The Human Factors in Business Models
Leer “Los factores humanos en los modelos de negocio” en español.
This article summarises a masterclass at the MacEwan University School of Business held in November 2nd, 2023 with L. Carlos Freire.
Business models are complex ecosystems, populated by a variety of stakeholders — clients, employees, and partners, among others. Though the interactions between these individuals may seem logically constructed, they strongly rely on human performance. Understanding and accounting for the human factors that influence decision-making and task execution are pivotal for the success of any business.
The Complexity of Human Behavior
Everyone, from the advertising-saturated consumer to the productivity-pressured employee, is expected to constantly make complex decisions, often in the moment. The way people behave determines if a business model thrives sustainably or ultimately fails. For instance, buyer indecisiveness significantly impacts sales, and about 80% of workplace incidents are attributed to human error, according to several reports.
While economic theories often assume rational behavior, psychological studies show otherwise. Nobel laureate Daniel Kahneman sums it up, stating that the assumption of rationality keeps us from making better decisions because human factors interfere with our decision-making process.
Kahneman and other researchers have brought attention to the often-irrational facets of human behavior, challenging classical economic theories that presuppose rational decision-making. This irrationality is shaped by a diverse array of factors that span from ergonomics — the comfort level of interacting with a system, be it a process, a product, or an app — to cognitive biases, attention spans, and mechanisms of memory and information recall.
Emotional intelligence and situational elements like motivation and existing habits further contribute to how tasks are executed and decisions are made. Additionally, a myriad of external influences, including cultural norms, social relationships, and surrounding stressors, also contribute to the complexity of human decision-making.
Collectively, these internal and external elements enrich our understanding of human interaction with systems and provide invaluable insights for designing products and services that truly resonate with users and fit better with the way they expect to use and interact with them.
The Role of Design in Accounting for Human Factors
Ergonomics, cognitive biases, emotional intelligence, and even social influence are all human factors that profoundly affect our interaction with products and services. Recognizing this, the field of Design has evolved from mere aesthetics to a multi-dimensional domain concerned with these people-centric aspects, and capable of factoring in these human complexities.
Various studies have consistently emphasized the significance of a design-centric strategy in business:
- Design-driven companies have outpaced the S&P Index by an astounding 219% over a ten-year period, according to the Design Management Institute.
- Businesses that prioritize superior customer experiences have a competitive edge, outperforming their rivals by nearly 80%, as noted by Forrester Consulting.
- Ease of use can provide an excellent return on investment (ROI). Every dollar spent in this area yields returns ranging from $10 to $100, as stated by Stratabeat and IBM.
- Firms that are design-focused reap considerable financial rewards, with 32% more revenue and 56% higher total returns to shareholders, according to a report by McKinsey & Company.
These statistics affirm that human-centered design is a potent business strategy with tangible benefits. When design thinking is deeply integrated into the business process, it serves as a catalyst for business growth, enhancing multiple facets of the Business Model Canvas. Any company aiming for long-term viability and market competitiveness would do well to weave design thinking into its organizational fabric.
Frameworks for Human-Centric Business Models
Jobs to be Done
First coined by Clayton Christensen in his 1997 book “The Innovator’s Dilemma,” the Jobs to Be Done framework approaches product design by focusing on the end goal or ‘job’ a customer wants to achieve. The insight is simple yet profound: people don’t buy products, they buy solutions to their problems. As Theodore Levitt said, “People don’t want to buy a quarter-inch drill; they want a quarter-inch hole.”
The JTBD framework assists in segmenting a ‘job’ into individual components and studying them in real-world contexts. This segmentation allows businesses to fine-tune their value propositions, ensuring they resonate with their target market. For example, if you consider a mobile app for online grocery shopping, the JTBD isn’t just buying groceries, but perhaps saving time, avoiding supermarket crowds, or facilitating a healthier lifestyle through curated lists.
The Gulfs of Evaluation and Execution
Don Norman’s seminal work, “The Design of Everyday Things,” introduced pivotal concepts such as the Gulf of Evaluation and the Gulf of Execution.
The Gulf of Evaluation refers to the cognitive gap between a user’s perception of a system’s state and their understanding of what it means — essentially, how easily can a user ascertain the system’s current state and what needs to be done next. The Gulf of Execution, on the other hand, describes the disconnect between a user’s intentions and their capability to carry them out within the system — essentially, how straightforward it is for a user to translate their intentions into actions.
Minimizing these ‘gulfs’ means making systems easier to understand and more intuitive to operate. For businesses, this necessitates a design approach that prioritizes the user’s experience and cognitive flow, effectively bridging the gap between human behavior and technological functionality.
These gaps can widen due to complex interfaces, lack of intuitive control, or failure to recover from errors. Companies can measure these gaps quantitatively, observing how changes to their interface or process impact user engagement and efficiency. For instance, online payment platforms like PayPal or Stripe seek to minimize these gulfs by simplifying the display of information and the steps needed to make a transaction, thereby boosting user confidence and increasing transaction rates.
Consider The Evolution of Maps
Taking road maps and navigation tools as a case study, we can see how the Jobs To Be Done (JTBD) framework and the concepts of the Gulf of Evaluation and Execution offer valuable perspectives, not only to explain past changes but also point toward future innovations.
