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
[hide]

 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:

 Quantitative- price and efficiency

 Qualitative- overall customer experience and outcome

 Customers

 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 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 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 customer’s direct input in the final
outcome of the company’s 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 Key Value Propositions (VP) Customer Customer

Partners Activities Relationshi Segments
(KP) (KA) What value do we deliver to the ps (CR) (CS)
customer?
Who are our What Key What type of For whom are
Key Activities do Which one of our customer’s relationship we creating
Partners? our Value problems are we helping to does each of value?
Propositions solve? our Customer
Who are our require? Segments Who are our
key What bundles of products and expect us to most
suppliers? Our services are we offering to each establish and important
Distribution Customer Segment? maintain with customers?
Which Key Channels? them? Which
Resources Which customer needs are we ones have we  Mass
are we Customer satisfying? established? Marke
acquiring Relationships? How are they t
from CHARACTERISTICS integrated with  Niche
partners? Revenue the rest of our Marke
streams?  Newness business t
 Performance model? How
  Customization costly are  Segme
Which Key CATEGORIE  “Getting the Job Done” they? nted
Activities S  Design  Divers
do partners  Brand/Status EXAMPLES ified
perform?  Product  Price  Multi-
ion  Cost Reduction  Persona sided
MOTIVAT  Proble  Risk Reduction l Platfor
IONS FOR m  Accessibility assistan m
PARTNER Solving  Convenience/Usability ce
SHIPS:  Platfor  Dedicat
m/Net ed
 Opti work Persona
miza l
tion Assista
and nce
econ  Self-
omy Service
 Redu  Autom
ction ated
of Service
risk s
and  Comm
unce unities
rtaint  Co-
y creatio
 Acq n
uisiti
on of
parti Key Channels
cular Resources (CH)
reso (KR)
urces Through which
and What Key Channels do
activ Resources do our Customer
ities our Value Segments want
Propositions to be reached?
require?
How are we
Our reaching them
Distribution now?
Channels?
How are our
Customer Channels
Relationships? integrated?

Revenue Which ones

Streams? work best?

TYPES OF Which ones

RESOURCES are most cost-
efficient?
 Physica
l How are we
 Intellec integrating
tual them with
(brand customer
patents, routines?
copyrig
hts, CHANNEL
data) PHASES:
 Human
 Financi 1. Awaren
al ess

How do
we
raise
awaren
ess
about
our
compan
y’s
product
s and
service
s?

2. Evaluat
ion

How do
we help
custom
ers
evaluat
e our
organiz
ation’s
Value
Proposi
 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
post-
purchas
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?
For what value are our customers really willing to pay?
For what do they currently pay?
How are they currently paying?

Which Key Activities are most How would they prefer to pay?
expensive?
How much does each Revenue Stream contribute to
IS YOUR BUSINESS MORE: overall revenues?
TYPES: FIXED DYNAMIC
Cost Driven (leanest cost structure, low PRICING PRICING
price value proposition, maximum  Asset sale
automation, extensive outsourcing)  Usage fee  List  Negoti
 Subscription Price ation(
Value Driven (focused on value Fees  Prod bargain
creation, premium value proposition)  Lending/Rentin uct ing)
g/Leasing featur  Yield
SAMPLE CHARACTERISTICS:  Licensing e Manag
 Brokerage fees depe ement
 Fixed Costs (salaries, rents,  Advertising ndent  Real-
utilities)  Custo time-
 Variable costs mer Market
 Economies of scale segm
 Economies of scope ent
depe
ndent
 Volu
me
depe
ndent