ⓘ Business Model Canvas

                                     

ⓘ Business Model Canvas

Business Model Canvas is a strategic management and lean startup template for developing new or documenting existing business models. It is a visual chart with elements describing a firms or products value proposition, infrastructure, customers, and finances. It assists firms in aligning their activities by illustrating potential trade-offs.

The nine "building blocks" of the business model design template that came to be called the Business Model Canvas were initially proposed in 2005 by Alexander Osterwalder based on his earlier work on business model ontology. Since the release of Osterwalders work around 2008, new canvases for specific niches have appeared.

                                     

1. Description

Formal descriptions of the business become the building blocks for its activities. Many different business conceptualizations exist; Osterwalders 2004 thesis and coauthored 2010 book propose a single reference model based on the similarities of a wide range of business model conceptualizations. With his business model design template, an enterprise can easily describe its business model. Osterwalders canvas has nine boxes; the name of each is given in bold below. Descriptions below are based largely on the 2010 book Business Model Generation.

  • Infrastructure
  • Key Activities: The most important activities in executing a companys value proposition. An example for Bic, the pen manufacturer, would be creating an efficient supply chain to drive down costs.
  • Key Resources: The resources that are necessary to create value for the customer. They are considered assets to a company that are needed to sustain and support the business. These resources could be human, financial, physical and intellectual.
  • Partner Network: In order to optimize operations and reduce risks of a business model, organizations usually cultivate buyer-supplier relationships so they can focus on their core activity. Complementary business alliances also can be considered through joint ventures or strategic alliances between competitors or non-competitors.
  • Offering
  • Value Propositions: The collection of products and services a business offers to meet the needs of its customers. According to Osterwalder 2004, a companys value proposition is what distinguishes it from its competitors. The value proposition provides value through various elements such as newness, performance, customization, "getting the job done", design, brand/status, price, cost reduction, risk reduction, accessibility, and convenience/usability.
  • The value propositions may be
  • Quantitative – price and efficiency
  • Qualitative – overall customer experience and outcome
  • Segmented: A company applies additional segmentation within existing customer segment. In the segmented situation, the business may further distinguish its clients based on gender, age, and/or income.
  • Niche Market: Customer segmentation based on specialized needs and characteristics of its clients. e.g. Rolex
  • Diversify: A business serves multiple customer segments with different needs and characteristics.
  • Mass Market: There is no specific segmentation for a company that follows the Mass Market element as the organization displays a wide view of potential clients. e.g. Car
  • Customer Segments: To build an effective business model, a company must identify which customers it tries to serve. Various sets of customers can be segmented based on their different needs and attributes to ensure appropriate implementation of corporate strategy to meet the characteristics of selected groups of clients. The different types of customer segments include
  • Multi-Sided Platform / Market: For a smooth day-to-day business operation, some companies will serve mutually dependent customer segments. A credit card company will provide services to credit card holders while simultaneously assisting merchants who accept those credit cards.
  • Customers
  • Dedicated Personal Assistance: The most intimate and hands-on personal assistance in which a sales representative is assigned to handle all the needs and questions of a special set of clients.
  • Personal Assistance: Assistance in a form of employee-customer interaction. Such assistance is performed during sales and/or after sales.
  • Automated Services: A system similar to self-service but more personalized as it has the ability to identify individual customers and their preferences. An example of this would be Amazon.com making book suggestions based on the characteristics of previous book purchases.
  • Self Service: The type of relationship that translates from the indirect interaction between the company and the clients. Here, an organization provides the tools needed for the customers to serve themselves easily and effectively.
  • Channels: A company can deliver its value proposition to its targeted customers through different channels. Effective channels will distribute a companys value proposition in ways that are fast, efficient and cost-effective. An organization can reach its clients through its own channels store front, partner channels major distributors, or a combination of both.
  • Communities: Creating a community allows for direct interactions among different clients and the company. The community platform produces a scenario where knowledge can be shared and problems are solved between different clients.
  • Customer Relationships: To ensure the survival and success of any businesses, companies must identify the type of relationship they want to create with their customer segments. That element should address three critical steps on a customers relationship: How the business will get new customers, how the business will keep customers purchasing or using its services and how the business will grow its revenue from its current customers. Various forms of customer relationships include
  • Co-creation: A personal relationship is created through the customers direct input to the final outcome of the companys products/services.
  • Finances
  • Cost Structure: This describes the most important monetary consequences while operating under different business models. A companys DOC.
  • Value-Driven – Less concerned with cost, this business model focuses on creating value for products and services. e.g. Louis Vuitton, Rolex
  • Cost-Driven – This business model focuses on minimizing all costs and having no frills. e.g. Low-cost airlines
  • Classes of Business Structures
  • Fixed Costs – Costs are unchanged across different applications. e.g. salary, rent
  • Economies of Scope – Costs go down due to incorporating other businesses which have a direct relation to the original product.
  • Characteristics of Cost Structures
  • Economies of Scale – Costs go down as the amount of goods are ordered or produced.
  • Variable Costs – Costs vary depending on the amount of production of goods or services. e.g. music festivals
  • Licensing – Revenue generated from charging for the use of a protected intellectual property.
  • Lending/Leasing/Renting – Giving exclusive right to an asset for a particular period of time. e.g. Leasing a Car
  • Advertising – Revenue generated from charging fees for product advertising.
  • Usage Fee – Money generated from the use of a particular service. e.g. UPS
  • Revenue Streams: The way a company makes income from each customer segment. Several ways to generate a revenue stream
  • Subscription Fees – Revenue generated by selling access to a continuous service. e.g. Netflix
  • Asset Sale – the most common type Selling ownership rights to a physical good. e.g. retail corporations
  • Brokerage Fees – Revenue generated from an intermediate service between 2 parties. e.g. Broker selling a house for commission
                                     

2. Application

The Business Model Canvas can be printed out on a large surface so groups of people can jointly start sketching and discussing business model elements with post-it note notes or board markers. It is a hands-on tool that fosters understanding, discussion, creativity, and analysis. It is distributed under a Creative Commons license from Strategyzer AG and can be used without any restrictions for modeling businesses.

The Business Model Canvas is also available in web-based software format.

                                     

3. Alternative forms

The Business Model Canvas has been used and adapted to suit specific business scenarios and applications. Examples include:

  • Internal communications
  • Lean startup § Lean Canvas
  • Supply chain
  • Cash flow
  • Product/market fit
                                     

4. Criticism

The Business Model Canvas was characterized as static because it does not capture changes in strategy or the evolution of the model. Some limits of the template are its focus on organizations and its consequent conceptual isolation from its environment, whether this is related to the industry structure or to stakeholders such as society and natural environment.