Business model generation by Korawan R.

You're holding a handbook for visionaries, game changers, and challengers striving to defy outmoded business models and design tomorrow's enterprises. It's a book for the . ..

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ene WRITTEN BY Alexander Osterwalder & Yves Pigneur

CO-CREATED BY An amazing crowd of 470 practitioners from 45 countries

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This book is printed on acid-free paper. @

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Copyright © 2010 by Alexander Osterwalder and Yves Pigneur. All rights reserved. Published by John Wi ley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as perm itted under Section 107 or 108 of the 1976 Un ited States Copyright Act, without either the prior written permission of the Publ isher, or authorizat ion through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street. Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or on line at http://www.wiley.com/go/permissions.

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John Wiley & Sons, Inc.

Business Model Generation A Handbook for Visionaries, Game Changers, and Challengers Written by Alexander Osterwaldcr and Yves f)igneur Design Alan Smith, The Movement Editor and Contributing Co-Author

lim Clark Production Patrick van der Pijl Co-created by ar1 amazing crowd of 470 practitioners from 45 countries

路(ill WILEY John Wiley & Sons, Inc.

fyo 'yes" ques to ou

Are you an entrepreneurial spirit? yes

no_

Are you constantly thinking about how to create value and build new businesses, or how to improve or transform your organization? yes

no_

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Are you trying to find innovative ways of doing business to replace old, outdated ones? yes

no __

You're hold in~ changers, and business mod1 It's a book for '

f you've answered yes" to any of these questions, welcome to our groupJ You're holding a handbook for visionaries, game changers, and challengers striving to defy outmoded business models and design tomorrow's enterprises. It's a book for the business model generation.

Till ~ linok will give yo lt doo pl tt nlal tl l

Today countless innovative business models are emerging. Entirely new industries are forming as old ones crumble. Upstarts are challenging the old guard, some of whom are struggling feverishly to reinvent themselves.

lltll l';l tl bos traditional and blt t111llt1 1111\ltVIIllon techniques, how lo po ~! lll tlll tiiHil lllvc landscape, and

linw l11l1

tillon's business model. C.ortai nly yo u've notl cod llitillltl tlfiiiii10nt book. We deslgnod ll lnl tt !1 1ktt ow, quickly, simply,

and ltl tl vi

ph lorl ally and th e contentl •t 1 fHIIPI 111lllarios yo u ca n use immudlti lltly hook about bu siness modoiii \1\IIVtlll

Hiti de for visionari es, game Clilll\flll \ 1olnvent business models. Wt t'Vtt 111

How do you imagine your organization's business model might look two, fiv-e, or ten years from now? Will you be among the dominant players? Will you face competitors brandishing formidable new business models?

llook to enhance th e pleas uru nl VIII

tt',ing it as much as we've onjny11tl t l

An online community Ctll tll'l tt\ 111 Its crea tion, as you will diSCOVtll ltil

Is a rapid ly evolving fi eld, yn1 1lllf1Y ¥ Business Model Generation tl l \1 1ilh1

joining our worldwide co mnll llil ly 11 crs who have co-crea ted lhlii l lltl tl discussions about businosh 11 1111 1111

out new tools provided by llill llll ll\1

www.BusinessMod eiGonotll i lllllt ll Business model in novn l liill l ~

Club introduced the crodll t 1111 1111I model innovation. The St.l t\1!1fill!'_

cop ier leasing and the por·l I li lY I' ~~ trace busine~s model innOVtil lilll ni whe n Johannes GutenbotH ~11 11 11 1 11 device he had invented.

I II

IIi ISbook will give you deep in sight into the nature of busin ess models.

But the scale and speed at which innovative bu siness models are

II describes traditional and bleeding-edge models and their dynamics,

transforming industry landsca pes today is unprecedented. For entre-

li111 0vation techniques, how to position your model withi n an intensely

preneu rs, executives, con sultants, and academ ics, it is high t ime to

ompetitive landscape, and how to lead t he redesign of you r own organi-

understand the impact of thi s extraordinary evolution. Now is the time

,Ilion's business model.

to understand and to met hodica lly address the challenge of business

Certai nly you've noticed that this is not the t ypica l strategy or man-

model innovation.

-----

ll!lement book. We designed it to convey th e essentia ls of what you need

Ultimately, business model in novation is about creating va lue, for

know, quickly, simpl y, and in a visua l format. Example s are presented

companies, customers, and society. It is about replacing outdated models.

pictoria lly and th e content is comp lemented with exercises and works hop cenarios you can use immed iately. Rather than writing a co nve ntiona l book about business model innovation, we've tried to design a practical uide for visionaries, game changers, and challengers eager to design or reinvent business models. We've also worked hard to create a beautiful

With its iPod digital media player and iTunes.com on line store, Apple created an innovat ive new business model that tran sform ed the compa ny into the dominant force in onli ne music. Skype brou ght us dirt-cheap global calling rates and free Skype-to-Skype calls with an innovative business model built on so-called peer-to-peer technology. It is now the

book to enhance th e pleasure of you r "co nsumption." We hope yo u enjoy

wo rld's largest carrier of international voice traffic. Zipcar frees city dwell-

using it as much as we've enjoyed creatin g it.

ers from automobil e ownership by offering hourly or daily on-demand

An online community complements this book (and was integral to its creat ion, as you wi ll discover later) . Since business model innovation

car rentals under a fee-based membership system. It's a business model response to emerging user needs an d pressing environmental concerns.

is a rapidly evo lving fi eld, you may want to go beyond the esse ntials in

Grameen Bank is helping alleviate poverty through an innovative business

Business Model Generation and discover new tools online. Please co nsider

model that popularized micro lending to the poor.

joining our worldwide community of business practitioners and research-

But how can we systematica lly invent, design, and implement

ers w ho have co-created this book. On the Hub yo u can participate in

these powerful new business models? How can we question, cha llenge,

discussions about business model s, learn from others' insights, and try

and transform old, outmoded ones? How can we turn visionary ideas

out new tools provided by the auth ors. Visit the Business Model Hub at

into game-changing business models that challenge the establishment-or

www.B usinessModeiGeneration.com/hub. Business model innovation is hardly new. W hen the founders of Din ers

rej uvenate it if we ourselves are t he incumbe nts? Business Model Generation aims to give you the an swers.

Club introduced the credit card in 1950, they were practicing business

Since practicing is bett er than preaching, we adopted a new model

model innovation. The same goes for Xerox, when it introdu ced photo-

for writing thi s book. Four hundred and seventy members of t he Business

copier leasing and the per-copy payment system in 1959. In fact, we might

Model Innovation Hub contributed cases, examples, and critical com-

trace business mode l innovation all the way back to the fifteenth cen tu ry,

ments to the manuscript- and we took their feedback to hea rt. Read more

when Johannes Gutenberg sought applications for th e mechanical printing

about our experience in the final chapter of Business Model Generation.

device he had invented.

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Seven Faces of Business Model Innovation

The Senior Executive

The Intrapreneur

The Entrepreneur

Jean-Pierre Cuoni,

Dagfinn Myhre,

Marielle Sijg-ers,

Cllairman/EFG Jmernationa/

Head ofREti BU$ine.~s !\.lodels/Telenor

Entrepreneur --'CDEF Holding BV

li m Investor II 'I' t'llS, ,/

Focus: Establish a new business model

Focus: He Ip exploit t he latest techno -

Focus: Address unsatisfied custome r

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in an old industry

logica l deve lopments with th e right

needs and build new business mode ls

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lt 1vest in companies willl \1!1• ompetitive bu siness moclt• l•,

Jean-Pierre Cuoni is chairman of

business models

around them

lt ntllll nkes a living by identifylilH \I ll

EFG International, a private bank

Dagfinn leads a business model unit

Marielle Sijgers is a full-fledged

lu•~l business models. Inves ting in IIi

with what may be the industry's most

at Telenor, one of the world's ten larg-

entrepreneur. Together with her

Wll\1\f\ company with the wrong nH 1il11l

innovative business model. With

est mobile telephone operators. The

business partner, Ronald van den

Jlll ild cos t his cli ents millions of 0111 o

EFG he is profoundly transforming

telecom sector demands continuous

Hoff, she's shaking up the meeting,

lltil lilm his reputation. Undersl rmillii

the traditional relationships between

innovation, and Dagfinn's initiatives

congress, and hospitality industry

1\IIW ond innovative bu siness modul

bank, clients, and client relationship

help Telenor identify and understand

with innovative business models.

l1 11 ~1 become a cru cial part of hi ~ wo t ~

managers. Envisioning, crafting, and

sustainable models that exploit the

Led by unsatisfied customer needs,

]]11 KOCS far beyond the usual fln11111 Itt\

executing an innovative business

potential of the latest technological

the pair has invented new concepts

ltll il ytl cs and compares bu sin

model in a conservative industry with

developments. Through deep analysis

such as Seats2meet.com, which allows

llltH icls to spot strat egic diffcro111

established players is an art, and

of key industry trends, and by develop-

on-the-fly booking of meetings in

lli ttl may impart a competitive odf\1 •.

one that has placed EFG International

ing and using leading-edge analytical

untraditional locations. Together,

I Hillis const antl y seeking bu sliH

among the fastest growing banks

tools, Dagfinn's team explores new

Sijgers and van den Hoff constantly

lt todcl innovations.

in its sector.

business concepts and opportunities.

play with new business model ideas and launch the most promi sing concepts as new ventures.

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The Consultant

The Designer

!:las van Oosterhout, Seni or

Trish

Co nsllltant / Capgem ini

So le Prnnrit) tnr

The Conscientious Entrepreneur Quadir, Social Entrepreneur

Institu te of You

Founder

Phone

l ri i iH'I

l11r 11•,: Invest in compan ies with the

Focus: Help clients question their

Focus: Find the ri ght business model

Focus: Bring about positive socia l and

IIIOdCIS

lr\lr•,lr ompe tit ive business mode ls

bus iness mode ls, and envision and

to launch an innovative prod uct

economic change thro ugh innovative

II till makes a living by identifying the

build new ones

Trish is a talented young designer

business models

l11111l business models. Investing in the

Bas is part of Capgemini's Business

who is particularly skilled at grasp-

Iqbal is constantly on the lookout

WI ong company with the wrong model

Innovation Team. Together with

ing an idea's essence and weaving it

for innovative business models with

rrH rld cost his clients millions of euros

his clients, he is passionate about

into client communications. Currently

the potential for profound social

i lld him his reputation. Understanding

boosting performance and renewing

she's working on one of her own ideas,

impact. His transformative model

IHJW and innovative business models

competitiveness through innovation.

a service that helps people who are

brought telephone service to over

lirlb become a crucial part of his work.

Business Model Innovation is now a

transitioning between careers. After

100 million Bangladeshis, utilizing

l lo goes fa r beyond the usual financial

core component of his work because

weeks of in-depth research, she's now

Grameen Bank's microcredit network.

npts

1nnlyt ics and compares business

of its high relevance to client projects.

tackling the design. Trish knows she'll

He is now searching for a new model

II nllows

rll odels to spot strategic differences

His aim is to inspire and assist clients

have to figure out the right business

for bringing affordable electricity to the

I hot may impart a competitive edge.

with new business models, from

model to bring her service to market.

poor. As the head of MIT's Legatum

ideation to implementation. To achieve

She understands the client-facing

Center, he promotes technological

rt is constantly seeking business llltly

doas

mode l innovations.

this, Bas draws on his understanding

part-that's what she works on daily

empowerment through innovative

of the most powerful business models,

as a designer. But, since she lacks for-

businesses as a path to economic and

mal business education, she needs the

social development.

regardless of industry.

vocabulary and tools to take on the big picture.

•• • • •

Table of Contents

••ee

The book is divided into five sections: 0 The Business Model Canvas, a tool for describing, analyzing, and designing business models, f) Business Model

•• • ••

Patterns, based on concepts from leading business thinkers, ., Techniques to help you design business models,

Re-interpreting strategy through the

business model lens, and

••••

A generic process to

e e

help you design innovative business models, tying together all the concepts, techniques, and tools in

Business Model Generation. e The last section offers an outlook on five business model topics for future exploration.

Afterword

Finally, the afterword provides a peek

into "the making of" Business Madel Generation.

Outlook

•••••

o Canvas 14

Definition of n 1111'•1111: Model

The 9 BuildlnHlilt II k

The Business Modt•l Canvas

111

Canvas

e Patterns

Definition of a Business Model

Unbundling Business Models

/ 16

The 9 Building Blocks

Design

126 Customer Insights

The Business Model Canvas

200 Business Model

134 Ideation

The Long Tail

212

Evaluating Business Models

Multi-Sided Platforms

e Process 244 Business Model

Design Process

â&#x20AC;˘ Outlook 262 Outlook

160 Prototyping 88

Strategy Environment

146 Visual Thinking 44

FREE as a Business Model 170 Storytelling

226 Business Model

Perspective on Blue Ocean Strategy

108 Open Business Models 180 Scenarios

232 Managing Multiple

Business Models

0 Afterword 274 Where did this book

come from? 276 References

'-.....,

The Business Model Canvas A shared language for describing, visualizing, assessing, and changing business models

---.....

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1 14

Def_Business Model

IIIII •,l arting point for any good di •II II M~ I I

A business model describes the rationale of how an

111 wo rkshop on business mod ol liiiii iVFil l11111shared understand ing of wliil l lil l\1 11it 1nlly is. We need a business II HII Ittl l

11VI\I ybody understands: one lh,11 1111 1111 1 ll111 1Llnd discussion. We need to ••IIIII

poli 1l and ta lk about th e same liliii)O, i ll

organization creates, delivers, and Captures value

ll111ilhe concept must be sim pltl, tllii•V llv11ly understandable, whi le nol llVtll ~ It 111111plexities of how enterprl sou 111111l \1

lt1il\0 following pages we Off(\1' 1111 11\11

Vlll llOdescribe and think Ll1 rOI IHii \I ll' I 11\ yo ur organi zat ion, your COIIII'II\\1 111

11 \tl mpri se. This co ncept has \iilll\1 11\ ljil

111111 1f1d th e wor ld and is alrondy 11 ~11!1 \1 11!'11 as IBM, Eri csson, Dclol tl u, lllll 1111

( IIIVOrnme nt Servi ces of Ctlllillht, ti l !Ill

l l 111rilnrtl ng point for any good discussion, meeting,

This concept can become a shared laney age that

111 workshop on business model innovation should

allows you to easily describe and

mTn~~Fa\~ business

l 1t111â&#x20AC;˘1 hared understanding of what a business model

models to create new strategic alternatives. Without

li l l llill y is. W e need a business model concept that

such a shared language it is difficult to systematically

!Will ybody understands: one that facilitates descrip-

challenge assumptions about one's business model

111111 nnd discussion. We need to start from the same

and innovate successfully.

p11 il 1l and ta lk about the same thing. The challenge is ll111l the concept must be simple, relevant, and intui-

We believe a business model can best be described

l lvoly understandable, while not oversimplifying the

through nine basic building blocks that show the

111mplexit ies of how enterprises function. /

logic of how a company intends to make money. The nine blocks cover the four main areas <'l f a business:

111 the following pages we offer a concept that allows

customers, offer, infrastructure, and financial viability.

yo u to describe and think through the business model

The business model is like a blueprint for a strategy

f yo ur organization, your competitors, or any other enterp rise. This concept has been applied and tested oround the world and is already used in organizations uch as IBM, Ericsson, Deloitte, the Public Works and Gove rnment Services of Canada, and many more.

to be implemented through organizational structures, processes, and systems.

â&#x20AC;˘

The 9 Building Blocks

Q &Customer Segments An organization serves one or several Customer Segments.

fJ Value

Propositions It seeks to solve customer problers and satisfy customer needs with value propositions.

IJ Channels Value propositions are delivered to customers through communication, distribution, and sales Channels.

II Customer Relationships Customer relationships are established and maintained with each Customer Segment.

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ht•tl and l 1vith each 't•,~ m ent.

llt•l't' /11/ e streams result /I till I value p ropositions 111 I'I'Ssjirlly offered to , u.~ I11J11 e rs .

ml Key Resources Key resources are the assets required to offer and deliver the previously described elements . ..

f.l Key Activities ... by performing a number ofKe(Activities.

El Key Partnerships Some activities are outsourced and some resources are acquired outside the enterprise.

ll Cost Structure The business model elements result in the cost structure.

I I

Key Activities

Key Partners

Key Resources

Cost Structure

Customer Relationships

Customer Segments

Value Propositions

Channels

Revenue Streams

l 01 whom rc' v

Customer Segments

Wl1o re our 111

The Customer Segments Building Block defines the different groups of people or organizations an enterprise aims to reach and serve Customers comprise the heart of any business model. Without (profitable) customers, no company can survive for long. In order to better satisfy customers, a company may group them into distinct segments with common needs, common behaviors, or other attributes. A business model may define one or several large or small Customer Segments. An organization must make a conscious decision about which segments to serve and which segments to ignore. Once this decision is made, a business model can be carefully designed around a strong understanding of specific customer needs.

Customer groups represent separate segments if: • Their needs require and justify a distinct offer • They are reached through different Distribution Channels • They require different types of relationships • They have substantially different profitabilities • They are willing to pay for different aspects of the offer

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r whom are we creating value? Who are our most important customers?

Diversified

An organization w ith a diversified customer business model serves two unrelated Customer Segments with very different needs and problems. For example, 1'/ti 'l'l' are different types of Customer Segments. 111 '1'1'

in 2006 Amazon.com decided to diversify its retail

are some examples:

business by selling "cloud computing" services: online Segmented

storage space and on-demand server usage. Thu s

Some business models distinguish between market

it started catering to a totally different Customer

llt tslness models focused on mass markets don't

segments with slightly different needs and problems.

Segment-Web companies-with a totally difierent

distinguish between different Customer Segments.

The retail arm of a bank like Credit Suisse, for example,

Value Propo sition . The strategic rationale behind this

lllc Va lue Propositions, Distribution Channels, and

may distinguish between a large group of customers,

diversification can be found in Amazon.com's powerful

each possessing assets of up to U.S. $100,000, and

IT infrastructure, which can be shared by its retail sales

>[ customers with broadly similar needs and problems.

a smaller group of affluent clients, each of whose net

operations and the new cloud computing service unit.

rhis type of bu si ness model is often found in the

worth exceeds U.S. $500,000. Both segments have

ltstomer Relationships all focus on one large group

nsumer electronics sector.

Jfl~heurna;ktrtl

similar but varying needs and problems. This has

Multi-sided platforms (or multi-sided markets)

implications for the other building blocks of Credit

Some organizations serve two or more interdepen-

Suisse's business model, such as the Value Proposi-

dent Customer Segments. A credit card company, for

Business models targeting niche markets cater to

lion, Distribution Channels, Customer Relationships,

example, needs a large base of credit card holders

specific, specia lized Customer Segments. The Value

and Revenue streams. Consider Micro Preci sion

and a large base of merchants who accept those credit

ÂŁLppqsjtjo~

Systems, which specializes in providing outsourced

cards. Similarly, an enterprise offering'ilfree news-

Re lationships are all tailored to the specific require-

micromechanical design and manufacturing solutions.

paper needs a large reader base to attract advertisers.

ments of a niche market. Such business models

It serves three different Customer Segments-the

On the other hand, it also needs advertisers to finance

Distribution Channels, and Customer

are often found in supplier-buyer relationships. For

watch industry, th e medical industry, and th e industrial

production and distribution. Both segments are

examp le, many car part manufacturers depend heavily

automation sector-and offers each slightl y different

required to make the business model wo rk (read

on purchases from major automobile manufacturers.

Value Propositions.

more about multi-sided platforms on p. 76).

E Value Propositions

What value do ~ Which one of ol lo solve? Whicl What bundles o Ioeach Custo111

The Value Propositions Building Block describes the bundle of products and services that create value for a specific Customer Segment The Value Proposition is the reason why customers turn to one company over another. It solves a customer problem or satisfies a customer need. Each Value Proposition consists of a selected bundle of products and/or services that caters to the requirements of a specific Customer Segment. In this sense, the Value Proposition is an aggregation, or bundle, of benefits that a company offers customers. Some Value Propositions may be innovative and represent a new or disruptive offer. Others may be similar to existing market offers, but with added features and attributes . ... ~r''"' '-"·· - - ...,_ ,

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l1.1t value do we deliver to the customer? l11ch one of our customer's problems are we helping lo solve? Which customer needs are we satisfying? Wl1c1t bundles of products and services are we offering Iu (~ach Customer Segment?

I I ol/11â&#x20AC;˘' l'roposition creates value for a Customer ufll1 fl l lh rough a distinct mix of elements cater-

for instance, created a whole new industry around

Customization

mobile telecommunication. On the other hand,

Tailoring products and services to the specific

lfl.4111 1hal segment's needs. Values may be quan-

products such as ethical investment funds have

needs of individual customers or Customer

lllitlll'l' (e.g price, speed ofservice) or qualitative

little to do with new technology.

Segments creates value. In recent years, the

'' ~ Âˇ dl'sign, customer experience). 1\/i'lll ents from the following non-exhaustive list 'illli 'lllllribute to

customer value creation.

concepts of mass customization and customer Perfor mance

co-creation have gained importance. This approach

Improving product or service perform ance has

allow s for customized products and services,

traditionally been a common way to create value.

while still taking advantage of economies of scale.

N11wness

The PC sector has traditionally reli ed on t hi s facto r

by bringing more powerful machin es to market.

II II ICCds t hat customers previously didn't perceive

But improved performance has its limits . In recent

lioca use t here was no similar offering. This is often,

years, for example, faster PCs, more di sk storage

ll1 1l not alw ays, technology related. Cell phones,

space, and better graphics have fail ed to produ ce

1il lllC Valu e Propositions satisfy an entirely new set

corresponding growth in custom er demand .

"Getting the job done"

Price

Value can be created simply by helping a customer

Offering similar value at a lower price is a common

get certain jobs done. Rolls-Royce understands this

way to satisfy the needs of price-sensitive Cus-

very well : its airline customers rely entire ly on Rolls-

tomer Segments. But low-price Va lue Propositions

Royce to manufacture and service their jet engines.

have important implications for the rest of a busi-

This arrangement all ows customers to focus on

ness model. No fri ll s airlines, such as Southwest,

running their airlines. In return, the airlines pay

easy Jet, and Ryanair have designed entire business

Rolls-Royce a fee for every hour an engine runs.

Design

tion can be seen in the Nano, a new car designed

Design is an important but difficult element to mea-

and manufactured by the Indian conglomerate Tala.

sure. A product may sta nd out because of superior

Its surprisingly low price makes the automobile

design. In the fashion and consumer electronics

affordable to a who le new segment of the Indian

industries, design can be a particularly important

population. Increasingly, free offers are starting to

part of the Value Proposition.

permeate various industries. Free offers range from free newspapers to free e-n/a il, free mobi le phone

Customers may find va lue in the simp le act of using and displaying a specific brand. Wearing a Rolex watch signifies wealth, for example. On the other end of the spectrum, skateboarders may wear the latest "underground" brands to show that they are "in."

IUtlm.tlon

II olpltlli ttt•ilomors roduc

'I I ~ I ~ 1111

litttt1til o vulu II· t lltl•tl tu l Customer RcloLIIlitr•lilp 1 . 1' ~ IIIPPIIr.n tl on. This ro l l uvtt~ l illY j!! tiiiHll llltlii OUb iC Of hOVIil fl liiHII•:I

llt i111V1

I I{M uoflwnro thutll'lt11Vto••

models specifically to enable low cost air travel. Another example of a price-based Value Proposi-

Brand/Status

· .1

services, and more (see p. 88 for more on FREE).

ll•·lilll lt tt• v111ttu ruduclnfl lltll 11 ~1· ~ II lu•ltjlttll litt•iltiK produ<.. h

01 11111vii 1

11111Vt11, 11 tlltu· your nn1vlt 11 flltrll t111

lu II '•~ t~ lp o•t l purchn•ul llt m tftiiiWII ,,, ~II II IIIVfll f{l l/.lrtllll t\11 jllill hill y II

1l•l lllltiMIIitktl llilY II Ili II t 1111'1111 ttl Ill 1 '111

1 111t reduction

Accessibility

I h1/pi11Hcustomers reduce costs is an important

Making products and services avai lab le to custom-

WilY lo create value. Salesforce.com, for example,

ers who previously lacked access to them is another

hos ted Customer Relationship management

way to create va lue. This can result from business

I llM ) app lication. Thi s relieves buyers from the

model innovation, new technologies, or a combina-

IH(j lllliSe and trouble of having to buy, install, and

tion of both. NetJets, for instance, popularized the

l!lill ltlRC CRM software themse lves.

concept of fractional private jet ownership. Using an

l~h• k

als and corporations access to private jets, a service

innovative business model, NetJets offers individu-

reduction

II•Jtomers va lue reducing the risks they incur

previously unaffordable to most customers. Mutual

wlio11purchasing products or services. For a used

funds provide another example of value creation

1111 buyer, a one-year service guarantee reduces

through increased accessibility. This innovative

II IU risk of post-purchase breakdowns and repairs.

financial product made it possible even for those

.ullng to

A •,orvi ce-level guarantee partial ly reduces the

with modest wealth to build diversified investment

ll lflC from

1hk undertaken by a purchaser of outsourced IT

portfolios.

Iii phone

•11 11vices.

!ltlbll e l11dian

I REE).

Convenience/Usability Making things more convenient or easier to use can create substantial value. With iPod and iTunes, Apple offered customers unprecedented convenience search ing, buying, downloading, and li st ening to digital music. It now dominates th e market.

Ill rough which Cl We 1nt to be reach( I low are our Cha1 Which ones are r1 111 t. egrati ng thern ,

Channels The Channels Building Block describes how a company communicates with and reaches its Customer Segments to deliver a Value Proposition Communication, distribution, and sales Channels comprise a company's interface with customers. Channels are customer touch points that play an important role in the customer experience. Channels serve several functions, including: • Raising awareness among customers about a company's products and services • Helping customers evaluate a company's Value Proposition • Allowing customers to purchase specific products and services • Delivering a Value Proposition to customers • Providing post-purchase customer support

!ltlllltt"ls have jive distinct phases. t•:ttl'lttl

_II \It II

Nome or all of these phases. W<' f'll/111

/rt'l 11'1 '1'11 direct Channels and indirect 111/t'•, ''' '111'1 '<"11 owned Channels and parllll't I '/t11

lliicll ng the right m ix of Channels to iri il l ~c l y tll't lomers want to be reached is cru t ln l lii

1 Vn lue Proposition to market. An Olf\111 11

Channel Types Sales fo rce

't ~

Web sales How do Wt

Own stores

...

. :a u

Partner •

..:

stores

Cll

W holesaler

ness abo\11 111 11 produ c t ~ ru 11!

ll11ough which Channels do our Customer Segments W(ltlt to be reached? How are we reaching them now? I low are our Channels integrated? Which ones work best? Which ones are most cost-efficient? How are we 111legrating them with customer routines? 1

/i,llllltâ&#x20AC;˘ls have five distinct phases. Each channel can

choose betwee n reaching its customers through its

'II'â&#x20AC;˘'' some or all of these phases. We can distingu ish

own Channels, through partner Channels, or through

allow an organization t o expand its reac h and benefit

Partner Channels lead to lower margins, but they

1â&#x20AC;˘1'111'1 '1'11

direct Channels and indirect ones, as well as

a mix of both. Owned Channels can be direct, such as

from partner strengths. Owned Channels and particu-

/ll'lll'l't'll

owned Channels and partner Channels.

an in-house sales force or a Web site, or they can be

larl y direct ones ha ve higher margins, but can be cost ly

indirect, such as retail stores owned or operated by the

to put in place and to operate. The trick is to find the

lllitl lng the right mix of Channels to satisfy how

organization. Partner Channels are indirect and spa n a

right balance between the different types of Chann els,

1 111ilomers want

whole range of options, such as who lesa le distribution,

to integrate them in a way to create a great customer

reta il, or partner-owned Web sites.

experience, and to maximize revenues.

11 Vn luc

to be reached is cruc ial in bringing

Proposition to market. An organization can

Channel Types

Channel Phases

Sales force

."'

Q Web sales Own stores

...

."' u

'ti ..5

Partner stores Wholesaler

1. Awareness How do we raise aware-

ness about our company's products and services?

2. Evaluation

3. Purchase

4. Delivery

5. After sales

How do we help customers eva luate our organization's Value Proposition?

How do we allow custom ers to purcha se specific , products and services? !

How do we deliver a Value Proposition to customers?

How do we provide post-purchase customer support?

Customer Relationships The Customer Relationships Building Block describes the types of relationships a company establishes with specific Customer Segments A company should clarify the type of relationship it wants to establish with each Customer Segment. Relationships can range from personal to automated. Customer relationships may be driven by the following motivations: • Customer acquisition • Customer retention • Boosting sales (upselling)

In the early days, for example, mobile network operator Customer Relationships were driven by aggressive acquisition strategies involving free mobile phones. When the market became saturated, operators switched to focusing on customer retention and increasing average revenue per customer. The Customer Relationships called for by a company's business model deeply influence the overall customer experience.

Wl1at type of rei ' ('gments ex pee W\1ich ones havt I low are they int oofltlll81111,~!1ish between St'VI'fl rl 1111 1 11 tolltll 't

tlt•lotionships, which

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tr,l.tlllliillltlp~ wll li hll lllttl lillitll •• l"l''"'

What type of relationship does each of our Customer )egments expect us to establish and maintain with them? Which ones have we established? How costly are they? I low are they integrated with the rest of our business model? IIIl i ness

11 ·,, 1'!1 11 distinguish between several categories of

Self-service

solve each other's problems. Communities can also

1 'tWcuner Relationships,

In this type of relationship, a company maintains no

help companies better understand their customers.

direct relationship with customers. It provides all the

Pharmaceutical giant GlaxoSmithKiine launched a

1 'flo~ / c un er Segment:

necessary means for customers to help themselves.

private online community when it introduced alii, a

l1ursonal

Automated services

l llffiJWny 's

which may co-exist in a

relationship with a particular

new prescription-free weight-loss product. assistance

GlaxoSmithKiine wanted to increase its under-

I ills relationship is based on human interaction.

This type of relationship mixes a more sophisti-

standing of the cha ll enges faced by overweight

lllc customer can communicate w ith a real customer

cated form of customer self-service with automated

adults, and thereby learn to better manage customer

processes. For example, personal online profiles give

expectations.

1upresentative

to get help during the sa les process or

iller the purchase is complete. This may happen on-

customers access to customized services. Automated

•ll lc at the point of sale, through cal l centers, by e-mail,

services can recognize individual customers and their

Co-creation

or through other means.

characteristics, and offer information related to orders

More compan ies are going beyond the traditional

or transactions. At their best, automated services can

customer-vendor relationship to co-create value with

Dedicated personal assistance

simu late a persona l relat ionship (e.g. offering book or

customers. Amazon .com invites customers to write

I his relationship invo lves dedicating a customer

movie recommendations).

reviews and thus create value for other book lovers.

rep resentative specificall y to an individual client. It

Some companies engage customers to assist with the

represents the deepest and most intimate type of

Communities

design of new and innovative products. Others, such

re lationship and normally develops over a long period

Increasingly, companies are utilizing user communities

as YouTube.com, solicit customers to create content for public consumption.

of time. In private banking services, for example, dedi-

to become more invo lved w ith customers/prospects

cat ed bankers serve high net worth individuals. Similar

and to facilitate connections between community

re lationships can be found in other businesses in the

members. Many companies maintain online co m-

form of key account managers who maintain personal

munities that allow users to exchange knowl edge and

relationships with important customers.

I Ol what value c)

Revenue Streams The Revenue Streams Building Block represents the cash a company generates from each Customer Segment (costs must be subtracted from revenues to create earnings) If customers comprise the heart of a business model, Revenue Streams are its arteries. A company must ask itself, For what value is each Customer Segment truly willing to pay? Successfully answering that question allows the firm to generate one or more Revenue Streams from each Customer Segment. Each Revenue Stream may have different pricing mechanisms, such as fixed list prices, bargaining, auctioning, market dependent, volume dependent, or yield management.

A business model can involve two different types of Revenue Streams: 1. Transaction revenues resulting from one-time customer payments 2. Recurring revenues resulting from ongoing payments to either deliver a Value Proposition to customers or provide post-purchase customer support

I 01 what do the') p.1ying? How W(

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I or what value are our customers really wil ling to pay? I or what do they currently pay? How are they currently paying? How would they prefer to pay? How much does t~ach Revenue Stream contribute to overall revenues? 1'//!'r!' are several ways to generate Revenue Streams:

Asset sale

Subscription fees

of ownership. Zipcar.com provides a good illustration.

Th is Revenue Strea m is generated by selli ng continu-

The company allows customers to rent cars by the

ous access to a service. A gym se ll s its members

hour in North Ame rican cities. Zipcar.com's service

Ilia most widely understood Revenue Stream derives

monthly or yearly subscriptions in exchange for

has led many people to decide to rent rather than

!to rn selling ownership rights to a physical product.

access to its exercise facilities. World of Warcraft

purchase automobiles.

Arnazon.com sells books, music, consumer electron-

Onl in e, a Web-based computer ga me, allows users to

It '1, and more online. Fiat sells automobiles, which

play its onlin e game in exchange for a monthly sub-

Licensing

lit tyc rs are free to drive, resell, or even destroy.

scription fee. Nokia's Comes with Music service gives

This Revenue Stream is generated by giving customers

users access to a music library for a subscription fee.

permission to use protected intellectua l property in exchange for licens ing fees. Licensing allows rights-

Usage fee

holders to generate revenues from their property with-

I hi s Revenue Stream is generated by the use of a

Lending/Renting/Leasing

port icular service. The more a service is used, the

This Revenue Stream is created by temporar-

out having to manufacture a product or commercialize

more t he customer pays. A telecom operator may

ily granting someone the exclusive right to use a

a service. Licensing is common in the media industry,

charge customers for the number of minutes spent on

particular asset for a fixed period in return for a

where content owners retain copyright w hile selling

lhc phone. A hotel charges customers for the number

fee. For the lender this provid es th e advantage of

usage licenses to third parties. Similarly, in technology

f nights rooms are used. A package delivery service

recurring revenues. Renters or lessees, on th e other

sectors, patentholders grant other companies the right

harges customers for th e delivery of a parcel from

hand, enjoy the benefits of incurring expenses for

to use a patented technology in return for a license fee.

ne location to another.

only a limited tim e rather than bearing th e fu ll cost s

Brokerage fees This Revenue Stream derives from intermediation

Each Revenue Stream might have different pricing

services performed on behalf of two or more parties.

mechanisms. The type ofpricing mechanism chosen

Credit card providers, for example, earn revenues

can make a big difference in terms of revenues gener-

by taking a percentage of the va lue of each sales

ated. There are two main types ofpricing mechanism:

transaction executed between credit card merchants

fixed and dynamic pricing.

Flxod M Predefin ed prktH

J,/s t price

,,, ,. 1

Fixed p1 l1 11â&#x20AC;˘ Ill ro tl11 11 V11 1i 11

and customers. Brokers and real estate agents earn a commission each time they successfully match a buyer and se ller.

Advertising

l'l'lll luct feature

Prlcu il111111111 1

clcpM clent

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segment

Prl c11 il 11 p1111d

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This Revenue Stream results from fees for advertising a particular product, service, or brand. Traditionally, the media industry and event organizers relied heavil y

1 'lltHOI!1 Cr

on revenues from advertising. In recent years other sectors, including software and services, have started relying more heavily on advertising revenues.

Volume dependent

f'l'l\ 11 1 1 ~ 11 111 1

Pricing Mechanisms II ~ 11/1

,,,,

Fixed Menu Pricing Predefined prices are based on static variables

/.\ Ill :

List price

Fixed prices for individual products, services, or other Va lue Propositions

Product f eature dependent

Price depends on the number or quality of

Dynamic Pricing Prices change based on market conditions Negotiation (bargaining)

Yield management

Va lue Proposition features

Pri ce negotiated between t wo or more partners depending on negotiation power and/or negotiat ion skills

Price depends on inve ntory and time of purchase (normally used for perishab le resources such as hotel rooms or airline seats)

Customer segment dependent

Volu me dependent

Price depends on the t ype and characte ristic

Real-time- market

of a Customer Segment

Price as a function of the quantity purchased

Price is established dynamically based on supp ly and demand

Auctions

Price determined by outcome of co mpetitive bidding

Iid t I( c'y Rcsol

Key Resources

111

The Key Resources Building Block describes the most important assets required to make a business model work

I )i ~ lribut i o l

vcnl Je Strc<lll

Every business model requires Key Resources. These resources allow an enterprise to create and offer a Value Proposition, reach markets, maintain relationships with Customer Segments, and earn revenues. Different Key Resources are needed depending on the type of business model. A microchip manufacturer requires capital-intensive production facilities, whereas a microchip designer focuses more on human resources. Key resources can be physical, financial, intellectual, or human. Key resources can be owned or leased by the company or acquired from key partners.

III'•IIIII'<'I'S ca 11

be ca t cgorl~ t'd 11

1111' 1 nl oHory incl udes physlc11 111•hl' l ll li lllllliiCLLtring faci liti es, bu lldlil fll 1 VI V'IIIIII!J, point-of-sa les systo111r1, 11 11tl ilr1IWOI'ks. Retailers li ke Wai· M111I 1111 l tt ly l1 oavil y on physica l res o u rro ~,

t11 pll i11-intensive. Th e form o1 III IN111 11 1111l work of stores and re lated liiHI- IIt

ll111latter has an extensive n, Wllllli \1 llil tnstructure.

Intellectual

Intellect ual resources such aD Ill IIIII I

knowledge, patents and copyrl ); li l ~, 1

c1 nd custome r .databases aro lillllhllll omponents of a strong buslnm1M 11 11

resources are difficult to devolop l 1111

Whr1t Key Resources do our Value Propositions require?

ur Distribution Channels? Customer Relationships? '('Venue Streams?

1, "V lltwources can be categorized as fo llows:

fully created may offer substantial value. Consumer

Financial

goods companies such as Nike and Sony rely heavily

Some business models call for financial resources

on brand as a Key Resource. Microsoft and SAP

and/or financial guarantees, such as cash, lines of

1111 ~1 t:otegory includes physical assets such as

depend on software and related intellectual property

credit, or a stock option pool for hiring key employ-

I!IIII H!fac turing facilities, buildings, vehicles, machines,

developed over many years. Qualcomm, a designer

ees. Ericsson, the telecom manufacturer, provides

and supplier of chipsets for broadband mobile

an example of financial resource leverage within a

hyâ&#x20AC;˘ lcnl

Vâ&#x20AC;˘i l i\1115, point-of-sales systems, and distribution III II works. Retailers like Wai-Mart and Amazon.com

devices, built its business model around patented

business model. Ericsson may opt to borrow funds

111ly hea vily on physical resources, which are often

microchip designs that earn the company substantial

from banks and capital markets, then use a portion of

1 ilpl tal- intensive.

licensing fees.

the proceeds to provide vendor financing to equipment

The former has an enormous global

customers, thus ensuring that orders are placed with

IIIII work of stores and related logistics infrastructure. lllo latte r has an extensive IT. warehouse, and logistics

Human

li1 fro structure.

Every enterprise requires human resources, but

Ericsson rather than competitors.

people are particularly prominent in certain business

Intellectual

models. For example, human resources are crucial in

Intellectual resources such as brands, proprietary

knowledge-intensive and creative industries. A phar-

know ledge, patents and copyrights, partnerships,

maceutical company such as Novartis, for example,

nnd customer databases are increasingly important

relies heavily on human resources: Its bu sin ess model

components of a strong business model. Intellectual

is predicated on an army of experienced scientist s

resources are difficult to develop but when success-

and a large and skilled sales force.

Key Activities The Key Activities Building Block describes the most important things a company must do to make its business model work Every business model calls for a number of Key Activities. These are the most important actions a company must take to operate successfully. Like Key Resources, they are required to create and offer a Value Proposition, reach markets, maintain Customer Relationships, and earn revenues. And like Key Resources, Key Activities differ depending on business model type. For software maker Microsoft, Key Activities include software development. For PC manufacturer Dell, Key Activities include supply chain management. For Consultancy McKinsey, Key Activities include problem solving.

l1al: Key Acliv llr Distributiol venue Strccll

1, tfl'ltf,•.~ ca11 be cC/ t(•gw/•.,•.1 ''

"''"''Uon

tli u~tiiH IIv \1\cs relate to dO!.iHIIlllf-1 1 11

1.-I\ JtliiiiH 11 product in subsl !llli li lll\11 I 11111111lor quali ty. Producllo11 111 llvl l

i ll l ~illlltl'• models of manufacluilll" II

hlomsolving

11y /1( 1\v\ties of thi s type rolll ill l iltl

. D -~

I'~

~~-4.

1111w 'i!llutions to individual Cll'll ttlilt1f 11111operations of co ns ulta t~dtt h, ltn

111v\1.0 organizations arc typlt li lly tl1 111111ilorn solving activiti es. 1'l11 11t \iii 1111 liCllvities such as knowlodHtl lt ill 11 111llnuous training.

Key Activities do our Value Propositions require? 111 Distribution Channels? Customer Relationships? venue Streams? II,Jt

1•111•/tl• •s can be categorized as follows: Platform/Network

•·uhu,tlon

Business models designed with a platform as a Key

lllll'lllill l lvlties relate to designing, making, and

Resource are dominated by platform or network-

lo IIV111ii iH a prod uct in substantia l quantities and/or

related Key Activities. Networks, matchmaking

•I 1ll f111110r quality. Production activity dominates the

platforms, software, and even brands can function as

1111 111111'''' models of manufacturing firms .

a platform. eBay's business model requires that the

l'rublom solving

form: the Web site at eBay.com. Visa's business model

company continually develop and maintain its plat-

I· "Y Acti vities of this type re late to coming up with

requires activities related to its Visa® credit card

1111W qolutions to individual customer problem s.

transaction platform for merchants, customers, and

llio operations of co nsultancies, hospitals, and other

banks. Microsoft's business model requires managing

111vice organizations are typically dominated by

th e interface betwee n other vendors' software and its

fi iOblem solving activities. Their business models call

Windows ® operating system platform. Key Activi-

lor activities such as knowledge management and

ti es in this category relate to platform management,

c:ontinuous training.

service provisioning, and platform promotion .

Ita

Key Partnerships The Key Partnerships Building Block describes the network of suppliers and partners that make the business model work Companies forge partnerships for many reasons, and partnerships are becoming a cornerstone of many business models. Companies create alliances to optimize their business models, reduce risk, or acquire resources. We can distinguish between four different types of partnerships: 1. Strategic alliances between non-competitors 2. Coopetitiqn j strategic partnerships between competitors 3. Joint ventures to develop new businesses 4. Buyer-supplier relationships to assure reliable supplies

are our Key 1-lich Key RescH 1-1ich Key Acliv

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Whoare our Key Partners? Who are our key suppliers? Which Key Resources are we acquiring from partners? Wl1ichKey Activities do partners perform?

I• 1111

/11•

rtscjit! to distinguish between three

IIHI/1'11/Iorts f or creating partnerships:

by a group of the world's leading consumer electronics, personal computer, and media manufacturers. The group cooperated to bring Blu-ray technology to

lltlhnlxntlon and economy of scale

market, yet ind ividua l members compete in sell ing

IIIII lllll'• l basic form of partnership or buyer-supplier

their own Blu-ray products.

11tlr1II111Whip is designed to optimize the allocation of 111•11111 cos and activities. It is illogica l for a company to

Acquisition of particular resources and activities

IIWII 1ill resources or perform every activity by itself.

Few companies own all the resources or pe rform all

11pll11111ation and economy of scale partnerships are

the activiti es desc ribed by their business models.

ll~llil ll y formed to reduce costs, and often involve

Rather, they extend their own capabilities by relying

1111 1'ill llrCing or sharin g infrastructure.

on other firms to furnish particular resources or perform certain activities. Such partnerships can be

lhlrluction of risk and uncertainty

moti vated by need s to acquire knowledge, licenses, or

!1111 tncrshi ps can help reduce ris k in a co mpetitive

access to customers. A mobile phone manufacturer,

111\VIronment characterized by uncertainty. It is not

for example, may license an operating system for it s

lllll iSUal for competitors to form a strategic alliance

handsets rather than developing one in -house. An

Ill one area w hile competing in another. Blu-ray, for

insurer may choose to re ly on independent brokers to

uxnmpl e, is an optica l disc format jointly deve loped

se ll its policies rather than develop its own sa les force.

