Wednesday 10 September 2014

Business Model Analysis Coming of Age?

I wrote a few months ago (here) that one of the common areas of prudential and conduct supervision is the focus on understanding business models.  The Prudential Regulation Authority (PRA) published an interesting paper about the application of business model analysis to developments in the insurance sector (here).

However, it still felt that business model analysis remained something confined to policy and supervisory circles.  I was therefore pleasantly surprised to read about it in a quick Q&A session with Sir Win Bischoff in The Times (Saturday, 6 September).  In response to a question about his views on leadership, he said, “establish the business model, set the strategy and then let management get on with it.”

Given Sir Win Bischoff's role as a former chairman of several major banks, there are a number of messages in this answer: 

1.  confirmation of boards' interest in oversight of the business model, meaning it is not just a supervisory issue; and   

2.  a pecking order with the business model setting the wider parameters for the strategy.

With hindsight, it is possible to see that what may have seemed changes to business strategy were really changes to the business model.  Seeking to separate decisions about business model and strategy would go some way to supporting an enhanced oversight of risk taking.  How would risk functions rise to this challenge?     

If you work in financial services, I would be keen to hear your thoughts about business model and risk management.  If you don’t, I would be keen to know if these lessons resonate with your experience. 

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