Business Model Canvas

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Business Model Canvas: nine business model building blocks, Osterwalder, Pigneur & al. 2010

The Business Model Canvas is a strategic management template for developing new or documenting existing business models. It is a visual chart with elements describing a firm's value proposition, infrastructure, customers, and finances.[1] It assists firms in aligning their activities by illustrating potential trade-offs. The Business Model Canvas was initially proposed by Alexander Osterwalder[2] based on his earlier work on Business Model Ontology.[3]
Contents
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1 The Business Model Canvas 2 Application 3 See also 4 Further reading 5 References 6 External links

[edit]The

Business Model Canvas

Formal descriptions of the business become the building blocks for its activities. Many different business conceptualizations exist; Osterwalder's work and thesis (2010,[1] 2004[3]) 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 their business model

Infrastructure

Key Activities: The most important activities in executing a company's value proposition. An example for Bic 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 an asset to a company, which are needed in order 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, organization usually cultivate buyer-supplier relationships so they can focus on their core activity. Complementary business alliances also can be considered through joint ventures, strategic alliances between competitors or non-competitors.

Offering

Value Proposition: The collection of products and services a business offers to meet the needs of its customers. According to Osterwalder, (2004), a company's value proposition is what distinguishes itself 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:

Customers

Quantitative- price and efficiency Qualitative- overall customer experience and outcome

Customer Segments: To build an effective business model, a company must identify which customers it tries to serve. Various set of customers can be segmented based on the different needs and attributes to ensure appropriate implementation of corporate strategy meets the characteristics of selected group of clients. The different types of customer segments include:

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.

Niche Market: Customer segmentation based on specialized needs and characteristics of its clients.

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.

Diversify: A business serves multiple customer segments with different needs and characteristics.

Multi-Sided Platform / Market: For a smooth day to day business operation, some companies will serve mutually dependent customer segment. A credit card company will provide services to credit card holders while simultaneously assisting merchants who accept those credit cards.

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 either through its own channels (store front), partner channels (major distributors), or a combination of both.

Customer Relationship: To ensure the survival and success of any businesses, companies must identify the type of relationship they want to create with their customer segments. Various forms of customer relationships include:

Personal Assistance: Assistance in a form of employee-customer interaction. Such assistance is performed either during sales, after sales, and/or both.

Dedicated Personal Assistance: The most intimate and hands on personal assistance where a sales representative is assigned to handle all the needs and questions of a special set of clients.

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.

Automated Services: A system similar to self-service but more personalized as it has the ability to identify individual customers and his/her preferences. An example of this would be Amazon.com making book suggestion based on the characteristics of the previous book purchased.

Communities: Creating a community allows for a direct interaction among different clients and the company. The community platform produces a scenario where knowledge can be shared and problems are solved between different clients.

Co-creation: A personal relationship is created through the customers direct input in 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 company's DOC.

Classes of Business Structures:

Cost-Driven - This business model focuses on minimizing all costs and having no frills. i.e. SouthWest

Value-Driven - Less concerned with cost, this business model focuses on creating value for their products and services. i.e. Louis Vuitton, Rolex

Characteristics of Cost Structures:

Fixed Costs - Costs are unchanged across different applications. i.e. salary, rent Variable Costs - These costs vary depending on the amount of production of goods or services. i.e. music festivals

Economies of Scale - Costs go down as the amount of good are ordered or produced. Economies of Scope - Costs go down due to incorporating other businesses which have a direct relation to the original product.

Revenue Streams: The way a company makes income from each customer segment. Several ways to generate a revenue stream:

Asset Sale - (the most common type) Selling ownership rights to a physical good. i.e. Wal-Mart Usage Fee - Money generated from the use of a particular service i.e. UPS Subscription Fees - Revenue generated by selling a continuous service. i.e. Netflix Lending/Leasing/Renting - Giving exclusive right to an asset for a particular period of time. i.e. Leasing a Car

Licensing - Revenue generated from charging for the use of a protected intellectual property. Brokerage Fees - Revenue generated from an intermediate service between 2 parties. i.e.Broker selling a house for commission

Advertising - Revenue generated from charging fees for product advertising.