Cost Structure

What are them

The Cost Structure describes all costs incurred to operate a business model

This building block describes the most important costs incurred while operating under a particular business model. Creating and delivering value, maintaining Customer Relationships, and generating revenue all incur costs. Such costs can be calculated relatively easily after defining Key Resources, Key Activities, and Key Partnerships. Some business models, though, are more cost-driven than others. So-called "no frills" airlines, for instance, have built business models entirely around low Cost Structures.

iO( lei? Which

''Y Activities an

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costs should l11 • 111111/11

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Wl1at are the most important costs inherent in our business 111odel? Which Key Resources are most expensive? Which ('Y Activities are most expensive?

•11111•1//y l'nough, costs should be minimized in every

Value-driven

Variable costs

'' dtii'.~S 111ode/. But low Cost Structures are more

Some co ~ nies are less concerned with th e cost

Costs that vary proportionally w ith the volume of

i~~1!Nons of a particu lar business model design,

goods or services produced. Some businesses, such as

1/u•tt:/i>l'<' il can be useful to distinguish between two

and instead focus on value creation. Premium Value

music festivals, are characterized by a high proportion

l•t ''''" l'iosses of business model Cost Structures:

Propositions and a high degree of personalized service

of variable costs.

"l'''''""l lo some business models than to others.

/cigtn and value-driven (many business models J,t/1111 h<"l ween these two extremes):

usually characterize va lue-d riven business models. Lu xury hotels, w ith their lavish facilities and exclusive

Economies of scale

services, fall into this catego ry.

Cost advantages that a business enjoys as its output expands. Larger compan ies, for in stance, benefit from

I mlt•drlven I I I'll dri ven business models focus on minimizing

Cost Structures can have the fo llowing characteristics:

lower bulk purchase rates. This and other factors cause average cost per unit to fall as output rises.

Fixed costs Costs that remain the same despite the volume of

Economies of scope

goods or services produced. Examp les include salaries,

Cost adva ntages that a business enjoys due to a larger

I l11 frill s airlines, such as Southwest, easyJet, and

rents, and physical manufacturing faci lit ies. Some

scope of operations. In a large enterprise, for example,

ll y:111air t yp ify cost-d ri ven business models.

businesses, such as manufacturing compani es, are

the same marketing activities or Distribution Channels

characterized by a high proportion of fixed cost s.

may su pport multiple products.

The nine business model Building Blocks form the basis for a handy tool, which we call the Business Model Canvas.

The Business Model Canvas KP

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This tool resemb les a painter's canvas - preformat· ted w ith the nine blocks-which allows you to paint pictures of new or existing business models.

The Business Model Canvas works best when printed out on a large surface so groups of people can jointly start sketching and discussing business model

,I:

elements with Post- it® notes or board ma rkers. It is a hands-on too l that fosters understanding, discussion, creat ivity, and ana lysis.

The Business Model Canvas Key Partners

Cost Structure

Key Activities

Key Resources

Value Proposition

Customer Relationships

Customer Segments

(9 ?~(j Channels

fD;

Revenue Streams

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For a large poster-size version ofThe Business Model Canvas, visit www.businessmodelgeneration.com.

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tiVtl Ap ple a dominant markolp 11 ~ \ \ \ llttl lhc first co mpany to bri11HI I pt ill

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l1t ltl11rket. Competitors such 11'1 \ 1\rtil

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r<?ve nues - - - revenu<?.S _ _ _ _ __j

lll'•'•ful until they were oul pill tlilliy

1111ple: Apple iPod/iTunes Business Model

It! Jill l 1/\pple launched its iconic iPod brand of por-

How did Apple achieve such dominance? Because it

lildtl llll ldia player. The device works in conjunction

competed with a better busi ns.ss model. On the one

IIIII II IIICS software that enables users to transfer 111\l ~ li

nnd oth er content from the iPod to a computer.

liltâ&#x20AC;˘ ~ 11 ftwa re also provides a seamless connection

iTunes software and the iTunes online store. Apple's

111 Apple's online store so users can purchase and

Value Proposition is to allow customers to easily

tiiiWI! Ioa d content.

search, buy, and enjoy digital music. On the other hand,

hand, it offered users a s~~ie'ts music experience by combining its distinctively designed iPod devices with

to make th is Value Proposition possible, Apple had to ll1h potent combination of device, software, and

negotiate deals with all the major record companies to

111 ill no sto re quickly disrupted the music industry and

create the wor ld's largest online music library.

IV!i /\p ple a dominant market position. Yet Apple was 11111 I he first company to bring a portable media player

The twist? Apple earns most of its music-related

lll 111arket. Competitors such as Diamond Multimedia,

revenues from selling iPods, while using integration

wll 11 its Rio brand of portable media players, were sue-

with the online music store to protect itself from

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competitors.

until they were outpaced by Apple.

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How DO YOU USE TH E CANVAS?

The public sector isoften challenged to implement private sector principles. I have used the Canvas to help a department view itself as a serviceoriented business,

establishing externalized as-is and to-be business models. It has created a whole new conversalion around describing and innovating the business. Mike Lachapelle, Canada

I consult with small companies on using the freemium business model. This model involves giving core products away for free, which is very counterintuitive to most businesspeople. Thanks to the Business Model Canvas, I can

I'm using the Business Model Canvas in Brazil to help artists, cultural producers, and game designers to envision innovalive business models for the Cultural and Creative Industries. I apply it in the Cultural Production MBAat FGV and in the Innovation Games Lab at COPPE/ UFRJBusiness Incubator. Claudio D'lpolitto, Brazil

When you typically think of a business model, the conclusion is that it is a'for profit' business. However, I found that the Canvas isalso very effective in the non-profit sector. We used it to

DESIGN +ALIGN

easily illustrate how it makes financial sense.

members of the leadership team during theformation of a new non-profit program. The Canvas was flexible enough to take into account the goals of this social entrepreneurial venture. and bring clarity to the true Value Proposition of the business and how to make it sustainable.

Peter Froberg, Denmark

Kevin Donaldson, United States

I help business owners plan their transi!ion and exit from their companies. Success depends on sustaining longtermcompany viability and growth. Key to thisis a business model innovation program. The Canvas helps us identify and innovate their business models. Nicholas K. Niemann, United States

WCWI\I IIol'l~l

·,-r

SCIVI< I' ul ill I

lolllii'•l Yl'tll students, knowing !1111111 111\III'PI'Cileurship. ln less . 11 ~ do iy ~, ll iti ll kS lo the Business

I wish I had known the Canvas years ago! With a particular tough and complicated print-to-digital project within the publishing industry it would have been so helpful to

· HtIll lVII'•• ll11•y wereableto pitch "

1dut1 wil l! <onviction and clarity.

'' • '' ,.,.j 11 ,,., ,, lool to cover all the

show all project members in this visual way both the big picture, their (important) own roles in it and the interdependencies.

I•lillt llliH1lhnensions. 1/h•il/111/t'l, France

I 1

:·,1\ill l\11',\i II!~~ Model Canvas to 1 11\y •,ltlf\1' entrepreneurs , 1wli\11 ftlllge of industries as

Bush11 "•'• M1 11 hclpliil l11•h1

the nlltlll• 1 work nml 11 too•,pl•iloill aft!•lil ltlllp.\11 prloill \1••, 1'(10/11 Vlill•l

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bu~l lll''•'•'' I 1'/\ NSLATE dO!''• fill"!\ IIIIIR BUSI NESS ren111 tea1n <I

PLANS II II0 1'11EBUSINESS

Hoursof explaining, arguing, and misunderstanding could have been saved.

holi ~,l

I ROCESSES thcil 1

Jille Sol, Netherlands

111\iny (will) need to operate their tllii'W''• tllld to ensure that they are l1 11 .111 1plllpcrly on being customer1 •11\il1 11111 way that makes the business 1 liiJtlily p10filable as it can be.

Aclose friend was looking for a new job. I used the Business Model

Canvas in order to assess her personal business model.

I ''' /1111111, United States

Her core competences and Value Proposition were outstanding but she failed to leverage her strategic partnersand develop appropriate Customer Relationships. This adjusted focus opened new opportunities. Daniel Pandza, Mexico

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I lit! VI' ll'ol'd IheCanvas with a 1It llllidi'l lo design a business plan \111 11\llllonallevel contest held by i11 /IWIOm ic Times, India. The 1 IIIV~·· t'llabled me to think .through 11\ Iill' o~ •,pec ts of the startup and put I+~J !III\il't r1 plan that VCs might find well tlulll~lil ou t and attractive to fund. l'tiiVt'l'll Singh, India

ancl1 thc~ 11

gcll i1 on dt llitiki• II H•Ii C/11 /+.1/1 Ill

1111 110 lli ~ t-yea r students, knowing 1111 .11111111entrepreneurship. In less l1 v1• lilly>, thanks to the Business I '"II tiiiM, they were able to pitch li1lnld1•11 with conviction and clarity. 111 ll'.ild II tiSa tool to cover all the !I IIIII lilllldlng dimensions. 1/'u•ullll•riho/et, France

Ilie Canvas years II tough and digital project If\ Industry it would 1llo

project sin this y both icture, portant) in it nternoes. llguing, and mislidve been saved.

...

We were asked to redesign the language service of an international NGO. The Business Model Canvas was especially helpful to show the links between

the needs of people's day·to·day work and a service that was felt too specialized, considered only as an afterthought and far away from their priorities. Paola Valeri, Spain

I ·• lli1 1lli1•,lnessModel Canvas to k ill'iliiY ~ tage entrepreneurs 111• , t1 wide range of industries as 111111 lilil'l lcr way to

II ~ ANSLATE

As a startup coach I support teams to create new products and design their businesses. The Business Model Canvas does a great job assisting me to

ll,lf] RBUSINESS remind the teams to think II~ I0 THE BUSINESS holistically about OCESSES their business ilidlllii'Y (will) need to operate their lllllllli'''''CS and to ensure that they are and prevents ''"'''•I'd properly on being customerthem from •·111111 Ina way that makes the business 1 liiHiily profitable as it can be. getting stuck 1111/1 / On details. Thishelps to

PLANS

lunn, United States

lliiiVII IISed the Canvas with a 111 l111 111der to design a business plan !111 il litllional level contest held by 1/Jr• I conomic Times, India. The i•IIIVd~ enabled me to think through IIIIII!' aspects of the startup and put lllf\l'ilicr a plan that VCs might find well lllllllflhl out and attractive to fund. /'irlvren Singh, india

make their new venture a success. Christian SchOller, Germany

The Business Model Canvas has allowed me to establish a common language and framework with colleagues. I've used the Canvas to explore new growth opportunities, assess uses of new business models by competitors, and to communicate across the organization how we could accelerate technology, market and business model innovations.

WE USED 15,000 POST-ITS AND MORE THAN 100 METERS OF BROWN PAPER

to design a future organizational struclure in aglobal manufacturing company. The key of all activities was, however, the Business Model Canvas. It convinced us by its practical applicability, simplicity, and logical cause-and-effect relationships. Daniel Egger, Brazil

Bruce MacVarish, United States

I used the Canvas to do a The Business Model Canvas has helped several health care organizations in the Netherlands to make the move from

a budget driven governmental institution to an entrepreneurial value-adding organization. Huub Raemakers, Netherlands

I used the Canvas with senior managers of a public company to help them restructure their value chain due to changes in sector regulation. The key success factor was to understand which new Value Propositions could be offered to their clients and then translated into internal operations. ~eandro Jesus, Brazil

REALITY

CHECK

for my new startup Mupps, aplatform where artists can make their own music apps for iPhone and Android phones in minutes. You know what? The Canvas made me even surer of the possible success' So I gotta go, work to do! Erwin 8/om, Netherlands

The Business Model Canvas has proven to be a very useful tool for capturing ideas and solutions fore-commerce projects. Most of my clients are SMEs and the Canvas helps them to

clarify their current business models and understand and focus on the impact of e-commerce on their organizations. Marc Castricum, Netherlands

I applied the Canvas to help a company align key staff in order to determine shared goals and strategic priorities, which were used during the planning process and incorporated with the BSC. It also ensured that thechosen initialives were clearly driven by the new strategic priorities. Martin Fanghanei, Bolivia

ef_ Pattern N<, The concept tion holds t h different typl tionship hut4 ncsses, and 11 type has diflt 路u1tura1i Ill rH

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tion holds that there are three fundamentally

1 o "Unbundling the Corporation." Harvard Business Review. Hagel,

different types of businesses: Customer Relationship businesses, product innovation businesses, and infrastructure businesses. • Each type has different economic, competitive, and cultural imperatives. • The three types may co-exist within a single corporation, but ideally they are "unbundled" into separate entities in order to avoid conflicts or undesirable trade-offs.

John, Singer, Marc. March-Aprill999. 2

The Discipline ofMarket Leaders: Choose Your Customers, Narrow Your Focus, Dominate Your Market. Treacy, Michael,

Wiersema, Fred. 1995.

( EX·AM·PLES)

mobile telecom industry, private banking industry

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Private Banking: Three Businesses in One

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I ill ltdll\· ~Ill VI I~ I lWO dlfforonlllii ll\1 tl\ ~ WII IIIIo 111111 dy1 1111n lcs. Adv lsll1 fl \lil t Wt1till\ i

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1 •Ill ' " '''' ' lt llnll onshlp-basod IJi t'dlll '•ttl 1111•11111111p1od ucls to prlvn \11l11 11il· itHIIil \11 ~ \ i \lllnf\I11H hu &ll111't 11,

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Swiss private banking, the business of provid-

Zurich-based private banking institution

ing banking services to the very wealthy, was

Maerki Baumann is an example of a bank that

long known as a sleepy, conservative industry.

has unbundled its business model. It spun off its

The figure opposite

Yet over the last decade the face of the Swiss

transaction-oriented platform business into a

depicts the traditional

private banking industry changed consider-

separate entity called Incore Bank, which offers

private banking modC'i

ably. Traditionally, private banking institutions

banking services to other banks and securities

were vertically integrated and performed tasks

dealers. Maerki Baumann now focuses solely

ranging from wealth management to brokerage

on building Customer Relationships and

relationship manage111

to financial product design. There were sound

advising clients.

product innovation,

reasons for this tight vertical integration. Out-

On the other hand, Geneva-based Pictet,

sourcing was costly, and private banks preferred

the largest Swiss private bank, has preferred to

keeping everything in-house due to secrecy and

remain integrated. This 200-year-old institution

confidentiality concerns.

develops deep Customer Relationships, handles

But the environment changed. Secrecy

many client transactions, and designs its own

became less of an issue with the demise of the

financial products. Though the bank has been

mystique surrounding Swiss banking practices,

successful with this model, it has to carefully

and outsourcing became attractive with the

manage trade-offs between three fundamentally

breakup of the banking value chain due to the

different types of businesses.

emergence of specialty service providers such

describes trade-offs, and unbundles it into three basic businesse

ilu ltd itl •ll it lrt lo •Jo ll ll&prod11< 1•, !11 I111M l 111 1 1k ~ 111 nrdnr lo lll t:ron ~l liiil llilr• t llllll ot. n co11 lllt l td 1111111

lit• h•llll· '• pitH hHI cl l vl~lo11 pi ii'•Pt ll ltJ• IIII I • o111\I \111 1HI IIk' •i llW 11 j)lt!l llll In \II t ilt 111 11\1 I• Wil li I li fl tl\ \i t\OII I'i\ \lllltll l\111\ I \i tllll ' Wi lli\ In IIIVI I'J illllliit lilt• l Iiiii lliil\lll llltllktll, 111Hilldl llM!I 1111111111

and infrastructure management.

1\i I If', \

1111t\11ll lt 111111 V ltH 11~1\t\il tlll~lll i

it tlltltll~llltt•• tttlllllt i 'IWI IIII\tu l t ll i llllllll ho 11 \VI~IIIV tlll! ll lill ll llillli lllll \1111•1 1111

lilll!llt\ot lll tll lttll l tll'l il y lll li111L 1111\l II II! illlll 'tl11 llilll jl\ 11 1\ lll lt l l ll i ~ ll l tlll litlll 1 'dtlv• diiW IIItl • l ~, wli lt ltl \Iiiii I ii ~ hilll ll l lfll ll IIJ!I Iilll thltiiii iiiiV ill lii ll\ ll lhill d wd qlll t l· lll tll l·11i llll i1 V, Willt\11

as transaction banks and financial product bou-

lilt II ttl \I 111M lill lt l l ll i ~ l lll 1a• tilllill({

tiques. The former focus exclusively on handling

IIIIi

banking transactions, while the latter concentrate solely on designing new fin ancial products.

eOffs ll11111t1nk se rves two different markets wit h H

vdl ll orcnt dynamics. Advising the wealthy

The Private Banking Model

1 1II IIIII term, relationsh ip -based business. 1111111 llnancia l products to private banks is dVIIIH IIIC, fast-c hanging business .

llt t1 1l1111k aims to sell its products to

CUSTOM-TAILORED .WEALTH MANAGE 'MENT SERVICES'

111 1111111111}{ banks in order to in crease IIIYIIIIIIIII• - but th is creates a conflict of interest.

II ttl

l>llnk's prod uct divis ion pressures advi-

,T RANSACTION f.A AJ!A_GEMEN

•11~ l11 •1o lllh e ba nk's ow n products to clients . 1111~ 1lllilll cts w ith cli ent interest in neutral

dill 11 . Cli ents wa nt to in vest in th e best jttudlll ! •1

on the market, rega rdless of origin.

I lit' 1ll'll· and efficiency-focused transaction pl,illttllll business conflicts w ith t he remunerationlilt IIII~IV11 ddvlsory and financial products business,

I111

ltlll llld!, to attract costly talent.

II III lillliSac tion platform bus iness requires down costs, w hich is difficult t o !• lilt•Vtt w lihln a single bank.

I li t•

pi odu cl innovation business is driven

I• ' 1j1t111d 1111d quick market entry, w hich is at '" '" '' w ll l 1!110 long- term busin ess of advi sing 1111 Wtlt illliy,

Relationship Business

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Product Innovation I Business

lnfrastructu:eJ Business

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WEALTHY INDIVIDUA LS & FAMILIES

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Unbundling the

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Mobile Telco

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Infrastructure Management

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Mobile telecommunication firms have started

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unbundling their businesses. Traditionally they

competed on network quality, but now they are

NETWORK MAINTENANCE ACQUISITION

striking network sharing deals with competitors

SERVICES PROVISIONING

or outsourcing network operations altogether to equipment manufacturers. Why? Because they realize that their key asset is no longer the network-it is their brand and their Customer Relationships.

TELECOM EQUIPMENT SUPPLIERS

MARKETING

RETENTION VOICE

IN STil l I IIi CUSTOM Jilt II

DATA NETWORK BRAND CUSTOMER BASE

CONTENT

11111\N il

Customer Relationship

'll ~ il lMi\11

Ill\ RETAIL

Mlllil(li !INI VOICE NETWORK MAINTENANCE DATA MARKETING SERVICE REVENUES

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Product Innovation INTnt

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NETWORK MAINTENANCE SERVICES PROVISION ING

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NETWORK INFRASTRUCTURE OPERATION & MAINTENANC E

TELCOS

Equipment Manufacturers

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Telcos such as France Te lecom, KPN, and Vodafone have outsourced operat ion

=> CD l9

and maintenance of some of their networks to equ ipm ent manufacturers such

NETWORK

as Nokia Siemens Networks, Alcate i-Lucent, and Ericsson. Equ ipment manufacturers can run the networks at lower cost beca use they service severa l te lcos at a t ime and thus benefit from economies of sca le. ECONOM IES OF SCALE

Unbundled Telco

ACQUISITION

IN STALLED USTOMER BAS E

After unbund ling its infrastructure business, a telco can sha rpen its focus on

RET ENT ION

branding and segmenting customers and serv ices. Custom er re lationships

VO ICE INSTA LLED CUSTOMER BASE

NETWORK DATA OPERATORS CONT EN T

tionship

BRAND

comprise its key asset and its core business. By concentrating on customers and increas ing share of wa llet w ith current subscribers, it can leverage invest-

RETAIL

ments made over the yea rs acquiring and retaining customers. One of the first

CUSTOMER BASE

mobile tel cos to pursue strategic unbundl ing was Bharti Airtel, now one of India's lead ing te lcos . It outsourced network operations to Ericsson and Nokia MARKETING

Siemens Networks and IT infrastructure to IBM, allow ing the company to focu s

SERVICE REVENUES

on its co re competency: bu il ding Customer Re lationships.

R&D

Content Providers NEW PRODUCTS & SERVICES

TELCOS

For product and service innovation, the unbund led telco ca n turn to sma ll er, creat ive firms . Innovation requires creative talent, which smaller and more

INTELLECTUAL PROPERTY

dynamic organizations typica ll y do a better job of attracting. Telcos work with multiple third-parties that assure a constant supply of new technolog ies, services, and media content such as mapping, games, video, and music . Two examples are Mobilizy of Austria and Sweden 's tat. Mobilizy focuses on

LICENSING FEES

location-based service solutions for smartphones ( it developed a pop ul ar mobi le

trave l guide), and tat concentrates on creating advanced mobile user interfaces.

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Everything in this model is tailored to understanding and serving customers, or building strong Customer

ti VIt Y is focused on lever-

Relat ionships

Itt~ tosearch and developttl I o bring new products

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tnodel

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Services are usually delivlilng in this model

Products and services

l l'o understandins ving customers, 11-: strong Customer IIIIShips

11 11 v h focused on lever-

can be brought to market

The ACTIVITIES and offer

directly, but are usually

are focused on delivering

delivered through B2B

infrastructure services

intermediaries focused on --. ... -... CUSTOMER RELATIONSHIPS ~-

JiE

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,...

t-'\1\t f,i1i N.N-4.<E.

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't~u N.~

Platform is characterized by HIGH FI XED COSTS: which are

--,,in this

HighJPREMIUM CHARGEABLE

leveraged through scale and

because of novelty factor

large volume

margins and high volume

I! ~

Def_Pattern No LONG TAIL BU

of more: Th of niche pro infrequent I can be as h1

whereby a H for most r(' require }ow forms to n1

to intereslt

~ <.9

Def_Pattern No.2 LONG TAIL BUSINESS MODELS

I-

are about selling less

of more: They focus on offering a large number of niche products, each of which sells relatively infrequently. • Aggregate sales of niche items can be as lucrative as the traditional model

( REF·ER·ENCES]

I • The Long Tail: Why

the Future ofBusiness Is Selling Less ofMore.

Anderson, Chris. 2006. 2 • "The Long Tail." Wired Magazine. Anderson,

Chris. October 2004. ( EX·AM·PLES]

whereby a small number of bestsellers account for most revenues. • Long Tail business models require low inventory costs and strong platforms to make niche content readily available to interested buyers.

Netftix, eBay, YouTube, Facebook, Lulu.com

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The Transformation of the Book Publishing Industry

J\m

lltJI

Mculcl

Old Model

11111 11111 'd l'i1 c trnditi o nnl htiH IHtllli

We've all heard about aspiring authors who carefully craft and submit manuscripts to publishing houses in the hope of seeing their work in print-and face constant rejection. This stereotypical image of publishers and authors holds much truth. Theyaditional book publishing model

CONTENT ACQUISITION

I hi' 111111\lllnp; unyonc to publlttli 1.

PUBLISHING

lillitd pltlf'i ni che ond Ol11t1 l l'l ll' 11111 1

SALES

is built on a process of selection whereby publishers screen many authors and manuscripts and select those that seem most likely to achieve minimum sales targets. Less promising authors and their titles are rejected because it would be unprofitable to copyedit, design, print, and promote

PUBLISHING KNOWLEDGE

liulli'M ll'!ldiLio nnl Ct1try httt'l'li' I'M 1t1

BROAD CONTENT (IDEALLY "HITS")

BROAII AU DIENI

1 11111 ,111111 dl Htrihutc 1"11 olr ww•lt llll · l ·i-llll llj\'iy w i th

RETAIL NETWORK

the lrlldiiiOII II III I

lt1l111 I, IIH11110 rc uui'I101'H 1,\llll ,t'lll

CONTENT

ltl,ll lill lll (H(ll: p. 76) l'hll t Hli i' V l l~ IIIII

books that sell poorly. Publishers are most interested in books they can

1.11 11)\ 'l'1 tl l of' USC1'• (J;C 11 CI'I1 ( lld 1i11 \t

print in quantity for sale to large audiences. PUBLISHING/ MARKETING

WHOLESALE REVENUES

11illtii iii 1MHl'il"-scrvl cc tooiHlilplll t lniiiiiHI! IHn>kHOt"C prittlt•d 011i v It

td 11 plll'l k ulnt· titl e l'O sell itllt liiC III'II IlO COStS.

1M''' '''

"~~ ~?twt

1r.~~~ IB~

1\ NewModel lilli t,w m turned the traditional bestseller-centric publishing model on illtHI'il on helping niche and amateur authors bring their work to market.

LOGISTICS

II 1•1! 111 inates traditional entry barriers by providing authors the tools to

ltlt/111

Ill liNt

11ill , print, and distribute their work through an online marketplace. This lll iii'IISts strongly with the traditional model of selecting "market-worthy" Hl'lt. In fact, the more authors Lulu.com attracts, the more it succeeds, '" 'I'IIII HC authors become customers. In a nutshell, Lulu.com is a multili l t~ tl

PLATFORM PRINT-ON DEMAND INFRASTRUCTURE

COMMUNITIES OF INTEREST

PLATFORM DEVELOPMENT

11 - li t•l td by enabling anyone to publish. Lulu.com's business model is

SELF-PUBLISHlNG SERVICES

ONLINE PROFILE

MARKETPLACE FOR NICHE CONTENT

NICHE AUTHORS NICHE AUDIENCES

LULU .COM

plat form (seep. 76) that serves and connects authors and readers

11 11 11 I .ong Tail of user-generated niche content. Thousands of authors 11"1' 1,11lu.com's self-service tools to publish and sell their books. This o11 it11 because books are printed only in response to actual orders. The I 11 1111'1' of a particular title to sell is irrelevant to Lulu.com, because such 1 lllil llt'C incurs no costs.

PLATFORM MANAGEMENT & DEVE LOPMENT

SALES COMMISSIONS (LOW) PUBLISHING SERVICE FEES

LEGO速's New Long Tail ~

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I 1-

'GO Factory: Customer'" V>

The Danish toy company LEGO started manu-

This requires transforming the supply chain

facturing its now famous interlocking bricks

infrastructure, and because oflow volumes

in 1949. Generations of children have played

LEGO has not yet fully adapted its support

with them, and LEGO has released thousands

infrastructure to the new LEGO Factory model.

of kits around a variety of themes, including

Instead, it simply tweaked existing resources

space stations, pirates, and the Middle Ages. But

and activities.

LEGO users can make their own designs and order them online

over time, intensifying competition in the toy

In terms of a business model, though, LEGO

/,/C II tllid

took a step beyond mass customization by enter-

paths to growth. It started licensing the rights

ing Long Tail territory. In addition to helping

to use characters from blockbuster movies such

users design their own LEGO sets, LEGO Fac-

as Star Wars, Batman, and Indiana Jones . While

tory now sells user-designed sets online. Some

such licensing is expensive, it proved to be an

sell well; some sell poorly or not at all. What's

important for LEGO is that the user-designed

LEGO allows users to post and sell their designs online

In 2005 LEGO started experimenting with

sets expand a product line previously focused

user-generated content. It introduced LEGO

on a limited number of best-selling kits. Today

Factory, which allows customers to assemble

this aspect ofLEGO's business accounts for only

their very own LEGO kits and order them

a small portion of total revenue, but it is a first

online. Using software called LEGO Digital

step towards implementing a Long Tail model

Designer, customers can invent and design their

as a complement-or even alternative- to a

own buildings, vehicles, themes, and characters,

traditional mass-market model.

choosing from thousands of components and dozens of colors. Customers can even design the box containing the customized kit. With LEGO Factory, LEGO turned passive users into active participants in the LEGO design experience.

LEGO

industry forced LEGO to seek innovative new

impressive revenue generator.

LEGO Factory

jJ/tl (

1'1111 , (IIIII IIIII

Customers who build new LEGO designs and post them online become key partners generating content and value

LEGO Users Catalog

C$~

LEGO Factory leverages prodru,l'/ !111 incurred by 'ts traditional rotrrll 11111

LEGO Factory: Customer-Designed Kits

ill

LEGO has to provide and manage the platform and logistics that allow packaging and delivery of custommade LEGO sets

11 I 111ers can

make nwn desig ns /lliilt'r them online

Customers who build 11! I nct ory

new LEGO designs and post them online become key partners generating content and value

und sell the ir

/1/11', on/me

1 l I lscrs

LEGO has not yet fully adapted its resources and activities, which are optimized primarily for the mass market

11 I ullows users 11111

~ I VP

~ I CR

LEGO Factory builds a Long Tail community around customers who are truly interested in niche content and want to go beyond off-theshelf retail kits

LEGO Factory substantially expands the scope of the off-the-shelf kit offering by giving LEGO fans the tools to build, showcase, and sell their own customdesigned kits

LEGO Factory's existence depends heavily on the Web channel

Thousands of new, customer-designed kits perfectly complement LEGO's standard sets of blocks. LEGO Factory connects customers who create customized designs with other customers, thus becoming a customer matchmaking platform and increasing sales

Cotalog

C$Jg} LEGO Factory leverages production and logistics costs already incurred by its traditional retail model

R$ ~

LEGO Factory aims to generate small revenues from a large number of customer-designed items. This represents a valuable addition to traditional high-volume retail revenues

Th1• Vfll

a I lillY, is 1 hn1

a wid Ill IIII ~ I

wllh "l T.1i l l111 ilhll

u.,,,,

ll11• KI'. Y RESOURCE•iS the "'"'!;)!«\,

....~

t•l>i l\lllm; KEY,,ACT~T~ lilt \l idO platform develop1111'111 ~ nd maintenance and· 1111 \11 1content acquisition

111 1production.

The VALUE PROPOSITION of

A Long Tail business model

a Long Tail business model

can serve both profes-

is characterized by offering 1, '1111tent providers

lonal and/or ' illlll!lrated) are the 1 ' I ~ 1NEns in this pattern.

;:;:

sional and amateur content

a wide scope of "non-hit"

Tpe

prod ucers, and may create

items that may co-exist

a multi-sided platform (see

with "hit" products. Long

Long Tai l business models

Tail business models may

focus on niche cusTOMERS.

p. 76) cate ring to users and producers alike.

also facilitate and build on user-generated content.

II V IUoSOURCE is the

lA . ,s '(t......:rFCJP'\ Ill.>. I'\~~I'(\

If, till I; KEY ACTIVITIES

S,., fi.Vt<-~

11" l11 pl atform d-;;velop-

~~ll('lolt>KlliG

111 ·IIII I maintenance and

~f!.M. '?fa~ OI--l

II• 11111tent acquisition

vs-;~

'PI.•"·:ff"ooJ\,

\'OO(...CSt

>(;-{).-·

'\l,:..o.t \ 'D;; ~

\f'{f::;~T

~ll)< R$ ~

C$ 4tf

t:~

ft.t<rt=Olt•·'\

Ji6WN.1 ~.Au

1"\1'\l'-.1.~ ,J,~N:\ 111 < OSTJ incurred pl.,l lorm development

t-lt(..ij=:: CON~N.f

1'~vvcf\CN

8 4-;t-,f!~

f\~~

r-r:::.N.-r

.,. P:= v'EL-O f M."CN. I

M'\__ Of' .

:·~ r'

on aggregating small revenues

Long Tail business models

from a large number of

usually rely on the Internet

items.)REVENUE STREAMS

vary; they may come from

advertising, product sales, or subscriptions.

}

Oef_Pattern MULTI-SIDf.

more dist i custon1e1 , one grOlll

of custolll creates v: the diffel' grows i11 more ust

networl.: t

- - ---

- - - - --

- - --

-------.

"'~

80 '-:' ;:::;

Def_Pattern No. 3 MULTI-SIDED PLATFORMS

:::J

::i'

bring together two or

more distinct but interdependent groups of customers. • Such platforms are of value to one group of customers only if the other groups of customers are also present. • The platform creates value by facilitating interactions between the different groups. • A multi-sided platform grows in value to the extent that it attracts

[ REF·ER·ENCES]

I • "Strategies for Two-Sided Markets." Harvard Business Review. Eisenmann, Parker, Van Alstyne. October 2006. 2 • Invisible Engines: How

Software Platforms Drive Innovation and Transform Industries. Evans, Hagiu, Schmalensee. 2006. 3 • "Managing the Maze of Multisided Markets." Strategy & Business. Evans, David. Fall2003.

more users, a phenomenon known as the

network effect.

[ EX·AM·PLES]

Visa, Google, eBay, Microsoft Windows, Financial Times

Google's Business Model

The heart of Google's business model is its Value Proposition of providing

Google's Value Proposition to advertisers depends heavily on the number of

· ~ i\ 11l ulti-sided platform Googll' ! 111 ~

extremely targeted text advertising globally over the Web. Through a service

customers it attracts to its Web site. So Google caters to this second group

111111 \Cy fro m one Customer Segi,WIII ,

called AdWords, advertisers can publish advertisements and sponsored links

of consumer customers with a powerful search engine and a growing num-

•1lli•1'H to two other segments: W(Jh Hll

on Google's search pages (and on an affiliated content network as we will

ber of tools such as Gmail (Web based e-mail), Google maps, and Picasa (an

11il because the more ads it displnyHI

later see). The ads are displayed alongside search results when people use

online photo album) among others. To extend its reach even further, Googlc

11i1VI'rti sers. Increased advertisinH I'll

the Google search engine. Google ensures that only ads relevant to the search

designed a third service that enables its ads to be displayed on other, non-

III III Cnt owners to become AdScnHI

term are displayed. The service is attractive to advertisers because it allows

Google Web sites. This service, called AdSense, allows third parties to earn

1tdvc rtising space from Google. 'l'lt i'V

them to tailor online campaigns to specific searches and particular demo-

a portion of Google's advertising revenue by showing Google ads on their

wll h either search terms or con ll'lll

graphic targets. The model only works, though, if many people use Google's

own sites. AdSense automatically analyzes a participating Web site's content

lil'l'llrs through an AdWords au,·!It11

search engine. The more people Google reaches, the more ads it can display

and displays relevant text and image ads to visitors. The Value Proposition

1111• more an advertiser has to puy l11

and the greater the value created for advertisers.

to these third party Web site owners, Google's third Customer Segment, is to

111\ l'llS from AdWords allows it LO I'III

enable them to earn money from their content.

"''lil'c h engine and AdSense uSC I'H ,

![,., VP

![,

- -----

TARG~ D~ADs:::

._.

FREE SEARCH.._

rJJ

TARGETED ADS

MONET-IZING

ADVERTISERS

rJJ

C <DJ:iJ~

"",.

CON T ENT · - ; ;REATo'Rs

R$ ~

,~}

R$ ~

ooog le has one main

three interdepende lt

/lo•ven ue Stream that ,ubsidizes other offers ( l~cven ue Strearn is

Customer Segment

"'placed by '"free")

Google offers &stir ct Value Propositions to

VI 1'111111~

AD~ ERTIS E RS

- WEB~URFERS

C$ jJ}

fl y on the number ol

11mu lti-sided platform Google has a very distinct revenue model. It makes

Google's Key Resource is its search platform, which powers three different

11his second group

IIII IWy !'rom one Customer Segment, advertisers, while subsidizing free

services: Web search (Google.com), advertising (AdWords), and third-party

1111t1 u growing num·

tii i•I'Nto two other segments: Web surfers and content owners. This is logi-

content monetization (AdSense). These services are based on highly complex

II !I ps,

and Picasa (an

•il lll'cn use the more ads it displays to Web surfers, the more it earns from

proprietary search and matchmaking algorithms supported by an extensive

II IVI'I'Lise rs. Increased advertising earnings, in turn, motivates even more

IT infrastructure. Google's three Key Activities can be defined as follows: (l)

L'd on other, non-

ll llit'nt owners to become AdSense partners. Advertisers don't directly buy

building and maintaining the search infrastructure, (2) managing the three

hl1·d parties to earn

•ldVI' I'I'ising space from Google. They bid on ad-related keywords associated

main services, and (3) promoting the platform to new users, content owners,

• lilt <.! itl1er search terms or content on third party Web sites. The bidding

and advertisers.

1•vc n further, Googlt•

101-\'le ads on their II{

Web site's contenl

Vn lue Proposition In mer Segment, is to

lill ' li i'S

through an AdWords auction service: the more popular a keyword,

!111• 111ore an advertiser has to pay for it. The substantial revenue that Google ''1\l'llS from Ad Words allows it to continuously improve its free offers to 'il'll •'ch engine and AdSense users.

TARGETED A1DS

ADVERT ISERS

FREE SEARCH

WEB SURFERS C H

K~ATFORM

CONTEN T, OWNERS

TARGETED ADS FREE SEARCH

J).

SEARCH PLATFORM

""JfJie has one main

SERV ICES,

EXPAND ING REACH

MANAGEMENT, MANAGING

ADVE RT ISERS

ADVERT ISER' WEB SURFERS

MONETIZING

r·~;,

CONVN~

llll<•rdependent

"" .idizes other offers ( !it•vcnue Stre01YJ is

•lll<'r Segments

lt'placed by "free")

C$ l f } PLATFORM COSTS

OWNERS•

l!t•vPnue Stream that

/'ropositions to

\R l e+ "~"'"";;1; ::.......

~ FREE

2"' ~ 0..

0 ~

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::;;

Wii versus PSP/Xbox Same Pattern, Different Focus ll'flllltem, but '•'11'111 business model:

'r•11clo's Wii

"'z 85 >-

IKA

tliVP

lfl. ICR

ICS

1\11

.}).

IKA

iLIVP

Sony and Microsoft dominated the game console market until Nintendo's Wii swept the sector with a fresh approach to technology and

an astonishingly different business model. Before launching the Wii,

(l/1{)

Nintendo was spiraling downward, rapidly losing market share, and teetering on the edge of bankruptcy. The Wii console changed all that and catapulted the company to the market leader position.

PSP/ Xbox Focus Video game consoles, today a multi-billion dollar business, provide good

Traditionally, video console manufacturers targeted avid garners and competed on console price and performance. For this audience of

WiiFocus

examples of double-sided platforms. On one hand, a console manufacturer

"hardcore garners" graphics and game quality and processor speed were

t~l ni·c ndo's Wii changed all th is. I ,Ill

has to draw as many players as possible to attract game developers. On the

the main selection criteria. As a consequence, manufacturers developed

d11 uh le-sided platform business, 1!11 1

other hand, players only buy the hardware if there is a sufficient number

extremely sophisticated and expensive consoles and sold them at a loss

Nl nlcndo aimed its consoles at l'lll •

of interesting games available for that console. In the game industry, this

for years, subsidizing the hardware with two other revenue sources.

I li nn the smaller "traditional" nl !l l'h

has led to a fierce battle between three main competitors and their respec-

First, they developed and sold their own games for their own consoles.

11 1' cusual garners with relatively lr11

tive devices: the Sony Playstation series, the Microsoft Xbox series, and

Second, they earned royalties from third party developers who paid for

the Nintendo Wii. All three are based on double-sided platforms, but there

the right to create games for specific consoles. This is the typical pattern

wll h physical gestures. The nov1• lly

are substantial differences between the Sony/Microsoft business model

of a double-sided platform business model: one side, the consumer, is

•1u.:h as Wii Sports, Wii Music, till! I

and Nintendo's approach, demonstrating that there is no "proven" solution

heavily subsidized to deliver as many consoles as possible to the market.

11 1' casual garners. This differcnl htl ll

for a given market.

Money is then earned from the other side of the platform: game developers.

do uble-sided platform that Nln tl•ltl

"Pl'C ial remote control device Hi!il

1flt'trl, but r l•11w1ess model.· I11;Wii

bl..IVP

~ IC R

" FAMILY" CONSO LE

KR l'iwt until Nin-

ACCESS TQ, CONSO LE USERS & C HEAP 1GAME DEVELOPM ENT COST-S

ICS

C1 SU,A L G!l:MERS

t• hnology and il ng the Wii,

Sony and Microsoft competed with costly, proprietary, state-of-the-art technology aimed at avid garners and subsidized it in order to gain market

1'/,

share and keep hardware prices affordable. Nintendo, on the other hand,

I share, and tee

focused on a market segment that was far less sensitive to technological

nd ull that and

performance. Instead, it lured customers with its motion-controlled "fun factor." This was a much cheaper technological innovation compared

vld ga rners 1111 ud ience of or speed wer

to new, more powerful chipsets. Thus, the Nintendo Wii was less costly

Focus lllll•ndo's Wii changed all this. Like its competitors, the Wii is based on a

l'tlrs developed

h111h lc-sided platform business, but with substantially different elements.

Ihem at a loss

lilll'ndo aimed its consoles at the huge audience of casual garners rather

l i t'

so urces.

h· own consoles.

1l111 11 Ihe smaller "traditional" market of avid garners. It won the hearts

oil l ' il~ ua l garners with relatively inexpensive machines equipped with a

to produce, allowing the company to forego commercialization subsidies. This is the main difference between Nintendo and rivals Sony and Microsoft: Nintendo earns money from both sides of its double-sided Wii platform. It generates profits on each console sold to consumers and pockets royalties from game developers. To summarize, three interlinked business model factors explain the

who paid for

lllll'ln l remote control device that allows players to control the action

commercial success of the Wii: (1) low-cost differentiation of the prod-

lypical pattern

II II physical gestures. The novelty and fun of motion-controlled games

uct (motion control), (2) focus on a new, untapped market that cares less

onN umer, is

lli 'llns Wii Sports, Wii Music, and Wii Fit attracted enormous numbers

about technology (casual garners), and (3) a double-sided platform pattern

lo i·he m arket.

IIII'IIS ual garners. This differentia tor is also the basis for the new type of

that generates revenues from both "sides" of the Wii. All three represent

1lll1C developers,

tl111 1hle-sided platform that Nintendo created.

clean breaks from past game sector traditions.

::;;

80 0

5:::>

Apple's Evolution into a Platform Operator

::;;

8J f-

The evolution of Apple's product line from the iPod to the iPhone highlights the company's transition to a powerful platform business model pattern. The iPod was initially a stand-alone device. The iPhone, on the contrary, evolved into a powerful multi-sided platform for which Apple controls third party applications through its App Store.

!POD

2001

\ pplc introduced the iPod in 200 111tl ll tilu nc product. Users could copy l'lwh I ilt!W111oad music from the Intern<: l ti tllt

il t•vlce. The iPod represented a toc li ttt tl ltl t'm for storing music from vat·iolltl HII

I ills point, though, Apple was no I' I'X pit pili I form aspect d'f the iPod in its htt Mitl

iPod ""i

Drowse EHtras Settings Rbout

Switch to multi-sided I POD

platform business model

2001

Consolidation of I POD & !TUNES

platform business model

2003

I PHONE & APPSTORE

2008

App le introduced the iPod in 2001 as a stand-

In 2003 Apple introduced the iTunes Music

In 2008 Apple consolidated its platform strat-

lilonc product. Users could copy their CDs and

Store, which was closely integrated with the

egy by launching its App Store for the highly

download music from the Internet onto the

iPod. The store allowed users to buy and down-

popular iPhone. The App Store allows users to

li l' vice. The iPod represented a technology plat-

load digital music in an extremely convenient

browse, buy, and download applications directly

way. The store was Apple's first attempt at

from the iTunes Store and install them on their

exploiting platform effects. iTunes essentially

iPhones. Application developers must channel

1!11'111

for storing music from various sources. At

I Ills point, though, Apple was not exploiting the

pl11tform aspect of the iPod in its business model.

connected "music rightsholders" directly with

sales of all applications through the App Store,

buyers. This strategy catapulted Apple to its

with Apple collecting a 30 percent royalty on

position today as the world's largest online

each application sold.

music retailer.

