"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:

Canvas: section introduces the Business Model Canvas and explains how to use it to design, test, and iterate on business models.
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.
Design: section delves into various design techniques which one can use to better create a value added business model
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.
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.

Strategy

In todays day and age, the old proverb "If it's not broken, don't fix it" no longer applies, we very much live in an era of rapid change, to survive in the business world we must embrace that change and evolve with it or be left behind. The environment from a technological, competitive, customer, socio-econimcal and so on perspective is rapidly changing and your business cannot afford to fall behind, this is why it is more imperative than ever to constantly challenge and reassess one's business models and opportunities.

there are four main areas of the environment which impact your business:

Market forces:

Market segments: the major customer groupings for your product or service, describe their attractiveness, seek to identify new segments.
Needs & demands: Outline what the market needs and analyses how well they are served.
Market issues: Identify key issues driving and transforming your market form the customer and offer perspectives.
Switching costs: Describes elements related to customers switching business to a competitor.
Revenue attractiveness: Identify elements related to revenue attractiveness.

Industry forces:

Suppliers & other value chain actors: Describe the key value chain incumbents in your market and spots new players entering the market, ensure that you are not depended on one particular supplier.
Stakeholders: Specify which actors may influence your organisation and business model.
Competitors (incumbents): Identify competitors and their relative strengths.
New Entrants (insurgents): Identify new insurgents into the market and determine whether they compete with a business model different than yours.
Substitute products & services: Describe potential substitutes for your offers, including those from other markets and industries.

Key trends:

Technology trends: Identify technology trends that could threaten your business model or enable it to evolve or improve
Regulatory trends: describe regulations and laws that influence your business model
Societal & cultural trends: Identify major societal trends that may influence your business model
Socioeconomic trends: Outlines major socioeconomic trends relevant to your business model, Socioeconomic trends provide valuable insights into how the market and consumer preferences are evolving.

Macroeconomic forces

Global Market conditions: Outline current overall conditions from a broader macroeconomic perspective factoring the impact of overall performance of an economy.
Capital markets: the financial systems and platforms where you raise capital by issuing and trading various types of securities. Understand the current resources required for your business model
Economic Infrastructure: the physical and organisational structures, facilities, and systems that support economic activities and enable businesses to operate effectively. It encompasses various components that provide the foundation for economic development, such as transportation networks, communication systems, energy supply, and financial institutions.
Commodities & other resources: Highlight current prices and price trends for resources required for your business model.

Evaluating your business model

Just like an annual medical checkup, your business model(s) will benefit from an annual review, by preemptively reviewing your business models you can react to, or take advantage of environmental forces before they impact you or you miss an opportunity.

There are two approaches to evaluating your business models, to evaluate each individual building block and of course reviewing the business model as a whole, it is important to understand that these activities are complementary.

One of the most common assessment tools is to use the SWOT analysis tool,

This is a simple tool that is commonly known throughout the business world, however this tool has a tendency of producing vague insights that are difficult to action, when conducting a SWOT analysis, keep in mind the environmental factors and how they may impact your business model.

Strengths vs weaknesses

Strengths are the internal characteristics and resources that give a business a competitive advantage over others. These are factors within the control of the business and represent its positive attributes. Whereas weaknesses are the internal factors that hinder a business's performance and place it at a disadvantage compared to competitors. These are areas where the business needs improvement or lacks certain capabilities. Strengths and weakness can often be thought of opposite sides of the same coin, generally the opposite of your strengths are your weaknesses, review some of the following questions to get an idea of both strengths and weaknesses around the individual building blocks of your business model.

Strength vs weakness value proposition assessment

Are our value propositions are well aligned with customer needs?
Do our value propositions have strong Network effects?
Do strong synergies between our products and services exist?
Are our customers satisfied with our products and/or services?

Strengths vs weakness of Cost/Revenue assessment

Do we benefit from strong margins?
Is our revenue are predictable?
Do we have recurring revenue streams and frequent repeat customers?
Are our revenue streams diversified?
Are our revenue streams sustainable?
Do we collect revenues before we incur expenses?
Do we charge what customers are willing to pay for?
Our pricing modes capture full willingness to pay?
Do we benefit from economies of scale?

Strengths vs weakness of Infrastructure Assessment

Are our key resources difficult or simple for competitors to replicate?
Are our resource needs predictable?
We have access to resources as we need them?
Do we have to maintain high volumes of stock?
We efficiently execute key activities?
Are our key activities are difficult to imitate?
Our production quality is high and consistent?
Do we balance in-house with external execution?
Are we are focused and work with partners when necessary?
Do we have strong relationships with our key partners?

Strengths vs weakness of Customer Interface Assessment

Are our customer churn rates low?
Is our customer base is well segmented?
Are we continuously acquiring new customers?
Are our Channels are efficient?
Are our channels effective?
Channel reach is strong among our customers?
Can customers easily see our channels?
Channels are strongly integrated?
Do our channels provide economies of scale?
Are our channels aligned to our customer segments?
Do we have strong customer relationships?
Is relationship quality aligned with customer segments?
Do relationships bind customers through high switching costs?
Is our brand strong and recognisable?

Threats

Threats are external factors that pose risks or challenges to a business's performance and profitability. These factors are outside the control of the business but can have a significant impact on its operations. Threats may include intense competition, economic downturns, changing consumer preferences, disruptive technologies, regulatory changes, or supplier-related risks. By identifying potential threats, businesses can proactively develop strategies to mitigate risks, adapt to changing conditions, and stay resilient in the face of challenges.

Threats to value proposition assessment

Are substitute products and services available?
Are competitor threatening to or offering similar products/service at lower rates?

