In August, I shared with you a simple, collaborative and efficient approach to understanding the patterns of value creation through the Alex Osterwalder's Value Proposition Canvas, a tool from his Value Proposition Design method, for visually brainstorming and developing a Customer Profiles and their mutually beneficial Value Maps, for each of your customer segments. As I also mentioned, the Value Proposition Canvas magnifies two of the building blocks of the Osterwalder's Business Model Canvas, a shared intuitive language made up of nine (9) building blocks that visually demonstrate how your organization creates, delivers, and captures value, i.e. Business Model Generation. To fully appreciate Value Proposition Design, it is beneficial to understand the Business Model Canvas. In the short video below, Mr. Osterwalder visually demonstrates the value of this concept:
Business Model Generation, is the book and manuscript of nearly five hundred cases, examples, and critical comments of folks that implemented and tested this approach. Companies such as IBM and Deloitte have tested this method.I've also workshopped this approach a few times. One of the benefits I highly value of this concept is the shared language it naturally encourages among users and their organizations.
Here's an example of a defined Business Model Canvas from Alex Osterwalder's Business Model Hub (a business model innovation forum):
The defined descriptions of your business become the building blocks for its activities. There are certainly several different approaches to developing business models available to organizations, however, Osterwalder's work and thesis (2010, 2004), propose a single reference model based on the similarities of a wide range of business model conceptualizations. With his business model design template and shared language, an organization can easily create their blueprint for strategy, organizational structure, standard processes, and systems. These nine building blocks cover four main areas of a business: customers, offer, infrastructure, and financial viability.
Key Activities: The most important activities in executing a company's value proposition. An example 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, the organization usually cultivates buyer-supplier relationships so they can focus on their core activity. Complimentary business alliances also can be considered through joint ventures, strategic alliances between competitors or non-competitors.
Value Propositions: 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.
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 the different needs and attributes to ensure appropriate implementation of corporate strategy meets the characteristics of selected group of clients.
Channels: A company can deliver its value proposition to its targeted customers through different channels. Effective channels will distribute a company’s 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 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.
Cost Structure: This describes the most important monetary consequences while operating under different business models. A company's DOC.
Revenue Streams: The way a company makes income from each customer segment.
Just as your favorite cake recipe begins with key ingredients, it is the cultivation of all the ingredients together, that create the delicious experience that you have with that cake. Further, if one of those ingredients was missing or used a bit too abundantly, your cake might taste pretty awful. Similarly, you can have a valuable product or service, but if you are not sharing it with the most profitable customer or channel, or building the right partnerships, then you are missing out on revenue opportunities. The Business Model Canvas will facilitate the process of clearly defining your business model.