!I ll' 11'·1

IIII I

.Iii I (II

.,.\1 i ll' I

1•

II v ilESOURCE required

· illh bu siness model •Ill'! II IS the platform.

•

"" llii llC Key Activities are ·I

1lly platform manage-

"" 1!1 , •,orvice provisioning, 11d l'ldlform promotion.

The

VALUE PROPOSITION

usually creates value in

Business models with a

three main areas: First,

multi-sided platform pattern

attracting user groups

have a distinct structure.

(i.e. Customer Segments);

They have two or more

Second, matchmaking

CU STOMER SEGMENTS,

each

between Customer Seg-

of which has its own Value

ments; Third, reducing costs

Proposition and associated

by channeling transactions

Revenue Stream. Moreover,

through the platform.

L, .. ~ I V ~ E S OURCE,

required

• llil •o business model 1111111 Is the platform.

'" ll11 oe Key Activities are ,, il ly platform manage'"ttl, •,c rv ice provisioning, "" jilillform promotion.

C$ b

! ,,..; @J.Ih··"' · JI!!.'!!(IL ·

REVENUE STREAM.

One or

more segments may enjoy

-.~ ... _

··· · · '

produces a different

¢."tL.. • , •

• \l€..r.::~t(\

Each Customer Segment

~ II! N..Jic .FLo~

\\J<r~ """l>.N.kl..~~

.¥

• '

•••

tt.Jq!J ~ftJU

free offers

ilfliiUL

or reduced prices

( l 'sidized by revenues from other Customer Segments. Choosing which segment to subsidize can be a crucial pricing decision that

maintaining and developing the platform.

determines the success of<a multi-sided platform business model.

"'"'! I'"' ~

::r' (t)

\:l

I")

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'-<

•

(t)

......

r.n r.n C) ,_....

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•

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:r. ~

$:! 0 $:!

l'""t-

..... ;::::s

0 ;::::s

g.. r.n

r.n

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ITI ITI

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'(Tj-'

Def_Pattern No. 4 FREE •

In the

FREE

business model at least

one substantial Customer Segment is able to continuously benefit from a free-of-charge offer. • Different patterns make the free offer

[ REF·ER·ENCES]

1 • "Free! Why $0.00 is

the Future of Business.'' Wired Magazine.

Anderson, Chris. February 2008. 2 • "How about Free? The Price Point That Is Turn-

possible. • Non-paying customers are financed

ing Industries on Their

by another part of the business model or by

Wharton. March 2009.

another Customer Segment.

Heads." Knowledge@ 3 • Free: The Future of a

Radical Price. Anderson,

Chris. 2008. [ EX·AM·PLES]

Metro (free paper),

Flickr, Open Source, Skype, Coogle, Free Mobile Phones

0 0

"' "';;; "':::> ~

"' <(

~ ~

Advertising: A Multi-Sided Platform Model

utomatic ad nll llil ttll nluscrs docs nol 111il11f

Advertising is a well-established revenue source

to and from work. Competitors using the same

that enables free offers. We recognize it on

model soon followed, but Metro kept them at

television, radio, the Web, and in one of its most

bay with a couple of smart moves. For example,

sophisticated forms, in targeted Google ads.

it controlled many of the news racks at train and

Minimizes costs by cutting

Assures high circulati

bus stations, forcing rivals to resort to costly

editorial team to produce

through free offer and

hand distribution in important areas.

a daily paper just "good

focusing on distributin'

In business model terms, FREE based on advertising is a particular form of the multi-sided platform pattern (see p. 76). One side of the platform is designed to attract users with free content, products, or services. Another side of the platform generates revenue by selling space to advertisers. One striking example of this pattern is Metro,

zones and public trOIJ!,/

Metro

book

~I VP

the free newspaper that started in Stockholm and is now available in dozens of cities around

DISTRIBUTION

modified the traditional daily newspaper model.

in high-traffic commu l

read

networks

1f/RITE & PRODUCE lA DAILY PAPE R:

the world. The genius of Metro lies in how it

enough" for a commute

"' 1•111' 11110 f1n El Dorndo n\ ,,dv llin'•Oclal networkillfl ~ 1 11 tl li•l ~ il nmonstrated. TIHIIIIIII\ I HI/ill ;oo mi llion ac tlvOII'•'II 11d ••1\d more th an 100 111i lllillli til• d1illy. Those figures muktl \111 11 It I'~ l11rgcs t social network. Y11 i l 111 11 l'llvo Lo Facebook advfl il \-1111 di l\1 11 \l il Web ads, accordlnfl liillll II 1 Will ie advertising is only 1111111 111\l tl \{ovcnue Strea ms for Flit 11\111 iilli'•C rs does not guarcml tltl Il l\ lin IIWI\1\UCS. At this writing, jli\VI\1I \1111 1k did not disclose revcnu o d11i

DISTRIBUTION AGREEMENTS WITH PUBLIC TRANSPORT NETWORKS

First, it offered the paper for free. Second, it

~ ICR

MA CUSTOM IIIII ADVERTISERS

1\ll SPAC E ON IIIGH TRAFFIC llt:IAL NETWORK

j: OMMU IER~

l'llEE SOCIAL NETWORK

BRAND

focused on distributing in high-traffic com-

DISTRIBUTION NETWORK & LOGISTICS

muter zones and public transport networks by

RETENTION

AD SPACE IN HIGH CIRCULATION FREE PAPER

Q ICS

ACQUISITION

AD SALES

1'!1111

FACEBOOI(,( 1)1

hand and with self-service racks. This required Metro to develop its own distribution network,

but enabled the company to quickly achieve broad circulation. Third, it cut editorial costs to produce a paper just good enough to entertain younger commuters during their short rides

/ll- CONTENT, DESIGN

~ =oF A DAILY PA~ &

DISTRIBUTION

REE N.EINSPAPER; FEES FOR AD SPACE IN PAPER

FREG/Ill FEES FOR AD 51 11\!

s ':/:. automatic ad $ 1·11 fill number of users does not automatilly l 11mslate into an El Dorado of advertising

Newspapers: Free or Not Free?

IIII ClS, as the socia l networking serv ice

'111look has demonstrated. The company 1·111 11/ ld ove r 200 mil li on act ive users as of May 111) 1J, ond sa id more than 100 m il lion log on 1 1l l ~ !,lte dai ly. Those figures make Facebook lh11 world's largest socia l network. Yet users are

r\•,•,ures high circu/ati!ll

1ospo nsive to Facebook advert ising t han

1 1l111clltional Web ads, accord ing to industry

p111 Ls. While advertis ing is on ly one of severa l

I 11 nuqh free offer and

1111IMII tla l Revenue Streams for Facebook, clearly

'' u'ing on distributim

lll ll'iS of users does not guarantee huge adve r-

11/uJh-traffic co mmul •1111'1

1 ,.

and public tran~t

••/works

for articles when readers can view similar con-

FREE is newspaper publishing. Sandwiched

tent for free on Web sites such as CNN.com or

between freely available Internet content and

MSNBC.com. Few newspapers have succeeded

free newspapers, several traditional papers

in motivating readers to pay for access to pre-

have already filed for bankruptcy. The U.S. news

mium content online.

industry reached a tipping point in 2008 when the number of people obtaining news online for

are under attack from free publications such

I 1111book did not disclose revenue data.

free outstripped those paying for newspapers

as Metro. Though Metro offers a completely

or news magazines, according to a study by the

different format and journalistic quality and

Pew Research Center.

Traditionally, newspapers and MASS CUSTOMIZED AD SPAC E ON HIGH TRAFFIC OCIAL NETWORK

ADVERTISERS

FR EE SOCIA L NETWORK

.t OM N!UTER$

ously ignored newspapers, it is ratcheting up

magazines relied on revenues from three

the pressure on fee-for-service news providers.

sources: newsstand sales, subscription fees,

Charging money for news is an increasingly

and advertising. The first two are rapidly

difficult proposition.

declining and the third is not increasing

GLOBAL WEB AUDIENCE

quickly enough. Though many newspapers

ingwith novel formats focused on the online

have increased online readership, they've

space. For example, news provider True/Slant

AD SALES FORCE

FREE ACCOUNTS FEES FOR AD SPACE ON FACEBOOK

Some news entrepreneurs are experiment-

failed to achieve correspondingly greater

(trueslant.com) aggregates on one site the

advertising revenues. Meanwhile, the high

work of over 60 journalists, each an expert in a

fixed costs that guarantee good journal-

specific field. The writers are paid a share of the

ism- news gathering and editorial teams-

advertising and sponsorship revenues gener-

remained unchanged. Several newspapers have experimented with paid online subscriptions, with mixed results. It is difficult to charge

focuses primarily on young readers who previ-

ADVERTISERS

FACEBOOK.COM

IN PAP ER

On the print side, traditional newspapers

ll•li iK revenues. At this writing, private ly held

trcebook

One industry crumbling under the impact of

ated by True/Slant. For a fee, advertisers can publish their own material in pages paralleling the news content.

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ttlli cosTs relate to l• tVII IOping and maintaining 1111 pl,ilform; traffic-

lll11,1tion and retention

•lth rnay also arise.

Free products or services generate high platform traffic and increase attractiveness to advertisers.

...

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pen Sou .rreemium

Freemium: Get the Basics for Free, Pay for More Flickr The term "freemium" was coined by Jarid Lukin and popularized by venture capitalist

lllltllncss models in the enterprise softw lil'l

Q \CS

Fred Wilson on his blog. It stands for business

MASS CUSTOMIZED

models, mainly Web-based, that blend free

SWITCHING COSTS

ti lling multiple per-user licenses and 1'1\f.\ lil YAHOO!

base benefiting from a free, no-strings-attached offer. Most of these users never become paying customers; only a small portion, usually less

FLICKR PLATFORM

FLICKR .COM

BRAND

YAHOO.COM

~n l't ware from scratch, it builds its prodllt'l 1\l jl of so-called open source software dt'VI

premium services. This small base of paying because of the low marginal cost of serving addi-

C$ ./.!}

volontarily by thousands of software l.l ii P,Ii PLATFORM DEVELOPMENT

tlt'Oilnd the world. Red Hat understood 1111

~AGEf§ST ~

n Hnpanies were interested in robust, 111'1'1

tional free users. In a freemium model, the key

!i lKl"ce-free open source software, but

metrics to watch are (1) the average cost of servcan purchase a "pro" account and enjoy unlim-

users convert to premium (paying) customers.

ited uploads and storage space, plus additional

rixed and sunk costs

Voriable cost

features.

related to platform

depending on number

development

of photos stored

acquired by Yahoo! in 2005, provides a good

~l ll ~J;I e entity was legally responsible 1'0 1' p

example of a freemium business model. Flickr that enables them to upload and share images.

Large base of basic

Small base of payinq

The free service has certain constraints, such as

accounts for casual users

"pro" users

uploads per month. For a small annual fee users

IlKond maintaining it. Red H at filled IIi nl'fc ring stable, tested, service-ready

Yi ii'M

li'l'Ciy available open source softWOl"~',

p ill

lill'ly Linux. Each Red Hat release is suppm"l'od i111

users can subscribe for free to a basic account

limited storage space and a maximum number of

Wl' l

11•iuctant to adopt it due to concen, s lli ll l

ing a free user, and (2) the rates at which free Flickr, the popular photo-sharing Web site

ll jl j\I"Odes of the software. Hcd Hat, a U.S. software company, l\11'1 \1

IIli Mmodel upside down. Rather than Ct'l'lll

than 10 percent of all users, subscribe to the paid users subsidizes the free users. This is possible

t'h•fll, the high fixed cost of supporting l\11111 Hl t1X pert software developers who bu.lld III llllidLl ct; Second, a revenue model based 11 11

basic services with paid premium services. The freemium model is characterized by a large user

lllilltHtry are usually characterized by l Willi

yr•urs. Customers benefitfrom thi~ opp11 lwcause it allows them to enjoy tho ('Oril M l ubility advantages of open source ~ttl! 1·

en Source:

·eemium with a Twist hWMN models in the enterprise software lti lll y nre usually characterized by two traits: I lilt' high fixed cost of supporting an army jll•rt software developers who build the

while protecting them from the uncertainties

new release-the traditional software revenue

surrounding a product not officially "owned" by

model-it sells subscriptions. For an annual

anyone. Red Hat benefits because its software

fee, each client enjoys continuous access to

kernel is continuously improved by the open

the latest Red Hat release, unlimited service

uhit' li iiecond, a revenue model based on

source community free of charge. This substan-

support, and the security of interacting with

III!IJI Illultiple per-user licenses and regular

tially reduces Red Hat's development costs.

the legal owner of the product. Companies are

l'i ,liidi'N of the software. ll1•d II at, a U.S. software company, turned

Naturally, Red Hat also h as to earn money. So rather than charging clients for each major

I• llllldclupside down. Rather than creating

willing to pay for these benefits despite the free availability of many versions of Linux and other open source software.

It \Y iii'C from scratch, it builds its product on

•pill' No-called open source software developed th liillll'ily by thousands of software engineers lliild the world. Red Hat understood that

Red Hat

Q ICS SUPPORT SERVICES

IIII JHIIlies were interested in robust, licens-

SOFTWARE VERSION lNG & TESTING

11 l1•1'· free open source software, but were

lili'lnnt to adopt it due to concerns that no 11111it• entity was legally responsible for provid-

uohll' cost "'llclmg on

number

flllnlos stored

hliill lld maintaining it. Red Hat filled this gap by

SELF-SERVICE & DIRECT ACCESS TO ENGINEERS

(LINUX) OPEN SOURCE DEVELOPMENT COMMUNITY

llm·lng stable, tested, service-ready versions of

RED HAT (LINUX) SOFTWARE

11 lltlly uvailable open source software, particu-

ONTINUOUSLY UPGRADED, SERVICED, & GUARANT EED SOFTWARE

REDHAT.COM

ENTERPRISE CliENTS

RED HAT GLOBAL BRANCHES

ltit ly Linux. 1\uch Red Hat release is supported for seven I 1/'oi'I'S

''lii'N . Customers benefit from this approach luii'II USe it allows them to enjoy the cost and lii hllity advantages of open source software,

C$ ~

COST STRUCTURE CONTAINS ELEMENTS OF A SERVICE COMPANY

~ PROFESSIONAL SUBSCRIPTION

::2:

Vl Vl

Skype

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"'<(

1~ 1

1::

Skype Skype offers an intriguing example of a freemium pattern that disrupted the telecommuni-

cations sector by enabling free calling services

~I VP

SOFTWARE DEVELOPMENT

~ ICR

Q ICS

MASS CUSTOMIZED

via the Internet. Skype developed software by the same name that, when installed on computers or smartphones, enables users to make calls from one device to another free of charge.

'• kype disru pted the tCll(l( tilt

PAYMENT PROVIDERS DISTRIBUTION PARTNERS TELCO PARTNERS

Skype can offer this because its Cost Structure is completely different from that of a telecom

littlu stry and helped dtiVII Vt

KR SOFTWARE DEVELOPERS SOFTWARE

PEOPLE WHO WAN T [ 0 CALL PHONES,

technology that employs user hardware and the Internet as communications infrastructure.

HEADSET PARTNERSHIPS

•,oriously. Wh at's moru, 1 1111~

of the tradition al ca rrl on1' t II

· kype. But over time 111011111

C$ 1!}

kype, eating into ono ol lli

SOFTWARE DEVELOPMENT

arrier revenue so u rce~ . I I il

COMPLAINT MANAGEMENT HARDWARE SALES

disruptive bu siness 11 HH1i l

the traditional vo ice COIIIItll

and today Skype is tho we nl

Skype claims it has over 400 million reg-

of cross-bord er voice COl IIII

little of its own infrastructure besides backend

istered users who have made more than 100

Over 90 percent of Skyp

software and the servers hosting user accounts.

billion free calls since the company was founded

users subscribe to the frc r

in 2004. Skype reported revenues of U.S. $550

service

mobile phones through a premium service called

million in 2008, though the company and its

SkypeOut, which offers very low rates. In fact,

owner, eBay, do not release detailed financial

Paid SkypeOut calls

users are charged only slightly more than the

data including information on profitability. We

account for less than

termination costs that Skype itself incurs for

may soon know more as eBay has announced

10 percent of total usage

calls routed through wholesale carriers such as

plans to list Skype through an initial public

iBasis and Level3, which handle the company's

offering (IPO).

network traffic.

offer ca ll s for free and tllilll 'l

network like a telco and incurs only minor costs

Users pay only for calling landlines and

11111 iall y didn't undersltlllil

decided to make their lnl 1111

Hence, Skype does not have to manage its own to support additional users. Skype requires very

lion costs cl ose to zero. 1111t

SKYPE.COM

carrier. Free calls are fully routed through the Internet based on so-called peer-to-peer

years old I00 million+ u~ , /00 billion+ froc' ails gen 008 revenu U.S. $550 n1ilf

ccording to tel ecomnHIIIII firm Telegeography.

+years old 100 million+ users 700 billion+ free calls generated 008 revenues of US. $550 million

Skype versus Telco

~ IKA

L I VP

SOFTWARE DEVELOPMENT AND NO NETWORK MAINTENANCE

MAXIMUM OUTSOURCING

Q ICS

ROUGHLY SIMILAR VOICE OFFER

Ind ustry and helped drive voice communica-

El)

offer ca lls for free and didn't take the company of the traditional carriers' customers used

SOFTWARE DISTRIBUTION 100% LOW COST CHANNELS

R$ ~

C$~

90% FREE USAGE

COST STRUCTURE OF A SOFTWARE COMPANY 10% PAYING

Skype. But over time more and more customers decided to make their international calls with kype, eating into one of th e most lucrative CRIPTION

rr ier revenue sources. This pattern, typical of disruptive business model, severely affected

''I "IJ percent of S ~il 1

•.ttllsmbe to tltt' /t

I '•~ Y/)('Out ca /11 111111/

furless lhon

"'1<"< 111/

of total u ~ ttll

GLOBAL REACH WITHOUT THE LIMITATIONS OF A NETWORK

Li on costs close to zero. Telecom operators Initially didn't understand why Skype would neriously. What's more, only a tiny fraction

Skype is o voice co/ling

I he traditional voice communication business,

services compony opemi' ..

ond today Skype is the world's largest provider

ing under the economics of a softvvorc company

of cross-border voice communication services, 1ccording to telecommunications research

finn Telegeography.

AUTOMATED MASS CUSTOMIZATION

NO INFRASTRUCTURE

kype disrupted the telecommunications

f>EOP LE WHO- WANT iO CALLI'_HON ES

~ I CR

Giving away software one/ allowing customers to make free Skype-to .. Skype calls costs the company little

::;:

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"'z

The Insurance Model: Freemium Upside Down REGA

In the freemium model a small base of customers

paying for a premium service subsidizes a large

base of non-paying customers. The insurance

model, a large base of customers pay small regular fees to protect themselves from unlikely-

~ IC R

RESCUE OPERATIONS

model is actually the opposite-it's the freemium model turned on its head. In the insurance

~I VP

FLEET OF HELICOPTERS AND PLANES

but financially devastating-events. In short, a large base of paying customers subsidizes a small

PATRON MEMBERSHIP

RESCUE路 PERATIONS

become part of the beneficiary group. Let's look at REGA as an example. REGA

REGA.CH (WEB) PAPER PUBLICATIONS

"We can no lo11

and watch ot'11

Jh ~FLEET OF HELICO PTERS & PLANES

our work und1

RESCUING

is a Swiss non-profit organization that uses

legal theorie.

helicopters and airplanes to transport medical staff to the scene of accidents, notably in the mountainous areas of Switzerland. Over two million so-called "patrons" finance the orga-

Many paying users

nization. In return, patrons are exempt from

cover the costs of a

paying any costs arising from being rescued

fewdoims

by REGA. Mountain rescue operations can be extremely expensive, so REGA patrons find the service attractive in protecting them against the high cost of accidents during skiing vacations, summer hikes, or mountain drives.

digital eventu:

group of people with actual claims-but any one of the paying customers could at any time

"Every industr

RESCUE "I NSURANCE"

INSURANCE COMPANIES SPONSORING PATRONS

Q ICS

"Every industry that becomes digital eventually becomes free." -Chris Anderson Editor-in- Chief, Wired Magazine

"The demand you get at a price of zero is many times higher than the demand you get at a very low price:'

"We can no longer stand by

- Kartik Hosanagar Assistant Professor, Wharton

and watch others walk off with our work under misguided

"Google's not a real company.

legal theories."

It's a house of cards." - Dean Singleton Chairman, Associated Press

f\1111/Yf'!IYIII(jll'â&#x20AC;˘t'l IIIW/

/Iii' COS/" c>/ (

/â&#x20AC;˘'W 1/oimo;

Steve Ballmer CEO, Microsoft

() ~ I

liid l• 11 11'•

,1\t l

A\ITO t1'~"'(7i;'p

6~(..

""'"~s

6Jh'To-\t~Q.

7kmulrm.

.lJ.vwit:L

to be offered at low marginal cost.

l)f\S:Of fR --

' •It 11,md ca n pay for a 111\11111 service that offers ldll\111\al benefits.

V5CKS

\II \Ill

'ft-f11'-t(,., l.l S?.~

C$ :g,

fr~V

'ftG:. B-'Stc.. .s.::'ellrc;;.s

~\of"S:~

f&l"-

r~tlr\ vSE:!(..')

PauL ~

An 'IMPORTANT METR IC to ~.

};Ptf~ic~.c

- -

i1'

USERS

fo llow is the rate at which

describes how many users

free accounts convert to

a company with a freemium

prem ium accounts

business model can attract

cost in order to hand le large numbers of free users.

marginal costs for serv ices to free accounts, and (separate) costs for premium accounts

'• I" lit·I

ill

t•iltl I NT OF PREMIUM & FREE USERS

l"'t lfles how many of all users 1111 premium paying users or

111•1• users.

substantial fixed costs, very low

I1IHI

1111

Soi\.N..'- 6,_'.1;. Cf

freem ium pattern, because it al lows free basic services

IIII I

1 I 111··, onjoy a free basic

LA~~~

.....

5':~r.:E..

important)Assn[i n the

1111VIIIK users.

incurs to run its business model (e.g. systems costs)

i'H

Itt IIi til It

::;:

111o l1 110mium model is iloll 111 l erized by a large 11 Ill

free service users

rli ~ l d l ~e d by a small base

COST OF SERVICE

v; ::J

"'<{

indicates the average cost

the company incurs to deliver

1 •It ll and can pay for a I.JIIIIlnal benefits.

COst 0( Soet'v1te

GROWTH

)'l!!:f CQs:::s

t:l:.!s:t~r IICCJIItSi t !Qrl

s~.ll6,12s S2,lS1,C<II $2,185,533

a free or premium user. i l·.lll 'oenjoy a free basic

' " 11111 11'11 service that offers

tncome

a free or premium service to

CHURN RATE

specifies how many users

c:osts

$2,212,611 _J_?..25J!..2!4

~-- ._Sl,]_%'-.5!~-

defect/respectively join

7 -- · S_3,:33~ ,456~ 8 S2,372,974

the user base.

$ 7 ... ~

cost d. CUSTOM ER ACQUISITION COSTS

1'1!'e use~

users

so.n:l

total expenses a company

9,oQO.J~

incurs to acquire new users.

rl'<:•ntn \. 1'1

1:.s.SOO

PRICE OF PREM IUM SERVICE

• 11111', how many of all users

indicates the average cost

so.o3

Q.9S

o.i:Js

~61

-- ,..oc.

premium

pru:e o premium

sei'VlCeJmontn

~of

i•n:ome

users

P,'!!fioO

the company incurs to

0.05

deli ver a premium service

o.o.s

to a premium paying user.

0.05

o.os 0.0:5

o.os"' o.os 005

...r~~ -~

~ :;: '"'COt-!::

.~ n.'''\t}

Ill II II OF PREMIUM & FREE USERS

I):Sl!I"S

,enr<te

'foOl{~

005 0.05 "' ~~

$A .9S

~95 ..4.95 $.4 .95 $4 ;95 .

$4.95' '1Jr'11 .9s ' $4:9~~ $4 .95

'$4'9s' $<US • • Q<;

gntWttl

chu!'fl

rate

i.ncome

::; ~ w

Bait&Hook

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w w

e: Bait & Hook of Free Mobile Phones V1

85 f-

"Bait & hook" refers to a business model pattern characterized by an attractive, inexpensive, or

~I VP

IKA

free initial offer that encourages continuing

~ I CR

Q ICS

CONTRACTUAL LOCK-IN

SERV ICES

future purchases of related products or services. DEV ICE MANUFACTURERS

to a subsidized, even money-losing initial offer with the intention of generating profits from

t-i

NETWORK

C$ ~

NETWORK PHONES

idea of luring customers with an initial offering,

SERVICES

The mobile telecommunications industry provides a good illustration of the bait & hook pattern with a free offer. It is now standard practice for mobile network operators to offer free telephone handsets bundled with service subscriptions. Operators initially lose money by giving away mobile phones for free, but they easily cover the loss through subsequent monthly service fees. Operators provide instant gratification with a free offer that later generates recurring income.

11•11 ll' demand for his disposable hind i

ptodu cts. The key to this model is 1'1 u•l

term bait & hook pattern to describe the general while earning from follow-up sales.

IYI' Ihem away with other prod1.1 clHIll 1.l ll1•1te is still the preeminent brnnd II

to a business model popularized by an American disposable razor blade (see p. 105). We use the

IV Ihe first disposable razors werl' noli

! lli ll<lng C. Gillette, who commel'('\11 1 •111'1\ZOr handles at a steep disco unl lll

subsequent purchases. "Razor & blades" refers businessman, King C. Gillette, inventor of the

lu lll't.or and blades model derives 1'1 '111

111 ~I disposable razor blade systen1, d1•1'

This pattern is also known as the "loss leader" or "razor & blades" model. "Loss leader" refers

1II•• l111'1l1 of the bait & hook patte rn l1111

lll'lwcen the inexpensive or free i111i lll l

111111the follow-up item-usually dl"111 11 N X. MONTHLY SUB-SCRIPTI

1y \il ch the company earns a high

ll ll ll

lillll lng the "lock-in" is crucial to t· li l ~

lll'~·css. Through blocking pate n! ", I l' il lltlred that competitors couldn' l oll ltllldes for the Gillette razor h amii1•M, indny razors are among the wo•·ld'" 11

p!l lcnted consumer products, w ll'li 111

1000 patents covering everythl11 p, II 1 1

IlKstrips to cartridge-loading sytl\1'11

Razor &Blades : Gillette •l1o 1111'111 of the bait & hook pattern known as '

1 1 1 ~.o r

and blades model derives from the

MARKETING

• 1111 1 rirst disposable razors were sold. In

LOGISTICS

di Hposable razor blade system, decided to

111 1 1 '~ 11 1'

~ ICR

Q ICS

BUILT-IN "LOCK-IN"

R&D

iil l(lng C. Gillette, who commercialized the I

~I VP

RAZOR HANDLE

MANUFACTURERS

handles at a steep discount or even

RETAILERS

11!1•111 away with other products in order to

CUSTOMERS

o111• dvmand for his disposable blades. Today

BRAND

lloi It• Is still the preeminent brand in shaving

PATENTS

BLADES

llli 'IH. The key to this model is the close link 1 ••1•11 I·he inexpensive or free initial product

C$ ~

lilll t l'ollow-up item-usually disposable-on 'I• li llie company earns a high margin. Con11111111he "lock-in" is crucial to this pattern's

I ··~

This pattern is popular in the business world

l111' i·he Gillette razor handles. In fact,

and has been applied in many sectors, includ-

1•· lll'l.li i'S are among the world's most heavily

ing inkjet printers. Manufacturers such as HP,

· •ll••tl l·onsumer products, with more than

Epson, and Canon typically sell printers at very

""' pllil' nts covering everything from lubricat-

low prices, but they generate healthy margins on

11ipMlo cartridge-loading systems.

1 X HANDLE PURCHASE

FREQUENT BLADE REPLACEMENTS LOGISTICS, R&D

_~·•N, T hrough blocking patents, Gillette llli'llll1 nt competitors couldn't offer cheaper

R$ ~

MARKETING MANUFACTURING

subsequent sales of ink cartridges.

CIll••( l il •·l •ll

lin~ "'

\11lli >

' 11 '•1\S on DELIVERY

I I> 1\\ 1JW-up products , -111vices.

ll•ill & hook patterns usually

l1•rnents include subsidization nlll\e initial product and the

'' ••,ts of producing follow-up p1 nducts or services.

-1

This pattern is characterized by a tight link or

CUSTOMERS

" LOCK-IN"

between the initial product Cheap or free "bait"

LURES

and the follow-up products

customers-and is closely

are attracted by

the instant gratification of a cheap or free initial product

The initial one-time pur-

or service.

chase generates little or no

or services.

REVE N UE,

linked to a (disposable)

but is made up for

through repeat follow-up

follow-up item or service.

purchases of high-margin products or services.

J:il

~ I

t7l.

II! I DE LI VERY

11p products

I t.t

rJ\

l11111k patterns usuall y llo · "

•,1 rong BR AND.

Hfl R$

.!!);

"I pi od ucing follow-up

•., ..... ·.-· ·-

".. i

::.."t:"·-·

¢_- _.,, "' ..

., ~

Def_Pattern No. OPEN BUSIN

nies to creat e cally collabon may happen ing extern a I

"inside-out" I) ideas or a s~H

0 0

::;

"' w "' z

:::>

"'~

Def_Pattern No. 5 OPEN BUSINESS MODELS

can be used by compa-

nies to create and capture value by systematically collaborating with outside partners. • This may happen from the "outside-in" by exploiting external ideas within the firm, or from the

"inside-out" by providing external parties with ideas or assets lying idle within the firm.

[ REF·ER·ENCES]

I • Open Business Models:

How to Thrive in the New Innovation Landscape. Chesbrough, Henry. 2006.

2 • "The Era of Open Innovation." MIT Sloan

Management Review. Chesbrough, Henry. N° 3, 2003.

[ EX·AM·PLES]

P&G, GlaxoSmithKilne, Innocentive

:'::

c:0

::;

"'"' z

::J

•

Procter & Gamble: Connect & Develop

laxoSm rttentP~ Outside-In

"'z ~ >-

In June of 2000, amid a continuing slide in

lil t• Inside-out approach to open .i nno v11 OTHER COMPANY'S IP

Procter & Gamble's share price, longtime P&G

INTERNAL R&D

consumer product giant's new CEO. To rejuvenate P&G, Lafley resolved to put innovation back at the company's core. But instead of boosting R&D spending, he focused on structuring a new innovation culture: one that moved from an internally focused R&D approach to an open

111\V• In the case of GlaxoSmithKlinc'H " pill

1111111" research strategy, though, t h<: '1 1111 11

Tet hnoloii entrepreneurs are senior scienti sts from P&G busi ness units who systematically develop re lationships with researchers at universities and other compan ies. They also act as "hunters" who scan the ou ts ide world for so lutions to internal P&G cha ll enges.

IIH~ lightly different. The compa ny'HJ\1111 111 11111 ke drugs more accessible in clw Will RETIRED SCIENTISTS

INTERNAL R&D

R&D process. A key element was a "Connect & Develop" strategy aimed at exploiting internal research through outside partnerships. Lafley set an ambitious goal: create 50 percent ofP&G's innovations with outside partners at a time when that figure was closer to 15 percent. The company surpassed that goal in 2007. Meanwhile,

compared to when Lafley took over as CEO. In order to link its internal resources and R&D activities with the outside world, Procter & Gamble built three "bridges" into its business model: technology entrepreneurs, Internet platforms, and retirees.

p11o rcst countries and to facilitate rcHI'IIi

11110 understudied diseases. One wu y III II lltl Hwas to place intellectual propo,·ty oiJ

Through Internet platforms, P&G connects with expert problem-solvers around the world. Platforms such as lnn oCentives (see p. 114) all ow P&G to expose some of its research problems to non-P&G scientists around the globe. Respondents earn cash prizes for developing successful solutions.

R&D productivity had soared 85 percent, even though R&D spending was only modestly higher

111111 ordinarily focuses on monetizin p; 11111

lll ll ' l' n~l assets, primarily patents and ll •t•l

executive A.G. Lafley got the call to become the

tt•il'vant to developing drugs for sut' li dlt LEVERAGING INTERNAL R&D

1111 0 a patent pool open to explorallo11 h1 1IIHCu rchers. Since pharmaceutica l ~'IIIII\

lt wus mainly on developing blockbu HII ' I

l111 cllectual property related to ICHH Hlll d di Hcases often lies idle. Patent pooiHllfll

l11lcllectual property from differcPI 11111•

P&G solicits knowledge from retirees through YourEncore.com, a platform th e company launched specifically to serve as an open innovation "bridge" to the outside world.

holders and makes it more acccssih lt• 'I p1·cvent R&D advances from beinJ~ hl111 11 ~ i ngle

rights-holder.

axoSmithKline's tent Pools Inside-Out liNIIL

R&D

Itt I1 1Nidc-out approach to open innova•tlllt'd I norily focuses on monetizing unused 1

ACQUISITION

illlil ossets, primarily patents and technol-

RETENTION

11 1Ihi.! case of GlaxoSmithKline's "patent IP FOR UNDERSERVED DISEASES

tl" i'I '~C a rch strategy, though, the motivation IIH htly different. The company's goal was tllt il•t' drugs more accessible in the world's N/IL

R& D

u1111111

eo untries and to facilitate research

'' tl llll lc rstudied diseases. One way to achieve ' l•t\VIIH i'O place intellectual property rights

h ' 11 1111'0 developing drugs for such diseases NAL

R& D

111111 )Ill lent pool open to exploration by other o<tlll' hcrs. Since pharmaceutical companies 11~

11111 inly on developing blockbuster drugs,

1 llt wlun l property related to less-studied '' •• I ~I'M o ften lies idle. Patent pools aggregate

til ll1wt uul property from different rightstlt ii•I'M nnd makes it more accessible. This helps ' •·t•lll H&D advances from being blocked by 1111\lt• rights-holder.

/ I

OUTSIDE RESEARCHERS

PATENT POOlS

LICENSE FEES

Unused internal ideas, R&D, and intellectual property related to diseases in poor nations have substantial value when "pooled"

~ ~

:;;

vo vo ~

The Connector: I nnocentive

"Open Innov: tally about( ) of abundan I

not all the s 1 lnnocentive

Companies seeking insights from external

researchers incur substantial costs when trying

for you, PLATFORM MANAGEMENT

to attract people or organizations with knowledge that could solve their problems. On the

them, con rH â&#x20AC;˘ ONLINE PROFILES "SEEKERS~

ACQUIRE SOLVERS & SEEKERS

other hand, researchers who want to apply their knowledge outside their own organizations

ACCESS TO A BROAD NETWORK OF SCIENTIST' "SOLVERS"

(COMPANY)

InnoCentive saw opportunity.

build upon \-1

CONNECT "SEEKERS" & "SOLVERS"

MAJOR "SEEKERS"

also incur search costs when seeking attractive opportunities. That is where a company called

so Y'

INNOCENTIVE PLATFORM WITH BASE OF "SOLVERS" & "SEEKERS"

ACCESS TO SCIENTIFIC CHALLENGES WiTH CASH REWARDS

"SOLVERS" (SCIENTISTS)

Execut /\11

INNOCENTIVE.COM

InnoCentive provides connections between

"Long know 1

organizations with research problems to solve and researchers from around the world who are PLATFORM MANAGEMENT

eager to solve challenging problems. Origi-

ACQUIS ITION OF "SOLVERS" & " SEEKERS"

to do everyI

nally part of drug maker Eli Lilly, InnoCentive

began to

now functions as an independent intermediary listing non-profits, government agencies, and

in aggregating and connecting "seekers" and

commercial organizations such as Procter &

"solvers.'' You may recognize these qualities

Gamble, Solvay, and the Rockefeller Founda-

as characteristic of the multi-sided platform

tion. Companies who post their innovation

business model pattern (see p. 76). Companies

challenges on InnoCentive's Web site are called

with open business model patterns often build

"seekers." They reward successful problem-

on such platforms to reduce search costs.

solvers with cash prizes that can range from $5,000 to $1,000,000. Scientists who attempt to find solutions to listed problems are called "solvers." InnoCentive's Value Proposition lies

from any

S( '<

n 11

inside, out sl

"" 'I, KUI 'I" MPA NY

" ~ 0 1 VIK 'I" ('l CIIN II 11 ~ I

"Open Innovation is fun dam en-

"Nestle clearly recognizes

tally about operating in a world

that to achieve its growth

of abundant knowledge, where

objective it must extend

not all the smart people work

its internal capabilities

for you, so you better go find

to establish a large number

them, connect to them, and

of strategic partnering

build upon what they can do."

relationships. It has embraced

- Henry Chesbrough Executive Director, Center f or Open I nnovation Haas School of Business, UC Berkeley

open innovation and works aggressively with strategic partners to co-create

"Long known for a preference to do everything in-house, we began to seek out innovation from any and all sources, inside, outside the company." - A.G. Lafley Chairman Et CEO, P&G

significant new market and product opportunities." - Helmut Traitler Head of Innovation Partnerships, Nestle

EXTERNAL ORGANIZATIONS,

; ometi;;;es r;om completely different industries, may be able to offer valuable insights, knowledge, patents, or ready-made products to internal R&D

~~N;{t{'\

tt\.

I""'.N--\ 1\l~.ll..l~ Building on external knowl edge requires dedicated

iNN.ovl\.\lo:--1. y~~~

ACTIVITIES that connect external entities with internal business processes and

R&D groups.

FS~fl eo 1'\ 1'"\llf'\

trf

1-{E:.\'1>.1 0 )U(.

:"f."l'l..o~! "--.'... ~:;; C" N t'"v::( I"'\A.~~

K r-.<at""-E"r-l~, KO....vl\!'>tt.JTL~ Ac..r.:.E'SS 1't::>

IN"'&'"'ftofli

N~~t-(

Taking advantage of outside innovation requires specific 'REso uRUS:to build gateways to external networks.

C$ ~

:::-':'i-T"'~N Al-l -z: t"-1.1

t;.::: V~t.-or tA&:I'(i" GO~"'\S

lt jcosTs[money to acquire innovation from outside sources. But by building on externally-created knowledge and advanced research programs, a company can shorten time-to-market and increase its internal R&D productivity.

Established companies with stnmg brands, strong Di?tribution Channels, and strong Customer Relationships are well suited to an outside-in open business model. They can leverage existing Customer Relationships by building on outside sources of innovation.

~.(

...--'"'~

...,

((,

Some R&D outputs that are

::;:

unusable internally-for

"' ~

strategic or operational

::J

"'~

reasons-may be of high VALUE

a._

to organizations in

other industries.

~ I

KA.

---

I VP

I\\'\

Organizations with substantial internal R&D operations typically possess much unutifized knowledge, technology, and intellectual property. Due to sharp focus on core businesses, some of these otherwise valuable intellectual assets sit idle. Such businesses are good candidates far an "insideout" open business made/.

