In our book we discuss several purposes of business modeling: communications, analysis, compliance management, requirements for software development, direct execution in software engines, building models for persuasion, for training, and for knowledge management (discussed in previous blogs entries.) Seven of these involve communications in one form or another and this makes communication one of the primary uses of business models.

Modeling supports communication because it supports different levels of detail.
Different people in a business need different levels detail. For example, when evaluating another company for an acquisition, different people in different departments will need different levels of detail because they are interested in different aspects of the business. The marketing department will want to know how well the new acquisition fits the existing portfolio of companies and whether it is similar enough to the existing holdings, brand and strategy. Marketing needs to understand the customers, locations, and competitors. Operations will be more interested in how well the potential acquisition is run. Operations needs to understand the organization, processes, and policies. The executive team will want to know how the business is performing. They want to understand finances and strategy.

Business models support the presentation of different detail to different audiences. To operations, you can show a detailed model of the business processes for processing a customer’s order. To marketing, a high level model showing the interactions between the customer and different groups within the company is sufficient, so they are aware of the commitment to customer support. To the executive team you can show a business motivation model so that they understand what the company is trying to achieve and if it is in alignment with their overall strategy.

Business models are effective for communication because most models are visual. We humans are visual beings; we have sophisticated visual processing engines built into our brains. Most business models are shown as visual diagrams to take advantage of this visual processing. Diagrams make a model easier to understand and faster to communicate.

A visual model also evokes an emotional response. If people like the model they see they will be more likely to understand it and accept it. If they helped create the model they typically also have a feeling of ownership.

Models also support the message a speaker is trying to convey. The audience does not have to simply listen to someone speak and try to interpret the words. The speaker can focus on the major points, while the audience views the model and associates it with the message.

Business models facilitate a common understanding of a business situation. When two business people create an on-the-spot drawing of a business process, they may think they agree on the process but actually disagree, because each interprets the drawing differently. Does Joe’s diagram box mean the same thing as Sharon’s? With a model, the modeling elements are rigorously defined. The same model means the same thing to anyone who sees it. (Or at least the modeling elements are intended to be rigorously defined, with the same meaning for everyone. In practice, the rigor is a matter of degrees. But relying on business models certainly leads to much less accidental misunderstanding than relying on informal drawings.)

Why is rigor important? Communication is all about finding common ground. In some languages (e.g. Hebrew) the same word is used for hello and goodbye. The meaning is determined from the context. If you begin a telephone conversation with someone and you do not agree on the form of communication, when you say hello the other person may hang up. Modeling is similar. The model and its semantics-the meaning of each model element-is an agreement that allows for information to be conveyed in a consistent manner. As long as those that create the model and those that read it have the same understanding, the model can be interpreted to have the same meaning.

People with different backgrounds can use models to communicate, as long as they agree on the meaning of the modeling elements. Someone purchasing a home may not be skilled in reading the builder’s plumbing or electrical diagrams. However a floorplan can be used as a common model between the purchaser, the plumber and the electrician. The floorplan is a baseline framework for common understanding. The floorplan includes modeling elements that are familiar to all: stairways, walls, closets, and doors. Business models serve the same purpose in a business environment.