this engaging video explains this concept.
In all seriousness, this is a funny video that does a good job of showing how multichannel retailing can work – although in this case, very poorly due to a bad customer experience. Your customers want and expect you to tie together their experiences across your channels (and others). Imagine ordering a pizza in the future and your health insurance premiums change with your toppings.
In Conclusion
There are three additional factors to consider when selecting your Channels and Channel mix: control, visibility and customer preference: Control – amount of control you have over the customer experience; Visibility – strength of potential to collect customer data; Customer preference – prioritizing options for direct or indirect channels.
Take time to consider any of these topics along with other relevant factors in the Channels block of your business model canvas. Regardless of whether your business model is aimed at Patients, Providers, Payers, and or Purveyors, you need to focus on properly defining your Channels, Channel mix and the threading of your Channels. The goal is for the Customer Segment to successfully complete their purchase journey and realize your Value Proposition to its fullest.
What is Next?
Next up, we are going to do another doubleheader. We will examine Customer Relationships (1.9) and Customer Experience (1.10) simultaneously. Hopefully, we can optimize making sense out of experience when juxtaposed with relationships.
Interested in what we are doing? Step up to the plate and get involved.