<;2

~~'D ~t--6 0:0

VN~V \t-Il'"~""-

~~~m

\ CH\~

\ \ Nr-tov'A.i(oN

' 1t--"11'<>~., . " vr--r~

1..1~~-;. R$ ~ V't .t;~1"~ f'"S~'E.

~YIN. -o"'f By enabling others to exploit unused internal ideas, a company adds "easy"

Patterns Overview

ulti·Sided Platform

Unbundling Business Models

The Long Tail

CONTEXT

An integrated model combines infrastructure

The Value Proposition targets only the most

,,,,, V,tlue Proposition targots 111111

(BEFORE)

management, product innovation, and

profitable clients.

lt• llHner Segment.

Customer Relationships under one roof.

CHALLENGE

Costs are too high.

Targeting less profitable segments with specific

l11lt1t pri se fails to acquire po\1111\ li

Several conflicting organizational cultures

Value Propositions is too costly.

l tlltlllrS who are interested

are combined in a single entity, resulting in

(AFTER)

t\ ~vlllopers who want t o reaclt 111

undesirable trade-offs.

SOLUTION

Itt flllil\

11 lltn pany's existing cu stortll\1

The business is unbundled into three separate

The new or additional Value Proposition targets

AVo lue Proposition "giving n1 11

but complementary models dealing with

a large number of historically less profitable,

pilllY's existing Customer SOH!III

• Infrastructure management

niche Customer Segments-which in aggregate

(ll,fl· a game console manu f'rll l il t

ace1

are profitable.

I til wa re developers with

IT and management tool improvements allow

IT and operations management improvements

An intermediary operating n pli t

separating and coordinating different business

allow delivering tailored Value Propositions

\wo or more Customer Segll ttl ll\ '!\reams to the initial modal.

Product innovation Customer relationships

RATIONALE

EXAMPLES

models at lower cost, thus eliminating undesir-

to a very large number of new customers at

able trade-oils .

low cost.

Private Banking

Publishing Industry (Lulu.com)

Mobile Telco

LEGO

,oog\e Video game consoles from Nintendo, Sony, Microso l\ Apple \Pod, iTunes, iPhone

---:::;.:._"-'-'-

Multi-Sided Platforms 111 1ly the mos t

FREE as a Business Model

lilt~ Vn lue Proposition targets one

A high-value, high -cost Value Proposition

R&D Resources and Key Activities are

lllo li11 ner Segment.

is offered to paying customers on ly.

concentrated in-house:

tlll l s with spec/ 1/ 1

Open Business Models

â&#x20AC;˘ Ideas are invented " inside" on ly â&#x20AC;˘ Results are exploited "inside" only I til Nl prise fai ls to acquire potential new cus-

The high price dissuades customers.

R&D is cost ly and/or productivity is fa ll ing.

ltlli ll lrs who are interested in ga ining access to

ilpositi on t argol>.

t!rill profitable, l ilt:h In aggrega111

:::

III II IIPany's existing customer base (e.g. game tltWtl lopers w ho want to reach conso le users)

A V11lue Proposition "giving access" to a com-

Several Va lue Propositions are offered to

Internal R&D Resources and Activit ies are

flillly's existing Customer Segment is added Ill fl, a game console manufacturer provides

different Customer Segments w ith different

leveraged by uti lizing outside partners.

Revenue Streams, one of them being free-

Interna l R&D resu lt s are transformed into a

111ltware developers with access to its users)

of-cha rge (or very low cost).

Value Proposition and offered to interested Customer Segments.

il Improvements

All In termediary operating a platform between

Non-paying Customer Segments are subsidized

1'1opositions

IWt> or more Customer Segments adds Revenue

by paying customers in order to attract the

be less expensive, resul t ing in faster time-

'l1 10ams to the initia l model.

maximum number of users.

to-market. Unexploited innovations have

II'J!Omers at

Acqu iring R&D from external sources can

the potential to bring in more revenue when so ld outside .

.' ltoogle

Adve rtising and newspapers

Procter & Gamble

VIdeo game conso les from

Metro

GlaxoSmithKii ne

Flickr

lnnocentive

Nintendo, Sony, Microsoft Ap ple lflod, iTunes, iPhone

Open Source Red Hat Skype (versus Telco) Gillette Razor and blades

----------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------•

---------------------------------------------------------------------------------------------------------------------------------------------------------

This section 1 of design th models. Ad

the bu sin

added exerc specifica lly provided at more depH

This section describes a number of techniques and tools from the world of design that can help you design better and more innovative business models. A designer's business involves relentless inquiry into the best possible way to create the new, discover the unexplored, or achieve the functional. A designer's job is to extend the boundaries of thought, to generate new options, and, ultimately, to create value for users. This requires the ability to imagine "that which does not exist." We are convinced that the tools and attitude of the design profession are prerequisites for success in the business model generation. Businesspeople unknowingly practice design every day. We design organizations, strategies, business models, processes, and projects. To do this, we must take into account a complex web of factors, such as competitors, technology, the legal environment, and more. Increasingly, we must do so in unfamiliar, uncharted territory. This is precisely what design is about. What businesspeople lack are design tools that complement their business skills. The following pages explore six business model design techniques: Customer Insights, Ideation, Visual Thinking, Prototyping, Storytelling, and Scenarios. We introduce each technique with a story, then demonstrate how the technique applies to business model design. Here and there we've added exercises and suggestions for workshop activities that show you specifically how the design technique can be applied. Book references are provided at the end for those interested in exploring each technique in more depth.

Design 126 Customer Insights 134 Ideation 146 Visual Thinking 160 Prototyping 170 Storytelling 180 Scenarios

â&#x20AC;˘"L's U.\\, 21l0'<

1tside an office 1ilding on the 1tskirts of Oslo~ four â&#x20AC;˘ orwegzan teenagers caring Americanyle "letter" jackets nd baseball caps are tgaged in a lively iscussion with 1nan in his 50s ...

"'If-

... The teenagers are young, hip snowboarders answering

questions posed by Richard Ling, a senior sociologist working

"':!!

for Telenor, the wo rld's seventh largest mobile operator. Ling is

:::J

interviewing the group as part of a study to gain insights into the use of photos and photo sharing over social networks. Now that nearly every mobile phone sports a camera, photo sharing is of keen interest to cellular operators. Ling's research w ill help Telenor capture the "big picture" of photo sharing. He focuses not just on existing and potential new mobi le photo sharing services, but on broader issues, such as the ro le photo-sharing plays with respect to trust, secrecy, group identity, and the social fabric linking these young men. Ultimately, hi s work will enable Tel enor to design and deliver better services.

127

Building Business Models on Customer Insights Vl

"';:;; ~

Companies invest heavily in market research, yet often wind up

created a seamless music experience for customers, integrating

neglecting the customer perspective when designing products,

the iTunes music and media software, the iTunes online store, a111l

::>

services-and business models. Good business model design

the iPod media player. W ith this Value Proposition as the kernel nl

"' ~

t; u

128

avoids th is error. It views the business model through customers'

its business model, Apple went on to dominate the online digital

eyes, an approach that can lead to the discovery of complete ly

music market

11I111 11Win g automaker Henry Fo td 1111

hAd 11t1 kod my customers w hat thoy W 11ld llltve to ld me 'a faster horse.'"

IIIIi Iim challenge lies in know lnl) wlilt lâ&#x20AC;˘lllltll 'l to hee d and which customll l ~ It

new opportun ities. Thi s does not mean that customer think ing

lil tlt tlltl1es t omorrow's growth SOt(l tlttll

is the only place from which to start an innovation initiative, but

Th e challenge is to develop a sound understanding of customers 011

it does mean that we should include the customer perspective

w hich to base business model design choices. In the field of producl

when evaluating a business model. Successfu l innovation requires

and service design, several leading companies work with social

a deep understanding of customers, including environment,

scientists to achieve this understanding. At Intel, Nokia, and Teleno1,

daily routines, co ncerns, and aspirations.

teams of anthropologists and sociologists work to develop new and

ll l1cir sights on new or unreachod

better products and services. The same approach can lead to new

' lll ttnbe r of business model innOVI\ 11111

App le's iPod media player provides an example. App le understood

or better business models.

II lilt periphery of today's cash cowâ&#x20AC;˘.

llli~l ttiJSS model innovators should liVIIII

l lttâ&#x20AC;˘, lvely on existing Custom er SltHII I

111 1 ceded precisely becau se they

~11 11

lll llltOl needs of new custom ers. ~(11 11~

that people were uninterested in digital media players per se. The company perceived that consumers wanted a seamless way

Many leading consumer companies organize field trips for sen ior

to search, find, download, and li sten to digital content, including

executi ves to meet customers, ta lk to sa les teams, or visit outlets.

1i11llos Haji-loannou's easyJ et mt1d tl11l 1V11II able to lower- and middl e-lnc.O i tlt

wlto ra rely flew. And Zipcar allowud ti

music, and were wi lling to pay for a successful solution. App le's

In other industries, particu larly those involving heavy capital

view was unique at a time when illegal dow nloading was rampant

investments, talking to customers is part of the da il y routine. But

111 oliminate the hassles of metrol:)nll li

and most companies argued that nobody would be willing to

the challenge of innovation is deve loping a deeper understand-

11ilp. Instead, customers who pay 1111 1

pay for digita l music online. Apple dism issed these views and

ing of customers rather than just asking them what they want.

tnnt automobiles by the hour. Bo tIt 111

IIOW business models built on Cuslllll

locat ed at the periphery under lnCttlti

Adopting the customer perspective is a guiding principle for the entire business model

( ( I design process. Customer perspectives should inform our choices regarding Value Propositions, Distribution Channels, Customer Relationships, and Revenue Streams.

traditional air tri!vel and traditi oll (tl u

you rganization-centric.

b~iness model desi 11111nee ri ng automaker Henry Ford once said, "If

~f)

l~>i d nsked my customers what they wanted, they

<?et ofJo6 ~;.. o'ol') (s) h 'lot e a o'or, o~y are l')o' 0 f>s) CaI') O(Jrc Oty c: O(Jrc

111ltl have to ld me 'a faster horse."'

1111lllor challenge lies in know ing which cus11111 1 ~ to heed and w hich customers to ignore.

11111 \lmes tomorrow's growth segments w ait 1\1111 periphery of tod ay's cash cows. Therefore 11 1lllllSS model inn ovators shou ld avo id focu sing

" ;:; Or

llltolr sights on new or unreached segments.

llll ll tl l needs of new customers. For example, lllp•1 l01 '•11111111 , 111 vl•1ll o11lh ·l

wy tii PIIII I

lly IIIIIIIIIU,

lllll ltll •i l illl! l I II II IYWI II II

tllllb le to lowe r- and middle-inco me customers

1 111lltn ln ate

the ha ss les of metropo litan car owner-

hlp. Instead, customers who pay an annual fee can l•l illlu tomobiles by th e hour. Both are examples of

""W l>~1 s iness models built on Customer Segments h11 nl od at the periphery under incumbent models: l1!1tllllonal air trave l and trad iti ona l car rentals.

o,. "'"

e1,

roiJt·I!) c; as er t:o 6 Sfa!J. 0 !')Sf)· f>s::> al') e IJJ o, · el')te

!')<?

~(Sf)

'>tiq

va;(J o :o er; a..v::> . s)are

l ~ llu a 1-iaji-loannou 's easy Jet made air tra vel

linmrely fle w. And Zipcar allowed city dw ellers IIIII

or,

~,I;, "Oot: 1

11111 11be r of business model innovations have 1111 no ded precise ly because they satisfied the

s to e f>/at:·1

1iii'Jively on existing Customer Segments and

s~~.cJ~~" "'\~fJ

(~~

e , .

'"'';

tf)e r CiJ 0 0::> St . 0ers CiJst.o0 f>rs

{<~'

129

1-;o,,. lve f) iJst: al') l1< IJsto e;,:0 '- · 00f>r• f>'o'r1 ·vo,o 'If>' 0 f>r L vr. 01 . 'lit>-. S ':0::> I') ue0 f>ss vr ··1 ;,· as · f>eo' Sf itt . eel,::> CiJst: lve iJ /Jirat:. to l!)t: ljo o0 :0 t: lol') o tf) tv o, f>rs o tf) 0 sa

tr 0 ;, Y'

e-~':OeC(

Building Business Models on Customer Insights "'I>-

1111t1lli lfl f\utom aker H enry I 111 d

Companies invest heavily in market research, yet often wind up

created a seamless music experience for custom ers, integral11 1

neglecting the customer perspective when designing products,

the iTunes music and media software, the iTunes online store, 1111

"'u:::>

services-and business models. Good business model design

the iPod media player. With this Value Proposition as the kenw l "l

avoids this error. It views the business model through customers'

its business model, Apple went on to dominate the online digl l iil

128

eyes, an approach that can lead to the discovery of completely

music market

"'~ 0

>--

l1l ilrtVtt told me 'a faster hOI 'IIi.'"

111â&#x20AC;˘ 1 I \i o\\ enge li eS in knoWI Iifl WI

new opportunities. This does not mean that customer thinking

is the only place from which to start an innovation initiative, but

"'Cl ifi

d 111y custom ers w hall'llll V ~

The challenge is to develop a sound understanding of customers 1111

it does mean that we should include the customer perspective

which to base business model design choices. In the field of produ1I

w hen evaluating a busine ss model. Successful innovation requires

and service design, several leading companies work with social

a deep understanding of customers, including environment,

scientists to achieve this understanding. At Intel, Nokia, and Tel eno1 ,

daily routines, concerns, and aspirations.

teams of anthropologists and sociologists work to develop new and better products and services. The same approach can lead to new

1\ M I ~ In heed and whi ch cu st0111111

11i~l\i1HIS tomo rrow 's growth 11111411

II\ HI pmlp hery of to day's cash t PW

wiii\WI model innovat ors sh011lil 111 1 1\ll~lvcly on existing Custom lll 11â&#x20AC;˘ I

\I IIIII' sights on new or un rQ,\1

\11

111 1111bCr of bu siness m od el I11 1111V llliiiOcl ed precisely beca use l\ II IV

Apple's iPod media player provides an example. Apple understood

or better business models.

that people were uninterested in digital media players per se.

The company perceived that consumers wanted a seamless way

Many leading consumer companies organize field trips for senior

to search, find, dow nload, and listen to digital content, including

executi ves to meet customers, talk to sales teams, or visit outlets.

music, and were willing to pay for a successful solution. Apple's

In other industries, particularly those involving heavy capital

view was unique at a time when illegal downloading was rampant

investments, talking to customers is part of the daily routine. But

and most companies argu ed that nobody would be willing to

the challenge of innovation is developing a deeper understand-

pay for digital music online. Apple dismissed these view s and

ing of customers rather than just asking them what they want.

1111111111 needs of new cust om OI ~. I Il

,\tlllos Haji-\oannou's easyJ ol 11 1ild

1Vn llt1 ble to lower- and middlu \111 1

Nl \0 rarely flew. And Zipcar oll oWI

\II tlllminate the hassl es of rn(l ll ll[

\lip . Instead, custom ers w ho pi IV

11111t automobiles by the hour. llii\1

1\tlW business models buil t Oil ( 11

located at the periphery undm \11

traditional ;oir travel and tradlllnl

(( l

Adopting the customer perspective is a guiding principle for the entire business model design process. Customer perspectives should inform our choices regarding Value Propositions, Distribution Channels, Customer Relationships, and Revenue Streams.

you rganization-centric. b'-'>iness m.odel desi

l!l

t! for customers, integratinp, 11, I he iTunes online store, Will 1It! Propos ition as the kern cl 11l

!1111111\C ring automaker Henry Ford once said, " If 111d rttt kcd my customers what they wanted, they 11ld linve told me 'a faster horse."'

1dom inate the online digitn l liid liti t chall enge lies in knowing which cu s-

ltll1iltn es tomorrow's growth segments w ait

1lit>ices. In the field of prodtll I

1lli11periphery of today's cash cow s. Therefore

1IIJ!lnies work with social

llliii ii'JS mo del innovators should avoid focusing

, /\ l intel, Nokia, and Telenw, ''' "' work to develop new and 111 1pproac h can lead to new

o~-v

' lii ~ l vc l y on existing Customer Segments and I l l11 1lr sights on new or unreached segments. 11111 tiber of business model innovations have 1111 110ded precisely because they satisfied the

lllliltll needs of new customers. For example, 1111 111lze field trips for seni o1 I

['111IOs tea ms, or visit outle l ~o I!Vtllving heavy capital Il l of the dail y routine . Bul

luli tm Haji-loannou's easy Jet made air tra vel illtlble to low er- and middle-income customers llil l tl rely fle w. And Zipcar allow ed city dw ellers 1>1 11lltn inate th e hassles of metropolitan car ow ner-

lilt n deeper understand -

!lip, Instead, customers who pay an annual fee can

ll I hom what they want.

111111 r1Litomobiles by the hour. Both are examples of 111•W busin es s models built on Customer Segments ltilt!l od at the periphery under incumbent models: l!ndltlo nal air travel and traditional car rentals.

II/ .~,

ac~,c/,

llltWI to heed and which customers to ignore. II! lorstanding of customers 011

VVI) !?et at/06 VV!- dol) (s) c/, l)o~-v' 1at ar12e a17d I) o(es) ca our o~-v our 17 1-ve t. cust.o cal) 1-fo cl.tsto 1-v ' 1e;, 0 e t. 0 do '/J I) . er ''e;, er 6 res our '0 /; s as '/J.::> 17ee est fi sed::> cus, l ve ', :Oirat.. d to 11 · · /-.;, 'o '-~:0 to ft. lofJs "' l A. 17t 0 e,.. 1 vvl) c/, s /) ''e " l)d 0 tl) ,, at e;r 0 •· 0::> '-'S ' ret r.0 vve 'e . <o e 'at'o · /.t'<II) · ·asa o6 ;:; sta6 . fJsl). es::> I) e e Or i-1/ /;Sf) 0 c/, · fJter Vvl/;,· hat 1-vltl) o ou :Or;se IIJ,g t, va;l.t tl)e r cus 00 , o :Oa 12(s) 0? t 'Y? are cu ers e-~':0 Sto0 ect ers / trl.tly

~~\

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ii; :::>

129 z

l!l

iii0

What does she

Ihe Empathy Me

THINK AND FEEL? what really counts major preoccupations worries & aspirations

•Ill~ enjoy the services of a full tealll ol lii!IM'i model can sketch profiles of tl111( •Il l Wl\Y to start is by using the Emp:illiV

What does she

HEAR? what friends say what boss says what infl.uencers say

~ ~

IJIIIIIV XPLANE. This tool, which we ol•iill l 111111," helps you go beyond a custom or '~

SEE? environment friends what the market offers

IIIII understanding of environmenl, 1l111i yo u to devise a stronger busin esfl lilll

11'11111better Va lue Proposition s, mOrt! Ill lllii!I[JrOpriate Customer RelationshiJl'l .

! 111 ustomer is truly willing to pay f01,

What does she

SAY AND

I I llOES SHE SEE?

DO?

I ~I lt iO E WHAT THE 11\I()MER SEES IN HER

attitude in public appearance behavior toward others

W/1111 does it look like?

\V/111 surrou nds her? \V/10 ore her friends?

W/int types of offers 11 11!0 exposed to daily

GAIN

fears frustrations obstacles

wants/needs measures of success

1111 opposed to all 1111 11 kc t offers)?

W/:(1( problems does /111 encounter?

Source : Adapted from XPLA

DESCRI!l ll ll ENVIRONMII ENC ES Till I

IIV IItONMEN T

PAIN

WHAT IJ(}I

•

• Wh al dn/1

Her ~poll "

• Wh OIIIIi/1\ and howi'

• Whlc/1111 are ln (/111111

II H~

Empathy Map How to Use the (Customer) Empathy Map Here's how it works. First, brainstorm to come up with all the

I-

J 11 ~ 11njoy the services of a full team of socia l sc ientists, but anybody examining

possible Customer Segments that you might want to serve using

111••- model can sketch profiles of the Customer Segments addressed therein .

your business model. Choose three promising candidates, and

I WilY to start is by using the Empathy Map, a tool developed by visual thinking IIV XPLANE. This tool, which we also like to call the "really simple customer

1" linlps you go beyond a customer's demographic characteristics and develop 1••1 1111dcrstanding of environment, behavior, concerns, and aspirations. Doing so VIl li lo devise a stronger business model, because a customer profile guides the

l'ers

111il llot ter Value Propositions, more

conveni~ays to reach customers, and

select one for your first profiling exercise.

Start by giving th is customer a name and some demographic

Then, referring to the diagram on the opposite page, use a fiipcha rt or whiteboard to build a profile for your newly-named customer by asking and answering the following six questions:

1ll'liomer is truly w illing to pay for.

rt !IIII I WHAT THE

DESCRIBE HOW THE

WHAT DOES SHE REALLY

WHAT DOES SHE

WHAT IS THE

WHAT DOES THE

THINK AND FEEL?

SAY AND DO?

CUSTOMER'S PAIN?

CUSTOMER GA IN?

• What are her biggest frustrations?

111M \ fl SEES IN HER

ENVIRONMENT INFLU -

TRY TO SKETCH OUT

IMAGINE WHAT THE

I~IIN M E NT

ENCES THE CUSTOMER

WHAT GOES ON IN YOUR

CUSTOMER MIGHT SAY,

CUSTOMER'S MIND

OR HOW SHE MIGHT

111111 1110S it

look like?

1111 ~ 11 11 0unds 11111111 11er

her?

friends?

hil lypcs of offers I!Xposed to daily 11/ljiii.ICd to all

l1~

11l11 /11((crs)? hii !IIOblems does 111 mmter?

11111111: Atl!lil lod l1 11111 J

WHAT DOES SHE HEAR?

• What do her friends say? Her spouse? • Who really influences her, and how? • Which media Channels are influential?

• What is really important to her (which she might not say publicly)? • Imagine her emotions. What moves her? • What might keep her up at night? • Try describing her dreams and aspirations.

::> u

characteristics, such as income, marital status, and so forth .

111110priate Customer Relationships. Ultimately it allows you to better understand

Ill II ·, SHE SEE?

"';;; ~ :li"'

BEHAVE IN PUBLIC

• What is her attitude? • What could she be telling others? • Pay particular attention to potential conflicts between what a customer might say and what she may truly think or feel.

• What obstacles stand between her and what she wants or needs to achieve? • Which risks might she fear taking?

What does she truly want need to achieve?

• How does she measure success? Think of some strategies she might use to achieve her goals.

131

hx..~is

""'f j<Jb po.t'lion?

h\( lerstand\ng c 11

1gthe Empa

lillltl 20 08, Microsoft announ ced ph Qo~f<.

""""'e"'t

1---- ---~

MU~

Wnrd, Excel, and all other Offlcfl 11\1 111111 browsers. This wi ll require M il 111

.•

li 1110ngineer its business model. 0 111

vvh ays vvhat boss says -- '-- ·- luencers

J:l'<.<>$h.loO

111\ IOUncement, customers wi ll OVIil\

Wrn.n~~.....Js she

Whatdo Afle is 0\.lr [T ""'lly.s..curo.?

11111tJulte of Office application s 011111 11

:J'>- .,...p

""'•"" Gfp.s • ..,

~o.\'·· · ·

11\1- liusiness model renovati on co uld I ..,~ ""'rio~•••

•

· ":Jthe market offers

...,

tod llccrs (CIO), who define IT st rn l 1

us.-.~.~,s'e.~s

in ovt

f:o< pn"<<li f>-'l"'l"S

a.n(>'>~'j

11111111r profile for a key buying segll\1111

1111 11lng purchasing decisions. W l11 1l

1111110r profile look like? d!;P'I.;

liAS /

_.P

-~.-. ....~"'·"", ....., ~w;.<tle. ~'f.

r·t'o'\

Thc,yw1/

o.n

""f'IOVQ\-or

ous/y 1/1 11 C usi PIIi f'

ans\\11'1

so/Vi' 11'1

to p11y I•

<l'-"rworke<l

rr ;

k>acw ;. o.H-ack

-----·.1 Slo.ff

user

fetactbod<'G

lnsvff\.c.ie"t TI ~>.

"_ao"'' ~-

!II

1'\aw

rap~d. ~;c~l

c~--A"j"'

j' .

. .

ve.rston

~w ~c.er.!l. [<1e.s

. .

pos:t.h\14!.

~d~f\~

C\O<.lrl\ir»e

l "VI

ne.eo. {Qr.

I, "'<t-emo.t Ci CCH\So..~U·\"'6

bvsi"es.~ .&. IT C\l iEJ!"\M~tn~

ns s

Source : Adapted from

11derstanding a B2B customer 1112: the Empathy Map ' 1 .•008, M icrosoft announ ced plan s to provide III Io of Office app li cation s on line. Accord ing !111111 11\Ccment, cu stomers w ill eventua ll y be abl e •II II, Excel, and all other Office app lications liiiiiiWSers. This w ill require Microsoft to signifi llllf.llnce r its bu sin ess model. On e starting point IHI• IIICSS model renovation co uld be t o create a ••1 p1ofi le fo r a key buying segment: chief inform alh 1111 (C IO), w ho define IT strategy and make

11111)4 purchas ing dec isions. What m ight a CIO 1111 pi'() fi le loo k li ke?

The goal is to create a customer viewpoint for continu ously questioning your business model assumptions. Customer profiling enables you to generate better answers to questions such as: Does this Value Proposition solve real customer problems? Would she really be willing to pay for this? How would she like to be reached?

l!l Vi ~

"'~

g ::> u

~()()7

ar Mock is ening carefully '>eter elaborates itedly on an idea ida sea ofPost-itâ&#x201E;˘ es smothering walls ...

... Peter works for a pharmaceutical group that has hired Elmar's innovation consultancy, Creaholic, to help with a breakthrough product. The two men are part of a six-person innovation team \ holding a three-day offsite meeting. The group is deliberately heterogeneous, a pastiche of different experience levels and backgrounds. Though all members are accomplished specialists, they joined the group not as technicians, but as consumers unsatisfied with the current state of affairs. Creaholic instructed them to leave their expertise at the door and carry it with them only as a "backpack" of distant memories. For three days the six form a consumer microcosm and unleash their imaginations to dream up potential breakthrough solutions to a problem, unbridled by technical or financial constra ints. Ideas co llide and new thinking emerges, and only after generating a multitude of potential solutions are they asked to recall their expertise and pin down the three most promising candidates. Elmar Mock boasts a long track record of breakthrough innovation. He is one of two inventors of the legendary Swatch watch. Since then, he and his team at Creaholic have helped compan ies such as BMW, Nestle, Mikron, and Givaudan innovate successfully. Elmar knows how difficult it is for establi shed companies to innovate. Such firms require predictability, job descriptions, and financial projections. Yet real innovations emerge from something better described as systematic chaos. Creaholic has found a way to master that chaos. Elmar and his team are obsessed by innovation.

135

Generating New Business Model Ideas Mapping an existing business model is one thing; designing

to competitors, since business model innovation is not abou t

~ Q 136

a new and innovative business model is another. What's needed

copying or benchmarking, but about creating new mechani sn1

is a creative process for generating a large number of business

to create value and derive revenues. Rather, business model i11111 '

model ideas and successfu ll y; 'lating the best ones. This

vat ion is about chal lenging orthodoxies to design original mochtl

process is called ideation. M~stering the art of ideation is crucia l

that meet unsatisfied, new, or hidden customer needs.

w hen it comes to designing viable new business models. z

"'~

To come up w ith new or better option s, you must dream up a Traditionally, most industries were characterized by a dominant

grab bag of ideas before narrowing them down to a short li st ol

business model. This has changed radically. Today we enjoy

conceivable options. Thus, ideation has two main phases: idea

many more choices when designing new business models. Today,

generation, where quantity matters, and synthesis, in which

different business models compete in the same markets, and

ideas are discussed, combined, and narrowed down to a small

boundaries between industries are blurring-or disappearing

number of viable options. Options do not necessarily have to

altogether.

represent disruptive business models. They may be innovation s that expand the boundaries of your current business model to

One cha llenge we face when trying to create new business model

improve competitiveness.

options is ignoring the status quo and suspending concerns over operationa l issues so that we can generate truly new ideas.

You can generate ideas for innovative business models from

Business model innovation is not about looking back, because

of business model innovation using the Business Model Canvas,

the past indicates little about w hat is possible in terms of future

and "what if" questions.

several different starting points. We will look at two: epicenters

business models. Business model innovation is not about looking

~f-J\f\\

1111111" IIIII 11 /111111

h.JIIII Iil! lil l1 ill ll .lti•

1•

·~

.~1

...

A 1

SiN~~[Sts

137

' llli lii OIS fron1

lwo: oplccl1l i11 Modal Ctl i1VI1.,

tatus

t1Uo ~

ore the s lgt\ ne past etitOfS forget t . oft cofllP 11 focustrtg j oJCies tororthou A>

Epicenters of Business Model Innovation

3 Q

Ideas for business model innovation can come from

Each of the four epi cent ers can serve as th e starting point

anywhere, and each of the nine business model building

for a major business model change, and each can have

blocks can be a starting point. Transformative business

a powerful impact on the other eight building blocks.

model innovations affect multiple building blocks.

Sometimes, business model innovation can emerge from

We can distinguish four epicenters of business model

several epicenters. Also, change often originates in areas

innovation: resource-driven, offer-driven, customer-driven,

i~ntified through a SWOT analysis: an investigation of a

ond finance-driven.

business model's strengths, weaknesses, opportunities, and threats (see p. 216).

"'tD Cl

RESOURCE- DRIVEN

OFFER-DRIVEN

RESOURCE-DRIVEN INNOVATIONS ORIGINATE FROM

OFFER-DRIVEN INNOVATIONS CREATE NEW VALUE

AN ORGANIZATION'S EXISTING INFRASTRUCTURE

PROPOSITIONS THAT AFFECT OTHER BUSINESS

OR PARTNERSHIPS TO EXPAND OR TRANSFORM THE

MODEL BUILDING BLOCKS.

BUSINESS MODEL

1 tMf I! DRIVEN I I) II/I ER- DRIVEN INNOVATIONS AR E 1)1\'11 l" fl ii/I ER NEEDS, FACILITATED ACC ESS, 01

IIV~NIENCE. LiKE ALL INNOVATION S ll M\1

ll~tl LE EPICENTER, THEY AFFECT OTH l11i II

tiii HL BU ILDING BLOCKS.

Examp le: Amazon Web Services was built on top of

Examp le: When Cemex, a Mexican cement maker,

Amazon.com's retail infrastructure to offer se rver

promised to deliver poured cement to job sites within

capacity and data storage space to other companies.

four hours rather than the 48 hour industry standard, it had to transform its business model. Thi s innovation helped change Cemex from a regional Mexican player into the wor ld's second largest cement prod uce r.

l llllliPie: 23 andMe brought personalized

llt

lti llltllvidual clients-an offer previ ously t\V

\VIily to health professionals and resCBil \11

1\\l', tantia\ implicatiMs for both the Vn\111 111!1 l he delivery of test results, whi ch 2:1111

pl\â&#x20AC;˘1hes through mass-customized W eb 1111

(

-~~ H DRIVEN

NI'W VAl lO I, INI 'I '•

FINANCE-DRIVEN

MULTIPLE-EPICENTER DRIVEN

I HMilll • DRIVEN INNOVATIONS ARE BASED ON

INN OVATIONS DRIVEN BY NEW REVENUE

INNOVATIONS DRIVEN BY MULTIPLE EPICENTERS

111M H11 NEEDS, FACILITATED ACCESS, OR INCREASED

STREAMS, PRICING MECHANISMS, OR REDUCED

CAN HAVE SIGNIFICANT IMPACT ON SEVERAL

COST STRUCTURES THAT AFFECT OTHER

OTHER BUILDING BLOCKS .

I llili NCE. LIKE All INNOVATIONS EMERGING FROM

11111111 ~ P I CENTER,

THEY AFFECT OTHER BUSINESS

BUSINESS MODEL BUILDING BLOCKS .

Ill I IIU ILDING BLOCKS.

lllldlll t11

11111h1: 23andMe brought personalized DNA testing

Exa mpl e: When Xerox invented the Xerox 914 in 1958-

Example: Hilti, the global manufacturer of professional

oull vldual clients-an offer previously available exclu-

one of the first plain paper copiers-it was priced too

construction tools, moved away from selling tools out-

lv Ill hea lth professionals and researchers, This had

high for the market. So Xerox developed a new business

right and toward renting sets of tools to customers. This

•l••l •llt llal im plications for both the Value Proposition

model. It leased the machines at $95 per month, includ-

was a substantial change in Hitli's Value Proposition,

IIIIH deli ve ry of test results, which 23andMe accom-

ing 2,000 free copies, plus fi ve cents per additional

but also in its Revenue Streams, which shifted from one-

lw• lhrough mass-customized Web profiles.

copy. Clients acquired the new machines and started

time product revenues to recurri ng service revenues.

making thousands of copies each month .

I The-Po;~~of "What If" Questions

We often have trouble conceiving innovative business models because we are held back in our thinking by the\ status quo. The status quo stifles imagination. One way l[lwo

1.., to overcome this problem is to challenge conventional

assumptions w ith "what if" questions. With the right business model ingredients, what we think of as impos-

•11111111 buyers picked up compon enh Iii I

,;\

oll\ild \he products themselves in ll1t1h ill 1111\i\i lkt1ble unti'iiKEA'introduced ll'itlilll

il1111~ didn't buy engines for their all pl i\11 1\ 1\low

sible might be just doable. "What if" questions help

Rolls~ransformed itS(III Ii 1

111vi ce firm that today is the world'~~

us break free of constraints imposed by current models. They shou ld provoke us and cha ll enge our thinking.

1\111(,i) \\ s were free worldw ide? In 200 I

They should disturb us as intriguing, difficult-to-execute

'' ' ,\1 1\ng via the Internet. After fi ve VI lliI

propositions.

1, w\lo collectively had made 100 bllllt1111 Managers of a daily newspaper might ask themselves: What if we stopped our print edition and went to entirely digital distribution, through A mazon's Kindle

•

e-book reader or through the Web? This wou ld allow the newspaper to drastically reduce production and logistics costs, but would require making up lost print advertising revenues and transitioning readers to digital Channels.

"What if" questions are merely starting points. They

•

challenge us to discover the business model that could make their suppositions work. Some "what if" questions may remain unanswered because they are too provocative. Some may simply need the right business model to

become reality.

----------------------------------------------------.. . .1.

(

" l11 1yors picked up components in flat pack form from a large warehouse and 111!11pro ducts themselves in their homes? What is common practice today llli·hlilo l mtiiiKE A ) ntroduced the concept in the 1960s.

launch ed! ci3r2gQ)l n experimental business in the German city of Ulm. Car2go's fleet of vehicles allows users to pick up and drop off cars anywhere in the city, paying bythe-minute fees for mobility services.

dldij'l buy engines fo) their airplanes, but paid for every hour an engine runs? ,, l!11lb- Royce transformed itself from a money-losing British manufacturer

....

nil 11 llrm that today is the world 's second biggest provider of large jet engines.

... individuals could lend money to each other rather than borrowing from banks? In 2005, U.K.-based Zo ~unched a peer-to-peer lending platform on the Internet.

•oil IIi we re free worldwide? In 2003 Skype launch ed a service that allowed free 1111111 via the Internet. After five

years'31Y~I'Bd acquired 400 million registered

set out to achieve under a partnership with micro-finance institution Grameen Bank. At the time, Bangladesh still had the world's lowest tele-density. Today Grameenphone

!1111 (i ll oct ively had made 100 billion free ca lls.

is Bangladesh's largest taxpayer.

3 Q

The Ideation Process :

rnb\e a D\v

The ideation process can t ake severa l forms. Here we outline a general approach to producing innovative business model options: 1. TEAM COMPOSITION

4·

KEY QUESTION: Is OUR TEAM SUFFICIENTLY DIVERSE TO GENERATE FRESH

KEY QUESTION: WHAT ARE THE MOST IMPORTANT CRITERIA FOR PRIORITIZING

BUSINESS MODEL IDEAS?

OUR BUSINESS MODEL IDEAS?

Assembling the right team is essential to generating effective new business model

After expanding the range of possible solutions, the team should define criteria lot

ideas. Members should be diverse in terms of sen iority, age, experience level, business

reducing the number of ideas to a manageable few. The criteria wi ll be specific to 11 11

unit represented, customer knowledge, and professional expertise.

context of your business, but could include things such as estimated implementa·

CRITERIA SELECT ION

tion time, revenue potential, possible customer resistance, and impact on competll lv 2. IMMERSION

advantage.

Ideally the team should go through an immersion phase. which could include general research, studying customers or prospects, scrutinizing new technologies, or assessing existing business models. Immersion could last severa l weeks or could be as short as a couple of workshop exercises (e.g. the Empathy Map).

ii\tll ild to be "creative typ es." ld<llll lill

lillt~li iCSS model innovation reqult o•i l ~~

KEY QUESTION: WHICH ELEMENTS MUST WE STUDY BEFORE GENERATING BUSINESS MODEL IDEAS?

1111~ l n•,k of generating new ideas nl 11111

5·

"PROTOTYPING"

KEY QUESTION: WHAT DOES THE COMPLETE BUSINESS MODEL FOR EACH SHORTLISTED IDEA LOOK LIKE?

With criteria defined, the team should be able to reduce the number of ide as to a prioritized shortlist of three to five potential business model innovations. Use the

Hqlti111zation . Business model inntWii l l

1111W business model building bloc·k•• 11

IIIII Invoive all nine blocks of tho l iii iV

'tllllflmS, or Key Resources. Thu:. lli tl 1111 illiple areas.

Business Model Canvas to sketch out and discuss each idea as a business model

3· EXPANDING KEY QUESTION: WHAT INNOVATIONS CAN WE IMAGINE FOR EACH BUSINESS MODEL BUILDING BLOCK?

During this phase the team expands the range of possible solutions, aiming to generate

prototype (seep. 160).

ll1r1t's w hy assembling th e ri ghL 1111•1

llllW business model ideas. Thl nklllfl

1on fined to the R&D unit or th e toll ti

as many ideas as possible. Each of the nine business model building blocks can serve as

l ion tea ms sho~ld have a diverse 11 1

a starting point. The goal of this phase is quantity, not quality. Enforcing brainstorming

di scuss, and select new idea s.

rules w ill keep people focused on generating ideas rather than on critiquing too early in

works. But make sure to tea ch pllll \

the process (seep. 144).

n neutral facilitator for key meci.ll\f

C01 1~

· r.mble a Diverse Team

IIH 11 /INI

llll i ill l11lttl111 't jltH lll1 l11 II

l llil llll lll ll lll i 11111 l r1'1k of generating new ideas should not be left exclusively to those typically conhh•IIH i lo be "creative types." Ideation is a team exercise. In fact, by its very nature 11~11 11 1~•5 model innovation requires the participation of people from across the entire

t~t llii !D t i o n. Business model innovation is about seek ing to create value by exploring

'tW IH ISiness model building blocks and forging innovative links between blocks. This l it I] I ill

11111volve all nine blocks of the canvas, whether Di stribution Chann els, Revenue llt1t llt lS, or Key Resources. Thus it requires input and ideas from people representing ttllilll plc areas .

A diverse business model innovation team has members . . . • from va rious business units • of different ages

llirll'•i why asse mbling the right task force is a critical prerequisite for generating IIIIW bus iness model ideas. Thinking about busin ess mod el innovation should not be 'lli llllcd to the R&D unit or the strategic planning office. Business model innovalltlli l oa ms should have a diverse membership. The diversity will help you generate, II ~I I ISS , and select new ideas. Consider add ing outsiders, or eve n children. Diversity 111 ks. But make sure to teach people how to listen actively, and consider engaging 111111 1tral facilitator for key meetings.

• with different areas of expertise • of diffe ring levels of seniority • with a mixture of experiences from different cultural backgrounds

ctnn-Up:

Brainstorming Rules

liH' Si\\y Cow\ z

I VII I II tea m's creative jui ces rlnWIII

Successful brainstorming requires

Stay focused

following a set of rules. Enforcing

Start with a well-honed statement of the problem at hand. Ideall y, ll11

these rules will help you maximize the

should be articulated around a customer need. Don't let the di s c u l. ~ ll•l

number of useful ideas generated.

stray too far; always bring it back to the problem statement.

Jll111wa rm-up such as th e Sill y I 1111111111 1S to sketch out three dltl lll llll 11 ,1 il1 tfl ne some characteri sti c•, (I I 11

nll l)lliOUnd, etc.). Tell th em to l-1'111 11 1 IIIVilllvo business model based 011 111

Enforce rules

Clarify the brainstorming rules upfront and enforce them. The most

"Jill I mind that this exercise C!1 11 h 111

important rules are "defer judgment, " "one conversation at a time,"

qlli \1115 been tested with se ni or t!Xtll

"go for quantity," "be visual," and "en courage wild idea s." Facilitato1 should enforce the rules.

I•IIIIIHilrS, and entrepreneurs, a ntl11 ~1 1

Ill" MOnl is to take peop le out of l1 1111i

1111 1111 105 and show them how reAdily II Think visually

1,~ ilhconnecting from orthod oxlo• , 1\ll

Write ideas down or sketch them out on a surface everyone can see. A good way to co llect ideas is to jot them down on Post-itrM notes and

lwllliiH th eir creativity flow.

s i ll~

these to a wal l. This allows you to move ideas around and regroup th011 1

Prepare

Prepare for brainstorming with some sort of imm ersion experien ce related to the problem at hand. Thi s could be a fi eld trip, discussions wllh custo mers, or any other m eans of imm ersing the team in iss ues related to yo ur problem statement.

Adapted from an interview with Tom Kelley of IDEO in Fa11 Co mpany maga zine: "Seven Secrets to Good Brain sto rmi n~"

-1

trm-Up: IIIQ Silly Cow Exercise I

111111111, lil u11 ll v 11

yo11r team's creative juices f lowing,

>f-

it can be helpful to start an ideation ses-

111 1t1 wa rm-up such as the Silly Cow exercise. Here's how it works: Instruct

1'1111 111111ill~1 II• • 11 1111111111,

1/1/jlllllls to sketch out three different business models using a cow. Ask them III•II IUfi ne some characteristics of a cow (produces milk, eats all day, makes a

145

Hll/1)1 'IO und, etc.). Tell them to use those characteristics to come up with an

U""~"A'-'

fi\V\l......,£. 'Vv-..........<iA'

H1V11ilvc busi ness model based on a cow. Give them three minutes.

pill mind that this exercise can backfire, as it is indeed quite sill y. " l i 1CIIIIIII111

- .:>.-.~~ i.~.....,:·....r~ ~lwfl ,.,;,·;;;~; .. ..L --f.+, l'~ -· ,'1

I~_.....

11 II l1ns been tested w ith senior executives, accountants, risk lillli lf{O rs, and entrepreneurs, and usually is a great success. l/111 )II !el l is to take peop le out of their day-to-day business IIIII /l OS and show them how readily they can generate ideas

YO III\ Cll/ 1 'Ill

1/'M ll OlOt•lllld • II

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plastered w · ters on w hic upof14peo siduously sk ,a wingsand -, st-it™ notes. e scene almo tmosphere of lass, it's takin t the headqu ewlett-.Pack echnology pro nd services gi

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meeting room walls plastered with large 'ters on which a up of14 people are ·iduously sketching wings and pasting st-it™ notes. Though > scene almost has the nosphere of an art ss, it's taking place the headquarters of r)wlett-Packard, the chnology products 1d services giant ...

1.9

... Th e 14 participants hail from throughout HP, but all are involved in information management. They've gathered here for a one-day workshop to litera lly draw a picture of how a globa l

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enterprise should manage information flows. Dave Gray, founder and chairman of consultancy X PLANE,

147

is facilitating the meeting. XPLANE uses visual thinking tools to help clients clar ify problems involving everything from

1.9

corporate strategy to operational implementations. Together w ith an X PLANE artist, Dave helps the 14 HP specialists ga in a better understanding of the big picture of information sharing in a global enterprise. The group uses the posted sketches to discuss information sharing, to identify relat ionships between elements, to fill in missing pieces, and to develop a joint understanding of multiple issues. W ith a knowi ng smile, Dave talks about a common misconception: that one shouldn't draw something until one understan ds it. On the contrary, he explains, sketches-however rudimentary or amateurish-help people better describe, discuss, and understand issues, particu la rly those of a complex nature. For the 14 Hewlett-Packard collaborators, X PLANE's visualization approach has worked beautifully. They gathered as 14 specia lists with deeply individual understandings, but parted with a simple one-page image of how a global enterprise should manage information . X PLANE's client roster, wh ich reads like a who's who of t he wor ld's most successfu l compani es, testifies to t he growing number of organizatio ns that understand the va lue of this type of visual thinking.

The Value of Visual Thinking "'>2z z

Visua l thinking is indispensable to work ing with business models.

if you are designing a comp letely new business model, drawltt

By visua l thinking we mean using visua l too ls such as pictures,

it wi ll al low yo u to discuss different option s easily by adding,

sketches, diagrams, and Post-itâ&#x201E;˘ notes to co nstruct and discuss

remov ing, or moving pictures around.

I >--

meaning. Because business models are comp lex co ncepts composed of va riou s building blocks and their interrelationships,

Businesses already make frequent use of visua l techniques sucl t

it is difficult to t ruly understand a mode l without sketching it out.

as diagrams and charts. Such elements are used extensivel y to clarify messages within reports and plans. But visual t ec hniqu e ~

A business model really is a system where one element influences

are used less frequently to discuss, explore, and define busines,

the other; it only makes sense as a whole. Capturing that big

issues. When was the last time you attended a meeting where

picture without visua lizing it is difficult. In fact, by visua ll y depict-

executives were drawing on the wa lls? Yet it is in the strategic

ing a business model, one turns its tacit assumptions into explicit

process where visual thinking can add tremendous va lue. Visu al

information. This makes the model tangible and allows for

thinking enhances strategic inquiries by making the abstract

clearer discussions and changes. Visual techniques give "life"

concrete, by illuminating relationships between elements, and

to a business model and fa cilitate co-creation.

by simplifying the co mplex. In this section we describe how visual thinking can help you throughout the process of defining,

Sketching a model transforms it into a persistent object and a

discussing, and changing business models.

conceptua l anchor to which discussions can always return. This is critical because it shifts discourse from the abstract toward t he

We refer to two techniques: the use of Post-itâ&#x201E;˘ notes and the

concrete and greatly improves t he quality of debate. Typically, if

use of sketches in combi nation with the Business Model Canvas.

you aim to improve an existing business model, visua ll y depicting

We also discuss four processes improved by visual thinking:

it w ill unearth logica l gaps an d facilitate their discussion . Similarl y,

understanding, dialogue, exploration, and communication.

I!)

ll iâ&#x20AC;˘, lness model, dra winH lions easily by adding,

z ;;< z :;: I-

;;: ::::>

11visual tec hniques sucl 1 11 o used extensive ly to

11 o,

and defin e bu s in e~z ,

ldod a meeting where It is in the strategic

I lt'M notes and th e l11â&#x20AC;˘ilncss Model Ca nva

by visual thinking: IOin mun ica ti on.

149

Visualizing with Post-it™ Notes

1sua\izing with

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A set of Post-it'M notes is an indispensable tool that everyone reflecting on business models should keep handy. Post-it™ notes function like idea containers that can be added, removed , and easily shifted between business model building blocks. Thi s is important because during business model discussions, people frequently do not imm ediately agree on w hich eleme nts should appear in a Business Model Canvas or w here they should be placed. During exploratory discussions, some elements might be removed and replaced multiple times to ex plore new ideas.

t~WI II HS can be even more powerful II IIIII t

1111ore strongly to images th an to Will i

!Iii il ly. Si mple drawings can exprC't'l

Here are three simple guidelines: (1) use thick marking pens, (2) write only one element

11 11 11.

per Post-it™ note, and (3) write only a few words per note to capture the essentia l point. Using thick markers is more than a detail: it prevents you from putting too much informa tion on a single Post-it™, and makes for easier read ing and overview.

11sier than we think. A stick fi gurn wll

It 111 A big bag of money and a small Ill l}ll II \II problem is that most of us thin k Will

Keep in mind, too, that the discussion leading to the final business model picture created by all the Post-iPMnotes is just as important as the outcome. Discussion around w hich notes to place on or remove from the Canvas and debate over how one element influences others give participants a deep understanding of the business model and its dynamics. Co nsequently, a Post- it ™ note becomes more than just a piece of st icky paper representing a business model building block; it becomes a vector for strategic discussion.

1••1 our sketches appear unsophi stlcn \1 11 1 t liitiC drawings, sincerely

rendered, 11 1111

illill. People inter10ret simple sti ck flf-11 11 tlliiCepts expressed in text.

1'1tlalizing with Drawings

~ 111â&#x20AC;˘-rnn be even more powerful than

Post-itâ&#x201E;˘ notes because people

lillll115 tro ngly to images than to words. Pictures deliver messages 11/ ly 11l mple drawings ca n express ideas that otherwise req uire many

Sketches and drawings can make a difference in several ways. The most obvious one is explaining and communicating your business model based on simple draw ings, someth ing we explain how to do at the end of this chapter. Another is sketch ing out a typical client and her environment to illustrate one of your Customer Segments. This w ill trigger a more con-

1~1 than we think. A stick figure with a smili ng face conveys emo1iiH

bag of money and a small bag of money co nvey proportions.

11111l1lom is that most of us think we can't draw. We're embarrassed

crete, inten sive discussion compared to outlining that person's characteristics in writ ing. Finall y, sketching out a Customer Segment's needs and jobs-to-get-done is a powerful way to exploit visual techniques.

1111 ~ ke tc h e s appear unsophisticated or childish. The t ruth is th at even

I" dl iiWi ngs, sincere ly rendered, make things tangible and understand-

Such drawings w ill likely trigger constructive discussion from wh ich new

l'twplc interpret simp le st ick figures far more easily than abstract

business model ideas wi ll emerge. Now let's exam ine four processes

/11 11 oxpressed in text.

improved by visual thinking.

~ ···

----

Understand the Essence

ldnce Dia\ogur

IIVl REFERENCE POINT

CAPTURING THE BIG PICTURE

SEEING RELATIONSHIPS

The Business Model Canvas poster is a concep-

By sketching out all the elements of the Canvas you

Understanding a business model requires not only

tual map that functions as a visual language with

immediately give viewers the big picture of a busi-

knowing the compositional elements, but also

correspondin g grammar. It tells you which pieces

ness model. A sketch provides just the right amount

grasping the interdependencies between elemen t!,

of information to insert in the model, and where. It

of information to allow a viewer to grasp the idea,

This is easier to express visually than through word

tl\llllVC dialogue. It makes a bu siness 1111 11 l·lllf\llllc and persistent object, and provld1

1il llold tacit assumptions in our h0111h 1

·~IIIIH an image that turns those imp\1! II iotll~ IilLO explicit information is a poWt lllill

provides a visual and text guide to all the informa-

yet not too much detail to distract him. The Business

This is even more true when several elements and

tion needed to sketch out a business model.

Model Canvas visually simplifies the reality of an

relationships are involved. In describing the busin c~,

11111 point to which participants can

enterprise with all its processes, structures, and sys-

model of a low-cost airline, for example, drawings

liVI\11 that people can hold only a 1\ ml\t ll \1

tems. In a business model like Rolls-Royce's, where

can effectively show why a homogenous fleet of

jet engine units are leased by the hour rather than

airplanes is crucial to keeping maintenance and

llli ~\iiCSS models is essential to good dhtt.

sold, it is the big picture, rather than the individual

training costs low.

I Vtlt1lhe simplest models are compo:,ui\

pieces, that is compelling.

VISUAL GRAMMAR

n\Wtl~

1\iloas in short-term memory, visu ally p

\!iil \tling blocks and interrelation s hip ~ .

lllclnce Dialogue ~

1lVI

lf l! jifli O!i IIOI IIii/

llh, flil/

11 /â&#x20AC;˘11 I

111 /Woo n oltil llt tlil

ll~FERENCE

POINT

II liold tac it assumptions in our heads, and 111111 11 11 image that turns those implicit assump-

11110 expl icit information is a powerful way to

SHARED LANGUAGE

JOINT UNDERSTANDING

Th e Business Model Canvas is a shared visual

Visua lizi ng business model s as a group is the most

language. It provides not only a reference point, but

effective way to achieve shared understanding.

also a vocabu lary and grammar that helps people

People from different parts of an organ ization may

Iiiii I liii'OIIIJ, il W111d

IIIVfl dia logue. It makes a business model into a

better understand each other. Once people are

deep ly understand parts of a business model but

11!1 n l tii i i!J III ~ flllli

II !111 ond persistent object, and provides a refer-

familiar with the Canvas, it becomes a powerful

lack a solid grasp of the whole. When experts jointly

enabler of focused discussion about business model

draw a business model, everybody involved gai ns

elements and how they fit together. This is particu-

an understand ing of the individual components and

lillii!-l llio 1111 ~1 11

Ill IIIIo, dm wli1. (1/ '"

IIIII

point to which participants can always return. Ill li nt people can hold only a limited number

h1w1In short-term memory, visually portraying

larly valuable in organ izations w ith matrix reporting

develops a shared understanding of the relation-

l11m,s models is essential to good discussion.

structures where individuals in a working group

ships between these components.

11 ll10 simplest models are composed of several

or task force may know little about each other's

tlldliil{ blocks and interrelationships.

functional areas. A shared visua l business model language powerfully supports idea exchange and increases team cohesiveness.

\)love Commun

Explore Ideas

154

IDEA TRIGGER

PLAY

The Business Model Canvas is a bit like an artist's

A visual business model also provides opportunity

canvas. When an artist starts painting, he often

for play. With the elements of a model visible on

has a vague idea-not an exact image- in mind.

a wall in the form of individual Post-it'Mnotes,

Rather than starting in one corn er of a canvas and

you can start discussing what happens when

executing sequentially, he starts wherever his muse

you remove certain elements or insert new ones.

llilllll comes to communicatin g a bll'â&#x20AC;˘il

dictates and builds the painting organically. As

For examp le, what wou ld happen to your busi-

u\11\ ,1nd its most important elemOI\1 '1 1

Pablo Picasso said, " I begin with an idea and then

ness model if you eliminated the least profitable

111 1iy worth a thousand word s. Every\ HI

it becomes something else." Picasso saw ideas as

Customer Segment? Could you do that? Or do you

nothing more than points of departure. He knew

need the unprofitable segment to attract profitable

u11 \t1 \, because everybody can poto111 il1i

they would evolve into something new during their

customers? Would eliminating unprofitable cus-

,\u lo Its improvement. At the very

explication.

tomers enable you to reduce resources and costs

lttllli J shared understanding of th o 11 1111

Crafting a business model is no different. Ideas

and improve services to profitable customers? A

placed in the Canvas trigger new ones. The Canvas

visual model helps you think throu gh the systemic

becomes a tool for facilitating the idea dialogue-for

impact of modifying one element or another.

individuals sketching out their ideas and for groups developing ideas together.

II '

OMPANY-WIDE UNDERSTAND IN!

11\ta tion needs to understand its IHI

11111~ 1

lllt\OVe in the saflle strategic dirocl lnl

\t1plc tion is the best way to create Sil l It 1\l ll inrsta nding.

<IMPANY-WIDE UNDERSTANDING

r1ll1 omes to communicating a business l" l 1iiH I Its most important elements, a picture 11 ~

worth a thousand words. Everybody in an

SELLING INTERNALLY

SELLING EXTERNALLY

In organizations, ideas and plans often must be

Just as employees must "sell" ideas internally,

"sold" interna lly at various levels to garner support

entrepreneurs with plans based on new business

or obtain funding. A powerfu l visua l story reinforc-

models must se ll them to other parties, such as

111 Il l ion needs to understand its business

ing your pitch can increase your chances of winning

investors or potential collaborators . Strong visuals substantially increase chances of success.

Iâ&#x20AC;˘Âˇ I. IHlcause everybody can potentially contrib -

understanding and backing for your idea. Using

' 1l l ~ Improvement. At the very least, employees

images rather than just words to tell the story makes

I l li ltn red understanding of the model so they

your case even stronger, because people identify

IIIIIVI \ In the same strategic direction. Visual

immediately with images. Good imagery readily

11IIi ill IS t he best way to create such a shared

communicates your organization's current status,

i11 11111lding.

what needs doing, how it can be done, and what the future might look like.

Different Types of Visualization for Different Needs I

)\nM~~@(('Jla)\MJ.

• Skype's Key Resources and Activities resemble those of a software company, because its service is based on software that uses the Internet to carry calls. Given its 400 million+ user base, the company enjoys ve ry low infrastructure costs. In fact, it does not own or operate a telecommunications network at all.

Visual representations of busin ess models call for differ-

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ent levels of detail depending on one's goal. The sketch

