Monday 24 April 2023

Business Model canvas

"Business Model Generation" is a book by Alexander Osterwalder and Yves Pigneur which introduces the Business Model Canvas, a visual tool for creating and analysing business models.

The book is divided into five parts:

  1. Canvas: section introduces the Business Model Canvas and explains how to use it to design, test, and iterate on business models.
  2. Patterns:  section describes business models with similar characteristics, similar arrangements of business model building blocks or similar behaviours. Theses similarities are referred to as Business model patterns.
  3. Design: section delves into various design techniques which one can use to better create a value added business model
  4. Strategy: section deals with reinterpreting business strategy through the lens of the business model canvas, it helps constructively question established business practices while examining the environment in search of new opportunities.
  5. Processes: section proposes a generic business model design process, which is adaptable to to an organisations specific needs.

Overall, "Business Model Generation" is a practical guide for entrepreneurs, innovators, and business leaders who want to design and optimise their business models to create value for customers and achieve sustainable growth. 

The Canvas

the Canvas section of "Business Model Generation" introduces the Business Model Canvas, which is a visual tool that consists of nine building blocks which represent key elements of a business model. 

The nine building blocks are:
  1. Customer Segments: The specific groups of customers that a business targets and serves.
    • Mass Market: Focus on one large group of customers with broadly similar needs and problems.
    • Niche Market: Cater to specific, specialised customers.
    • Segmented: Cater to different types of customers, but who share a similar need.
    • Diversified: Very different types of customer with unrelated needs.
    • Multi-sided: Acts as the man in the middle between multiple groups, facilitating interaction between the two.

  2. Value Proposition: The products or services that a business offers to meet the needs and solve the problems of its target customers.
    • Newness: aim to satisfy a completely new set of needs that customers were previously unaware of.
    • Performance: Improve a products or services performance, make it faster, quieter, make some overall improvement.
    • Customisation: Tailoring a product or service for a particular customer or group of customers.
    • Getting the job done: Providing a support service, helping customers maintain purchased products.
    • Design: Provide a superior design, functionally and/or aesthetically
    • Brand/Status: Creating a brand identity, specific customer segments want to be associated with the established reputation.
    • Price: Offering a substitute product or service at a lower price point.
    • Cost reduction:Offer a service or product that helps customers reduce their costs.
    • Risk reduction: offer customers a way of reducing risk when purchasing a product or service, often times in the form of a warranty or service level agreement.
    • Accessibility: Providing services or products to customers or customer segments who previously could not access such products or services, either due to price or availability.
    • Convenience/usability: Making things that were previously complicated to do or use, simple and convenient 

  3. Channels: The ways in which a business reaches and interacts with its customers to deliver its value proposition.
  4. Channel types Channel phases
    Own Direct Sales force Awareness How do we raise awareness about our organisations products and services? Evaluation How dow we help customers evaluate our organisation value proposition? Purchase How dow we allow customers to purchase specific products and services? Delivery How dow we deliver a value proposition to customers? After sales How do we provide post-purchase customer support?
    Web Sales
    Indirect Own stores
    Partner Partner stores

  5. Customer Relationships: The types of relationships that a business establishes and maintains with its customers.
    • Personal Assistant: The customer can reach out to a real human who will help them throughout the sales journey as well as post purchase.
    • Dedicated assistant: A specific agent who will always interact with their specific client
    • Self-service: The company provides all the necessary means for a customer to help themselves
    • Automated services: highly tailored online support, providing, context aware chatbots. 
    • Communities: Administrated online community in which customers can help one another, also an excellent source of customer insights.
    • Co-creation: Create an avenue for customers to interact with organisations, in multisided platforms, providing ways for customers to create content,
  6. Revenue Streams: The sources of revenue that a business generates from its value proposition.
    • Asset sale: Selling a physical product for a onetime payment.
    • Usage Fee: Revenue is generated by the use of a service, the more the customer uses it, the more expensive it becomes.
    • Subscription fee: Revenue is generated by selling continuous access to a service.
    • Lending/Renting/Leasing: Temporarily granting a customer the exclusive rights to use an asset for a fee.
    • Licensing: Allowing customers to use protected intellectual property to generate revenues, common in the music and media industries.
    • Brokerage fees: An organisation charges one ore more parties for intermediation services, for example credit card companies.
    • Advertising:  Revenue is generated from advertising fees for a particular product service or brand, traditionally the media industry relies heavily on advertising.