The primary “Job To Be Done” for any navigation system is to guide a user from their starting point to their desired destination. This JTBD has remained the same for over a century, but the methods for achieving it have evolved drastically. The different iterations of maps, from paper to digital, have not only reduced the Gulfs of Evaluation and Execution but have also continually aligned themselves more closely with user needs and contexts, which is central to the JTBD philosophy.
Originally, paper maps required drivers to manually locate their position and desired destination, inherently leading to a large Gulf of Evaluation and Execution. Users had to invest significant cognitive and physical effort to comprehend the map and to plot a course, often requiring them to pull over for safety.
The advent of internet-based services like MapQuest and later, GPS navigators, reduced these gulfs by automating some of the tasks. However, their static nature failed to adapt to real-time conditions, leaving room for further alignment with the JTBD of efficient and reliable navigation.
Google Maps and subsequent AI-driven services have almost closed these gulfs entirely. By delivering dynamic, real-time information directly to the user and even adapting to changing conditions, these applications have aligned incredibly closely with the original JTBD. They have essentially automated both the evaluation and execution processes, allowing users to focus on driving.
As we look to the future, the JTBD framework suggests that any further innovation in navigation tools will likely focus on anticipatory features. For instance, integrating calendar and preference data could lead to a navigation system that not only knows where you need to go but also when you need to be there and how you prefer to travel. In this way, the system could automatically suggest the most efficient route at the most appropriate time, reducing the Gulf of Evaluation and Execution to near zero.
By consistently focusing on the core JTBD of helping users navigate from point A to point B, each evolutionary step in map technology has also reduced the associated Gulfs of Evaluation and Execution. The result is a product that is not just technologically advanced but also deeply aligned with user needs, contexts and expectations. The journey of the road map exemplifies how understanding the JTBD and the gulfs can offer a comprehensive lens for driving product development and evolution.
Other Success Stories: A Quick Overview
Apple and the App Store Ecosystem
In the early days of the App Store, Apple confronted a significant challenge: how could they scale their promising marketplace without sacrificing the quality and security that users had come to expect? Apple’s solution was both technical and strategic. They developed an intricate internal toolset for app review and quality control, streamlining the app submission and review process.
This shift not only fortified the App Store’s reputation for being a secure and high-quality platform but also optimized the internal talent, reducing long-term operational costs. Customer trust surged, as users became confident that every app they downloaded met Apple’s stringent quality criteria. Essentially, Apple used technology to strengthen every aspect of their App Store business model, from value propositions to customer relationships.
Source: Jackson Walter
Domino’s Pioneers Online Pizza Ordering
Domino’s identified that it could capture a much larger market share by transforming the pizza ordering experience. Before 2013, ordering a pizza was more cumbersome and less efficient. Recognizing this, Domino’s developed and launched the first online pizza ordering system, dramatically enhancing customer convenience.
Not only did they add a new sales channel; they also upgraded their value proposition increasing customer satisfaction and loyalty. Operational efficiency was also enhanced as online orders sped up the pizza-making process. By successfully leveraging technology, they opened up new revenue streams and changed the way they interacted with customers.
Source: Cap Gemini
Uber’s Seamless Urban Transportation
The advent of Uber revolutionized personal transportation, but it wasn’t without challenges. The company needed to improve the efficiency and reliability of rides, requiring a complete overhaul of how drivers and riders were coordinated. By integrating real-time GPS tracking and automated billing into their platform, Uber was able to offer a far superior service experience.
Rides became more efficient; drivers could be more easily located, and billing became a seamless, paperless experience. The app itself morphed into more than just a service channel — it became the cornerstone of their value proposition. The outcome was an improved user experience that spurred repeat use, leading to higher revenue and a more robust business model.
Source: Journal Business
Slack’s Communication Revolution
In the realm of internal communications, Slack tackled a long-standing challenge as old as the corporate world itself: improving workplace productivity. The company responded by creating a platform that enabled real-time chat, file sharing, and integrations with other work tools. Slack wasn’t merely a product but a solution to a multitude of workplace inefficiencies.
The platform brought together various communications tools into a centralized hub, enabling better teamwork and, ultimately, a more productive work environment. This new approach had cascading effects on their business model, enhancing customer relationships, and offering a subscription model that generated consistent revenue.
Source: Nira
Conclusion: Human Factors Are Business Factors
Human factors intricately lace through every facet of business models. By leveraging design thinking and human-centric frameworks like JTBD and the Gulfs of Evaluation and Execution, companies can leverage human behaviors into opportunities for business innovation.
Here are three key ideas to take away from this article that can help you consider human factors in business:
- People are integral to every aspect of business success: Recognize the inherent human factors affecting your business model.
- Consider psychological, social, and cultural influence: These elements directly and indirectly condition decision-making and productivity.
- Leverage a people-centric approach for business model innovation: Design-thinking and human-centric frameworks can open new avenues for business model innovation and performance optimization. You can read more about this in my articles about the Ingredients of innovation and Recipes for innovation.
Stay tuned for upcoming articles, where we will explore the specific challenges and opportunities of different business model patterns, such as B2C, B2B and the often neglected B2E (business to employee).