~~~II\

----l-. of Skype's business model on the right drives home the

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key differences between its business model and that of a traditional telecommunica tions carrier. The goa l is

1~*>11 , @@I'M)(/)

to point out the striking differences bet wee n Skype's business model building blocks and those of a traditional

ca rrier, even though both offer similar services.

,141\1'1'\.iJ I

. ·~'l)

~fL

&GIS The right-hand page sketch depicting the young Dutch

company Sella band has a different goa l and is therefore more detailed. It aims to paint the big picture of a

1!\i'IIJ~~~\lv@lill

compl et ely new music indu stry business model: that

' ""

of a platform enabling crowd-funding of independent musical artists. Sellaband uses the draw ing to explain its innovative business model to investors, partners, and employees. Sella band's co mbination of images and text has proven to be far more effective than words alone at accomplishing this task.

COST

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STRUGTUP-e -

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Though it provides a telecommunications service, Skype 's business model features the economics of a software company rather than a telecommunications network operator.

,- Ninety percent of Skype users never pay. Only an estimated 10 percent of users are paying customers. Unlike traditional telecommunication carriers, Skype's Channels and Relationships are highly automated. Th ey require almost no human intervention and are therefore relatively inexpens ive.

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DESIGN

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VISUAL THIN KING

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ITelling a Visual Story

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> 158

MI\P YOUR BUS INESS MODEL 1

by mapping out a sim ple, text /insed version of your business modo/,

llcgin

Wri te each business model elemolll 11 an individual Post-it'Mnote. Mapping

can be done individually

or with a group.

A powerful way to explain a business model is to tell a story one image at a time. Presenting a full description w ithin the Business Mod el Canvas can overwhelm an audience. It's better to introduce the model piece by pi ece. You could do thi s by drawing one piece after another, or by using PowerPoint. An appealing alternati ve is to pre-draw all the elements of a business model on Post-itrM notes, then put them up one after another as you explain the model. It allows the audien ce to follow the build - up of the model, and the vi suals complem ent your explanation .

-r--~

.J.

1·,ual Storyt~lling Activity . ·-•

; -. ·,-·-

~ -

...., Il l' YOUR BUSINESS MODEL

/login by mapping out a simple, textlit/sed version of your business model. 1

Write each business model element

on an individual Post-;tTMnote. 1

M apping can be done individually or with a group.

DRAW EACH BUSINESS MODEL ELEMENT

• One at a time, take each Post-itrM note and replace it with a drawing representing the content. Keep the images simple: omit detail. Drawing quality is unimportant as long as the message is conveyed.

DEF I NE THE STORYLINE

TELL THE STORY

Decide which Post-itrM notes you will put up first when telling

your story.

• Try different paths. You might start with Customer Segments, or maybe the Value Proposition.

• Tell your business model story one drawn Post-WMpicture at a time. Note: Depending on the context and your personal preferences, you may want to use PowerPoint or Keynote.

Basically, any starting point is possible

Slideware, though, is unlikely to

if it effectively supports your story.

produce the positive surprise effect of the Post-it TM approach.

I 1~.

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21)00

th a look b panic, We oolofMa ofessor Ric land Jr. w attFineou chitect wit Associates re up pla chool build路

... Boland and Fin eout had been struggling for two full days to remove some 5,500 sq uare feet from t he floor plan designed by star architect Frank Gehry, w hile leaving room needed for meeting spaces and office equipment.

'tlO O

At th e end of the marathon pl anning session, Boland had breathed a sigh of relief. "It's finally done," he thought. But at that very moment, Fineout rose from his chai r, ripped the document

z a look bordering anic, Weatherhead ool ofManagement ifessor Richard and Jr. watched as ttt Fineout, an 'c hitect with Gehry Associates, casually 路e up plans for a new 路hool building ...

apart, and tossed the scraps into a trash bin, not bothering to retain a single trace of the pair's hard labor. He responded to Professor Boland's shocked express ion w ith a gentl e shrug and a soft remark. "We've shown we can do it; now we need t o think of how we wa nt to do it." Looking back, Boland describes th e incident as an extreme example of the relentless approach to inquiry he experienced w hile wo rking w ith the Gehry group on the new Weat herhead building. During the design phase, Gehry and his team made hundreds of models w ith different materials and of va rying sizes, simply to explore new direct ions . Boland explains that the goal of this prototyping activity was far more t han the mere testing or proving of id eas. It was a methodology for exploring different possibilities until a truly good one emerged. He points out that prototyping, as practiced by the Gehry group, is a central part of an inquiry process that helps parti cipants ga in a better sense of what is missing in the initial understanding of a situation. This leads to comp letely new possibilities, among which the right one can be identified. For Professor Boland, the experience with Gehry & Assoc iates was transformative. He now underst ands how design techniques, including prototyping, cont ribute to finding better solutions for the entire spectrum of business problems. Together w ith fellow professor Fred Collopy and other colleagues, Boland is now spearheading the co ncept of Manage by Designing: th e integration of design thinking, ski ll s, and experiences into Weath erhead's MBA curriculum . Here, students use tools of design to sketch alternatives, follow through on problem situations, transcend traditional boundari es, and prototype ideas.

161

Prototyping's Value

162

Prototyping is a powerful tool for developing new, innovative

It is important to understand that a business model prototype

'"I11111JSpe ople are likely to di splay 1111

business models. Like visual thinking, it makes abstract concepts

is not necessarily a rough picture of what the actual business

1HII111tlil of business model inqui ry. ~11 1 11

tangible and facilitates the exploration of new ideas. Prototyp-

model will actually look like. Rather, a prototype is a thinking

11111'0 idea, if we only had th e t l11i U !11

ing comes from the design and engineering disciplines, where it

tool that helps us explore different directions in which we coul d

111\MI'i might say that a market rotil\1 11 1

is widely used for product design, architecture, and interaction

take our business model. What does it mean for the model if

l[ll11lly good way to come up w it h 1\t!W

design. It is less common in business management because of

we add another client segment? What are the consequences of

1~1 1 1 l ions are based on dangerous )Hi ll 1

the less tangible nature of organizational behavior and strategy.

removing a costly resource? What if we gave away something

While prototyping has long played a role at the intersection of

for free and replaced that Revenue Stream with something more

il11111rst supposes that "bu siness tiM11

business and design, for example in manufactured product design,

innovative? Making and manipulating a business model prototypn

IIII[IIOvements are sufficient t o survlv

in recent years it has gained traction in areas such as process

forces us to address issues of structure, relationship, and logic in

IIIIVil onment. We believe thi s path !IHII

design, service design, and even organization and strategy design.

ways unavailable through mere thought and discussion. To trul y

l\1111 fail to take the time to develop 111 1

Here we show how prototyping can make an important contribu-

understand the pros and cons of different possibilities, and to

[1\lll li<ing business model id eas rl u l~ !11

tion to business model design.

further our inquiry, we need to construct multiple prototypes of

l!y 111ore dynamic competitors-

our business model at different levels of refinement. Interaction

IIJ[ICa ring, seemingly, from nowh ml

or hy

Although they use the same term, product designers, architects,

with prototypes produces ideas far more readily than discussion .

and engineers all have different understandings of what consti-

Prototype business models may be thought-provoking-even

l ito second reaction assumes th nl tl11

lutes a "prototype." We see prototypes representing potential

a bit crazy-and thus help push our thinking. When this hap-

11 11\Sideration when designing

future business models: as tools that serve the purpose of discus-

pens, they become signposts pointing us in as-yet unimagined

Mn rket research is a single input III II

sian, inquiry, or proof of concept. A business model prototype can

directions rather than serving as mere representations of

111prototyp ing powerful new bunli11

take the form of a simple sketch, a fully thought-through concept

to-be-implemented business models. "Inquiry" should signify a

[II outperform competitors or doVt1l11

now ~I

described with the Business Model Canvas, or a spreadsheet that

rel entless search for the best solution. Only after deep inquiry can

simulates the financial workings of a new business.

we effectively pick a prototype to refine and execute -after our

W here do you want to be? At thtl llll

design has matured.

l nke n the tim~ to prototype pOW(IIl ll Or on the sidelines, becau se y011 WII nxist ing model? We're convincod il l business models emerge from <11111\1

ptmple are likely to display on e of two reactions to this til business model inquiry. Some might say, "Well, that

th tll doa, if we only had the time to explore different options." 1'

lt ti Kht say that a market research study would be an

··-~"17'/ · .. ........tO#. -~G

llv )lllOd way to come up w ith new business models. Both I hil l ~ ure based on dangerous preconceptions.

dels

•

........... , NEW / _., - /THINKING . . . .\ . · '\ .

Multiple business models in and across industries

lit ~ I •, upposes that "business as usual" or increment al

Inside-out: bu siness models

•PIIIVtllt tents are sufficient t o survive in today's competitive

transform industries

lltlll lliCnt. We believe this path leads to mediocrity. Busin esses I ltil ll o take the time to develop and prototype new, ground11·IIlK busine ss mod el ideas risk being sidelined or overtaken 1111111 1 dynamic competitors-or by insurgent challengers

tlltM tlng, seemin gly, from nowhere.

I ltn ~ nco nd reaction assumes that data is the most important ll ~ ldcra t i on

w hen designing new strategic options. It is not.

1oll kil l research is a si ngle input in the long and laborious process tiiiiOlo typing powerful new bu siness models with th e potential '" 111 11 perfor m competitors or develop entirely new markets. Ill

lt11rc do you wa nt to be? At the top of the game, because you've 1·11 11 the time to prototype powerful new business models? I It on the sidelines, because you were too busy susta ining your

tiMhllng model? We're conv inced that new, game-changing ltll•ilness models emerge from deep and re lentless inquiry.

~hpkiOi::;: ~iness

Explorato ry search for business model

. ......... ....................... ................... ........... ..

~lltbp;;; foe rs~

~u uu=

Va lue- and efficiency-focused

163

to types at Di

Design Attitude

1111111 11' product design, it I ~ t1MV u 111\

Jllf you freeze an idea too quickly, you fall in love with it.

lly protot yping at difforw il ~~

lllillll lilout physica l a rti fact ~. /\11

ul jiiiH iuct designer Philippa S\11111

If you refine it too quickly, you become attached to it

Jlllli ol ypes during a projec t, 111ll f

111d l'ough model s to elabornlu, II

and it becomes very hard to keep exploring, to keep looking for better. The crudeness of the early models in particular is very deliberate." Jim Glymph, Gehry Partners I

IO i CH

I:LAIIOI E~PLOI

WOUl.P I

it. As previously discussed , business model prototypes vary in terms of

T Uilllllll~

physical form or its representation , viewing it as something that models,

scale and level of refinement. We believe it is important to think through

D ~V I. I III

or encapsulates the essence of, what we eventually intend to do. We

a number of basic bu siness model possibilities before developing a

As businesspeople, when we see a prototype we tend to focus on its

perceive a prototype as something that simply needs to be refined. In

business case for a specific model. This spirit of inquiry is called design

the design profession, prototypes do play a ro le in pre-implementation

attitude, because it is so cent ral to the design professions, as Professor

vi sualization and testing. But they also play another very important

Boland discovered. Th e attributes of design attitude include a willingness

role: that of a tool of inquiry. In this sense they serve as thinking aids for

to explore crude ideas, rapidly discard them, then take the time to exam-

exploring new possibilities. They help us develop a better understanding

ine multiple possibilities before choos ing to refine a few-and accepting

of what could be.

uncertainty until a design direction matures. These things don't come

This same design attitud e can be applied to business model innovation.

new business models. Design attitude demands changing one's orienta-

By making a prototype of a bu siness model we can explore particular

tion from making decisions t o creating options from w hich to choose.

naturally to businesspeople, but they are requirements for generating

aspects of an idea: novel Revenue Streams, for example. Participants learn about the elements of a prototype as they construct and discuss

RATr (

1\1

ALl. 111 1

1111//tHi l'he idea 1111 /iit/C the Value l'l•llltlSition

lill llldC the main

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Iol:ypes at Different Scales 1!11" 111 product design, it is easy to understand

prototypes. We can app ly the sa me sca le and size varia -

ent from simply sketching out business idea s, something

tions when prototyping busine ss mode ls, but in a more

any businessperson or entrepreneur does. Why do we

II! IN nlmut physical artifacts. Architect Frank

con ceptua l way. A business model prototype can be

need to ca ll it "prot otyping"?

llillll lt iCI designer Philippe Starck co nstruct

anything from a rough sketch of an idea on a napkin to a

Jlll il ll lypes during a project, ra nging from

deta il ed Business Model Canvas to a fie ld-testa ble bu si-

11!1 l OUgh models to elaborate, ful l-featured

ness model. You may wonder how all of th is is any differ-

11 lliy pro toty ping at different scales, because

There are two answers. First, the mind set is different. Second, the Business M odel Canvas provides structure to fa ci litate exp loration.

165 Business model prototypi ng is about a mindset we call "design attitude." It stands for an uncompro mi sing commitment to discovering new and better business models by sketching out many prototypes -both rough and detai led-representing many strategic opti ons. It's I I CH /V~ D PITCH

IDEA

II 'II MPLE BUSI NESS '·I I I 'ANVAS. DESCRIBE

1/lllll ihe idea

111

ELABORATED CANVAS

BUSINESS CASE

FIELD-TEST

not about outlining on ly id eas you really plan to imple-

EXPLORE WHAT IT

EXAMINE THE VIABILITY

INVESTIGATE CUSTOMER

ment. It's about exploring new and perhap s absurd, even

WOULD TAKE TO MAKE

OF THE IDEA

ACCEPTANCE AND

THE IDEA WORK

FEASIBILITY

DEVELOP A MORE ELABO-

CANVAS INT O A SPREAD-

YOU'VE DECIDED ON

RATE CANVAS TO EXPLORE

SHEET TO ESTIMATE

A POTENTIAL NEW

ALL THE ELEMENTS

YOUR MODEL'S EARNING

BUSINESS MODEL, AND

NEEDED TO MAKE THE

POTENTIAL.

BUSINESS MODEL WORK.

/iit/tl l'he Va lue IJIII\Ition

• Develop a full Canvas

lllilfl the main

• Think through your business logic

I·MI/tiC Streams

TURN THE DETAILED

Estimate the market potential • Understand the relationships between Building Blocks Do some basic fact-checking

• Create a full Canvas • Include key data • Calculate costs and revenues • Estimate profit potential • Run financial scenarios based on different assumptions

NOW WANT TO FIELD TEST SOME ASPECTS.

• Prepare a well-justified business case for the new model • Include prospective or actual customers in the field test • Test the Value Proposition, Channels, pricing mechanism, and/or other elements in the marketplace

impossible ideas by add ing and removing elements of each prototype. You can experiment w ith prototypes at different levels.

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outlining possible ways to publish a book. Each prototype highlights different elements of its model.

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A prototype rarely describes all the elements of a "real'; business model. It fo cuses instead on illuminating particular aspects of the model and thus indicating new directions for exploration.

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design

prototype

168

,,,,,i/,.)5 h1 1111tl~ r Et CEO

DECIDE

INQUIRY

EXECUTE

''''' <'8Y Consqltancy /() t'nlployees

1111 fl.INE BIG ISSUES

provoke

rhink of a typical Strategy-

OnSUlting client. 1

Pick the Customer Segment and industry of your choice.

• Describe five of the biggest issues related to strategy consulting. Refer to the Empathy Map (s~ p. 131).

I~ /I

I •I

•

Wanted: A-New Consulting Business Model John Sutherland needs your help. John is the founder and CEO of a midsized global consulting firm that focuses on advising companies on strategy and organ izational issues. He is lookin g for a fresh, outside perspective on his company because he believes that his business needs to be re-envisioned. John built his company over two decades and now employs 210 people worldwide.

169

Th e focus of his consu ltancy is helping executives develop effective strategies, improve

,,,,,,,ss

their strategic management, and rea lign their organizations. He competes directly

<.!)

hiiHicler Et CEO

w ith McKinsey, Bain, and Roland Berger. One problem he faces is being sma ller than

iD0

ilt ilt egy Consu ltancy

his top-tier competitors, yet much larger than the typical niche-focused strategy consultancy. But John is not preoccupied with this issue, since his company is still doing

1(1 eniployees

reasonably well. What really troubles him is the strategic consulting profession's poor reputation in the marketplace, and growing client perception that the prevalent hourly and project-based billing model is outdated. Though his own firm's reputation remains good, he has heard from several clients that they think consultants overcharge, under-

deliver, and show litt le genuine commitment to client projects. Such comments al arm John, because he

1111./NE BIG ISSUES

GENERATE POSSIBILITIES

PROTOTYPE THE BUSINESS MODEL

I/link of a typical strategy' onsulting client.

• Take another close look at the five customer issues you selected.

• Choose the three most diverse ideas of the five generated.

flick the Customer Segment 1111d industry of your choice.

• Generate as many consulting business model ideas as you can.

• Develop three conceptual business model prototypes by sketch ing the elements of each idea on different Business Model Canvases.

• /) cscribe five of the biggest Issues related to strategy consulting. Refer to the Empathy Map (see p. 137).

Pick the five ideas you think are best (not necessarily the most realistic). Refer to the Ideation Process (seep. 134).

Annotate the pros and cons of each prototype.

believes his industry employs some of the brightest minds in business. After mu ch though t, he has concluded that this reputation results from an outdated business model, and he now wants to transform his own company's approach. John aims to make hourly and project billing a thing of the past, but isn't quite sure how to do so. Help John by providing him with some fresh perspectives on innovat ive consulting business models.

'lhl -

I!)

s already far past

... She's working on a series of small films for

I night as Anab Jain tches the latest eo footage she shot ring the day ...

manufacturer of award-winning office furniture

Colebrook Bosson Saunders, a designer and

accessories. A nab is a storyteller and designer, and the films she is working on are part of a project to help Colebrook Bosson Saunders make sense of how the future of wo rk and the workplace could look. To make this future tangible, she invented three protagonists and projected them into 2012. She gave them new jobs based on research into new and emerging technologies and the impact of demographics and environmental risks on our future lives. The films then show this near future. But rather than describing 2012, A nab ta kes the role of the storyte ller, visiting th is future environment and interviewing the three protagonists. They each explain their work and show objects they use. Th e films are real enough to cause viewers to suspend their disbelief and become intrigued by the different environment. That is exactly what companies that hire A nab Jain, like Microsoft and Nokia, are looking for: stories to make potential futures tangible.

~....

171

I1y Storytelling?

Storytelling's Value

1Âˇ

lng the New

1111~1 1\css model ideas can pop up anywhOI't1 1i 1111 11lo11llon. Some ideas may be good, somo n111V l u lh11111, and some may be, well, compl etely

As parents, we read stories to our kids, sometimes the same ones

Just as the Business Model Canvas helps yo u sketch and ana iY'"

we heard as children ourselves. As colleagues, we share the latest

a new model, storytelling will help you effectively communicate

organizational gossip. And as friends, we te ll one another stories

what it is all about. Good stories engage listeners, so the story is

of our personal lives. Somehow, it is only in our ro les as business-

the ideal tool to prepare for an in-depth discussion of a business

~>--

"' g

people that we avoid using stor ies. This is unfortunate. When was

model and its underlying logic. Storytelling takes advantage of tht1

the last time you heard a story used to introduce and discuss a

explanatory power of the Business Model Canvas by suspending

business issue? Storytelling is an undervalued and underused art in the world of business. Let's examin e how storytell ing can serve as a powerful tool to make new business models more tangibl e.

disbelief in the unfamiliar.

11~1111

11 outstanding business model ideas COIII IrWt

\!)

11tllllll 1C getting past layers of management 1111d II 11 Wrly into an organization's strategy. So

olltHII

IIIII~ your business model ideas to managOril l\111

ltlril I his is where stories can help. Ultimatoly, 111

1u Interested in numbers and facts, but htWIII H I Ill

~t ory can win their attention. A good sl OI vI

IIIII!\ way to quickly outline a broad idea bof011 11, 11 ~ 111 up in the details.

By their very nature, new or innovative business models can be difficult to describe and understand. They cha ll enge the status quo by arranging things in unfamiliar ways . They force listeners to open their minds to new poss ibi lities. Res istance is one likely reaction to an unfamiliar model. Therefore, describing new busi ness models in a way that overcomes resistance is cruc ial.

rt111ke the New Tangible /â&#x20AC;˘'l plnininga new, untested business n10dtâ&#x20AC;˘l

l~ I

" t>laining apaintingwith words alone. IIIII It /rii".Y of how the model ~reates value is /1/tl'

"I'

l11lgil t colors to canvas. It makes thing's /rlt l.~ll;

l1y Storytelling? lflng the New 1111-I IIOSS model ideas can pop up anywhere in an

If you are an entrepreneur, chances are you will pitch your

When an organization transitions from an existing busi-

11 111/on. Some ideas may be good, some may be

idea or business model to investors or other potential

ness model to a new business model, it must convince

I N, and some may be, well , completely useless.

shareholders (and you already know that investors stop

collaborators to follow. People need a crystal clear under-

11 outstanding business model ideas can have a

listening the instant you tell them how you will become the

standing of the new model and what it means for them.

Âˇ1111

IY ~ II N / It1iii/lii

Engaging Employees

Pitching to Investors

II 1/1110 getting past layers of management and finding

next Google). What investors and other shareholders want

In short, the organization needs to powerfully engage its

y Into an organization's strategy. So effectively

to know is: How will you create value for customers? How

employees. That is where traditional text-based Power-

/i/11)1 your business model ideas to management is

will you make money doing so? That's the perfect setting

Point presentations usually fail. Introducing a new business

hi I I his is w here stories can help. Ultimately, manag-

for a story. It's the ideal way to introduce your venture and

model through an engaging story-based presentation

'" Interested in numbers and facts, but having the

business model before getting into the full business plan.

(delivered with PowerPoint, drawings, or other techniques)

ill - lory ca n w in their attention. A good story is a com-

is far more likely to connect w ith listeners. Capturing

11111)1 way to quickly outline a broad idea before getting

people's attention and curiosity paves the way for in-depth

IMiil up in the deta il s.

presentations and discussions of the unfamiliar.

â&#x20AC;˘

~hr lce

the New Tangible

1'\tllaininga new, untested business model is like

4 A

Clarification

Engaging People

Telling a story that illustrates how your business model

People are moved more by stories than by logic.

\ f>laining a painting with words alone. But telling a

solves a customer problem is a clear way to introduce

Ease listeners into the new or unknown by building

li ii'.Y of how the model creates value is like applying

listeners to the idea. Stories give you the "buy-in" needed

the logic ofyour model into a compelling narrative.

lll'lght colors to canvas. It makes things tangible.

to subsequently explain your model in detail.

1king the Future I

Making Business Models Tangible?

dltll J wonderful technique for blu rring tl'll l ill \1 The goal of telling a story is to introduce a new business model in an engaging,

IIIIU tQality and fiction. Thus sto'ri es

tangible way. Keep the story simple and use only one protagonist. Depending on

p~ovldi

liil l oUI for imparting tangibility to differalll VIII

the audience, you can use a different protagonist with a different perspective.

lllllll'll, This can help you challenge th~

Here are two possible starting points.

11\v 11<1¢pting a new business mod el.

CUSTOMER

COMPANY

perspective

I I

Employee Observer

Customer Jobs

Explain the business model in the form of a story told

The customer perspective provides a powerful starting

from an employee's perspective. Use the employee as the

point for a story. Cast a customer as the protagonist amd

protagonist who demonstrates why the new model makes sense. This may be because the employee frequently observes customer problems that the new business model solves. Or it may be that the new model makes better or different use of resources, activities, or partnerships compared to the old model (e.g. cost reduction, productivity

URRENT BUSINESS MODEL

h[]

tell the tale from her point of view. Show the challenges she faces and which jobs she must get done. Then out!l nt

how your organization creates value for her. The story Cal\

describe what she receives, how it fits into her life, and what she is willing to pay for. Add some drama and emoth111

to the story, and describe how your organization is makin~

improvement, new revenue sources, etc.). In such a story,

her life easier. Ideally, weave in how your organization gello

the employee embodies the inner workings of an organiza-

these jobs done for the customer, with which resources and

tion and its business model and shows the reasons for

through which activities. The biggest challenge with stbri¢

transitioning to a new model.

told from a customer perspective is keeping them authen pt and avoiding a facile or patronizing tone.

'-- ·

slti\11~ 'I

1k.ing the Future Tangible •11111 11 wo nderful technique for blurring the lines

111M 1¢a lily and fiction. Thus stories provide a IHIIIIIII for imparting tangibility to different versions

Provoke Ideas

'11111111. Th is ca n help you challenge the status quo

1, 11il¢pting a new business model.

Sometimes a story's sole purpose is to challenge the WHAT FUTURE BUSINESS MODEL?

organizational status quo. Such a story must bring vividly to life a future competitive environment in w hich the

~1-

current business model is severely challenged or even

!;;

obsolete. Telling a story like this blurs the lines between reality and fiction and catapults listeners into the future. This suspends disbelief. instills a sense of urgency, and URR ENT BUSINESS MODEL

""'

opens the audience's eyes to the need to generate new

business models. Such a story can be told from either an organization or a customer perspective.

Justify Change PLANNED FUTURE BUSINESS MODEL

Som etimes an organization has strong ideas about how its competitive landscape will evolve. In this context, a story's purpose is to show how a new business model is ideally suited to help an organization compete in the new landscape. Stories temporarily suspend disbelief

Ill

111111 11 1111 1/ i~llli

"'z

and help people imagine how the current business model should evolve to remain effective in the future. The story's protagonist could be a customer, an employee, or a top manager.

Developing the Story The goal of telling a story is to introduce a new business model in an engaging, tangible way. Keep the story simple and use only one protagonist. Depending on the audience, you can use a different protagonist with a different perspective. Here are two possible starting points.

Company Perspective

maintaining its own servers. Similarly, Amazon Elastic

Ajit, 32, Senior IT Manager, Amazon.com

Computing Cloud (Amazon EC2)(11) offers Amazon.

Ajit has worked for Amazon.com as an IT

com's own computing capability to outside clients.

manager for the past nine years. He and his

Ajit knows that outsiders might view such services

colleagues have pulled countless all-nighters

as distracting Amazon.com from its core retail opera-

over the years to deliver the world-class IT

tions. From the inside, though, the diversification makes

infrastructure that serves and maintains the

perfect sense.

company's e-commerce business. Ajit is proud of his work. Along with its fulfillment

Ajit remembers that four yea rs ago, his group spent much time coordinating the efforts of the network engi-

excellence (1, 6 ), Amazon.com's powerful IT infrastruc-

neering groups, which managed IT infrastructure, and

ture and software development capabilities ( 2, 3) form

the applications programming groups, which managed

the heart of its success at selling everything from books

Amazon.com's many Web sites. So they decided to build

to furniture online ( 7 ). Amazon.com ( 8 ) delivered over

so-called application programming interfaces (APis)

half a billion page impressions to online shoppers ( 9 ) in

(12) between these two laye rs, which wo uld allow the

2008, and spent over a billion dollars for technology and

latter to easily build on the former. Ajit also remembers

content ( 5), notably to run its e-commerce operations.

exactly when they started to realize that this would be

But now Ajit is even more excited, because Amazon.

Jeff Bezos's leadership, Amazon.com decided to create a

in the process of becoming one of the most important

new business with the potential to generate a significant

infrastructure providers in e-commerce.

reve nue source for the company. Amazon.com opened

FULFILLMENT (MARKETING)

lco MPANI G5 ANI I

DEV ELOiiO II

IB A Pis

Ill

up its infrastructure A Pis to provide what it calls Amazon

Systems (Amazon 53) (11) the company is now using its

Web Services to outside parties on a fee-for-service basis

own IT infrastructure to provide online storage to other

(14). Since Amazon.com had to design, create, imple-

companies at rock-bottom prices. This means that an

ment, and maintain this infrastructure anyway, offering

online video hosting service can store all customer vid-

it to third parties was hardl y a distraction.

