7 years, 2 months ago

Strategic use of business models: the business model canvas

This is the third posting in my series on strategic use of business models. I will pick up where I left off in the previous posting, where I discussed the notion of strategic issues and the need to reconcile them in order to define ones strategy. In this posting I will zoom in on the business model canvas (based on the excellent book by Alexander Osterwalder) as a tool to (a) communicate about strategic choices, (b) analyze ones business model, and (c) consolidate the results of various analyses such as SWOT, value chain analysis, or Blue Ocean analysis.

The business model canvas

One of my colleagues posted an in-depth explanation of the business model canvas and its use. Even more, we recently published a whitepaper to show its use. In this paragraph I will give a high-level overview for purposes of facilitating the remainder of the discussion.

The business model canvas is a pre-structured canvas with 9 basic building blocks, as outlined below:

The building blocks are:

  1. Value proposition: what is the value that we offer to our environment?

  2. Channels: via which touch points can customers interact with us?

  3. Customer segments: which customers segments do we offer our proposition to? In other words, what is our market, and how do we segment it?

  4. Customer relation: what type of relation do we have with our customers?

  5. Revenue stream: what pricing mechanisms do we use, and how does this translate to a revenue stream?

  6. Key activities: which of our activities sets us apart? What is it that we do better than anyone else with respect to our value proposition?

  7. Key resources: which key resources do we need in order to be successful?

  8. Key partners: in recognition of the fact that we cannot do everything our self, which partners do we rely on?

  9. Cost structure: what costs do we make, and how do these costs relate to each other and our value proposition?

At BiZZdesign we have experience in using the canvas to map out the business model of a wide variety of organizations and situations: startups, strategic make-over, or even the analysis of added value of a department of a large governmental organization. The benefits vary from organization to organization, but include such things as (a) having a single-page view of the organizations business model, (b) demystifying the field of strategic management, (c) solid tools for linking strategies at different levels of [multi-business] organizations, (d) speeding up the development of periodic strategic plans at [semi] governmental organizations, etcetera. In other words, they range from improved communication to analysis and execution.

Strategic issues & the business model canvas

The canvas provides an integrated and holistic view of the business model of organizations. Since the business model can be seen as the result of the act of strategizing (a point we made in a previous post in the series), it provides a good starting point to document, analyze, and develop strategies. To see how this works, consider two of the strategic issues that I discussed in the previous posting:

  • The issue of competitive advantage: The two schools of thought with respect to this issue are inside out thinking and outside in thinking.

    • For an analysis of the former, one would typically start at the left side of the canvas: what are our key partners/ resources / activities. From there we move to the right, and work out the value proposition that will allow us to be successful, and finally the market segment where we can make this happen

    • For the latter the argument is exactly the other way around: we start by selecting an attractive market (for example after conducting a blue ocean type analysis) and work our way back to the value proposition and required infrastructure of the organization

  • With respect to multi-business organizations, the issue that must be solved revolves around the question: strive for synergies, or market responsiveness of each business. In order to tackle this issue, the canvas again can come for the rescue:

  • Start by drawing a canvas for each of the individual business units

  • Compare the canvasses, and search for synergies using the canvas to get a sense of the value of the synergy perspective (i.e., on the left to get synergies at the resource / activity level, or on the right to get synergies at the value proposition level)

  • Analyze the strategic environment for each of the businesses (again, one could use the blue ocean approach, or use Porters 5-forces / the PEST model) to get a sense of the value of the responsiveness perspective

  • Compare, discuss, and make a choice!

Mapping strategic models on the canvas

In my experience, strategists tend to use a wide variety of tools and methods to get their job done. In the previous posting I briefly outlined some of these tools, such as BCG, SWOT, Blue Ocean etc. The question is: how can (results of) these tools and models be integrated, and how does that align with the business model canvas?

The answer to this question is easier than you might think. These tools are used to generate strategic options and the canvas can be used to map out their impact, interdependence and so on. The following figure illustrates the general line of thinking:

In this setup, strategists can use as many tools as they like to try and find the best future course of action for the organization. Strategic options result from each of these analyses (which may be ranked and selected through various selection mechanisms, discussing these is beyond the scope of this posting). For example, insights gained from a SWOT analysis + confrontation matrix may lead to the insight that a weakness (little staff for active marketing) can be cancelled out by an opportunity (use social media to empower other staff and building a strong reputation). This insight may be combined with results from a 5-forces analysis that shows that competition is struggling with a relatively old staff, few of whom manage to engage customers directly using modern communication techniques. In this case, the two options strengthen each other (which is a good thing). The opposite is also possible, which should be a red flag, leading to further investigation.

By working out what each option means for the business models, if two options reinforce or contract each other and so on, strategists get a better grip on the future direction of the organization.

Outlook

In short, I am convinced that the canvas is an indispensable tool for strategists. It provides a focal point for various strategic analyses. The next posting in this series zooms in on execution, and implementing the business model canvas. It is scheduled to be posted in February. If you have any questions, or suggestions: please drop me a note using the comment function below, or send an E-mail to h.franken@bizzdesign.com