    • Pricing Mechanisms
      Fixed menu pricing Predefined prices are based on static variables Dynamic pricing Predefined prices are based on static variables
      List price Fixed Prices for individual products, services, or other value propositions Negotiation (bargaining) Price negotiated between two or more partners depending on negotiation power and/or negotiation skills
      Product feature dependent Price depends on the number or quality of value proposition features Yield management Price Depends on inventory and time of purchase (normally used for perishable resources such as hotel rooms or airline seats)
      Customer segment dependent Price depends on the type and characteristics of customer segment Real-time-market Price is established dynamically based on supply and demand
      Volume dependent Price as a function of the quantity purchased Auctions Price determined by outcome of competitive bidding

  7. Key Resources: The assets and resources that a business needs to deliver its value proposition and create value for customers.
    • Physical: Tangible assets such as manufacturing facilities, buildings vehicles, Machines and so one. Anything that an organisation owns.
    • Intellectual: Resources such as Brands, proprietary knowledge, patents, and copyrights, customer databases, non physical assets that are valuable.
    • Human: The employees with unique and rare skills who provide value to the company.
    • Financial: Access to capital, for investments, Financial guarantees, stock options etc.
  8. Key Activities: The actions and processes that a business performs to deliver its value proposition and operate its business model.
    • Production: Designing, making and delivering a product in substantial quantities and/or of superior quality.
    • Problem solving: Coming up new and innovative solutions to customer problems, this is traditionally the domain of Consultancies, hospitals and other service organisations.
    • Platform/Network: Organisations such as ebay or uber, provide platforms for customers to engage with one another, such key activities are dominated by maintaining and improving these platforms/networks
  9. Key Partnerships: The external partners and alliances that a business forms to enhance its capabilities, reduce risk, or increase efficiency.
    • Optimisation & Economy of scale: The simples relationship is that of supplier and purchaser,  it is illogical for an organisation to own all resources and perform all activities. Optimisation & economies of scale partnerships are formed to reduce cost and often involve Outsourcing or sharing of infrastructure.
    • Reduction of risk and uncertainty: Strategic Alliances, Companies can form shared subsidiaries to develop a risky technological product, a joint venture by direct competitors which they will both benefit from.
    • Acquisition of particular resources and activities: Many organisations extend their own capabilities by relying on other firms to furnish particular resources or perform certain activities, sometimes it makes sense to acquire the partners and expand vertically.
  10. Cost Structure: The costs and expenses that a business incurs to operate its business model and deliver its value proposition.
    • Cost-driven: models focus on minimising costs, and maintaining the leanest possible cost structure.
    • Value-driven: Opposite to cost-driven structures, value driven organisations, are more focused on providing maximum value to their customers, rather than keeping costs low, they aim to provide high value, high cost products or services.
    • Fixed costs: Costs that stay the same regardless of products or services sold, things such as salaries, factories, office space.
    • Variable costs: Costs which increase or decrease based on products produced or services rendered.
    • Economies of scale: As the organisation expands the gain cost-advantages in the form of negotiating/purchasing power.
    • Economies of scope: In larger organisations cost advantages can be attained through shared services between product and service lines. 
These nine fundamental building blocks interact with one another other in one of five ways: 

Building Block Cust Segments Value Props Channels Cust Relations Revenue Streams Key Resources Key Activities Key Partnerships Cost Structure
Customer Segments - Impacted by Impacted by Impacted
Impacts Requires Requires Requires Impacts
Value Proposition Impacts - Impacts Impacted
Drives Requires Requires Requires Impacts
Channels Impacted by Impacts - Impacted
Drives Requires Requires Impacted by Impacts
Customer Relationships Impacted by Impacts Impacted by - Drives Requires Requires Impacted by Impacts
Revenue Streams Drives Driven by Drives Driven
- Impacted by Impacted by Impacted by Requires
Key Resources Requires Requires Requires Requires Impacted by - Drives Impacted by Drives
Key Activities Requires Requires Requires Requires Impacted by Driven by - Driven by Drives
Key Partnerships Requires Requires Impacted by Impacted
Impacted by Impacted by Driven by - Drives
Cost Structure Impacts Impacts Impacts Impacts Requires Drives Drives Drives -

  • Impacts: This means that the building block in the row has an effect on the building block in the column. For example, "Customer Segments" may impact "Revenue Streams" by influencing which products or services the company offers.

  • Impacted by: This means that the building block in the row is affected by the building block in the column. For example, "Channels" may be impacted by "Customer Segments" if the company needs to use specific channels to reach their target customers.

  • Drives: This means that the building block in the row is a primary driver of the building block in the column. For example, "Revenue Streams" may be driven by the "Value Proposition" of the company, as customers are willing to pay for a product or service that they perceive as valuable.

  • Driven by: This means that the building block in the row is primarily driven by the building block in the column. For example, the "Customer Segments" of a company may be driven by the "Value Proposition" that the company offers, as the company needs to appeal to a specific group of customers in order to provide a valuable product or service.

  • Requires: This means that the building block in the row requires the building block in the column in order to function effectively. For example, "Key Resources" may require "Key Activities" in order to effectively utilize those resources.