eos on Amazon's infrastructure rather than buying and

useful to external as well as internal customers. So under

com is traveling far beyond its traditional retail offers. It's

With a service called Amazon Simple Storage

~~~ TECHNOLOGY & CONTENT

UTILITY COMPUTING FEES

nfrastructur

0 11111 111 ~"ill

AMAZON.COM

<!)

Customer Perspective

ming

Randy is a passionate Web entrepreneur.

cations for hi1 own services on Amazon.com's servers.

After 18 years in the software industry he is

The same went for Amazon's Elastic Computing Cloud

now running his second startup, providing

(Amazon EC2). Randy didn't have to build and maintain

A Pis

IJfJ

his own infrastructure to crunch the numbers for his

spent 10 years of his career in large software

enterprise application service. He cou ld simply plug into

companies and eight years in start-ups.

Amazon and use its computing power in return for hourly

He immediately understood why the value was coming from the giant e-tailer rather than from IBM or

commodity business, but a tricky one due to the enor-

Ac~enture.

mous costs involved. Tight management was crucial;

IT infrastructure (2, 3, 5) to serve its online retail busi-

Amazon.com was providing and maintaining

when you're running a start-up you can't invest millions

ness (7 ) every day on a global scale. This was its core .

in~ server farm.

competency. Taking the step to offer the same infrastruc-

But when serving the enterprise market, you'd better

ture services to other companies (9 ) was not much of a

have a robust IT infrastructure in place. That's why Randy

stretch. And since Amazon.com was in retail, a business

was intrigued when a friend at Amazon.com told him

with low margins (11 ), it had to be extremely cost-

about the new IT infrastructure services his company

efficient (5 ), which expl~ined the rock-bottom prices of

was launching. That was the answer to one of Randy's

its new Web Services.

world-class IT infrastructure, being able to scale quickly, and all the while paying only for what his company was actually using. That was exactly what Amazon's Web

njrastnucture "4. w

usage fees (14).

running servers to provide services was basically a

most important in-house jobs: running his services on a UTILITY COMPUTING FEES

(API)(12) and store all the data and appli-

enterprise software through the Web. He

been getting infrastructure investments right. To him,

' COMPANIES AND DEVELOPERS

interfac~

Randyr 41, Web Entrepreneur

Throughout his career, one constant struggle has

infrastructure through a so-called application program-

Services (11 ) promised . With Amazon Simple Storage Systems (Amazon 53), Randy could plug into Amazon's

::J UJ

Techniques

11perToaSt\ 1\nC. 1\usiness Mqdel

Telling an engaging story can be done in different ways. Each technique has advantages and disadvantages and is better suited for certain situations

-------·......--.--.:

and aud iences. Choose a suitab le technique after you understand who your audience wil l be and the context in whic h you will present.

1 jill II ti ei ng your business mod el sl o1yl1tll lllljliC, slightly sil ly exercise: Th e bll'il l t

0 Talk& Image

Video Clip

f(k

)p-...

~i!lf -~

lfl. --::.---

P.&Y -- --

• I

Role Play

Text & Image

Comic Strip

11111\St, Inc. outlined in the Canvas IHi \11'11 1\tii O you like: with Custom ers, th o V11i ll

l•tw>urces, or elsewhere. Invent y0\11 11W ll',llt tlnts are the nine im ages that oul lli ll l'dl\11!1"> model. Try telling the st ory SOVI IIIII 1111 ill lferent Building Blocks. Each stm IIIII 1 ny 11sli ghtly different twist and emph11•1l

11\11~ rnodel. DESCRIPTION

Tell th e story of a protagonist and his environment using one or several images

Te ll t he story of a protagonist and his environment using video to blur lines between rea li ty and fiction

Have peop le play the roles of a story's protagonists to make the scenario real and tangible

Tell the story of a protagonist and his environment using text and one or severa l images

Use a series of cartoon im ages to tell the story of a protagonist in a tan gible way

Broadcast to large audiences or in -h ouse use for decisions with important financia l implications

Workshops where participants present newly developed business model ideas to each other

Reports or broadcasts to large audiences

--WHEN?

lit l\111way, this is a wonderful appro<WII Ill 1111 •li HlSS Model Canvas to the "uninll l11 111tl' llllliHing way-with a story.

Group or conference presentation

i : TIME & COST

Low

Medium to high

Low

Low to medium

~PLANATiONS'" b~ XPUANE"1 1c1 l<PuiNE zbos · + _ \. !

,,,perToastf Inc

l', usiness Mo'del >f-

11 pract icing your business model storytel ling skil ls with

>= ~

II• l li1 1ple, slightly si lly exercise: The business model of qiMI foa st, Inc. outlined in the Canvas below. You can start

179

liWhcre you li ke: with Customers, the Value Proposition,

vl<osources, or elsewhere. Invent your own story. The only z

1\l ~ lr a ints are the nine images that outline Super Toast Inc.'s

11 11diffe rent Building Blocks. Each starting po int w ill give the

lillY a slightly different twist and emphasize different aspects

ti !IIGmodel.

/ . • /W c:>

l l l~lness Model Canvas to the "uninitiated" in a simple and ~ /9::iiJ llflllging way-with a story.

!ictM~·o, ~ ' .

lly Ihe way, this is a wonderfu l approach to introducing the

. TiliT~l!J

11 -ltiCSs model. Try telling the story severa l times, starting

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... Huang and Waldvogel were brought in to conceive the architectural design of the building, wh ich, rather than issuing visas, will serve as a networking and knowledge exchange hub. The

\n.2000

two are studying several scenarios of how people will use the Swisshouse, and have constructed both physical models and screenplay-l ike texts

ofessor Jeffrey 1ang and Muriel aldvogel seem lost thought as they nder scale models the Swiss house, Je new Swiss onsulate facility . ÂˇJ be built in Boston, assachusetts ...

designed to make tangible the purpose of this

unprecedented government facility.

"'iii

One scenario describes Nicolas, a brain

surgeon who has just moved to Boston from Switzerland. He visits the Swisshouse to meet likeminded scientists and other members of the Swiss-American commun ity. A second scenario tells the story of a Professor Smith, who uses the Swisshouse to present his MIT Media Lab research to Boston's Swiss community and to academics at two Swiss universities, using a high-speed Internet connection. These scenarios, while simple, are the result of intensive research into roles the new type of consu late might play. The stories illu strate the Swiss government's intentions and serve as thinking tools to guide the building's design. Ultimately, the new facility effectively accommodated the applications imagined and fulfilled its objectives. Today, almost a decade after its conception, the Swisshouse enjoys an outstanding reputation for helping build stronger international ties in greater Boston's science and technology communities. Under the banner of the Swiss Know ledge Network, or swissnex, the Swisshouse has inspired "colleague" facilities in Bangalore, â&#x20AC;˘

San Francisco, Shanghai, and Singapore.

181

Scenario-Guided Business Model Design Vl

Scenarios can be useful in guiding the design of new business

ments. The strategy literature discusses this practice in detail

models or innovating around existing models. Like visual thinking

under the top ic of "scenario planning." Ap plying scenario

182

(p. 146), prototyping (p. 160), and storytelling (p. 170), scenarios

planning techniques to business model innovation forces

render the abstract tangible. For our purposes, their primary

reflection on how a model might have to evolve under certain

function is to inform the business model development process

cond itions. Thi s sharpens understanding of the model, and of

by making the design co ntext specific and detailed.

potentially necessary adaptations. Most important, it helps us prepare for the future.

Here we discuss t wo types of scenarios. Th e first describes different customer settings: how products or services are used, what kinds of customers use them, or customer concerns, desires, and objectives. Such scenarios build on customer in sights (p. 126), but go a step further by incorporating knowledge about custom ers into a set of distinct, concrete images. By describing a specific situation, a customer scenario makes customer in sights tangible.

A second type of scenario describes future environments in which a business model might compete. The goal here is not to predict the future, but rather to imagine possible futures in concrete detail. This exercise helps innovators reflect on the most appropriate business model for each of several future environ-

Directioias

-------~------------------------------~---------

MAKE TANGIBLE l•1 pract ice in det ai l 1lyl ng sce nario IIV/I IIon force s il vo under certain llir model, and of II!Oi'l ant, it helps 11 •,

~·

Directions

• £:)

INFORMED DESIGN ! •

0 /'

Explore Ideas

I 'l l ~

Customer scenarios guide us during business model

we ca n ask ourselves whether a single business model is

but are deliberately left open to allow fo r speclll1

design. They help us address issues such as which

sufficient to serve them ali-or if we need to adapt the

tions around the Value Proposition, Distributi0111 I

Channels are most appropriate, wh ich relationships

model to each segment.

nels, Customer Relationships, and Revenue Str<111111

would be best to esta bli sh, and w hich problem so lutions

downloa~ud 111

customers would be most w illing to pay for. Once we've

tion-based services that make use of Global Positioning

te lephone service operator working to develop

generated scenarios for different Customer Segments,

Systems (GPS). They inform the business model design,

new business models.

hl• t\lllnes serve as Channel partners \(') 1\1~11

llt VI ~c/device?

li\1 11 p!'ospective content partners would \11

ii<

i:'i u

THE HOME DELIVERY SERVICE

_____._

Tom has always dreamed of running his own small business. He knew it wo uld be difficult, but earning a living

..Ji

I IIII IIPPiication that ca n be 1 11 111'1 1 handsets?

Here are three different scenarios describing loca -

1hl \l 1115ervice be based on a proprietal y ti11V

, ' by livi ng his passion was definitely worth working more and earn ing less. Tom is a film buff w hose know ledge of movies is

I THE TOURISTS

1111 11Value Propositions would custom

11111111 willing to pay for?

Dale and Rose are traveling to Paris for an extended weekend. They are excited because they haven't visited Europe since their honeymoon 25 years ago. The coup le

IIO MI' DELIVERY SERVICE

encyclopedic, and that's w hat customers of his home-

organized th is mini-escape from everyday work and

THE WINE FARMER

deli very DVD movie service appreci ate. They can query

family life just two weeks before departure, leaving the ir

Alexande r inheri t ed vineyards from his father, who 111

him about actors, production techniques, and just about

three kid s with parents back in Portland. Lacking time

turn inherited them from Alexander's grandfather, wl1

anyt hing else film-related before ordering movies for

and energy to plan the trip in detail, they decided to

emigrated from Switze rl and to California to grow wli111

delivery to t heir doorsteps.

"wing it." As a consequence, they were intrigued to read

Carrying on this family history is hard work, but AleXIII!

Given the form idable online competitio n, it's hardly

il fl• l od in being part of the servi ce?

an article in the inflight magazine about a new GPS-

der enjoys adding sma ll innovations to his family's loll

an easy business. But Tom 's been able to boost his

based tourist service th at uses mobile phones. Dale and

w ine-growing t rad ition.

productivity and improve customer service w ith a new

Rose, both technology fans, rented the recommended

GPS-based delivery planner acquired from his mobile

handset upon arrival at Charl es de Gau lle airport. Now

app licat ion that now res ides on his mobile phone,

I• IIIII value added sufficient to

m otiv a~

l11llvory services to pay monthly fees lill llllgh which Channels could such Ctl!ll ll\11

·,11~111ents most easily be reached? Wi lli what other devices and/or so!tWI\11 1 wnuld this service need to be integralOd 1

His latest discovery is a simple land management

phone operator. For a small fee he equipped his phone

they're happily strolling aroun d Pari s on a customized

Though not aimed at vintners, it was designed in su ch 11

w it h software that easily integrated w ith his Customer

tour proposed by the compact device-all without having

way that Alexander was easily able to custom ize it for Ill

Relationship management program . Th is software won

consu lted a single traditional tourist gu ide. They par-

own particular needs. The applicat ion integrates w ith 111

back much of Tom's time by helping him better plan

ticularly appreciate th e built-in audio gu ide that suggests

task li st, which means he now has a GPS-based to-do llhl

delivery routes and avoid traffic. It even integrated with

various story and background information options as they

that rem inds him w hen and w here to check soil or grapl•

the cell phones used by two aid es w ho help out on week-

approach particular sites. On the return flight, Dale and

quality. Now he's pondering how to share the applicati OII

ends when demand for his service peaks. Tom knows

Rose muse about relocating to Paris after retiring. Laugh-

w ith all of his managers. After all, the too l makes sense

his little business w ill never make him rich, but wou ldn't

ing to themselves, they wonde r whether the handy device

onl y if everyone on t he management team updates the

trade his situation for any corpo rate job.

wou ld be enough to help them adapt to French cu lture.

soi l and grape qua lity database.

Il l WINE FARMER

•

I~ the va lue added sufficient to moti vlllt• 11 \nndowner to pay a monthly service ltl\1I I hrough which Channels could such lli• l l gments most

ea~ ly be reached'?

• W ith what other devices and/or soft Will i thi s service need to be integrat ed?

lr]',J'~

1ld Il ie service be based on a proprietary device QUESTfONS REGARDING THE BUSINESS MODEL

11111111PP ii cation that can be downloaded to

Iiiii 111! lines serve as Channel

partners to distribute

I VICe/ device?

Could one model serve all

Does each segment need

three Customer Segments?

a separate, specific Value

1111 II () respective content partners wou ld be tl ~ i '1'1 tc d

Proposition?

in being part of the service?

lilt I\ Valu e Propositions would customers \t\IWI willing to pay for?

KP (

lti!Ml DELIVERY SERVICE

l lio va lue added sufficient to motivate d11 ll vc ry services to pay monthly fees? ll11 wugh w hich Channels could such Customer

C$ <@)

'â&#x20AC;˘"wne nts most easily be reached? Wl lh what other devices and/or software would this service need to be integrated?

lr WINE FARMER

Could we create resource,

Should we serve one or

activity, or Channel synergies

more Customer Segments

by simultaneously serving all

at low or no cost in order

three Customer Segments?

to attract other, high-value customers?

ltl the value added sufficient to motivate a lundowner to pay a monthly service fee?

l'hro ugh which Channels cou ld such Customer egments most easily be reached?

â&#x20AC;˘ W ith what other devices and/or software would thi s service need to be integrated?

l1 i1rma Business M I \he Future :

Future Scenarios

tlnlllthy Patient: 1111 kine/ of Customer Relationship does ef(ccllv

11111/vc medicine require?

"'i'5 <

The scenario is another thinking tool that helps us reflect

scenarios can be a powerful exercise. The scenario s

tion is driven in part by pharmacogenomics, in par t l1y

help trigger out-of-th e-box thinking, which is not always

advances in diagnostics, and in part by renewed cot.!

our creativity by providing concrete future contexts for

easy when trying to develop innovative business models.

consciousness amid growing awareness that prevenl l1111

which we can invent appropriate business models. This

Here's an overview of how such an exercise might be

is less expensive than hospitalization and treatm en\,

\!)

is usually easier and more productive than free brain-

conducted.

These two drivers suggest trends that may or may 111 II

storming about possible future business models. It does

---ril.,.,. on business models of the future. Scenarios kick-start

First, we must devise a set of scenarios that paint

in the figure opposite. These are:

can be costly depending on their depth and realism.

pictures of the future of the pharmaceutical industry.

• BUSINESS AS USUAL: Persona l med icine fails to

This is best left to scenario planning specialists equipped

Ill ~ 11 / os pe op/e?

with the right tools and methodology. To illu strate, we

for privacy reasons, etc.) and treatment remain s

new bus in ess models is the pharmaceutical industry.

developed four bare bones scenarios based on two cr ite-

the core revenue generator.

There are a number of reasons for this. Major player

ria that may shape the evolution of the pharma industry

research productivity has declined in recent years, and

over the next decade. There are, of course, severa l other

these companies face enormous cha llenges discovering

drivers and many different scenarios that cou ld be

and marketing new blockbuster drugs-traditionally the

crafted based on deeper research into the industry.

• MY.MEDICINE: Personal medicine materializes, but

treatment remains the core revenue generator. • THE HEALTHY PATIENT: The shift toward preventive

medicine continues, but personal medicine remains a fad despite technological feasibility.

many of their cash cow drugs are expiring. This means

The two drivers we've selected are (1) the emergence of

• REINVENTING PHARMA: Personal and preventive

revenues from those drugs are likely to be lost to generic

personalized medicine and (2) the shift from treatment

medicine comprise the new growth areas of the

drug manufacturers. This combination of empty product

toward prevention. The former is based on advances in

drug industry.

pipelines and evaporating revenue are just two head-

pharmacogenomics, the science of identifying underlying causes of diseases based on a person's DNA structure. Someday, this may result in comp letely personalized

In this turbulent context, comb ining business model

treatment, using customized drugs based on a person's

brainstorming with the development of a set of future

genetic structure. The shift from treatment to preven-

PERSONALIZC!l Ml I tl• 1111 REMAINS II 1111'

materialize despite its technological feasibility (e.g,

One sector under strong pressure to devise innovative

core of their businesses. At the same time, patents on

/1111 does the shift toward preventive medlc/1111 1/IIV 11bout the relationship between doc tors tll lil

materialize and thus provide four scenarios illustrat(Hi

require, however, developing several scenarios, which

aches plaguing incumbent pharmaceutical makers.

111 1111'0 the main partners we should involve Ill 11/!lplng our business model for preventive ITIOdltlll

Uusiness as Usual

• I /ow will our business mode/look in the (!il ill lll/ !Iiese two drivers don't change? ·

1n na Business Models

Ihe Future llhy Patient:

D) Reinventing pharma:

I111d 11/ Customer Relationship does effective ill'' ll iOclicine require?

PREVENTION BECOMES THE MAIN REVENUE GENERATOR

••• llw main partners we should involve in

• What roles will Customer Segments play under our new business model?

•1'1111./ our business model for preventive medicine? I ,flllll l/Je shift toward preventive medicine

• Should we develop relevant activities, such as bioinformatics and gene sequencing, in-house or through partnerships?

1/1111111he relationship between doctors and iiii~/IOOp le?

}gfy PERSONALIZED MEDICINE

REMAINS A FAD

u•lncss as Usual

l/11w will our business model look in the future if 1/itJ',o !wo drivers don 't change?

What does our Value Proposition look like in this new landscape?

PERSONALIZED MEDICINE BECOMES A MARKET MAINSTAY

mEl

TREATMENT REMAINS THE MAIN REVENUNE GENERATOR

8) My.medicine

What kinds of relationships will we have to establish with patients? Which Distribution Channels are most appropriate for personalized medicine? • Which resources and activities, such as bioinformatics and gene sequencing, do we need to develop?

Scenario D: Reinventing Pharma

!mil

ul ure ScenTa ~i6 IJ,usiness Mode\

The landscape of the pharmaceutical industry has completely changed. Pharmacogenomic research has fulfilled its promise and is now a core part of the indus-

What are the attributes

try. Personalized drugs tailored to individual genetic

What new Key Resources

of a competitive Value

profiles account for a large portion of indu stry revenues.

and Key Activities will pro-

Proposition under the

vide a compet itive advan-

new landscape?

All this has increased the importance of prevention-and is partially replacing treatment, thanks to substantially improved diagnostic tools and a better understanding of

What roles will Custoh11â&#x20AC;˘1

(

and Customer Relation

tage when personalized

ships play when pers on,,!

drugs and prevention are

ized drugs are an indu slt v

the industry's main focus?

the links between diseases and individual genetic profiles. VII OP A SET OF FUTURE SCENAR I O~ Ill\ j

Th ese two trends-the rise of personalized drugs

I WO OR MORE MAIN CRITERIA.

and th e increasing importance of prevention-have co mpletely transformed the traditional pharmaceutical manufacturing business model. The twin trends have had a dramatic impact on pharma's Key Resources and

1110 goal of combining scenarios with

Activities. They've transformed the way drug makers approach customers and provoked substantial changes

1111 discussion about a difficult topic, 1!111 11

in how revenue is generated.

llicmselves into concrete "futures" lll ll l111

The new pharma landscape has taken a heavy toll on in cumbent s. A number were unable to adapt quickly enough and disappeared or were acquired by more agile players. At the same tim e, upstarts with innovative

Which partnerships will

business models were able to acquire sign ificant market

maximize the effectiveness

share. Some were themselves acquired and integrated into the operations of larger but less nimble companies.

1!11~ 1

l111lp your organization prepare for Lli o l11i 1

How will revenues be

When participants describe th eir bu 11 l111 l 'lcar case for their choices within th111111

1icenarios

should be developed beiOI'II ili

How will the Cost Structure

generated when the focu s

noph istication of the "screenpl ays" wi ll V

of a drug company's new

of a pharmaceutical compa-

is on personalized drugs

mi nd that once y~ develop sce nad1ll1, II

busin ess model?

ny's business model change

and prevention?

well. Even simple scenarios help jU II III~ I

under this new landscape?

Lhe future .

I1rture Scenarios and~ New HLisiness. Models (

What roles will Custonl!'l

gm mgt

.C Dt0

\._l)

>--

~· · h

and Customer Relati on

> <(

tEm mm

' ·\.__)

ships play when person1d

189

ized drugs are an indus/ IV mainstay? tVI LOP A SET OF FUTURE SCENARIOS BASED II

rwo

OR MORE MAIN CRITERIA .

z '-"

DESCRIBE EACH SCENARIO WITH A STORY THAT

DEVELOP ONE OR MORE APPROPRIATE

OUTLINES THE MAIN ELEMENTS OF THE SCENARIO

BUSINESS MODELS FOR EACH SCENARIO

WORKSHOP

l l1c goa l of combining scenarios with business model innovation efforts is to

Ideally you should develop between two and four different scenarios based on

l1olp your organization prepare for the future. This process engenders meaning-

two or more criteria in order to run a good business model scenario workshop.

Iii/ discussion about a difficult topic, because it forces participants to project

Each scenario should be titled and described with a short, specific narrative

llicmselves into con crete "futures" underpinned by hard (though assumed) facts.

outlining the main elements.

When participants describe their business models they must be able to make a !'lear case for their choices within the context of the specific scenario.

Begin the workshop by asking participants to review the scenarios, then develop

~c e narios

understanding of all the potential futures, you might want everyone to participate

an appropriate business model for each. If your objective is to maximize a group's How will revenues be generated when the focu·• is on personalized drugs and prevention?

should be developed before the business model workshop begins. The

'IOphistication of the "screenplays" will vary depending on your budget. Keep in

in a single group and let them collectively develop different business models for

111 ind that once you develop scenarios, they may be usable for other purposes as

each scenario. If you are more interested in generating a set of very diverse future

well. Even simple scenarios help jumpstart creativity and project participants into

business models, you might decide to organize participants into different groups

the future.

that work in parallel on separate solutions for the various scenarios.

•

Further Reading on Design and Business Design Attitude

Ideation

Managing as Designing

The Art of Innovation: Lessons in Creativity

Serious Play: How the World's Best

by Ri chard Boland Jr. and Fred Coll opy

from IDEO, America's Leading Design Firm

Companies Simulate to Innovate

190 (Stanford Business Books, 2004)

A Whole New Mind: Why Right路Brainers

Prototyping

by Tom Kelley, Jonath an Littman, and

by Michael Schrage (Harvard Business

Tom Peters (B roadway Bu siness, 2001 )

Press, 1999)

Will Rule the Future

JdeaSpotting: How to Find Your Next

Designing Interactions

by Daniel H. Pink (R iverhead Trade, 200 6)

Great Idea

by Bill Moggridge ( M IT Press, 2007) (ch. 10)

The Ten Faces of Innovation: Strategies

by Sam Harri son (H ow Books, 2006)

"'~

for Heightening Creativity by Tom Kelley (Profi le Business, 200 8)

Storytelling Visual Thinking

The Leader's Guide to Storytelling: Mastering

The Back of the Napkin: Solving Problems

the Art and Discipline of Business Narrative

Customer Insights

and Selling Ideas with Pictures

by Steph en Denn ing (Jossey-Ba ss, 2005)

Sketching User Experiences: Getting

by Dan Roam (Portfolio Hard cover, 2008)

Made to Stick: Why Some Ideas Survive

the Design Right and the Right Design

Brain Rules: 12 Principles for Surviving

and Others Die

by Bill Bu xton (Elsevier, 2007)

and Thriving at Work, Home, and School

by Chip Heath and Dan Heath

Designing for the Digital Age: How to Create

by John M edina (Pear Press, 2009)

( Ran dom House, 2007)

Human-Centered Products and Services

(pp. 221-240)

by Kim Goodwin (John Wil ey & Sons, Inc. 2009)

Scenarios The Art of the Long View: Planning for the Future in an Uncertain World by Peter Schwa rtz (Currency Doubleday, 1996)

Using Trends and Scenarios as Tools for Strategy Development by Ulf Pillkahn (Publicis Corporate Publi sh ing, 2008)

194

WHAT STANDS 1N YOUR WAY?

In my work with non-profit organizalions, the biggest obstacles to business model innovation are 1. inability to understand the existing business model, 2. 1ack of a language to talk about business model innovation, and 3. counterproductive constraints on imagining the design of new business models.

I have found that the management and key employees in many SME companies lack a common framework and language for discussing business model innovation. They do not have the theoretical background, but they are essential to the process because they are the ones who know the business. Michael N. Wilkens, Denmark

In my experience with a large arclilv• the biggest hurdle was to make tlli 'lll understand that even an archivelilt' • business model. We overcame thh l•1 starting a small project and showt•d them this would affect their curre11l model. Harry Verwayen, Netherlands

Jeff De Cog no, United States

The management of an SME (wood manufacturing industry-WMI) did not begin changing its business model until the bank no longer wanted to give them credit. The biggest obstacle to business model innovation (in the WMI case and likely every case) is the people who resist any changes until problems appear and need corrective actions. Doni/a Tic, Slovenia

METRICS

OF SUCCESS: They can direct the scope and ambition of behavior. At best they can allow for the agility that brings truly disruptive innovation; at worst they reduce vision to near term iterative cycles of evolution that fail to take opportunity from changing environments. Nicky Smyth, UK

EVERYONE

LOVES

INNOVATION UNTIL IT AFFECTS

THEM.

The biggest obstacle to business model innovation is not technology: it is we humans and the institutions we live in. Both are stubbornly resistant to experimentation and change. Saul Kaplan, United States

Fear to take risks. As aCEO you need courage to take a business model innovation decision. In 2005, Dutch telecom provider KPN decided to migrate proactively to IP and thus to cannibalize itstraditional business. KPN is now internationally recognized as an outperformer in the telco industry. Kees Groeneveld, Netherlands

GETEVERYBODY

INVOLVED

and keep up the speed of change. lot our disruptive meeting concept Ser~h 2meet.com we trained the staff alnto•.l daily for aperiod of fou r monthsj u~l on communicating this new businc>'• model to all stakeholders. Ronald van Den Hoff, Netherland\

1. Organizational antibodies that aliiII~ a project as resources drawn from their area conflict with their business objectives. 2. Project management processes that can't deal with risks/ uncertainties associated with bold ideas so leaders decline or claw idea\ back to existing comfort zones. John Sutherland, Canada

The biggest obstacle isa belief that modelsmust contain every detailexperience shows that clients ask for a lot but settle for simplicity once they have insight into their business. David Edwards, Canada

1 1>~1 k11owing: What is abusiness •l11ll What is business model innova· ,, 2. Not able: How to innovate a , lllli~'• lllodel7 3. Not willing: Why 11 id !Innovate my business model? 1111111'• ' sense of urgency? 4 1 tlltllilnations of the above. I 111, Ma laysia

11 11 ny experience,

Ill!' biggest obstacle 1, lrlilure to change Ill!' thinking process 11om the traditional llilcar way to holistic 11 1d systemic. ulu 1p1cneurs need to make a concerted ·lhll llodevelop the capability to envl illlti lltc model as a systemwhose pail' lith IIIII l with each other and affect eacli •ll1111 In aholistic and non-linear man11l'1. l•rllllllne Horowitz Gassoi, Spain

'11'1

In my experience with alargi' tilt it· ,.

111

lhe biggest hurdle was to mtlkl' 1/u '" understand that even an archlw 11,, 1 business model. We overca 111i' iltl• 1,1 starting a small project and sliow 1 .1 lhem this would affect their Cllllt·ltl model. /lorry Verwayen, Netherlolllll

GETEVERYBOI )y

INVOLVE!)

,1nd keep up the speed of chaiiiW '' , our disruptive meeting concepl ~t•.tl ?meet. com we trained the stafl dll 111 . , daily for aperiod of four month.\ )ll•.l Oil communicating this new bu~ll ll " lllodel to all stakeholders. Nonald von Den Haft Netherl!llld•

1. Organizational antibodies thai IIlLI, ~ •' project as resources drawn fro111 llicir area conflict with their bushII'' objectives. 2. Project managemclll PI OCcsses that can't deal with risk\/ llllccrlainties associated with bold ldt•tls so leaders decline or claw i<lt'tl' IJ,Jtk lo existing comfort zones. Iii/in Sutherland, Canada

1\1(• biggest obstacle is a belief thai 1110dels must contain every detailt'Xill'tience shows that clientsask lw tl iol but settle for simplicity once liii 'Y litlVI' Insight into their business. I liiV/cl Edwards, Canada

j i

I '"' kiiOWing What is a business ,,,,What is business model innoval ,Not able: How to innovate a '"'I~ model7 3. Not willing: Why 11h ll l11novate my business model7 1111 t1 ~ense of urgency? 4 I tll lll llnations of the above. I 111, Malaysia

experience, Ill!' biggest obstacle , lrlilure to change II II' thinking process l101n the traditional l 1 1nar way to holistic 111cl systemic. It lil lY

11http1cneurs need to make a concerted lit II I Io develop the capability to envi'"til lhemodel as asystem whose parts ltlit'ltlt l with each other and affect each •111111Inaholistic and non-linear manner. 't /ltlline Horowitz Gossol, Spain

As an Internet marketer for 15 years I've seen new business models live and die.

The key for the w1nners was that the major stakeholders completely understood and advanced the model.

Within large multinationals it is key to create cross-functional understanding and synergies. Business model innovalion does not hold itself to the organizationa! constraints that the people in it experience. For successful execution it is key to have all disciplines on board and interconnected!

Oftentimes, companies design an innovative business model, but do a poor job of constructing a compensation structure that is properly aligned with the model and its objectives.

success was likely a product of the current business model...

Andrew Jenkins, Canada

Jeffrey Murphy, United States

CURRENT

Bas van Oosterhout, Netherlands

FU G I

FEAR, THE MENTAL

Stephanie Diamond, United States

On an organizational level, the biggest obstacle for a large, successful company is a reluctance to risk doing anything that may jeopardize their current model. On aleader/personal level. their very

If it ain't broke,

don't fix it" thinking. Established companies stick to current ways of doing business until it is obvious that the customers want something else. 0/a Dogberg, Sweden

Howard Brown, United States

UNCERTAINTY

STRENGTH

The lack of candor and fear of deviating from the status quo sets in groupthink. Executives are comfortable with exploit phase and not 'explore' phase, which is unknown and hence risky.

of the people vested in the current business model. ..

Cheenu Srinivasan, Australia

A lack of entrepreneurship in the organization.

can be an obstacle. Risk management and due diligence color the perceived purpose of many boards. Where innovalion is assessed as a risk issue it's easy to relegate it to tokenism, especially within cultural institutions that tend not to have championing cultures. Here innovation often dies the death of a thousand cuts inflicted by entrenched critical business processes, instead of being placed front and center as the fuel for future strategy.

MODELS &GREED

of executives and the board.

In my experience as an Internet entrepreneur and investor, the biggest obstacles are lack of vision and bad governance. Without good vision and governance a company will miss the emerging industry paradigm and avoid reinventing the business model in time. Nicolas De So ntis, U.K.

Frontier Service Design, LLC, United States

Innovation is about taking risks, wisely. If there is no room for creative insights or if people can't think and act outside the boundaries of the existing model, don't even try to innovate: you will fail. Rolf de Groat Netherlands

SUCCESS

prevents companies from asking themselves how their business model could 195 be innovated. Organizational structures are not typically designed for new business models to emerge.

OF LEADERSHIP

Anne McCrossan, U.K.

The companies that are the most successful in continuously improving the efficiency of their current business model often get blinded by

"this is the way things are done in our business" and fail to see the emergence of innovative business models. Wouter von der Burg, Netherlands

Strategy

~ ~r_JJ

200

Business Model Environment

212

Evaluating Business Models

226

Business Model Perspective on Blue Ocean Strategy

232

Managing Multiple Business Models

BUSINESS MODEL ENVIRONMENT: CONTEXT, DESIGN DRIVERS, AND CONSTRAINTS

BUSINESS MODELS ARE DESIGNED AND EXECUTED IN SPECIFIC ENVIRONMENTS.

In the following pages, we describe the key external forces that influence

Developing a good understanding of your organization's environment helps

business models and categorize them using the four areas just mentioned.

you conceive stronger, more competitive business models.

The pharmaceutical industry, introduced in the previous chapter, is used to

Continuous environmental scanning is more important than ever

SUPPLIERS AN D 01;111 11 CHAIN ACTOR S

illustrate each external force. The pharma sector is likely to undergo substan-

because of the growing complexity of the economic landscape (e.g. net-

tial transformation in coming years, though it is unclear how the changes

<f)

worked business models), greater uncertainty (e.g. technology innovations)

will play out. Will biotechnology companies, which are currently copying the

;f_

and severe market disruptions (e.g. economic turmoil, disruptive new Value

pharmaceutical sector's blockbuster drug model, come up with new, disrup-

Propositions). Understanding changes in the environment helps you adapt

tive business models? Will technological change lead to transformation?

your model more effective ly to shifting external forces.

Will consumers and market demand force changes?

You may find it helpful to conceive of the external environment as a

We strongly advocate mapping your own business model environment

sort of "design space." By this we mean thinking of it as a context in which

and reflecting on what trends mean for the future of your enterprise. A good

to conceive or adapt your business model, taking into account a number

understanding of the environment will al low you to better evaluate the differ-

of design drivers (e.g. new customer needs, new technologies, etc.) and

ent directions in which your business model might evolve. You may also want

design constraints (e.g. regulatory trends, dominant competitors, etc.). This

to consider creating scenarios of future business model environments (see p.

environment should in no way limit your creativity or predefine your business

186). This can be a valuable tool for jumpstarting business model innovation

model. It should, however, influence your design choices and help you make

work or simply preparing your organization for the future.

more informed decisions. With a breakthrough business model, you may even become a shaper and transformer of this environment, and set new standards for your industry. To get a better grasp on your business model "design space," we suggest roughly mapping four main areas of your environment. These are (1) market forces, (2) industry forces, (3) key trends, and (4) macroeconomic forces. If you'd like to deepen your analysis of the landscape beyond the simple mapping we propose, each of these four areas is backed by a large body of literature and specific analytical tools.

STAKEHOLDERS

;;; >-

z.'( w

> ;::

COMPETITOR S (INCUMBENTS)

;::

0..

::;<

NEW ENTRANT

(INSURGENT S)

I SUBSTITUT E PR OWIII AND SERVI CES

·-FORES IGHT-

RAINTS REGULATORY TRENDS

SOCIETAL AND CULTURAL TRENDS

TECHNOLOGY TRENDS

SOCIOECONOMIC TRENDS

11111 1forces that influence 11 11roas ju st ment ioned.

Vltii iS chapter,

is used to

SUPPLIERS AND OTHER VALUE

lhuly to undergo substan-

CHAIN ACTORS

I </)

iii >;J_

STAKEHOLDERS

COMPETITORS

MARKET SEGMENTS

/' NEEDS AND DEMANDS

••

•

;::: ;:::

MARKET ISSUES

"m-; p

NEW ENTRANTS

(INSURGENTS)

-----·

(INCUMBENTS)

IIIOdel environment

I $

••

SUBSTITUTE PRODUCTS

•

••

SWITCHING COSTS

REVENUE ATTRACTIVENESS

AND SERVICES

model innovation

III II ... GLOBAL MARKET CONDITIONS

CAPITAL MARKETS

•

ECONOMIC INFRASTRUCTURE

COMMODITIES AND OTHER RESOURCES

-MACROECONOMICS-

'~< "'

nnaceuticallndustry Landscap

Main Qs •

MARKET ISSUES

Ident ifie s key issues driving and transforming your

What are the crucial issues affecting the custome r

market from Customer and Offer perspectives

landscape? Which shifts are underway? Where is

fytoc ket ing hea lthcare costs lltll)hasis shifting from treatment to pti iVIIIII

th e market hea ding?

l1 1111lments, dia gnostics, devi ces, and '1 11[ 1[111

11t1 converging lll il!r&ing markets becomi ng more lm[l111lr\1

------

,.e

- - ----

MARKET SEGMENTS

-----· - - - - - - - - - - - - - -

Identifie s the major market seg ments, describe s their

What are the most importan t Cu stomer Segments?

[liit: Lors and he althcare provi ders

attra ctiven ess, and seeks to spot new segments

Where is th e biggest growth potential? Which segm ent

ltiiVCrnments/regul ators

are declining? Wh ich peripheral segments deserve

lll•i lributors

attention?

l 1,ill cnts ;[t ong pote ntial in emerging market 11 1). remain s th e predominant glob altt lllli·ll

What do cust omers need? Where are t he biggest

' ;\ l ong, with dispersed ne ed for ni cho \111111

-------

·-.• NEEDS AND DEMANDS

Outlines market need s and analyzes how we ll th ey are served

MARKET ANALYSIS-

unsatisfied customer needs? What do customers really

II11Cd to manage exploding cost of hoii l\1 11

want to get done? Where is demand increasing?

l tll'fle, unsatisfi ed health care nee ds ill M i ll ~

Declining?

;itld developing cou ntries I onsumers are better informed

What bind s customers to a company and its offer?

Monopo ly on patent-protected dru f{l l ow sw itching costs for patent-explt oil ill I

-------- ·-•

Describes eleme nts rel ated to customers switching

SWITCHING COSTS

business to co mpetitors

What switching costs prevent customers from defect in to competitors? Is it easy for customers to fin d an d purchase similar offers? How important is brand? 1

------- -

e REVENUE

ATTRACTIVENESS

---

-- ·----- -

by generic versions ! trowing amount of quality i nfo rm o \ \1111 1 1 ~ I )oa ts wit h governments, large-scn ln i ll•tll htcrease switching costs

--Identifies elements related to revenu e attractiveness and pricing powe r

What are customers really willing to pay for? Where can the largest margins be ac hieved? Can customers easily find and purchase cheaper products and services?

---

11\gh margin s on patent-protected dill I ow ma rgin s on generic dru gs • 1\calthcare providers, governm on\+o 111\lt t

ove r prices Patients continue to hav e li tt le ln fil lllllil

WHAT WOULD A GREATER FOCUS ON EMERGING

l'h,mnaceuticallndustry Landscape II UH affecting the customer

• 111'0 underway? Where is

1:11 11111 t Customer Segments?

ljky rocketing healthcare costs

PROPOSI T ION ADD RESS

OTH ER BU I LDING BLOCKS

RESOURCES DO WE NEED

THE ISSUE OF EXPLODING

IN OUR MODEL?

TO DEVELOP OR ACQUIRE

HEALTH COSTS?

IN LIGHT OF THE ONGOING

l'reatments, diagnostics, devices, and support services

SH IFT FROM TREATMENT

11re converging I merging markets becoming more important

TO PREVENTION?

Gove rnments/regulators 1

MARKETS MEAN FOR THE

WHAT NEW KEY

l.mphasis shifting from treatment to prevention

l) oct ors and healthcare providers

IWih pot ential? Which segmonl ilphora l segments deserve

HOW CAN OUR VALUE

• Patients potential in emerging markets

1 1Jtrong 1

Dist ributors

lJ .S. remains the predominant global market

I~CS// CH

-·-.~-~~----~--

1l 1' W here are the biggest

ll y

'i trong, with dispersed need for niche treatments Need to manage exploding cost of health care I orge, unsatisfied health care needs in emerging markets

nnd developing countries Consumers are better informed ----~---~-~~--··----·

Monopoly on patent-protected drugs I ow switching costs for patent-expired drugs replaceable by generic versions 3ro wing amount of quality information available online

1H1 I low important is brand?

• l)cals with governments, large-scale healthcare providers Incre ase switching costs -~-~--~~-----~--~,..·-·-

ly will ing to pay for?

Wh ere cr111 lilllvod? Can customers easily

•II prod ucts and services?

• ll igh margins on patent-protected drugs 1

Low margins on generic drugs

llealthcare providers, governments enjoy growing influence

over prices Pat ients continue to have little influence over prices

,WHAT DOES THE CONVERGENCE OF TREATMEN T, DIAGNOSTICS, DEVICES, AND SUPPORT SERVICES

HOW CAN WE MAIN-

MEAN FOR OUR

TAIN EARNINGS WHILE

WHAT KIND OF NEW

KEY RESOURCES AND

AD DRESSING THE PUBLIC

REVENUE OPPORTUNIT IES

ACTIV ITIES?

STRUGGLE TO COPE W ITH

MIGHT BE CREATED BY

SKYROCKETING HEALTH -

THE SHIFT IN EMPHASIS

CARE COSTS?

FROM TREATMEN T TO PREVENTION?

Main Qs It\ COMPETITORS (INCUMBENTS)

Who are our compet itors? Who are the dominant

11t1Vcra llarge

relative strengths

players in our particu lar sector? What are their

Most players are struggling with empty prm \1111

compet iti ve advantages or disadvantages? Describe

pi pelines and low R&D productivity l1 10wing trend toward consol id ation th rOUHi lll ll

focusing on? W hat is their Cost Stru ct ure? How mu ch influence do they exert on our Custo mer Segments,

·:· + ......

--·--

industry Landscap<'

Identifies in cumbent compet itors and their

their main offers. W hi ch Customer Segments are th ey

1> -mnr~ccuticai

and medium size pl ayers co n1p11l1

1111U acquisition s Mnjor players acquire biotech, spec ialty clill ll d1

Revenue Streams, and margin s?

In 111 1prod uct pipelin e '•twcra l players starting to build on open li 11111Vnl li

-·---

NEW ENTRANTS

Identifies new, insurgent players and determ ines wheth er

W ho are the new entra nts in your market? How

l il li e disruption of the pharmaceuti ca l lndiiHII V

(INSURGENTS)

they co mp ete with a business model different from yours

are th ey different? What competitive adva ntages or disadvantages do they have7 Which barri ers must they

l1i'J t deca de Moln new entrants are generi c drug comp111111

overco me? What are their Va lu e Propos itions? Which

\i () m India

Customer Segments are they foc used on? W hat is theli Cost Structure? To what extent do t hey influ ence yo ur

•

-------SUBSTITUTE PRODUCTS AND SERVICES

204

Describes potential sub stitutes for yo ur offe rs-including those from other markets and indust ri es

Customer Segment s, Revenue Streams, and margin s? Whic h prod uct s or services co uld replace ours? How

loa certa in extent, prevention represe nl !li l ~ Il l

much do they cost co mpa red to ours? How easy it is fo1 custome rs to switc h to these subst itutes? What businc•,

\m treatment i'n l ent-expired drugs replaced by low-coul lil'il

model traditions do these substitute prod ucts stem fr0111 (e.g. high-speed trains versus airplanes, mobile phon es versus cameras, Skype vers us lon g- distance telephon e companies)?

-COMPET ITIVE ANALYSIS-·

•

SUPPLIERS AND OTHER

Describes t he key va lu e chain in cu mb ents in you r market

W ho are the key players in your indu stry value ch ai n?

VALUE CHAIN ACTORS

and spots new, emerging pl ayers

To what extent does yo ur business mode l depend

• Increasing use of research contractors \llotech firms and specialty dru g devo\op111

on ot her players? Are peripheral players emerging? Wh ich are mo st profitable?

new product generators Uoctors and hea lthca re providers

Insurance com pani es 1\loinformatics providers growin g in impllll illl•

l obo ratories

STAKEHOLDERS

--------

Specifi es which actors may influ ence your organization

Wh ich stakeholders might influence your business

'ihareho lder pressure forces drug compiilli

and business model

model? How influential are shareholders? Workers? The government? Lobbyist s?

on short term (quarterly) finan cial rou u\1 Gove rnments/regulators have a stron B ~ \ I ll· I

r pharmaceuti cal compan ies beca use ol \111

In hea lthcare services" • I obbyists, soci al enterprise groups aml/ol \11• particularly those pursuing agend as su<l1 11 1

treatment s for deve loping countri es Scientists, who represent the co re talolll 11ll ma nufacturing indu stry

1Jh•m'12!ceuticallndustry Landscape 7 Who are the dominant ctor? What are their r di sa dvantages? Describe l ilt h Customer Segments are they I ~ lliolr Cost Structure? How much 111 I on our Customer Segments, IIIIi lllDrgin s?

ve rallarge and medium size players compete in pharma • Most players are struggling with empty product pipe lines and low R&D productivity rowing trend toward consolidation through mergers

l111y l1nve? Wh ich barriers must they 111 IIIUir Va lue Propositions? Which 11 u lhey focused on? What is their

PROPOSITION CHANGE TO

WHICH PART OF THE

• Major players acquire biotech, specialty drug developers

FOR WHICH PARTS OF

ACCOMMODATE SHIFTS IN

PHARMA INDUSTRY

lo fill product pipeline • ~e ve ral players starting to build on open innovation processes

THE INDUSTRY VALUE

THE INDUSTRY (E.G. THE

OFFERS THE GREATEST

CHAIN SHOULD KEY

GROWING IMPORTANCE

EARNINGS POTENTIAL?

PARTNERSHIPS BE BUILT

OF BIOTECH FIRMS)?

tllt iltlts in your market? How W IHll competitive advantages or

MUST THE VALUE

ond acquisitions

Little disruption of the pharmaceutical industry over t he

AS OPPOSED TO DEVELOP-

last decade Main new entrants are generic drug companies, particularly

ACTIVITIES IN-HOUSE?

ING KEY RESOURCES AND

from India

Wlilll ex tent do they influence your , l~ovc nue Streams, and margins?

··----

111 vices co uld replace ours? How

' 111tlf'>nred to ours? How easy it is for 'ltlo lhcse substitutes? What busin es

11111'>0 substitute products stem front

KP -· - - - - - - - - - - - - - • To a certain extent, prevention represents a substitution for treatment • Pa tent-exp ired drugs replaced by low-cost generics

I KA

KR \\,~~~~~~ .

111 1versus long-distance telephone

''-,,

........

C$ yo ur business model depend 1n porlphera l players emerging? tlllnb le?

Biotech firms and specialty drug developers as important new product generators Doctors and healthcare providers Insurance companies Laboratories

II Itil nre shareho lders? Workers? ttli llylsts?

Shareholder pressure forces drug companies to focus on short term (quarterly) financial results Governments/regulators have a strong stake in the actions of pharmaceutical companies because of their pivotal role in healthcare services Lobby ists, social enterprise groups and/or foundations, particularly those pursuing agendas such as low-cost treatments for developing countries Scientists, w ho represent the core talent of t he drug manufacturing industry

····..fR$

·······......

Increasing use of research contractors

Bioinformatics providers growing in importance II light influence your business

Ill' ve rsus airplanes, mobile phones

lVIII 'l In yo ur industry value chain?

/ ICR

r COULD SUPPLIERS

'·-------------------------------------,,,

SUCH AS RESEARCH CONTRACTORS TURN INTO COMPETITORS?

IS IT NECESSARY TO ACQUIRE SMALLER

~----~ WHICH OF THE KEY

FIRMS TO FILL PRODUCT

RESOURCES EMERGING

PIPELINES?

AMONG NEW ACTORS IN THE VALUE CHAIN NEED TO BE DEVELOPED IN-HOUSE (E.G. BIOINFORMATICS)?

Main Qs /,. TEC HN OLOGY T RENDS

Identifies technology trends that could threaten your business model-or enable it to evolve or improve

''"nnaceuticallndustry Landscap1

outside your market? Which technologies represent

\1 110rgence of pharmacogenomics, decllnlllfi tu• oquencing, and the immenent ri se of porSOIIIIII

important opportunities or disruptive threats? Which emerging technologies are peripheral customers adoptiiiH

Mojor advances in diagnostics ll•lC of pervasive computing and nanotoci1111tl tt

What are the major technology trends both inside an d

Inj ect ion/delivery of drugs -~---------

_.e

REGULATORY T RENDS

Describes regulations and regulatory trends that influence your business model

1\oterogeneous global regulatory land SCII!III Iil

Which regulatory trends influence your market? What

1 outica l industry Mo ny countries prohibit drug companl m, 11 1111 1

rules may affect your business model? Which regul ati OII and taxes affect customer demand?

directly to consumers Hogulatory agency pressure to publish dii\11 111 l'llnica l trials ,._. SOCIETAL AND CULTURAL T REND S

Identifies major societal trends that may influence your business model

tc nerally unfavorable image of big druK 11 111l·1

Describe key societal trends. Which shifts in cultural or societal values affect your busin ess model? Which trend

(j rowing social consciousness am on g C O II ~ I I i l

usto mers increasingly consciou s ol l{lr.>l lltl

might influence buyer behavior?

-FORESIGHT-

''' 'sta inability issues, prefer "green" purd ltl ~t ustomers are better inform ed about dt'il fi Ill l11 developing countries (e.g. H IV/A IDS dil l

SOC IOECONO M IC TRENDS

Outlines major socioeconomic trends relevant to your business model

1\ging society in many mature market Good but costly healthcare infra stru ctlll tl lll

What are the key demographic trends? How would

you characteri ze income and wealth distribution in your

market? How high are disposable incomes? Describe

• Ci rowing middle class in em erging morkHI Lorge, unsatisfied hea\thcare needs In diWIIIt

spending patterns in your market (e.g. housing, health care, entertainment, etc.). What portion of the popul ation lives in urban areas as opposed to rural settings?

HOW ARE CUSTOMERS

WHICH TECHNOLOGIES WHICH NEW KEY

dl•!r,lp ti ve threats? W hich Hlllphera l customers adopt/i 1•·

ll11 once yo ur market? Wh 1 1~ ·· model? Which regu latlo11

l11111and?

REACTI NG TO NEW TECH·

VALUE PROPOSITION

NOLOGICAL DEVELOP·

RESOURCES AND

COMPETITIVENESS IN

MENTS IN THE PHARMA·

ACTIVITIES WILL PROVE

THE EVOLVING PHARMA

CEUTICAL INDUSTRY?

I mergence of pharmacogenomics, declining cost of gene

ADVANTAGEOUS WHEN

LANDSCAPE?

•;cquencing, and the immenent rise of personal ized medicin e

PERSONALIZED DRUGS

Major advances in diagnostics

AND DIAGNOSTICS ARE

Use of pervasive computing and nanotechnology for the Injection/delivery of drugs

WIDE LY USED?

l'lwmaceuticallndustry landscape 1IHY trends both inside and '/1Iuchnologies represent

ARE LIKELY TO IMPROVE

Heterogeneous global regulatory landscape in the pharma· ceutical industry

Many countries prohibit drug companies from marketing

KA \ .\

! I~CS

directly to consumers • Regulatory agency pressure to publish data on un successfu l cl inical trials , W hich shifts in cultural 01

lll lt;lncss model? Which trend VIOl

Generally unfavorable image of big drug makers Grow ing soci al consc iousness amon g consumers Customers increasingl y consc ious of globa l warming,

sustainability issues, prefer "green" purchases

. ...,

Customers are better informed about drug maker activity

' ,,

in developing countries (e.g. HIV/AIDS drugs)

' ,, _

' ,,

11lil< trends? How would

1 I woa lth distribution in your 1 ~1 1/Ji c incomes? Describe

iM! kot (e.g. housing, health -

lint portion of the popu la-

1 /lfJOScd to rural settings?

Aging soc iety in many mature markets Good but cost ly healthcare infrastructure in mature markets Growing middle cla ss in emerging markets La rge, un satisfied healthcare needs in developing countries

' . ,,

WHICH PARTNERSHIPS

' . ,, ' •,,,

WILL BECOME ESSENTIAL WHEN PHARMACOGE·

',,

' . .......,

NOMICS IS AN INTEGRAL

HOW WILL TECHNOLOGY

PART OF THE INDUSTRY

SUCH AS PHARMACOGE·

DO ADVANCES IN

NOMICS, PERVASIVE

PHARMACOGENOMICS,

LANDSCAPE?

COMPUTING, AND NANO ·

DIAGNOSTICS, PERVASIVE

TECHNOLOGY AFFECT THE

COMPUTING, OR NANO-

COST STRUCTURE OF A

TECHNOLOGY OFFER NEW

DRUG MAKER'S BUSINESS

REVENUE OPPORT UNITIES?

MODEL?

lwmaceuticallndustry Landscllp

Ma in Qs .• GLOBAL MARKET CONDITIONS

Is the economy in a boom or bust phase? Describe general market sentiment. What is the GDP growth rat

How high is the unemployment rate?

1 1

·:·

Outlin es current overa ll conditions from a macroeconomic perspective

'dower growth rates in China and lndl ll1tcertainty as to when recovery wi ll CCCIII

--------

CAPITAL MARKETS

Describes current capital market condit ions as t hey

What is the state of the capita l markets? How easy is

relate to your capital needs

it to obtain funding in your particular market? Is seed

li ght capital markets • t' redit availabi lity restricted due t o banklttH 11

capital, venture ca pital, public funding, market capital , 01

littl e ve nture capital available \{\sk capital avai lability extremely li mited

1'\crce "battles" for prime talent I mployees seek to join pharm aceuti ca l ! ott l\11

208

l ,lobal recession Negative GDP growth in Europe, Japan, 01\1 111 11

credit read il y available? How costly is it to procure fun dr• --

8 COMMODITIES AND OTHER RESOURCES

High lights current prices and price trends for resources

Describe the current status of markets for commodi-

required for your business model

ties and other resources essentia l to your business (e.g. oil prices and labor costs). How easy is it to obtain the resources needed to execute your business model (e.g. attract prime talent)? How cost ly are they?

-MACROECONOMICS -

---~

.....

_.__

.• ECONOMIC INFRASTRUCTURE

with positive public image Commodity prices rising from recent low l)cma nd for natural resources likely to pli

I Ill

Where are prices headed?

onomic recovery il prices continue to fluctuate

Describes the economic infrastructure of the market

How good is the (public) infrastructure in your market?

pecific to the region in which a compliiiY 11\1\

in which your business operates

How would you characterize transportat ion, trade, school

-- -------·------- - -------

quality, and access to suppli ers and customers? How high are individu al and corporate taxes? How good are public serv ices for organizations? How would you rate the qual ity of life?

DOES THE INFRASTRUC-

h ~~rtr"Keuticalindustry

TURE AND TRADE ENVI-

landscape

RONMENT ADEQUATELY

111boom or bust phase? Describe 11 l lment. W hat is the GDP gro wth rai1 11' 1111 \lllployment rate?

f ilnbal recession

Nogative GDP growth in Europe, Japa n, and the United States dower growth rates in China and India lln certainty as to whe n recovery w ill occur

SUPPORT CHANN ELS?

DOES THE ECONOMIC INFRASTRU CTURE ADEQUATELY SUPPORT KEY ACTIV ITIES?

·=·

-ca pita l markets? How easy is 111 In yo ur particular market? Is seed iljllitl l, public funding, market capital, 111 llnhlo? How costly is it to procure fund

I IHht capita l markets ( ICdit avail ab ility rest ri cted due to ba nking crisis I II. li e vent ure capital available

KA \.,\

_DJ"'

l ~ l ~ k cap ita l ava il ability extremel y limi ted

liliD"

---·-----11111 stat us of markets for commod i-

III II CCS essential to yo ur business l l11 bor costs). How easy is it t o obtal11

li11il to execute you r business model I ll lont)? How costly are they? l11 11 1ded?

• l lcrce "battles" for prim e tal ent

I mployees seek to join pharmaceutical compan ies with posit ive public im age mmodity prices ris ing from recent lows llcmand for natural reso urces li ke ly to pick up w ith

oconomic recovery Oil prices continu e to fluctuate

-jll lhli c) infrastructure in your market? IIII IIC ter ize transportat ion, trade, sch ool

',\\

'pec ific to the region in which a company operates DO UNIVERSITIES AND

IIIIU corporate ta xes? How good are lllkM izat ions? How would yo u rate

OTHER EDUCATIONAL INST ITUTIONS FURNISH A SUFFICIENT AMOUNT OF QUALIFIED TALENT?

\, , _ _··.. \------~ HOW WILL LOCAL AND NATIONA L TAXES AFFECT THE BUSINESS M ODEL?

209

A comp et iti ve busines s model th at makes se nse in toda y's environment might be outd at ed or even obsolet e tomorrow. W e all have to improve

••• •

...+

HOW SHOULD YOUR BUSINESS MODEL EVOLVE IN LIGHT OF A CHANGING ENVIRONMENT?

our understanding of a model's environment and how it might evo lve . Of co urse we can 't be certain about the future, because of th e complexities, uncertainties, and potential disrupt ions inherent in t he evolving business environm ent. W e can, however, develop a number of hypotheses about the future to se rve as gu idelines for designing t omorrow's busin ess models. Assum ptions about how market forces, industry fo rces, key trend s, and macroeconomic forces unfold give us t he "d esign space" to develop potential

~' ~t~"-I"' I ~

[

c, -,

---,"~}

ill

business model option s or prot otypes (seep. 160 ) for the future. The role of bu siness model scenarios (seep. 186) in forecasting should also be evident by now. Painting pictures of th e future makes it much easier t o generate potent ial business models. Depending on your own crite ria (e.g. acceptable level of risk, growth potenti al sought, etc. ) yo u may then select one opti on over anoth er.

-PRESENT ENVIIHI,MII

---

I III(.J ay's environment •ill hove to improve IW II might evo lve. l ltlll of the co mplexities, I l11 1ovo lving business

I l1ypolheses about th e 1

'1 business models.

......

Option< ~

~ Time

1 II' •, key trends, and

·:·

-11 11" lo deve lop potential

11 lho future . The role

IIH •,hould also be evil IIIIt h ea sier

to generate

111orla (e.g. acceptable 111011 select one option

-PRESENT ENVIRONMENT-

PROJECTED ENVIRONMENT-

+ 211

EVALUATING BUSINESS MODELS

-' <i

LIKE SEEING THE DOCTOR FOR AN ANNUAl EXAM, REGUlARlY ASSESSING

a business model is an important management activity that allows an

11'>:路

-+111Mi!i

"'r-

u.l

organization to evaluate the health of its market position and adapt accordingly. This checkup may become the basis for incremental business model improvements, or it might trigger a serious intervention in the form of a business model innovation initiative. As the automobile, newspaper, and music industries have shown, failing to conduct regular checkups may prevent early detection of business model problems, and may even lead to a company's demise. In the previous chapter on the business models environment (see p. 200), we eva luated the influence of external forces. In this chapter, we adopt the point of view of an existing business model and analyze external forces from the inside out. Th e fo ll owing pages outline two types of assessment. First, we provide a big picture assessment of Amazon.com's online retailing model circa 2005 and describe how the company has built strategically on that model since. Second, we provide a set of checklists for assessing yo ur business model's strengths, weaknesses, opportunities, and threats (SWOT) and to help you evaluate each Building Block. Keep in mind that assess ing a busin ess model from a big picture perspective and assessing it from a Building Block perspective are complementary activities. A weakness in one Building Block, for exa mple, may have consequences for one or severa l other Building Blocks-or for the entire model. Business model assessment, therefore, alternates between individual elements and overa ll integrity.

"'r-w z

< m

::'

"0 =< < m

-INTERNAL-

-EXTERNAL-

BIG PICTURE ASSESSMENT: AMAZON.COM

FULFILLMENT IT INFRASTRUCTURE & SOFTWARE DEVELOPMENT & MAINTENANCE

LOGISTICS PARTNERS

IT INFRASTRUCTURE & SOFTWARE

AFFILIATES GLOBAL FULFILLMENT INFRASTRUCTURE

214

o"'• olt

1 ipportunities Amazon.com explored Ill Jl

Amazon.com's main strengths and weaknesses in 2005:

MARKETING TECHNOLOGY & CONTENT FULFILLMENT

KA ..······ .~··

FULFIL LM ON'I

CUSTOMIZED ONLINE PROFILES & RECOMMENDATION S GLOBAL CONSUMER MARKET (NORTH AMERICA, EUROPE, ASIA)

CH AMAZON.COM (&OVERSEAS SITES)

IT INFRASTRU C, lilt I & SOFTWAIH DEVELOPMI N I & MAINT ENAN I I

/ •'

•'

IT INFRASTRU C'III III & SOFTW/110

AFFILIATES

SALES MARGIN

LOGISTICS PARTN ERS

GLOBAl FULFILLM IIN I INFRASTRU C1'1110

MARKETIN G TECHNOLOGY & CON1'1 1, N I FULFILLM ENT

- j

Amazon.com provides a powerful illustration of implementing business model innova-

com recorded sales of $8.5 billion in 2005 with a net margin of only 4.2 percent. At th11

ill ) 006 Amazon.com focused on twCJ IIIIW

tion based on an analysis of strengths and weaknesses. We've already described why it

time, Google enjoyed a net margin of 23.9 percent on sales of $6.1 billion while eBay

tr ll lllts and which promised to powcr hill y 1

made sense for Amazon .com to launch a series of new service offers under the moniker

achieved a net margin of 23.7 percent on sales of $4.6 billion .

Wi l'• a service called Fulfillment by Alllll/ 1111

Amazon Web Services (seep. 176). Now let's examine how those new offers launched in 2006 related to Amazon.com's strengths and weaknesses the previous year. Assessing the strengths and weaknesses of Amazon.com's business model circa

2005 reveals an enormous strength and a dangerous weakness. Amazon.com's

Looking to the future, founder Jeff Bezos and his management team took a two-

Wob Services. Both initiatives built 011llit11

pronged approach to building on Amazon.com's business model. First, they aimed to

Hid Web IT expertise-and both adcl11

grow the online retail business through a continuing focus on customer satisfaction

llll i latives promised higher margin s l1 11 11111

and efficient fulfillment. Second, they began growth initiatives in new areas. Manage-

strength was its extraordinary customer reach and huge selection of products for sa le.

ment was clear on the requirements for these new initiatives. They had to (1) target

The company's main costs lay in the activities in wh ich it excelled, namely fulfillment

underserved markets, (2) be sca lable w ith potential for sign ificant growth, and (3)

Fulfil lment by Amazon allow s lndl vl ilil

II ilflllment infrastructure for their OWIIirll'li I ores a seller's inventory in its warol11111 ~1

($745 million, or 46.3 percent of operating expenses) and technology and content

leverage existing Amazon.com capabil ities to bring strong customer-facing differentia-

lwhalf w hen an order is received . Solltll • 1

($451 million, or 28.1 percent of operating expenses). The key weakness of Amazon.

tion to that marketplace.

I IIIiS, or a combination of both.

com's business model was weak margins, the result of selling primari ly low-value, lowmargin products such as books, music CDs, and DVDs. As an online retailer, Amazon.

Amazon Web Services targets l;OII W111 porformance server capability by o ll whl~

TWO TOTALLY NEW

i lpportunities Amazon.com explored in 2006:

SYNERGIES IN THE USE

CUSTOMER SEGMENTS WHICH

OF ACTIVITIES AND

ARE UNDERSERVED AS TO THE

RESOURCES

PROPOSED OFFER

I FOR NEW OFFERS

.---?

