A few years ago, Alexander Osterwald and Yves Pigner published their ground-breaking book Business Model Generation. Since its publication, their book has gone on to be one of the “must read” business books for start ups, entrepreneurs, and business leaders alike.
Billed as “a handbook for visionaries, game changers, and challengers”, Business Model Generation was created to enable business model creation and, more importantly, innovation – a way to re-imagine business models to create value in an ever evolving business environment while also getting an edge on old guard businesses using old school business models.
One of the most interesting things about the approach that Osterwald and Pigner’s book and model takes is that it allows you to depict your thinking and business model in a visual format (called the business model canvas). Though not new (the strategy map was introduced many years earlier as a visual strategy and business communication and management tool), the visual format provided by the business model canvas is really appealing in today’s quick information, sound-bite world. In addition, this approach makes it easy for business leaders and their teams to sketch out and test business models as they explore strategic alternatives and innovations.
If this is the first you are hearing about this book, I would strongly encourage you to check it out – it’s loaded with lots of great information, tips, and practical examples business leaders and their teams can use.
Let’s take a moment to look a little closer at the approach to business model creation and innovation outlined in the book.
Business Model Generation defines a business model as “describing the rationale of how an organization creates, delivers, and captures value”. I would agree with this definition but I would actually go a little further and frame it like this: “describing the rationale behind, and the way in which, an organization creates and delivers value to a specific customer (or stakeholder), AND demonstrating how it translates value creation and delivery into business benefits”.
Tweaking the definition of a business model in this way may look subtle but it actually makes a BIG difference to the approach you might want to take to business models (hold that thought for a moment!).
Very quickly, Business Model Generation adopts nine building blocks that are designed to cover four key business areas: customers, the offer, infrastructure, and financial viability. The nine building blocks, determined through a collaborative process roughly in this order, are:
1. Customer Segments (CS): The one customer or several customer segments the organization serves.
2. Value Propositions (VP): The customer problems the organization seeks to solve and the customer needs it strives to satisfy with its products and services in an effort to provide value to the customer segment(s).
3. Channels (CH): The communication, distribution, and sales channels that will be used to deliver the value propositions to customers
4. Customer Relationships (CR): The relationships you want to establish and maintain with each customer/customer segment.
5. Revenue Streams (RS): The revenue streams that will result from delivering the value propositions successfully to customers
6. Key Resources (KR): The assets required to offer and deliver everything that has been defined in 1-5 above
7. Key Activities (KA): The critical activities key resources must perform to deliver everything that has been defined in 1-5 above
8. Key Partnerships (KP): When some key activities are outsourced and/or some resources are acquired from outside the organization, partners and partnerships are required
9. Cost Structure (C$): The pricing structure the business model elements result in.