Business Model Generation – Part1 – Canvas
Within the next week I´ll post my complete summary (5 parts) of the book/ the method “Business Model Generation” by Osterwand & Pigneur.
I´ll try to give a brief summary without going into great detail because it´s just too much input. It would definitely go beyond the scope of this blog. I recommend anyway to take a look at the book for studying all the examples. Especially the first part of the book is worth reading! The Canvas model I´ll start with is just an amazing tool!
Here we go:
The Business Model Canvas
A business model describes the rationale of how an organization creates, delivers and captures value.
The 9 building blocks of a business model in an overview:
- CS: Customer Segments – An organization serves one or several customer segments
- VP: Value Propositions – It seeks to solve customer problems and satisfy customer needs with value propositions
- CH: Channels – Value propositions are delivered to customers through communication, distribution and sales channels
- CR: Customer Relationships – Customer relationships are established and maintained with each customer segment
- R$: Revenue Streams – Revenue streams result from value propositions successfully offered to customers
- KR: Key Resources – Key resources are the assets required to offer and deliver the previously described elements
- KA: Key Activities – …by performing a number of key activities
- KP: Key Partnerships – Some activities are outsourced and some resources are acquired outside the enterprise
- C$: Cost Structure – The business model elements result in the cost structure
Now we got all our building blocks. The following picture is a canvas made by businessmodelgeneration.com, which allows us to paint pictures of new or existing business models. In the end of the article you´ll see how to use it!
CS: Customer Segments
This block defines the different groups of people or organizations an enterprise aims to reach and serve.
There are different types of customer segments. For example Mass Market, Niche Market, Segmented, Diversified, Multi-sided Markets.
VP: Value Propositions
The Value Propositions Building Block describes the bundle of products and services that create value for a specific Customer Segment. It´s the reason why customers turn to one company over another. Some may be innovative and represent a new or disruptive offer. Others may be similar to existing market offers, but with additional features.
Values may be quantitative (e.g. price) or qualitative (e.g. design). Elements like: Newness, Performance, Customization, Design, Price, Brand, Cost- , Risk Reduction, Accessibility, Usability and so on.
The Channel Building Block describes how a company communicates with and reaches its Customer Segments to deliver a Value Proposition. Channels are customer touch points that play an important role in the customer experience.
Channels serve several functions, including:
- Raising awareness among customers about a company´s products and services
- Helping customers evaluate a company´s Value Proposition
- Allowing customers to purchase specific products and services
- Delivering a Value Proposition to customers
- Providing post-purchase customer support
CR: Customer Relationships
A company should clarify the type of relationship it wants to establish with each Customer Segment. Relationships can range from personal to automated. CS may be driven by the following motivations: customer acquisition, customer retention, boosting sales.
What type of relationship does each of our Customer Segments expect us to establish? How costly are they? How are they integrated with the rest of our business model?
Examples: (dedicated) personal assistance, self-service, communities, co-creation
RS: Revenue Streams
Revenue streams are a business´ arteries. A business model can involve two different types of RS:
Transaction revenues from one-time customer payments
Recurring revenues from ongoing payments to either deliver a Value Proposition to customers or provide post-purchase customer support.
There are several ways to generate Revenue Streams, for example: Asset sale, usage fee, subscription fees, lending, leasing, licensing, advertising.
KR: Key Resources
Every business model requires Key Resources. These resources allow an enterprise to create and offer a Value Proposition, reach markets, maintain relationships with Customer Segments, and earn revenues. Different Key Resources are needed depending on the type of business model. Key resources can be physical, financial, intellectual, or human. A microchip manufacturer require capital-intensive production facilities, whereas a microchip designer focuses more on human resources.
KA: Key Activities
These activities are the most important actions a company must take to operate successfully. It´s identical to KR. So for software maker Microsoft, key activities include software development, whereas for PC manufacturer Dell, key activities include supply chain management.
KP: Key Partnerships
Companies forge partnerships for many reasons, and partnerships are becoming a cornerstone of many business models. Companies create alliances to optimize their business models, use economy of scale, reduce risk, or acquire resources.
We can distinguish between four different types of partnerships:
- Strategic alliances between non-competitors
- Coopetition: strategic partnerships between competitors
- Joint ventures to develop new businesses
- Buyer-supplier relationships to assure reliable supplies
CS: Cost Structure
Creating and delivering value, maintaining Customer Relationships, and generating revenue all incure costs. Such costs can be calculated relatively easily after defining Key Resources, -Activities and –Partnerships. Low Cost Structures are more important to some business models than to others. There are classes of business model cost structures: cost-driven (e.g. RyanAir) and value-driven (e.g. Luxury hotels)
How to use the Business Model Canvas?
- The Business Model Canvas download.
- Print the canvas on a poster
- Put the poster on a wall
- Sketch out your business model
This is how it could look like: (Example by Business Model Generation)
This is actually the first step to create a new business model or improve an existing one. The Business Model Canvas is a tool for describing, analyzing, and designing business models.
This chapter is followed by Unbundling Business Models in the next chapter “Patterns”