~~~·~-~?·

~~~~

KA .-------------------·rvP

--------

GLOBAL CONSUMER MARKET (NORTH AMERICA, EUROPE, ASIA)

A MAZON .COM OVERSEAS SITES)

INFRASTRUCTURE & SOFTWARE DEVELOPMENT & MAINTENANCE/

LOGISTIC S PARTNERS

IT INFRASTRUCTURE & SOFTWARE

./.oNLINE RETAIL SHOP

AMAZON WEB SERVICES: 53, EC2, SQS, OTHER WEB SERVICES

MARKETING TECHNOLOGY & CONTENT FULFILLMENT

GLOBAL CONSUMER MARKET (NORTH AMERICA, EUROPE, ASIA)

II:,,

DEVELOPERS & COMPANIES

INDIVIDUALS & COMPANIES THAT NEED FULFILLMENT

AMAZON.COM (&COUNTRIES)

NEW REVENUE STREAMS WITH HIGHER MARGINS THAN RETAIL

GLOBAL FULFILLMENT INFRASTRUCTURE

CUSTOMIZED ONLINE PROFILES & RECOMMENDATIONS

FULFILLMENT BY AMAZON

AFFILIATES

SALES MARGIN

71(5

FULFILLMENT

AFFILIATES

A Pis

.. ------------------··

SALES MARGIN

____ .

------

UTILITY COMPUTING FEES FULFILLMENT HANDLING FEES

1 1 Willi 11

net margin of only 4.2 percent. At th n

litll llllll on sales of $6.1 billion while eBay lli!tl ol $4.6 billion. 11~ 1111d his management team took a two-

Ill 2006 Amazon.com focused on two new initiatives that satisfied the above require-

Amazon Simple Storage Systems (Amazon 53) allows developers to use Amazon.com's

1110nts and which promised to powerfully extend the existing business model. The first

massive data center infrastructure for their own data storage needs. Similarly, Amazon

wns a service called Fulfillment by Amazon, and the second was a series of new Amazon

Elastic Compute Cloud (EC2), allows developers to "rent" servers on which to run

Web Services. Both initiatives built on the company's core strengths-order fulfillment

their own applications. Thanks to its deep expertise and unprecedented experience

1111d Web IT expertise-and both addressed underserved markets. What's more, both

scaling an online shopping site, the company can offer both at cutthroat prices, yet still

Ini ti atives promised higher margins than the company's core online retailing business.

earn higher margins compared to its online retail operations.

11111 11'1 bliSiness model. First, they aimed to lllllllll iilng focus on customer satisfaction Ill loll ow l h initiatives in new areas. Managell 111•11 now initiatives. They had to (1) target IIi pil l i111llal for sign ificant growth, and (3) lii liilllH strong customer-facing differentia·

Fulfillment by Amazon allows individuals and companies to use Amazon.com's

Investors and investment analysts were initially skeptical about these new long-term

l1 il fillment infrastructure for their own businesses in exchange for a fee. Amazon.com

growth strategies. Unconvinced that the diversification made sense, they contested

1l ores a seller's inventory in its warehouses, then picks, packs, and ships on the seller's

Amazon.com's investments in even more IT infrastructure. Eventually,

llohalf when an order is received. Sellers can sell through Amazon.com, their own Chan-

overcame their skepticism. Nonetheless, the true returns from this long-term strategy

11ols, or a combination of both.

may not be known for severa l more years-and after even more investment

Amazon Web Services targets software developers and any party requiring highperforma nce server capability by offering on-demand storage and computing capacity.

in the new business model.

Amaz~n.com

!110 Proposit ion Assessment

DETAILED SWOT ASSESSMENT OF EACH BUILDING BLOCK

·r-,

~1 :;;

______

Our Valu e Propwiii\P aligned wit h Cllll l lll!l

"'~

Our Valu e Propo ~ \111

network effect

t:. z :;;"' 2 ~

--~-

----There are str0 1111 •VI our produ cts 111 1!1 _,

-------· Our cu st om el 'l 111 1

The following pages contain non-exhaustive sets of questions to help

Assessing your business model's overall integrity is crucial, but looking at its components in detail can also reveal interesting paths to innovation and

you assess the strengths and weaknesses of each of your business model

renewal. An effective way to do this is to combine classic strengths, weak-

Building Blocks. Each set can help jumpstart your own assessments. Results

nesses, opportunities, and threats (SWOT) analysis with the Business Model

from this exercise can become the foundation for business model change

Canvas. SWOT analysis provides four perspectives from which to assess the

I IJ"t/Revenue Assessment

and innovation in your organization.

>·

the focus necessary for a structured discussion.

"'~

Our Revenu e 'ill

tion concerning which aspects of an organization to analyze. A lack of useful

"'"'

diversifi ed

Our Revenuo ~ \I I

sustainab le

managers. When combined with the Business Model Canvas, though, SWOT

W e co ll ecl 1(\VM I\1 we in cur

enables a focused assessment and evaluation of an organization's business

-----

W e charge lo1

Our pricl nf\ 11 1111 1

"'f-w UJ

full w illi n P: I1 U~• I 1

-HELPFUL·-

--HARMFUL---

!j}

each of its nine Building Blocks. This type of SWOT analysis provides a good

Our co st s nl tl \111

. .

ask these four questions with respect to both the overall business model and

are rea ll y wl \1\11 ~

and what potential threats does it face?-assess your organization's posi-

(strengths and opportunities) and two address harmful areas. It is useful to

eX fl( \1 \ ~ 1

<r z

nally. The second two-what opportunities does your organization have

tion within its environment. Of these four questions, two look at helpful areas

purch ases

;;(

SWOT asks four big, simple questions. The first two-what are your

Stream s and 11111\11

2 -------

can lead to vague discussions because its very openness offers little direc-

organization's strength and weaknesses?-assess your organization inter-

We have recun\11

'"z:

ties and threats. It is an attractive tool because of its simplicity, yet its use

model and its Building Blocks.

What are your business model's . ..

an organization's strengths and weaknesses and identify potential opportuni-

outcomes may result, which has lead to a certain SWOT-fatigue among

-----

Our revenu e!; 11111 I'

elements of a business model, while the Business Model Canvas provides

SWOT analysis is familiar to many businesspeople. It is used to analyze

We benefit fro111 -~--

Our Cost S\11 11 II matched to 0111 Our operol\111 1

basis for further discussions, decision-making, and ultimately innovation around business models.

W e benc fl\! 11111

Vn lue Proposition Assessment

tit~

I i '"

Our Value Propositions are well

>:2

Our Val ue Propositi ons have strong

0 ,_.

network effect s

j ( +\ l

100®0® ----00®0® 00®0® 00®0®

li ' \ '

aligned with customer needs

---

Our Va lue Propositions have no network effects

Th ere are strong synergies between our products and services Our customers are very satisfied

sments. Results

Our Value Propositions and customer needs are misaligned

Th ere are no synergies between our products and services We ha ve frequent complaints

t/Revenue Assessment

model change

00®0® 00®0® 00®0®

We benefit from strong margins Our reve nues are predictable We have recurring Revenue Streams and frequent repeat

Our margins are poor Our re ve nues are unpredictabl e Our revenues are transact ional w it h few repeat purchases

purchases Our Revenue Streams are

Our Revenue Streams are

00®0® --00®0® '00®0® - - - - - - - - - - - - - - - - -·-· 00®0® 00®0® 00®0® 00®0® 00®0® -----00®0® We depend on a single Revenue

diversified

Stream

susta inable

Our revenue susta inability is questionable

We co ll ect revenues before

...,,,r

we incur expenses We charge for w hat custome rs are really wil ling to pay for Our pricing mechan isms capture full w illingness to pay IIAIIMFUI.-

!jj

Our costs are predictable Our Cost Structure is correctly matched to our business model Our operations are cost-effici ent We benefit from economies of sca le

We incur high costs before we

collect revenues

We fail to charge for things

customers are willing to pay for Our pricing mec hani sms leave

money on the ta ble

Our costs are unpredictable

Our Cost Structure and business model are poorly matched

Our operations are cost-inefficient We enjoy no economies of scale

11• \omer Interface Assessm ent

Infrastructure Assessment

Our Key Resources are difficult for

competitors to rep li cate

Resource needs are predictable

!--:;;

'"uz

We deploy Key Resources in the

I r_ } ' ~. . .

"'0

right amount at the right time

( :~)

)( l '

----

0 >----

"t;_) r

i -

·~1

it::

' <

We efficiently execute Key Activities Our Key Activities are difficult to copy

·-:::: ( 4 \ ( \ (c \ -!.J \. ) . ./ . . . ) \_~

Execution quality is high

Balance of in-house versus

/-1.,..-:.t~:

--,)I

[

1 ';

(

outsourced exec ution is ideal

We are focu sed and work with partners w hen necessary We enjoy good working relationships with Key Partners

(

\ (

\ ,-) 1

~,) ( ~ ~ (_

1\.))

00®0® 00®0® --00®0® 100®0® 100®0® 00®0® j00®0® 00®0® 00®0®

Our Key Resources are easily replicated Resource needs are unpredictable

··-We have trouble deploying the

Our Key Activities are easily

We execute too many or too few activities ourselves

w u

~~ ,10

Key Activity execution is inefficient

Execution quality is low

:i---

right resources at the right time

copied

Customer cl1111II I

Custom er b11

We are co nl lilllll new custO ii \1 11

Our Ch a n n u l ~ 11r

----

Our Ch a nn u l ~ 11\

--- --Chann el r0111 11I customer

--Customer'! 11111 Channel

------

Chann els 1111

sufficientl y with partners

----Channels 111 11V

Working relationships with Key

----

We are unfocused and fail to work

of scop

Partners are conflict-ridden

--··-- - - - - - -

Rel ationiililp I mat chan ( 11

---- --

RelatiOIIIili \\1 throuP.Ii lil f;il Our brnnd I

II Kay Reso urces are easily 1/lrn ted tltlrce needs are unpredictable

-- ~ /~ , \I'~'\ '·-'")

Customer churn rate s are low

Customer base is we ll segmented

/, \ ( 1 ( d /.

We are continuously acquiring

1111ve tro uble deploying the

[~ j (~..., (

I, _.

- J'

1.,

_____

:;!/) \I

; i -./ \,

Our Channels are very efficient

We are failing to acquire new

•t

"-(!!) ')'-\' ~r ' :::> I

Our Channels are very effective

- ~·

•

--~·

Channel reach is strong among

Our Channels are inefficient

\ .. _ /

Our Channels are ineffective

'l(t1.l( .~~)~(

illld tt lllon quality is low

(r·) (-:_, \ r:.;,·~

(;) ( l

Channel reach among prospects

is weak

customers

----

~ (

Customers can easily see our Channels

Channels are strongl y integrated

( <:, \ '

Channels provide economies

( s " 4 \(;) 12 d

) i (.

."1 )

' -t

I \

u.', ( ' .. '~, \ ( -

Channels are poorly integrated

I@@ @ @) ®

/'s •(" ); 1/ (?' 1-

Customer Segments

Strong Cu stomer Relationships

lc.'

/ 1 \ / ) 1 ( ) ) '" ,-- \ ,:J' -

~-')('

--Relationship qua lity correctly

~ <)

,-· \ IJ' I

)

~,J\_,_,

(

...

matches Customer Segments Relationships bind customers through high switching costs Our brand is strong

Prospects fail to notice our Channels

of scope Channels are we ll matched to

Customer churn rates are high

customers

---

1 Koy Act ivities are easily

00®0® ------00®0® j00®0® 00®0® 00®0® 00®0® 00®0® --00®0®

Customer base is unsegmented

new customers

ltli OSources at the right time

y Ac tivity execution is inefficient

,....-

IIHtomer Interface Assessment

/ '"

'\ I ~-- '1.

{ r. ) \ l1_ J \ -~

~~) l~

-- - - - ) (- 1 ', '

-~ I ( ' )

00@0® 00®0® 00®0® 00®0® -----00®0®

Ch'"oel;pm,ide coecoooml" of scope Channels are poorly matched to Customer Segments Weak Customer Relationships Relationship quality is poorly matched to Customer Segments Customers switching costs are low

Our brand is wea k

ASSESSING THREATS

We've described how business models are situated within specific environments, and shown how externa l forces such as competition, the legal environment, or technology innovation can influence or threaten a business model (see p. 200). In this section we look at threats specific to each business model Building Block, and provide a non-exhaustive set of questions

liilrostructure Threats

Value Proposition Threats

Are substitute products and services available? Are competitors threatening to offer better price or va lue?

00®0((•) 00®0Q·J

to help you think about ways to address each threat.

competitors? By technology? Do we depend excessively on one or more Revenue Streams? Which Revenue Streams are likely

m ~

to disappear in the future? Which costs threaten to beco me unpredictable? Wh ich costs threaten to grow more quickly than the revenues they support?

00®0G) 00®0(]) 00®0® 00®0® 00®0®

supp ly of certain reso~II'C:tl ~r' Is the quality of our rcSO lll 1 1 threatened in any way?

J;L

Cost/Revenue Threats Are our margins threatened by

18-

Could we face a di sru ptlrll\1111

What Key Activiti es mlfllll be disrupted? Is the quality of our acllvll lt11 threatened in any way?

Are we in danger of loSI IIP. 1111 partners?

Might our partn ers co li niH 11111 with competitors?

Are we too depend ent Oll lltl partners?

l11frastru cture T hreats

00®0® 00®0® 00®0® ·---- - - - - - - - - - - - ---- --------------00®0® 00®0® 00®0® -----------00®0® Could we face a disruption in the supply of certain resources?

---------------- ··----------Is th e quality of our resources

Customer Interface Threat s Could our market be saturated

soon? Are competitors threatening our market share?

threatened in any way?

( 1) (/) (3) (-1)(1·)

c1) c~) ® (11) (!.)

hL ~

What Key Activities might

How likely are customers

be disrupted?

to defect? ---------

Is the qua lity of our activities

How quickly will competition

threatened in any way?

in our market intensify?

Are we in danger of losing any partners?

---------·

Might our partners collaborate

G0 c

with competitors?

----

Are we too dependent on certain partners?

Do competitors threaten our Channels? Are our Channels in danger of becoming irrelevant to customers? Are any of our Customer Relationships in danger of deteriorating?

00®0® 00®0® 00®0® - - - - - - - -·- 00®0® 00®0® 00®0® 00®0®

ASSESSING OPPORTUNITIES

Value Proposition Opportunities

Could we use less costl y r!l tl lll\11

Could we generate recurring revenues by converting products

to achieve the same result

into serv ices?

Which Key Resources co ultl\ 11 better sourced from parlnm" 1'

Could we better integrate our products or services?

As w ith threats, we can assess the opportunities that may lie wit hin each

ill>:

411

+ ......

Which additional customer needs

under-exploited?

cou ld we satisfy?

Do we have unused intollm 11 111\

What comp lements to or

property of value to ot h0111 l

business model Building Block. Here's a non-exhaustive set of questions

extensions of our Value Proposition

to help you think about opportunities that could emerge from each of the

are possible?

Building Blocks in your business model.

Which Key Resources ar

Could we standardi ze SO iliU \路 Activities?

What other jobs cou ld we do on

How could we improve ofl l< \1111

behalf of customers?

in general?

Would IT support boo sl o\1 \i \111

Cost/Revenue Opportunities

Are there outsourcing

Can we replace one-t ime transaction revenues w ith recurring

opportunities?

revenues?

Could greater collabora l l<lll wl l

What other elements would customers be will ing to pay for? Do we have cross-selling opportunities either internally or with partners? What other Revenue Streams could we add or create?

m ~

Can we increase prices? Where can we reduce costs?

'q)0 ~Q

partners help us focus 01111111

business? Are there cross- se ll in opportunities with par l 111 11

Could partner Ch ann cln l iM\II 1 better reach custom ern? Cou ld partners com ploll ltll\11 Value Proposition?

l11frastructure Opportunities (

I·!

Cou ld we use less costly resources to ach ieve the same resu lt? Which Key Resources could be better sourced from partners?

Could we better serve our customers through finer segmentation?

Could we standardize some Key

Could we find new complementary partner Channels?

Could we better align Channels with Customer Segments?

Could greater collaboration with }

Are there cross -selling opportunities with partners? Could partner Channels help us better reach customers? Could partners comp lement our Value Proposition?

::j

directly serving customers?

opportunities?

business?

,-iJ'

Could we increase margins by

·~_;

Are there outsourcing

partners help us focus on our core

Could we integrate our Channels

How could we improve efficiency in general? I

. . /=·

How could we improve channel

better?

l-?.)

efficiency or effectiveness?

Activit ies?

Would IT support boost efficiency?

Could we serve new Customer Segments?

under-exploited? Do we have unused intellectual

How can we benefit from a growing market?

Which Key Resources are

property of value to others?

Customer Interface Opportunities

Is there potential to improve customer follow-up? How could we tighten our relationships with customers? Could we improve personalization? How could we increase switching costs? Have we identified and "fired"

--·~

,"'·' ......~ - . \ f - ..

'--1__;, .. _

--')

,-I ..:::_/ \_ •-

I\~.

unprofitable customers? If not,

....... ~I

)

--'

why not? Do we need to automate some relationships?

':.\

/:.

,. A\

r;... __, J

USING SWOT ASSESSMENT ANALYSIS RESULTS TO DESIGN NEW BUSINESS MODEL OPTIONS

A structured SWOT assessment of your business model yields two results. It provides a snapshot of where you are now (strengths and weaknesses) and it suggests some future trajectories (opportunities and threats). This is valuable input that can help you design new business model options toward which your enterprise can evolve. SWOT analysis is thus a significant part of the process of designing both business model prototypes (see p.l 60) and, with luck, a new business model that you will eventually implement.

ÂŤlrt

BUSINESS MODEL PERSPECTIVE ON BLUE OCEAN STRATEGY

IN THIS SECTION WE BLEND OUR BUSINESS MODEL TOOLS WITH THE

To achieve value innovation, Kim and Mauborgne propose an analytical

Blue Ocean Strategy concept coined by Kim and Mauborgne in their

tool they call the Four Actions Framework. These four key questions

million-selling book of the same name. The Business Model Canvas is a

challenge an industry's strategic logic and established business model:

perfect extension of the analytical tools presented by Kim and Mauborgne. Together they provide a powerful framework for questioning incumbent business models and creating new, more competitive models. Blue Ocean Strategy is a potent method for questioning Value Proposi-

1. Which of the factors that the industry takes for granted should be eliminated? 2. Which factors should be reduced well below the industry standard?

tions and business models and exploring new Customer Segments. The

3. Which factors should be raised well above the industry standard?

Business Model Canvas complements Blue Ocean by providing a visual

4. Which factors should be created that the industry has never offered?

"big picture" that helps us understand how changing one part of a business model impacts other components.

In addition to value innovation, Kim and Mauborgne propose exploring

In a nutshell, Blue Ocean Strategy is about creating completely new

non-customer groups to create Blue Oceans and tap untouched markets.

industries through fundamental differentiation as opposed to competing in

Blending Kim and Mauborgne's value innovation concept and Four

existing industries by tweaking established models. Rather than outdoing

Actions Framework with the Business Model Canvas creates a powerful new

competitors in terms of traditional performance metrics, Kim and Mauborgne

tool. In the Business Model Canvas the right-hand side represents value

advocate creating new, uncontested market space through what the authors

creation and the left-hand side represents costs. This fits well with Kim and

call value innovation. This means increasing value for customers by creating

Mauborgne's value innovation logic of increasing value and reducing costs.

new benefits and services, while simultaneously reducing costs by eliminating less valuable features or services. Notice how this approach rejects the traditionally accepted trade-off between differentiation and lower cost.

VAlli! Ifill

1 po~ c

an analytical

.<II ·~

WHICH FACTORS CAN YOU

WHICH FACTORS SHOULD

ELIMINATE THAT YOUR INDUS-

BE RAISED WELL ABOVE THE

TRY HAS LONG COMPETED ON?

INDUSTRY'S STANDARD?

1y •,landard? •ilnndard7

.. + 227

IIIVO r offe red?

l lliJOSe exploring d markets .

-VALUE INNOVATION-

WHICH FACTORS SHOULD BE

REDUCED WELL BELOW THE

CREATED THAT THE INDUSTRY

INDUSTRY'S STANDARD?

HAS NEVER OFFERED?

-FOUR ACTIONS FRAMEWORK-

I inducing costs.

Source: Adapted from Blue Ocean Strategy.

.....__

BLENDING THE BLUE OCEAN STRATEGY FRAMEWORK WITH THE BUSINESS MODEL CANVAS

, mQuE Du soLEIL

1{1

KR Business Model Canvas

Value innovation

Blending approaches

228

(~ IARTISTIC.:eROOOCTIO N!

The Business Model Canvas consists of a right-hand

Blue Ocean Strategy is about simultaneous ly increasing

Blending Blue Ocean Strategy and the Business M od11l

lit pill du Soleil features prominently amOIIK 1111

va lue and customer-focused side, and a left-hand cost

va lue while reduc ing costs. This is achieved by identify-

Canvas lets you systematically analyze a business m od ~ l

IIII IIIHY exa mples. Next we apply the biOttd t' d

and infrastructure side, as descibed earlier (seep. 49).

ing which elements of the Value Proposition can be elimi-

innovation in its entirety. You can ask the Four Action â&#x20AC;˘,

Changing elements on the right-hand side has implica-

nated, reduced, raised, or newly created. The first goal

Framework questions (e liminate, create, reduce, rais

tions for the left-hand side. For example, if we add to

is to lower costs by reducing or eliminating less va luable

about each business model Building Block and imme

or el iminate parts of the Value Proposition, Channels,

features or services. The second goal is to enhance or

diately recognize implications for the other parts of till

or Customer Relationship Building Blocks, this wil l

create high-value features or services that do not signifi-

business model, (e.g. what are the implications for Ill

have immediate implications for Resources, Activities,

cant ly increase the cost base.

cost side w hen we make changes on th e value sid e

Partnerships, and Costs.

and vice versa).

llt lll

and Business Model Canvas apprOIH II I

lttlilllttln g and highly successful Canadi Ottlt ll tt l l lrst, the Four Actions Framework show '' lit1 ll'llllcll "played" with the tradition al ciOttll illl li' lll tSiness Value Proposition. It eli mlt111illl l t tlllll l 'l,

such as animals and star perform 111~. wl

tllltll clements, such as rheme, artisti c tl l illll~ \11

IRQUE DU SOLEIL

ADDING THE ARTISTIC

KA 12fVELOPII!IE!i]

.. ......t=~.ft ..

t!UIIVlt::ll• ..wwf#.i!

IAI~IF CON<;iiS<;IONi

cs I

ELEMENT TO THE VALUE

ELIMINATING ANIMALS FROM

PROPOSITION CHANGES

THE SHOW SUBSTANTIALLY

ACTIVITIES & COSTS

REDUCES COSTS

-THE VALUE PROPOSITION COMBINES ELEMENTS FROM

CIRCUS, THEATER & OPERA, WHICH ALLOWS CATERING TO HIGHER END CUSTOMERS WHO PAY HIGHER TICKET PR ICES

··~ •

+ ARTISTIC MUSIC & DANCE

229

UNIQUE VENUE

ELIMINATE TICKET PRICE INCREASE

STAR PERFORMERS ANIMAL SHOWS AISLE CONCESSION SALES MULTIPLE SHOW ARENAS

-·~

--n n

REDUCE '

11ll1ur parts of tho

iipllcRtion s for tht I Ito va lu e side?

I ,/rque du Solei I features prominently among Blue Ocean

refined music. This revamped Value Proposition allowed

'Jlrategy examples. Next we apply the blended Blue

Cirque du Solei/ to broaden its appeal to theatergoers and

Ocean and Business Model Canvas approach to this

other adults seeking sophisticated entertainment, rather

Intriguing and highly successful Canadian business.

than the traditional circus audience of families.

First, the Four Actions Fram ework shows how Cirque

ticket prices. The Four Actions Framework, outlined in

cus business Value Proposition. It eliminated costly ele-

blue and gray in the business model canvas above, illus-

lllents, such as an imals and star performers, while adding

trates the effects of changes in the Value Proposition.

1 FUN & HUMOR THRILL & DANGER

RAISE UNIQUE VENUE

As a consequence, it was able to substantially raise

il u Solei I "played" with the traditional elements of the cir-

! ! ,J

CREATE

---~ THEME i REFINED ENVIRONMENT 'I i MULTIPLE PRODUCTIONS ! ARTISTIC MUSIC & DANCE !

L.. ·-···~----- ---· --------------·----.........:

ther elements, such as theme, artistic atmosphere, and

Source: Adapted from Blue Ocean Strategy.

NINTENDO'S

qUESTIONING YOUR CAN I OUR ACTIONS FRAMEWI

Wii

~--~----------~--------~~GAME DEVELOPERS

....

11111 11111bin ation of Blue Ocean Strategy tooiA1 1 1 1~

11lld foundation upon w hich t o questi on yo111 \11

1~ l 11111er, and Cost Structure perspective~ . W1111 I'll"

Lhe Customer Segment perspect lvo, 11 111

1 11• 1 Impact Exploration

RETAIL DISTRIBUTION

CREATE

UNCHANGED

tr'ECHNOLOGY OE V ~~Q!",M~flt\:;osf~

I!ROEJt:ON CONSOLE ..SALES:

ROYALTIES FROM GAME DEVELOPERS

ld1111tify the highest cost infrastructure nl11111t11

IWI Iiuat e what happens if you eli minate Ul 1111 \1 We've discussed Nintendo's successful Wii game console

performance, graphic quality, and game realism : factors

as an example of a multi-sided platform business model

valued primarily by diehard gaming fans . Nintendo

characteristics: A shift in focus from "hardcore" to ca sUI!I

pattern (seep. 76). Now we look at how Nintendo dif-

shifted its focus to providing a new form of player interac-

garners, which allowed the company to reduce console

ferentiated itself from competitors Sony and Microsoft

tion targeted at a wider demographic than the traditional

performance and add a new element of motion control

from the standpoint of Blue Ocean Strategy. Compared

avid gamer audience. With the Wii, Nintendo brought

that created more fun ; elimination of state-of-the-art

to Sony's PlayStation 3 and Microsoft's Xbox 360, Nin-

to market a console that technologically underperformed

chip development and increased use of off-the-shelf

Nintendo's new bu siness model has t he following

t endo pursued a fundamentally different strategy and

rival machines, but boosted the fun factor with new

components, reducing costs and allowing lower console

business model with Wii.

motion control technology. Players could control games

prices; elimination of console subsidies resulting in prof·

The heart of Nintendo's strategy was the assumption

through a sort of "magic wand," the Wii Remote, simply

that consoles do not necessarily require leading-edge

through physical movement. The console was an instant

power and performance. This was a radical stance in an

success with casual garners, and outsold rival consoles

industry that traditionally competed on technological

focused on the traditional market of "hardcore" garners.

its on each console sold.

What value elements disappear, and wll \1 1 WII litiVC to create to compensat e for their

11 11~11111

ldontify infrastructure investments y01 1ltl tiV 11111ke and analyze how mu ch va lue Lh oy 111 • Wh ich activities, reso urces, and pnrl1111t ~I ll Lhe highest costs? • W hat happens if you reduce or ellmlt1111 11 Lhese cost factors?

• How could you repltJce, usin g less C()HIIy 1 the value lost by reducing or elimlnll lil ll·'

resources, activiti es, or partnership•.! W hat value would be creat ed by pl11111 1t11 l investments?

UEST IONING YOUR CA NVAS WITH THE ICJUR ACTIONS FRAMEWORK 111111 om bination of Blue Ocean Strategy tools and the Business Model Canvas provide

cost perspective-provide ideal starting points from which to start questioning your

11lld roundation upon which to question your business model from value creation,

business model using the Four Actions Framework. Changes to each starting point then

lt•1l11 tn er, and Cost Structure perspectives. We propose that three different perspec-

allow you to analyze impacts on other areas of the Business Model Canvas (see also innovation epicenters on p. 138).

the Customer Segment perspective, the Value Proposition perspective, and the

1 IIHt

Impact Exploration

Exploring Value Proposition Impact

Exploring Customer Impact

··*• """""~---,

ELIMINAT REDUCE

' ·"!'-" ~:

"'RAiS'E

"~r_ ~~

CREATE

ldontify the highest cost infrastructure elements and

Begin the process of transforming your Value Proposition

tWo luat e what happens if you eliminate or reduce them.

by asking the Four Actions Framework questions.

about each business model Building Block on the

What va lue elements disappear, and what would you

Simultaneously, consider the impact on the cost side

customer side of the Canvas: Channels, Relationships,

" to ( 11~ 1 1111

l1nve to create to compensate for their absence? Then,

and evaluate what elements you need to (or could)

and Revenue Streams. Analyze what happens to the

CO il!l0 /1

Identify infrastructure investments you may want to

change on the value side, such as Channels, Relation-

cost side if you eliminate, reduce, raise, or create value

111ake and analyze how much value they create.

ships, Revenue Streams, and Customer Segments.

side elements.

• W hich activities, resources, and partnerships have

• What less-valued features or services could be

n COll i HI/ l ll l o· of.tho·t il l

•II nll· lho·shu/1

the highest costs? • What happens if you reduce or eliminate some of

liHit i/ llng In 1)1(1 /

these cost factors? • How could you replace, using less costly elements, the value lost by reducing or eliminating expensive resources, activities, or partnerships? W hat value would be created by planned new investments?

Ask yourself the Four Actions Framework questions

Which new Customer Segments could you focus

eliminated or reduced?

on, and which segments could you possibly reduce or

What features or services could be enhanced or newly

eliminate?

created to produce a valuable new customer experience? • What are the cost implications of your changes to the Value Proposition? • How will changes to the Value Proposition affect the customer side of the model?

• What jobs do new Customer Segments really want to have done? • How do these customers prefer to be reached and what kind of relationship do they expect? • What are the cost implications of serving new Customer Segments?

MANAGING MULTIPLE BUSINESS MODELS

I Mil Alli TY OF NINE IIIII>ING BLOCI<S 路---

ViSIONARIES, GAME CHANGERS, AND CHALLENGERS ARE GENERATING

Synergies, Markides claims, should be carefully exploited even when the new

innovative business models around the world-as entrepreneurs and as

model is implemented in a standalone unit.

workers within established organizations. An entrepreneur's challenge is

Risk is a third variable to consider when deciding whether to integrate

to design and successfully implement a new business model. Established

or separate an emerging model. How big is the risk that the new model will

organizations, though, face an equally daunting task: how to implement

negatively affect the established one in terms of brand image, earnings,

and manage new models while maintaining existing ones.

legal liability, and so forth?

Business thinkers such as Constantinos Markides, Charles O'Reilly Ill,

During the financial crisis of 2008, lNG, the Dutch financial group, was

and Michael Tush man have a word for groups that successfully meet this

nearly toppled by its lNG Direct unit, which provides online and telephone

challenge: ambidextrous organizations. Implementing a new business model

retail banking services in overseas markets. In effect, lNG treated lNG Direct

in a longstanding enterprise can be extraordinarily difficult because the

more as a marketing initiative than as a new, separate business model that

new model may challenge or even compete with established models.

would have been better housed in a separate entity.

The new model might require a different organizational culture, or it might

Finally, choices evolve over time. Markides emphasizes that compa-

target prospective customers formerly ignored by the enterprise. This begs

nies may want to consider a phased integration or a phased separation of

a question: How do we implement innovative business models within

business models. e.Schwab, the Internet arm of Charles Schwab, the U.S.

long-established organizations?

retail securities broker, was initially set up as a separate unit, but later was

Scholars are divided on the issue. Many suggest spinning off new busi-

integrated back into the main business with great success. Tesco.com, the

ness model initiatives into separate entities. Others propose a less drastic

Internet branch of Tesco, the giant U.K. retailer, made a successful transition

approach and argue that innovative new business models can thrive within

from integrated business line into standalone unit.

established organizations, either as-is or in separate business units.

In th e following pages we examine the issue of integration versus separa-

Constantinos Markides, for example, proposes a two-variable framework

tion with three examples described using the Business Model Canvas. The

for deciding on how to manage new and traditional business models simul-

first, Swiss watch manufacturer SMH, chose the integration route for its new

taneously. The first variable expresses the severity of conflict between the

Swatch business model in the 1980s. The second, Swiss food maker Nestle,

models, while the second expresses strategic similarity. Yet, he also shows

chose the separation rout e for bringing Nespresso to the marketplace. As

that success depends not only on the correct choice-integrated versus

of this writing, the third, German vehicle manufacturer Daimler, has yet to

standalone implementation-but also on how the choice is implemented.

choose an approach for its car2go vehicle rental concept.

l'llillll FOH ';Vt-11111

)

dMILARITY OF NINE IIIII I DING BLOCI<S-

-POTENTIAL

FOR SYNERGIES-

FOR CONFL ICTS-

CREATE SYNERGIES AMONG THE SEPARATED BUSINESS MODELS AND COORDINATE BETWEEN THEM AS NECESSARY

n~ pl o l tcd even when the new

diiiH whether to integrate

f---

1-------j

• INTEGRATION

, I

~ 1/ i<Jl the new model will

.~ $

~ 1111 h fin ancial group, was dm1 01iline and telephone 111I, lNG treated lNG Direct 11 111 11 business model that lilly,

llllill'.ltes that compa-

H.R

·~ T

AUTONOMY

11 11phtlsed separation of 11111 /os Schwab, the U.S.

s. Tesco. com, the 11/11 11successfu l transition

1111 11\f(ra tion versus separaModel Canvas. The ll11)1111llon route for its new •,wh•; foodmaker Nestle, l11l lir marketplace. As 111111 l)o imler, has yet to II II I 1\j)l.

T SEPARATION I

HH T

AVOID CONFLICTS BETWEEN THE INTEGRATED BUSINESS MODELS AND ALLOW FOR NECESSARY AUTONOMY

233

SMH'S AUTONOMOUS MODEL FOR SWATCH

<.;~lff is \'ertically integral<'.!

<cntrdizcd with respect to!'""''' In the mid-seventies the Swiss watch indu stry, which had historically dominated the

the potential to anchor a larger product line. Thi s forced engineers to entirely rethin k

timepiece sector, found itself in deep crisis. Japanese and Hong Kong watch manu-

the very idea of a timepiece and its manufacture; they were essentially deprived of

facturers had dislodged the Swiss from their leadership position with cheap quartz watch es designed for the low-end market. The Swiss continued to focus on tradi-

10 percent, and the watc hes were produced in large quantities. Innovative guerrilla market ing concepts were used to bring the watch to market under several different

manufacturers, with the exception of a handful of lu xury brands, were teetering on

designs. Hayek saw the new product communicating a lifestyle message, rather than ju ~ l

collapse. Then Nicolas G. Hayek took over the reigns of SMH (later renamed Swatch

telling time on the cheap.

panies with roots in the two biggest ailing Swiss watchmakers. Hayek envisioned a strategy whereby SMH would offer healthy, growing brands in all three market segments: low, mid, and luxury. At the time, Swiss firms dominated the

SMH's choice to implement the low end Swatch business model is particularly in ttll esting in light of its potential impact on SMH's higher end brands. Desp ite a completely

inexpensive timepieces to Asian ri va ls.

a standalone entity.

autonomy regarding product and marketing decisions, while centralizing everything els

brand. From a strategic point of view, Hayek's vision meant nothing less than combin-

Manufacturing, purchasing, and R&D were each regrouped under a single entity servinH

ing a high-end luxury business model with a /ow-cost business model under the same

all of SMH's brands. Today, SMH maintains a strong vertical integration policy in order

roof, with all the attending co nflicts and trade-offs. Nevertheless, Hayek insi sted on this

to achieve scale and defend itself against Asian competitors.

compete w ith Japanese offers yet providing Swiss quality, plus sufficient margins and

PRODUCT Ol!f<i<ltl MARK ETINO I• COMM UNI CI\'11 <Ill

SMH AS PRO DUCTION PARTNER

KR SWATCH 01 '< lllf/ SWATCH fiiii\NI

SMH, though, was careful to give Swatch and all its other brands near-complete

fears among investors that the move would cannibalize Tissot, SMH's middle-market

The specifications for the new watc h were demanding: inexpensi ve enough to

2006 the company ce lebrated aggregate sales of over 333 million Swatches.

different organizational and brand culture, Swatch was launched under SMH and not a

able Swiss w atch priced starting at around U.S. $40.

tkcisions.

II Ch

Thus the Swatch was born: high quality at a low price, for a functional, fashionabl 11

lu xury watch market w ith a 97 percent share. But the Swiss owned only 3 percent of

three-tiered strategy, which triggered development of the Swatch, a new type of afford-

IIIIo/ 11

product. The rest is history. Fifty-five million Swatches were sold in five years, and in

the middle market and were non-players in the low end, leaving the entire segment of

Launching a new brand at the bottom end was provocative and risky, and triggered

,.(II'Jl11tll1ication

The result was a wat ch made with far fewer component s. Manufacturing was hig/l!y

Asian competitors threatened to intrude on these segments as well.

Group). He completely restructured a newly formed group cobbled together from com-

rl'gctrding prodllct, design,

ability to apply their traditional watchmaking knowledge.

automated: molding replaced screws, direct labor costs were driven down to less than

In the early 1980s competitive pressure intensified to the point that most Swiss

Each S.~Ill brand enjoy., dill•

tilt

tional mechanical wa t ches for the mid- and high-end market s, but all the w hile

tiliD. sourcingandHH.

MANUFACTURING PAYM EN'I''• II I •

MARKETIN G

CENTRALIZED

SMH

DECENTRALIZED

PRODUCTION & QUALITY CO NTROL R&D HR, FINANCE, ETC. S~-:lff

centralized with respect to prud!lction,

I?& D. sourcing· and HR.

tlllfllneers to entirely rethink

Each S.UFI bmnd enjoys cwtonomy

sse ntially deprived of th

111 '1. Manufacturing was highly

~bE-No

~"LAWCPAllll~

OMEGA, LONGINES, RAD.O-

is vertically intl'gmted and

TISSOT, CERTINA, _l:lAM ILTO ~, MIDQ_

AND

-~~

G:H

MANUFACTURING PLANTS

comm11nication decisiom.

BRAN D PORTFOLIO

111 under several different

'.··

Il yle message, rather than ju

wA"" /i

PRODUCT DESIGN

, lor a functional, fa shionable

LIFESTYLE MOVEMENT

MARKETING & COMMUNICATION

111 n sold in five years, and in

Ill milli on Swa t che s.

SMH

AS PROD UCTION PARTNER

111 \!,s model is particularly inter

IIJrfl nds. Despite a comp letely I lilt hed under SMH and not

TRENDY LOW-COST LIFESTYLE (SECOND) WATCH

RETAIL LIFESTYLE EVENTS

SWATCH BRAND

GUERRILLA MARKETING

II III cent ralizing everything else,

•Il l under a single entity servin Iiiii In tegration po licy in order llo 1 ~ .

MAN UFACTURI NG PAYMENTS TO MARKETING

SMH

MASS-MARKET

SWATCH SHOPS

SWATCH DESIGN

II lilt' brands near-co mplete

WATCH SALES

--~

.4 ...

·7

•

.~ wa tch

Ill los. Innovati ve guerrilla

MID SEGMENT

._,.

.....-

MASS MARKET

-;$~

111o driven down to less than

SWATCH, FLIK FLAK

regarding product, desi8n, and marketing

LUXUR~

--~~T

·Oil~ lilt

NESTLE 'S PORTFOLIO 01 OFFEE BUSINESS MO DI

THE NESPRESSO SUCCESS MODEL 1998 FOCUS ON INTERNET W ITH WEB SITE REDESIGN

98?

'176 FI RST PATENT FILED FOR NESPRESSO SYS TEM

FOCUS ON THE OFFICE MARKET

)86

1900

SEPARATE NEW CEO COMPANY OVERHAULS CREATED STRATEGY

1991

1â&#x20AC;˘19/'

NESPRESSO IS LAUNCHED INTERN ATION AL LY

FIRST AD CAMPAIGNS LAUNCHED

-+- - -1- -1

:?0C' 1)

GEORG E CLOONEY RETAINED AS SPOKESMAN FOR NESPRESSO

2000 AVER A ANN UAl GRO Wlf OV ER 'l

------).

Another ambidextrous organization is Nespresso, part of Nestle, the wor ld's largest

department stores). The model proved successful, and over the past decade Nespres1,11

food company with 2008 sa les of approximately U.S. $101 billion.

has posted average annual growth rates exceeding of 35 percent

Nespresso, which each year sells over U5.$l9 billion worth of single -serve premium coffee for home consumpt ion, offers a potent example of an ambidextrous

Of particular interest is how Nespresso compares to Nescafe, Nestle's tradition al coffee business. Nescafe focuses on instant coffee sold to consumers indirectly

throu t~il

