Original article in English: Tatjana Samsonowa, 6.12.2017,
In today’s world, the speed of innovation has increased dramatically, and business planning requires an agile tool that allows to easily think and model the complexity of a business.
More popular than any other tool for this task is the business model canvas (BMC) by Alexander Osterwalder. While you can find much more information about it online, it has four main parts: At its center is the value proposition. How does the product or service provide value to its users? That is often the most challenging question, especially for new products or on new markets. On the right side, we define the customers and how we connect to them, the left side represents the business structure, including internal resources, activities as well as key partners. The bottom part provides space to describe the financial flows of revenues and costs.
The innovation of the BMC is not anchored in these contents, as any traditional business plan or model has been describing the same or similar aspects. The strength of the BMC is its ability to make business planning easy, fast and iterative and, most importantly, its ability to visually think and communicate a business model on a single sheet. The canvas starts a dialogue on the business model and with the goal to innovate on the business model itself. The BMC fits the needs of anybody thinking about a new business model compatible with today’s technologies and customer needs. It addresses the key question how a new business model can create competitive advantage. But don’t make the typical mistake: Developing only one version of the BMC is not enough. It is a tool designed for iterations and alternatives. The purpose of the BMC is to re-think and innovate business models, or, more broadly speaking, to challenge the status quo.
“The strength of the BMC is its ability to make business planning easy, fast and iterative and, most importantly, its ability to visually think and communicate a business model on a single sheet.”
Is the BMC only a tool for startup companies?
As existing companies are threatened by the business models of new players, they increasingly seek to innovate, too. For established firms we use the BMC, typically not to define the overall business, but to model the business for a specific product or service. When we work with our customers on evolving a new idea into a successful, innovative product or service, the BMC allows to understand the dependencies of the suggested business model. The BMC helps to check that the new product or service is properly positioned towards its customers, that it has a support infrastructure and that it is financially viable.
As an analytical tool, we use the canvas to compare different business models. We develop business model alternatives for a new product or service and compare the models of competitors. The key is to understand the differences between a set of BMCs. In this process, the same product or service can implement a different business model that defines its success. Innovation in the business model can make all the difference.
With accelerated innovation, business models change much faster, too. New trends, technologies or changes in consumer behaviour are the key challengers of existing business models. In our work we use performance indicators as a means to implement strategic goals and to continuously monitor business processes. These indicators signal the need to revisit or re-design a business model. The BMC, in this way, becomes a component of an agile design process.
When developing new products or services, we need to start by looking outside the company into the trends in order to understand if our new offering will address future needs (1). Next we need to look inside the company: Will we be able to develop it internally, e.g. do we have sufficient and right resources, or need to acquire or develop new skills. Will our strategy support it? Do we have right goals and correct KPIs? (2) In the following, we use creative techniques to develop a set of ideas for new offerings, applying the design thinking approach (3). Portfolio management (4) helps to ensure an optimal mix of ideas and associated risks, so that we invest into the most promising ideas for our business, as not all of them will be realised or successful. Next, we protect intellectual property (5), to ensure competitive advantage. Now we apply business modelling, including the BMC and rapid prototyping in order to begin transferring new offerings from concept into product status (6). Using the agile development method Scrum we then develop the solution (7). The result is a product that needs to be managed along its lifecycle (8). Beyond the product itself, services generate great user experience (8).
While we have come love the BMC for its simplicity and its ability to capture the essence of a business, it would be naive to think that the BMC is the only tool needed for innovation success.
The BMC has its limits, too.
First, there is a world beyond the borders of the canvas, such as larger trends or competitors. They are of key importance for the business, sometimes indeed, the most important aspects of business success, but are not part of the original canvas. Additionally, we see a third dimension of details to be mastered, before the concepts on the surface of the canvas describe a viable business. In many cases, the canvas includes aspects with varying certainty. What do customers want? Can partnerships be established? What is the best pricing model? How can intellectual property be protected and transferred into value propositions? To refine and define the results presented on the BMC, we use a set of other forms and models. A successful business model for technology transfer requires trend analysis and foresight, ideation and design thinking methods, portfolio and intellectual property management, agile development methods, product management and service design.
That is why for us the BMC is part of a larger, structured design-driven innovation process that sparks ideas and evolves them into new products and services. Put shortly, the BMC is an important ingredient of the algorithm for business success, but not the only one.