Threats to Cost/Revenue assessment

Are our profit margins threatened by competitors or technology?
Is a disproportional amount of our revenue coming in from a minority of streams?
Are any revenue streams at risk of disappearing or decreasing in flow?
Which costs are unpredictable and my increase?
Which costs threaten to outpace the revenue they support?

Threats to Infrastructure

Could we face a disruption in the supply of certain resources?
Is the quality of our resources threatened in any way?
What key activities might be disrupted?
Is the quality of our activities threatened in anyway?
Are we in danger of losing any partners?
Might our partners collaborate with our competition?
Are we too dependent on any particular partner or supplier?

Threats to our Customer interface

Could our market become saturated soon?
Are competitors threatening our market share?
How likely are customers to defect to a competitor?
How quickly will competition intensify in our market?
Do any competitors threaten our channels?
Are any of our channels at risk of becoming irrelevant to our customers?
Are any of our customer relationships in danger of deteriorating?

Opportunities

Opportunities are external factors in the business environment that have the potential to contribute positively to a company's growth and success. These factors arise from changes in the market, industry trends, technological advancements, emerging consumer needs, or regulatory shifts. Opportunities could include expanding into new markets, introducing innovative products or services, leveraging partnerships or collaborations, or capitalising on favorable market conditions. Identifying and seizing opportunities can enable businesses to enhance their market position and achieve sustainable growth.

Value proposition Opportunities

Could we generate recurring revenues by converting products into services?
Could we better integrate our products ore services?
Which additional customer needs could we satisfy?
What compliments to or extensions of our Value proposition are possible?
What other value could we provide to our customers?

Cost/Revenue Opportunities

Can we replace on-time transaction revenues with recurring revenues?
What other elements would customers be willing to pay for?
Do we have cross-selling opportunities either internally or with partners?
What other revenue streams could we add or create?
Can we increase prices?
Where can we reduce costs?

Infrasturcture opportunities

Could we use less costly resources to achieve the same result?
Which key resources could be better sourced from partners?
Which key resources are under-exploited?
Do we have unused intellectual property of value to others?
Could we standardise som key activities?
how could we improve efficiency in general?
Would IT support boost efficiency?
Are there outsourcing opportunities?
Could greater collaboration with partners help us focus on our core business?
Are there cross-selling opportunities with partners?
Could partner channels help us better reach our customers?
Could partners compliment our value proposition?

Customer Interface opportunities

How can we benefit from a growing market?
Could we serve new customer segments?
Could we better serve our customers through finer segmentation?
How could we improve channel efficiency or effectiveness?
Could we integrate our channels better?
Could we find new complementary partner channels?
Could we better align channels with customer segments?
Is there potential to improve customer follow-up?
How could we tighten our relationships with customers?
Could we improve personalisation?
How could we increase switching costs?
Have we identified and "fired" non profitable customers, if not why?
Do we need to automate some relationships

the above are not an exhaustive list, they are merely a brain teaser a starting point to get started with a SWOT analysis.

Blue ocean Strategy framework

The Blue Ocean Strategy framework is a strategic management concept developed by W. Chan Kim and Renée Mauborgne. It provides a systematic approach for creating uncontested market spaces, referred to as 'blue oceans', where businesses can thrive and compete in a less crowded and highly profitable market.

The framework is built on the premise that instead of engaging in head-to-head competition in existing markets (red oceans), businesses should seek to create new markets with little or no competition. Here's a quick overview of the key components of the Blue Ocean Strategy framework:

Value Innovation: the cornerstone of the framework. It involves simultaneously pursuing differentiation and low cost to create a leap in value for both customers and the company itself. By offering a unique and compelling value proposition, businesses can break away from the competition.
Four Actions Framework: helps businesses identify new value propositions by challenging four key questions:

Which factors that the industry takes for granted should be eliminated?
Which factors should be reduced well below the industry's standard?
Which factors should be raised well above the industry's standard?
Which factors should be created that the industry has never offered?

Six Paths Framework: assists businesses in identifying new market opportunities by considering alternative perspectives. It explores six different angles:

looking across industries,
strategic groups,
buyer groups,
complementary products and services,
functional/emotional appeal,
and time

ERRC (Eliminate-Reduce-Raise-Create) Grid: guides businesses in systematically evaluating and strategising the key factors affecting competition. It helps identify which factors can be eliminated or reduced, which can be raised, and which new factors can be created to deliver a unique value proposition.
Non-Customers: The framework emphasises the importance of targeting non-customers as a source of untapped market potential. By understanding the needs and preferences of non-customers and tailoring products or services to attract them, businesses can expand their customer base and create new demand.

Overall, the Blue Ocean Strategy framework provides a structured approach for businesses to break away from fierce competition and explore new market spaces. It encourages innovation, value creation, and the pursuit of uncontested market opportunities to achieve long-term success.

To merge this concept with the business model framework we will focus our efforts on the four actions framework. If you observe the Business model canvas you will see that it is divided into two halves, the left being the cost-side and the right being to value-side. You can think of the right side as what you do to provide value to customers and the left side what you do to create that value.

when it comes to the left hand side of the business model canvas, focus on

Which factors that the industry takes for granted should be eliminated?
Which factors should be reduced well below the industry's standard?

when it comes to the right hand side of the business model canvas focus on

Which factors should be raised well above the industry's standard?
Which factors should be created that the industry has never offered?

by following the above approach you will successfully integrate both the blue ocean framework and the business model canvas, by visualizing all the building blocks of your business model it is easier to identify the operational blocks which can be eliminated or their cost reduced while at the same time looking to increase the value provided to customers. one thing to keep in mind is that we must focus our efforts where they will make the most impact, reducing the cost of something little will not impact the greater whole, look for high impact changes first.

Pawel Ciucias

Friday 26 May 2023

Business model strategy