[edit]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.[citation needed]

The Business Model Canvas

Alexander Osterwalder continues to deliver some of the very best thinking about business models. He has recently completed some posts for his blog, Business Model Design and Innovation, that codify and condense many of the concepts that have been added to the literature on business model innovation in recent years. I am providing this extract of his most recent post as an example of his thinking and one that provides a very clean and concise definition of a business model.

A business model is nothing else than a representation of how an organization makes (or intends to make) money. Based on an extensive literature research and real-world experience we define a business model as consisting of 9 building blocks that constitute the business model canvas :
1. The value proposition of what is offered to the market; 2. The segment(s) of clients that are addressed by the value proposition; 3. The communication and distribution channels to reach clients and offer them the value proposition;

4. The relationships established with clients; 5. The key resources needed to make the business model possible; 6. The key activities necessary to implement the business model; 7. The key partners and their motivations to participate in the business model; 8. The revenue streams generated by the business model (constituting the revenue model); 9. The cost structure resulting from the business model.

Alex's nine building blocks are illustrated in the graphic below.

Business Model Canvas with Explanations

The explanations are taken from the Business Model Canvas downloded fromhttp://www.businessmodelgeneration.com.

Key Partners (KP)

Key Activities (KA)

Value Propositions (VP)

What value do we deliver to the customer? Which one of our customers problems are we helping to solve? What bundles of products and services are we offering to each Customer Segment? Which customer needs are we satisfying? CHARACTERISTICS

Customer Customer Relationshi Segments ps (CR) (CS)

What type of relationship does each of our Customer Segments expect us to establish and maintain with them? Which ones have we established? How are they integrated with the rest of our business model? How For whom are we creating value? Who are our most important customers?

Who are our What Key Activities do Key our Value Partners? Propositions Who are our require? key Our suppliers? Distribution Which Key Channels? Resources Customer are we Relationships? acquiring from Revenue partners? streams?

Newness Performance

Mass Marke t Niche Marke t

Which Key Activities do partners perform? MOTIVAT IONS FOR PARTNER SHIPS:

CATEGORIE S

Opti miza tion and econ omy Redu ction of risk and unce rtaint y Acq uisiti on of parti cular reso urces and activ ities

Product ion Proble m Solving Platfor m/Net work

Customization Getting the Job Done Design Brand/Status Price Cost Reduction Risk Reduction Accessibility Convenience/Usability

costly are they? EXAMPLES

Persona l assistan ce Dedicat ed Persona l Assista nce SelfService Autom ated Service s Comm unities Cocreatio n

Segme nted Divers ified Multisided Platfor m

Key Resources (KR)

What Key Resources do our Value Propositions require? Our Distribution Channels? Customer Relationships? Revenue

Channels (CH)
Through which Channels do our Customer Segments want to be reached? How are we reaching them now? How are our Channels integrated? Which ones

Streams? TYPES OF RESOURCES

work best? Which ones are most costefficient? How are we integrating them with customer routines? CHANNEL PHASES: 1. Awaren ess How do we raise awaren ess about our compan ys product s and service s? 2. Evaluat ion How do we help custom ers evaluat e our organiz ations Value Proposi

Physica l Intellec tual (brand patents, copyrig hts, data) Human Financi al

tion? 3. Purchas e How do we allow custom ers to purchas e specific product s and service s? 4. Deliver y How do we deliver a Value Proposi tion to custom ers? 5. After sales How do we provide postpurchas e custom er support ?

Cost Structure (C$)

Revenue Streams (R$)

What are the most important costs inherent in our business model? Which Key Resources are most expensive? Which Key Activities are most expensive? IS YOUR BUSINESS MORE: Cost Driven (leanest cost structure, low price value proposition, maximum automation, extensive outsourcing) Value Driven (focused on value creation, premium value proposition) SAMPLE CHARACTERISTICS:

For what value are our customers really willing to pay? For what do they currently pay? How are they currently paying? How would they prefer to pay? How much does each Revenue Stream contribute to overall revenues? TYPES:

FIXED PRICING

DYNAMIC PRICING

Fixed Costs (salaries, rents, utilities) Variable costs Economies of scale Economies of scope

Asset sale Usage fee Subscription Fees Lending/Rentin g/Leasing Licensing Brokerage fees Advertising

List Price Prod uct featur e depe ndent Custo mer segm ent depe ndent Volu me depe ndent

Negoti ation( bargain ing) Yield Manag ement RealtimeMarket