business modeL In 1976, Eri c Favre, a young researcher at a Nestle research lab, filed

mass-market retailers, wh ile Nespresso concentrates on direct sales to affluent con -

his first patent for the Nespresso system. At the time Nestle dominated the huge

sumers. Each approach requires comp letely different logistics, resources, and activi -

instant coffee market with its Nescafe brand, but was weak in the roast and ground

ties. Thanks to the different focus there was no risk of direct cannibalization. Yet, thi s

coffee segments. Th e Nespresso system was designed to bridge that gap with a dedi-

also meant little potential for synergy between the two businesses. The main conflict

cat ed espresso machine and pod system that cou ld convenient ly produce restaurant-

between Nescafe and Nespresso arose from the considerab le time and resource drain

quality espresso.

imposed on Nestle's coffee business until Nespresso finally became successfuL Th e

An interna l unit headed by Favre was set up to eliminate technical problems and bring the system to market After a short, unsuccessful attempt to enter the restaurant

start marketing the system to offices in support of another Nestle joint venture with a

comp lementary to the espresso-only Nespresso devices, that cou ld also serve cap-

coffee machine manufacturer already active in the office segment Nespresso SA was

puccino and lattes. The question, of course, was with which business model and unde1

comp letely independent of Nescafe, Nestle's established coffee business. But by 1987

which brand should the system be launched? Or should a new company be created, a

Nespresso's sa les had sagged far below expectations and it was kept ali ve only because

with Nespresso? The technology was originall y developed at Nespresso, but cappuc -

of its large remaining inventory of high-value coffee machines.

cinos and lattes seemed more appropriate for the mid-tier mass market Nestle finall y

completely integrated into Nescafe's mass-market business model and organization al

Nespresso sh ifted its focus from offices to high-income households and started sell-

structure. Dolce Gusto pods sell on retail shelves alongside Nescafe's soluble coffee,

ing coffee capsules directly by maiL Such a strategy was unheard of at Nestle, which

but also via the Internet-a tribute to Nespresso's onl ine success.

such as the Champs-Eiysees, as well as launch its own in-store boutiques in high-end

PRODU CT ION â&#x20AC;˘ LOGISTI

OFF EE MACHINE MANU FACTURERS

KR DISTRIBU TION CHANN H PATENTS ON SYSTEM

decided to launch under a new brand, Nescafe Dolce Gusto, but with the product

completely overhau led the company's business model with two drastic changes. First,

presso would start selling online and build high-end retail stores at premium locations

\ KAMARKETIN

hard times. The story does not end there. In 2004 Nestle aimed to in troduce a new system,

traditionally focused on target ing mass markets through retail Channels (late r on Nes-

organizational sepa ration likely kept the Nespresso project from being cancelled durinH

market, in 1986 Nestle created Nespresso SA, a w holly-owned subsid iary that would

In 1988 Nestle installed Jean-Paul Gaillard as the new CEO of Nespresso. Gaillard

Nospre sso

BRAN D PRODU CT ION PLANT

MANUFACTURIN MARKETIN G DISTRIBUTION & (HANNI I

ST LI~'s PORTFOLIO OF OFFE E BUSINESS MODELS

Nescafe

KA PRODUCTION MARKETING

DO LCE GUSTO: MULTI-BEVERAGE MACHINE & PODS

RETAIL ONLINE SHOP

RETAILERS

MANUFACTURING PLANTS

I NESCAFE: QUALITY INSTANT COFFEE

~ETAIL

BRAND PORTFOLIO

C$ , lilo ma in confll1I Ill HI resource

Nospresso

·:·

MARKETING & SALES

. ,

~ SALES THROUGH RETAIL (LOWER MARGIN)

PRODUCTION

237

dtiilli

MARKETING

PRODUCTION 1 1111

=> MASS MARKET

NESPRESSO CLUB

LOGISTICS

new system,

d 11ho serve ca p· 1 model

and und111 COFFEE MACHINE MANUFACTURERS

KR I

DISTRIBUTION CHANNELS

HIGH-END RESTAURANT QUALITY ESPRESSO AT HOME

PATENTS ON SYSTEM BRAND

MANUFACTURING

HOUSEHOLDS

N ESPRESSO.COM OFFICE MARKET NESPRESSO BOUTIQUES

RETAIL (MACHINES ONLY) MAIL ORDER

MAIN REVENUES: CAPSULES

MARKETING OTHER : MACHINES & ACCESSORIES DISTRIBUTION & CHANNELS

high-end (Nespresso)

CALL CENTER

PRODUCTION PLANTS

11'~ •,oluble coffee,

'lit, !"' , 1]11

mz·d-tzer · (Dolce Gusto)

mass-market (Nescafe)

I I'

I· I

DAIMLER'S CAR2GO BUSINESS MODEL Daimler's phased approach to busin ess model innovati on:

Market introduction of car2go CONCEPT DE V ELOPM ENT

INTERNAL PI LOT

EXTENDED INTERNAL PILOT

ULM PUBLIC PILOT

AUSTIN INTERNAL PILOT

AUSTIN PUBLIC PILOT

WH ICH ORGANIZAT IONAl FORM?

PHASE 1: Business model dt

PHASE 2:

Field test oft/w t'Ollt'l/'1

Our final example is still emerging as of this writing. Car2go is a new concept in mobility

Daimler launched car2go in response to the accelerating globa l trend toward urbanl 71 1

by Do imler innovation

created by German vehicle manufacturer Daimler. Car2go provides an example of a busi-

tion, and saw the service as an intriguing complement to its core business. As a pur

PHASE 3: D!'cision 011

ness model innovation that complements the parent company's core model of manu-

service model, car2go naturally has comp letely different dynamics compared to Dall11

structure of new lnzsiness

facturing, selling, and financing vehicles ranging from luxury cars to trucks and buses.

ler's traditional bu siness, and revenues will likely remain comparati ve ly sma ll for som11

Daimler's core business generates annua l revenue exceeding U.S. $136 billion through sa les of more than two million vehicles. Car2go, on the other hand, is a

able to some 500 em ployees of the Daimler Research Center in Ulm . These 500, plus 200 famil y members, participated as initia l customers. The aim was to test th e

service is currently being tested in the German city of Ulm, one of Daiml er's key

technical systems, gather data on user acceptan ce and behavior, and give the servi ce

operationa l bases. The business model was developed by Daimler's Business Innovation

an overall "road test." In February 2009, the pilot was extended to include employees

Department, which is tasked with developing new business ideas and supporting their

of Mercedes-Benz sa les and service outlets and other Daim ler subsidiaries, with th

implementation.

number of vehicles increased to 100. At the end of March, a public test was initiated

At the same time, Daimler announced a U.S. pilot in Austin, Texas, a city with 750,000 res idents. As in the first phase of the German test, ca r2go w ill begin with a

a maximum of $70 per day. Customers pay month ly. The concept resembles popular car-sharing companies such as Zipcar in North America and the U.K. Distinctive char-

versus seplll'lll i1 111 J ,.,

relarionship to establisllcd ,.,,, ''''

with 200 vehicles and ca r2go was made avai lable to all1 20,000 of Ulm's residents

spot (or reserve them in advance) t hen use t hem for as long as they like. Once a trip is

Rentals cost the equivalent $0.27 per minute, all-inclusive, or $14.15 per hour with

llltJtf,

and visitors.

time. Following a one-time registration process, customers can rent fortwo cars on the

comp leted, the driver sim ply parks the car somewhere wit hin the city limits.

org'dlli"tillli/

In the pilot phase, launched in October of 2008, 50 fortwo ca rs were made avail路

startup business offering city dwel lers mobility on demand using a citywide fleet

Here's how car2go works: a fl eet of smart "fortwo" two-person ve hicles is made

1intesr~.-1iion

years. But Daimler clearly has high hopes for car2go over the long term.

of smart cars (smart is Daimler's smallest and lowest-priced ve hicle brand). The

available throughout the city, serving as a vehicle pool accessible by customers at any

"'路'!" 11

/laimler Innovation Dcparllll<'ll

limited user group, such as city employees, then be opened to the public. These pilots can be seen as prototypes of a business model (seep. 160). Now, car2go's business model prototype is being fi xed into organizational form. As of this writing, Daimler had not yet decided whether to internalize car2go or spin

acteristics of car2go include freedom from the obligation to use an assigned parking

it off as a separate company. Daimler chose to start with business model design, th en

place, on-the-spot rental for as long as one likes, and a simple pricing structure.

test the concept in the field, and defer decisions regardi ng organizational structure until it could assess car2go's relationship to its long-established co re business.

SYSTEMS MANAGEMI N I FLEET MANAG EM EN'I

1111

Daimler

h1 il11t'll phased approach lillllil tnss model innovation:

MANUFACTURING

MAINLY HIGH-END BRANDS

DESIGN

1, /'11.- •ness model dcsi,l,'7l within

flllt•'"•llion Department 1

CAR PARTS MANUFACTURERS

,! · f!tdd test o)'the concept nrn

/,.,. '"""vatit•n

VEHICLE PLANTS

/tension on orgdnizcll ional

MASS MARKET

CH DEALERS SALES FORCE

BRANDS

scpan1tion) \'is-ri-vis

'<'!'sus

CARS, TRUCKS, VANS, BUSES, FINANCIAL SERVICES (E.G. MERCEDES BRANDS)

INTELLECTUAL PROPERTY

,, "/II<'H'lmsinl!ss T1l t)de/ /!Oil

, ,,,;,,'"established core business

MARKETING & SALES

VEHICLE SALES

MANUFACTURING VEHICLE FINANCING R&D

FLEET

MANAGEMENT

11,1

cs II II

ONE-OFF SIGN-UP

TELEMATICS MANAGEMENT

239

CLEANING

Ml NT'

INDIVIDUAL URBAN MOBILITY WITHOUT CAR OWNERSHIP

CAR2GO.COM

SERVICE TEAM

MOBILE PHONE

THEMATIC SYSTEMS

CAR2GO PARKING LOTS

SMART FORTWO CAR FLEET

CAR2GO SHOPS

l,illl

CITY DWELLERS

PICK-UP/DROP-OFF ANYWHERE

" VSTE MS MANAGEMENT I'LEET MANAGEMENT

11 11'11

,I .

,lilli,l

··~li'l PAY PER MINUTE-$0.27 (All INCLUSIVE)

Business Model Design Process In this chapter we tie together the concepts and tools from the book

Business model innovation results from one of four objectives:

to simplify the task of setting up and executing a business model

(1) to satisfy existing but unanswered market needs, (2) to bring new

design initiative. We propose a generic business model design pro-

technologies, products, or services to market, (3) to improve, disrupt,

cess adaptable to your organization's specific needs.

or transform an existing market with a better business model, or

(4) to create an entirely new market. Every business model design project is unique, and presents its own challenges, obstacles, and critica l success factors. Every organization

In longstanding enterprises, business model innovation efforts

starts from a different point and has its own context and objectives

typ icall y reflect the existing model and organizational structure.

when it begins addressing an issue as fundamental as its business

The effort usually has one of four motivations: (1) a crisis with the

model. Some may be reacting to a crisis situation, some may be seek-

existing business model (in some cases a "near death" experience),

ing new growth potential, some may be in startup mode, and still oth-

(2) adjusting, improving, or defending the existing model to adapt

ers may be planning to bring a new product or technology to market.

244

to a changing environment, (3) bringing new tec hnologies, products, or services to market, or (4) preparing for the future by exploring

The process we describe provides a starting point upon which just

and testing completely new business models that might eventually

about any organization can customize its own approach. Our process

replace existing ones.

has five phases: Mobilize, Understand, Design, Implement, and

Business Mod cnA Innov Satisfy market: Fulfill

an 111 11 11 1

(e.g. Toto car, NetJets, Grtllll ~~i//,

Bring to market: Brin g, , 111<W I(

service to market or cxploll

(IP) (e.g. Xerox 974, Swtil r /1, N Improve market: lmprOVIIIII

(e.g. Dell, EFG Bank, Nlni Piidll

Skype, Ryanair, Amazon.mtlltt<l Create market: Crea te 111 11 11II

(Diners Club, Goog le)

C""ALLE.NG

Manage. We describe each of these phases in a general way, then

• Finding the right model

revisit them from the perspective of the established organization, as

• Testing themodel bcfo10t1 lull ~~

business model innovation in enterprises already executing on one

• Inducing themarkel lo!lilllpl llll

or more existing business models requires taking additional factors into account.

• Continuously adapting IIII ' 1111 11 h • Managing uncertainly

STARTING POINT FOR BUSINESS MODEL INNOVATION

Business l\1odel Design . . . 1d r,~c·"ation

Factors Specific to EstablishPd Qrgoni.~C'tions

Satisfy market: Fulfi ll an unanswered market need

Reactive: Arising out of a crisis w ith th e existing business model

(e.g. Tata car, NetJets, GrameenBank, Lulu. com)

(e.g. IBM in the 1990s, Nintendo Wii, Rolls Royce jet engines)

Bring to market: Bring a new technology, product, or

Adaptive: Adjusting, im proving, or defend ing the existing business

service to market or exploit existing intellectual property

model (Nokia "comes with music," P&G open innovation, Hilti)

( IP) (e.g. Xerox 914, Swatch, Nespresso, Red Hat)

Expansive: Launching a new technology, product, or service

Improve market: Improve or disrupt an existing market

(e.g. Nespresso, Xerox 914 in the 1960s, iPod/iTunes)

(e.g . Dell, EFG Bank, Nintendo Wii, IKEA, Bharti Airtel,

Pro-active/explorative: Preparing for the future

Skype, Ryanair, Amazon.com retail, better place)

(e.g. car2go by Daimler, Amazon Web Services)

245

Create market: Create an entirely new type of business

(Diners Club, Google)

C"fA"

"NGES

• Developing an appetite for new models C"'ALLENGES

• Finding the right model

• Aligning old and new models • Managing vested interests

• Testing the model before a full-scale launch • Focusing on the long term • Inducing the market to adopt the new model • Continuously adapting the model in response to market feedback • Managing uncertainty

Design Attitude ---Business model innovation rarely happens by coincidence. But

This distinction is particularly applicab le to business model innova-

neither is it the exclusive domain of the creat ive business gen ius.

tion. You can do as much analysis as yo u wa nt yet still fail to develop

It is something that can be managed, structured into processes, and

a satisfactory new bu siness model. The wor ld is so full of ambiguity

used to leverage the creative potential of an entire organ ization.

and uncertainty that the design attitude of exploring and prototyping

The cha llenge, though, is t hat business model innovation remains

mode l. Such exp lorati on invo lves messy, opportun ist ic bouncing

multiple possibilities is most li kely to lead to a powerful new business

messy and unpredictable, despite attempts to impl ement a process.

back and forth between market research, ana lysis, business model

It requ ires the ability t o deal with ambiguity and uncertainty until a

prototyping, and idea generation. Design att itud e is far less linear and

good solution emerges. Thi s takes time. Participants must be willing

uncertain than decision attitude, which focuses on analysis, decision,

to invest significant time and energy exploring many possibili ties

and optim ization. Yet a purposefu l quest for new and competitive

without jumping too quickly to adopt one so lution. The reward for

growth models demands the design approach.

time invested will li ke ly be a powerful new business model that

246 assures future growth.

Damien Newman of the design firm Central eloquently expressed the design attitude in an image he ca lls t he "Design Squiggle." The

We ca ll this approach des ign attitude, wh ich differs sharply from

Design Squiggle em bodi es the characteristics of the design process:

the decision attitude that dominates tradit ional business manage-

Uncertain at the outset, it is messy and opportunistic, until it focuses

ment. Fred Collopy and Richard Boland of the Weather head School

on a single point of clarity once the design has matured.

of Management eloquentl y exp lain thi s point in th eir article "Design Matters" in t he book Managing as Designing. Th e decision attitude, they write, assumes th at it is easy to come up with alternatives but difficult to choose between them. The design attitude, in contrast, assumes that it is difficult to design an outstanding alternative, but once you have, the decision about wh ich alternative to select becomes trivi al (seep. 164) .

research & understand

UNCERTAINTY

~-----

---------- - - -- --

CLARITY I FOCUS

hIll

ly ill II•••

I IIIIi /1111,

247

researc/1 & understand

desi~;rn

business rnodel prototypes

in1plernent business tnodel design

Source: Adapted from Damien Newman, Central

5 Phases The business model design process we propose has five phases:

ously mentioned, the progression through these phases is rarely

lin

d·ze

Mobilize, Understand, Design, Implement, and Manage. As previOBJECTIVE

l'inp<l re for a successful

as linear as depicted in the table on the right. In particular, the

1111, \ness model design

Understanding and Design phases tend to proceed in parallel. Busi-

1'111j oct

ness model prototyping can start early in the Understanding phase, in the form of sketching preliminary business model ideas. Similarly,

FOCUS

_______

Resomt ll elemn11 h 1 businou•• ll

Ulng the stage

lmmorlhlli

'"omble all the elements for

Yo'' tHIIIII\1

111 cossful business model design.

desiKII l11r111

prototyping during the design phase may lead to new ideas requiring additional research-and a revisiting of the Understand phase.

DESCRIPTION

Finally, the last phase, Manage, is about continuously managing your

I 1Hnle awareness of the need for a in roloVII I 11 I

business model(s). In today's climate, it's best to assume that most

\IMW business model, describe th e

ers, (Ill Iii ii!

11\lil lvat ion behind the project, an d Y01.1 t•olil lil

248 business models, even successful ones, will have a short lifespan.

l iiblish a common language to

expo! I ~ , ~II

producing a business model, it makes sense to extend its life through

1\IIHCribe, design, and analyze an d

to nHl r ~, tHI

continuous management and evolution until it needs complete

1\ltii:I.ISS business models.

prolll1111 1

Considering the substantial investment an enterprise makes in

- ·--·---"--

rethinking. Management of the model's evolution will determine which components are still relevant and which are obsolete.

BOOK SECTIONS

• l l11~iness Model Canvas (p. 44)

• 1~ 11 1 11 1111'•'•

• '•lorytelling (p.170)

• ilii',II H •~·. t\<

For each process phase we outline the objective, the focus, and

• Cu•,\1111 11•1

which content in Business Model Generation supports that phase.

• Vl•,llilllll\1

Then we outline the five phases in more detail, and explain how the

• liilll lilllll~

circumstances and focus can change when you are working with an existing business model in an established organization.

• llll'llill •'l

• I Villlll\1111

J. 7

5~2

lc.1

lr -lc.m,

.ge

l 111lpa re for a successful

Research and ana lyze

Generate and test viable

l1115iness model design

elements needed for the

business mode l options,

business model prototype

business model in response

111oject

business model design effort and select the best

in the field

to market reaction

Immersion

Inquiry

Execution

Evolution

You and the business model

Transform the information and

Impl ement th e selected busin ess

Set up the mana gement struc-

ideas from th e previous phase

model design.

tures to co ntinuou sly monitor,

11tting the stage

/\•,se mble all th e elements for

IICcessful busin ess model design. design team immerse yourselves

Implement the

into business model prototypes

evaluate, and adapt or transform

IIIIW business model, describe the

ers, technology, and environment.

th at ca n be explored and tested.

your business model.

1110tivation behind the project, and

You co llect information, interview

After an intensive business model

a common language to

experts, study potential cus-

inquiry, select the most satisfac-

tomers, and identify needs and

tory business model design.

discuss business models.

problems.

• llusiness Model Canvas (p. 44)

• Business Model Canvas (p. 44)

• Storytelling (p. 170)

• Business Model Patterns (p. 52)

• Visual Thinking (p. 146)

• Customer Insights (p. 126)

• Ideation (p. 134)

• Storytelling (p. 170)

• Scenarios (p. 180)

• Visual Thinking (p. 146)

• Business Model Environment (p. 200)

• Scenarios (p. 180)

• Prototyping (p. 160)

• Managing Multiple Business Models (p. 232)

• Business Model Environment (p. 200)

• Scenarios (p. 180)

• Evaluating Business Models (p. 212)

• Evaluating Business Models (p. 212) • Business Model Perspective on BlueOcean Strategy (p. 226) • Managing Multiple Business Models (p. 232)

• Evaluating Business Models (p. 212)

'' 1

249

iloscribe, design, and analyze and

Adapt and modify the

( 1cate awareness of the need for a in relevant knowledge: custom-

ll~ l a b l is h

ll SI!CTIONS

__.

Mobilize Prepare fo r a successfu l business model design project

ACTIV'T

. t ob.JeC 11·ves • Frame projec • Test preliminary business ideas

CRITICAr S!IC

• Appropriate people, experience,

KEY

""A"'~~Rs

• Overestimating value of initial idea(s)

and knowledge

• Plan • Assemble team

Crucial activities in this first phase include assemb ling the project

II II

lear danger in the Mobilization p\10'111I ~

team and ga ining access to the right people and information . Whilt•

IVt\I CStimate the potential of initial bus ln n~'' l l ll

there are no rules about training the perfect team-again, each

hltlil to a closed mind set and limit ed exp l01 11l li 11

project is unique-it makes sense to seek a mi x of people with broad

li nt\. Try to mitigate thi s risk by contin uou11ly II

management and industry experience, fresh id eas, the right person 11l

wll h peop le from varied background s. YOIIIt iMY

netwo rks, and a deep comm itment to business model innovation .

•IIKOnizing a so-call ed kill/thrill sessio n !11 wlil1

/0 1111111 1

You may wa nt to start doing some prelimi nary testing of the basi c

11 0 tas ked first w ith brainst orming for

The main activiti es of this first phase are framin g the project objec-

business id ea during the mobilization pha se. But since the potenti al

II Ill idea wo n't work (the "kill " porti on), 1111 111

tives, testing preliminary ideas, planning th e project, and assembling

of a business idea dep ends heavily on the choice of the right busin e ~

l1111instorm ing exclusively on why the !cion will

the t eam.

model, this is easier said than done. When Skype launched its busi-

lion). It's a powerful way to challenge fl ll iilr ·'

ness, w ho wo ul d have imagin ed it would become the world's largest How objectives are fram ed w ill vary depending on the project, but

long- distance ca ll carrier?

Working from the Established CompiUIY I

this usually cove rs establishing the rational e, project scope, and

Project legitimacy Building project loKI !Ill

main objectives. Initial planning sho uld cover the first phases of a

In any case, estab lish the Business Model Canvas as the shared

business model design project: Mobilize, Understand, and Des ign.

language of the design effort. Th is w ill help you structure and present

t•css fac tor when working within

The Im plementa tion and Management ph ases depend heav il y on

preliminary id eas more effecti ve ly and improve communications. You

HInee business model design proj cclH11 il 1

the outcome of these first three phases-namely the business model

may also want to try weaving your business model ideas into some

organizational boundaries, a strong tllltl v

directi on-a nd therefore can on ly be planned later.

stories to test them.

the board and/or top management IHl11tl l

CHiii\ti iNl

~ t8 f(*

ne clear danger in the Mobilization phase is that people tend to overest imate the potential of initial business model ideas. This can

===~

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cooperation. A straightforward way to create legitimacy and visible sponsorship is to directly involve a respected member of top management from the very beginning.

lea d to a closed mindset and limited exploration of other possibili-

e Manage vested interests Take care to identify and manage vested interests throughout the

pie with bron d

ti es. Try to mitigate this risk by continuously testing the new ideas

organization. Not everybody in an organization is interested in reinventing the current business

right perso tll d

with people from varied backgrounds. You may also want to consider

model. In fact, the design effort may threaten some people.

rganizing a so-called kill/thrill session in w hich all participants l 11 ~. lln g of th e basi

re tasked first with brainstorming for 20 minutes on reasons why

Cross-functional team As described previously (seep. 143), the ideal business model task force

is composed of people from across the organization, including different business units, business

th e poten l itd

the idea won't work (the "kill" portion), then spend 20 minutes

functions (e.g. marketing, finance, IT), levels of seniority and expertise, and so forth. Different

right bus/n o

brainstorm ing exclusively on why the idea will fly (the "thrill" per-

organizational perspectives help generate better ideas, and increase the likelihood that the

hed its bus/·

Lion). It's a powerfu l way to challenge an idea's fundamenta l wort h.

project will succeed. A cross-functional team helps identify and overcome potential obstacles to reinvention early in the game and encourages buy-in.

e Orienting decision makers You should plan on spending a considerable amount of time Working from the Established Company Perspective

Project legitimacy Building project legitimacy is a critical sue~

II/ 1 tlllllllunica tions.

ltll /d oas in to som

Yo11

orienting and educating decision makers on business models, their importance, and the design and innovation process. This is critical to gaining buy-in and overcoming resistance to the

·ess factor when working within established organizations.

unknown or not-yet-understood. Depending on your organization's management style you may

Since business model design projects affect people across

want to avoid overemphasizing the conceptual aspects of business models. Stay practical and

organizational boundaries, a strong and visible commitment by

deliver your message with stories and images rather than concepts and theory.

the board and/or top management is indispensable to obtaining

251

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Understand i·~~· . .

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ri,

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Research and analyze the elements needed for the business model design effort V 1 TJEC

-----

252 • Scan environment • Study potential customers • Interview experts

CRI

CF:SS

FAC~ORS

---

• Deep understanding of potential target markets • Looking beyond the traditiona l boundaries defining target markets

s • Over-researching: disconnect

Scanning, though, is inevitably accompanied by the risk of over· researching. Make your team aware of this risk at the outset and

1il llcal success factor in this ph ase I& (\1111~1 11 111nptions and established bu siness IIIOill'il

"An a l y~ l

tiii'IOie industry was building and seiii11K 11111 1

• Biased resea rch because of precom-

paralysis" can also be avoided by prototyping business models early

tl iiltJOies until the Nintendo Wii overtun1 111 l 11

mitment to a certain business idea

on (see Prototyping, p. 160). This has the added benefit of allowing Villi

between research and objectives

• Research what has already been

ensure that everyone agrees to avoid excessive researching.

to quick ly co llect feedback. As mentioned earlier, research, under·

tried (e.g. examples of failures and their causes)

11mptions (seep. 82). Qu estioning 11'1'1 1111 11 ploring the potential of "the low end" ol

11~1

standing, and designing go hand in hand, and the boundaries sepaml

,_ ~cott Anthony points out in The 51/v(ll / /11/11

ing them are often unclear.

l\111environment and assess t rends, t1lliil•lll .,

• Collect ideas and opinions

1M111ember that the seeds of business li lt ll llll l This second ph ase consists of developing a good understanding

During research, one area that deserves careful attention is develo1

of the context in which the business model wi ll evolve.

ing deep knowledge of the customer. This sounds obvious, but it is often neglected, particularly in techno logy -fo cused project s.

\lllll'id just about anywhere. I hiring the Understanding phase you •iliiill\11

Th e Customer Empathy Map (seep. 131) can serve as a powerful tool

II <lm varied sources, including cuslOII \1 11~

including market research, studying and invo lving customers,

to help you structure customer research . One common challenge is

l!t lSiness model directions early by fl OIll II II 1

interviewing doma in experts, and sketching out competitor business

that the Customer Segment is not necessarily clear from the outs et.

Model Canvas sketcloes. Bear in mind, 1111111

models. The project team shou ld immerse itself in the necessa ry

A technology "still in search of a problem to solve" may be applicablo

Idea s may encounter stron g resist on< ,,,

materials and activities to develop a deep understanding of the

in severa l different markets.

Scanning the bu siness model environment is a mix of activities,

business model "design space."

'•I

i~! ~y _:;;_~ sh'f~;l)

*~ ,

'---'-"

A critical success factor in this phase is questioning industry

11 111

111\ltlOn

Working from the Established Company Perspective

Mapping/assessing existing business models Established organizations start with existing

console industry was building and selling cutting edge subsidized

business models. Ideally, mapping and assessing your current business model should be done in

consoles until the Nintendo Wii overturned commonly accepted

separate workshops involving people throughout the organization, at the same time ideas and

assumptions (see p. 82). Questioning assumptions includes

opinions for new business models are being collected. This will provide multiple perspectives

exploring the potential of "the low end" of established markets,

on the strengths and weaknesses of your business model, and provide the first ideas for new models.

Looking beyond the status-quo It is particularly challenging to see beyond the current business

the environment and assess trends, markets, and competitors,

model and business model patterns. Because the status quo is usually the result of a successful

remember that the seeds of business model innovation can be

past, it is deeply embedded in organizational culture.

found just about anywhere.

ob vious, but it

11 II ~C cl projects.

l)itl..'t'tinns

assumptio ns and established business model patterns. The game

as Scott Anthony points out in The Silver Lining. As you scan

11ll onllon is develop-

. . Âˇâ&#x20AC;˘

. ,_..,m-*

QOm mruÂˇ d b 1!!lll lill!l

Searching beyond the existing client base Searching beyond your existing client base is critical when seeking lucrative new business models. Tomorrow's profit potential may well lie elsewhere.

During the Understanding phase yo u shou ld also active ly seek input

Demonstrate progress Excessive analysis risks losing senior management support due to a

powerful tool

from varied sou rces, including customers. Start testing preliminary

perceived lack of productivity. Demonstrate your progress by describing customer insights or

challenge is

business model directions ea rl y by soliciting fe edback on Business

showing a series of business model sketches based on what you've learned from research.

Irorn the outset. " 111oy be applica ble

Model Canvas sketches. Bear in mind, though, that breakthrough ideas may encounter strong resistance.

253

!m I [illl\

Design

Adapt and modify the business model in response to market response

·--

254 • Bolo<lmc • Prototype • Test • Select

EC:.

KEY """"GERS

seek alternative revenue streams, and explore the value of multipl

• Co-create with people from across the organization

• Watering down or suppressing bold ideas

distribution channels. Try out different busin ess model patterns (SOl

• Ability to see beyond status quo

• Falling in love with ideas too quickly

UCCESS FACTORS

p. 52) to explore and test new possibilities.

l11dustry led to a partnership with micro!l t\111111 lltlnk, which became the corner st one or ( tl illl\1 1110del. Contrary to expert opinion, poOl' vl\ 11 114111

puy for mobile connectivity, and GramCOII\ 11111111 To t est potential business models with outsid e experts or prospectlvn

• Taking time to explore multiple business model ideas

clients, develop a narrative for each and seek feedback on your t ell In

The key challenge during the Design phase is to generate and stick

your model based on each and every co mment. You w ill hear feedbad

w ith bold new models. Expansi ve thinking is the critical success

such as "this won 't work, customers don't need it," "that's not doa bl..,,

factor here. In order to generate breakthrough ideas, team members

it goes against industry logic," or "the marketplace just isn't read y."

must develop the ability to abandon the status quo (current business

Such comme nts indicate potential roadblocks ahead but should not

models and patterns) during ideation. An inqu iry-focused design

be considered showstoppers. Further inquiry may well enable you t o

attitude is also crucial. Teams mu st take the time to explore multiple

successful ly refine your model.

of each model's "story." This is not to imply that you need to modi fy

Iqbal Quadir's quest to bring mobile telephony to poor rural villagers in Bangladesh in the late 1990s provides a powerful example. Most

Avoid "fa ll ing in love" with idea s too ea rl y. Take the time to th ink

industry experts rejected his idea, saying poor vi llagers were pressed by

through multiple business model options before selecting the one

more basic needs and wou ldn't pa y for mobile telephones. But seeking

you wa nt to implement. Experiment with different partnership models,

Working from the Established CompiiiiY I•

Prevent tamingofbold ideas Es t·ni!I IMitttd to water down bold business m odel

h l 1•11 ~

to defend their boldness -while n H~ \It li l jll overwhelming obstacles if implc nHi tll t•d To achieve this tricky b al ance

11 1'1 111 In

l'isk/reward profile of each m odel. 'l'li t• pl

ideas, because the process of exploring different paths is most likely to yield the best alternatives.

Illuding telecommunications provider.

feedback and developing contacts outside the te lecommunications

questions such as, What is the pl'ollt / IIIN" potential conflicts with existin g huNi ttUU thi s affect our brand? How wi ll cxi Ht 111 111 npproach can help you clarify

and 111ltl1 1

in each model. The bolder the m odt•l, til

I ox plore the value of multiple II business model patterns (see 1/llllos.

industry led to a partnership with microfinance institution Grameen

uncertainty. If you clearly define the uncertainties involved (e.g. new pricing mechanisms, new

Bank, which became the cornerstone of Grameenphone's business

Distribution Channels), you can prototype and test them in the market to better predict how the 255

model. Contrary to expert opinion, poor villagers were indeed willing to

model will perform when launched full-sc ale.

pay for mobile connectivity, and Grameenphone became Bangladesh's II outside experts or prospectiv

leading telecommunications provider.

1d ~ce k feedback on your telling

li11 1'\ need it," "that's not doabl e,

subsequently implemented is to be especially inclusive when assembling the design team. Cocreate with people from different business units, different levels of the organizational hierarchy,

l11 1ply that you need to modify ' 11111111ent. You will hear feedb ack

Participatory design Another way to improve the likelihood of having bold ideas adopted and

and different areas of expertise. By integrating comments and concerns from across the organiWorking from the Established Company Perspective

Prevent taming of bold ideas Established organizations tend

zation, your design can anticipate and possibly circumvent implementation roadblocks. Old versus new One big design question is whether the old and new business models should

lllttrketplace just isn't ready."

to water down bold business model ideas. Your challenge is

be separated or integrated into one. The right design choice will greatly affect chances of suc-

lliloc:ks ahead but should not

to defend their boldness -while assuring that they won't face

cess (see Managing Multiple Business Models, p. 232).

lli ljlllry may well enable you to

overwhelming obstacles if implemented. To achieve this tricky balance it can be helpful to draw a risk/ reward profile of each modeL The profile could include

Avoid short-termfocus One limitation to avoid is a short-term focus on ideas with large first-

year revenue potentiaL Big corpo rations, in particular, can experience huge absolute growth. A company with annual sales of U.S. $5 billion, for example, generates $200 million in new

1l1ony to poor rural villagers

questions such as, What is the profit/loss potential? Describe

revenues by growing at the modest rate of four percent. Few breakthrough business models can.

11PtlWerful example. Most

potential conflicts with existing business units. How might

achieve such revenues during their fi rst year (doing so would require acquiring 1.6 million new

poor villagers were pressed by

this affect our brand? How will existing customers react? This

customers, each paying an annual fee of $125). Therefore, a longer-term perspective is required

11111illo te lephones. But seeking

approach can help you clarify and address the uncertainties

when exploring new business models. Otherwise, your organization is likely to miss out on

l11 llio telecommunications

in each modeL The bolder the model, the higher the level of

many future growth opportuniti es. How much do you imagine Google earned in its first year?

_-_· -------· · ! ................ _....,

__._.

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--~r _

CUSTOM IU\

··I~~_!

~,!{!

Implement

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·~==:? - II ~f~~= =-:::=:.-:::-.= li, ~ ::::=::-..::.-::=::.-: ~~~g "' f\ ~i~~;~ 0

(\_Hffi

Implement the business model prototype in the field

!•

M•h• l •ll•"l

Mef.iflg Business Models Tangible?

·r-:m : .

• Communicate and involve

• Best practice project management

• Weak or fading momentum

• Execute

• Ability and willingness to rapidly adapt the business model

TIES

256

Business Model Generation focu ses on understa nding and deve lopin innovative business model s, but we'd also like to offer some suggestion s on implementing new business models, particularly within

• Align "old" and "new" business models

establi shed organizations.

I or example, when Skype st arted boCOI IIIII

lgning up tens of thousand s of now ll 'llt l a 1

llnmediately develop mechanisms to ('11~ 1 11\ lec dback and complaints. Oth erwl so,

HI' VIlli

11se r dissatisfaction would have brOIIHiiiii H

On ce yo u've arrived at a final busine ss model design, you will start translating thi s into an implementation design. This includes defining 11 11 related projects, specifying milestones, organizing any lega l structun, ,, prepa ring a detailed budget and project road map, and so forth. Th implementation phase is often outlined in a bu siness plan and itemiZlld in a project management document.

Working from the Established ComptmY h

Proactively managing "roadbloci<H" '1'1H most increases the likelihood

or 11111 •w I

success is in place long before nt lttld lnq

we are referring to the parti cipo iiOill d 1 Parti cul ar attention needs to be paid to managing uncertainties. Thi s implies closely monitoring how risk/ reward expectations play out agai nst actual results . It also means developing mechanisms to quick ly adapt yo ur bu siness model to market feedback.

the organization during the M oh\11 ~.111 De sign phases. Such a participulw y 11(1

established buy-in.and uncovered 1111"111

___

Mal:.ing Business Models Taf!gibfe?

__ ........ -.......--

Mal<"&the fulure Tangilo i!'

...

--- ·- ·- · ·--·--·~-........,.._ --~ ~

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m=m/~ =-~~~?!:.-!

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nc£ 0~/}f.AC

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dltlg and developing

For example, when Skype started becoming successful and was

mentation of the new model is even planned. Deep, cross-functional participation allows you to

In orfer some sug-

signing up tens of thousands of new users each day, it had to

directly address any concerns regarding the new business model before drawing the road map

l>tlrticularly within

immediately develop mechanisms to cost-effectively handle user

for its implementation.

feedback and complaints. Otherwise, skyrocketing expenses and

• Project sponsorship A second success element is the sustained and visible support of your

user dissatisfaction wou ld have brought the company to its knees.

project sponsor, something that signals the importance and legitimacy of the business model

ltl•,lgn, you will start

design effort. Both elements are crucial to keeping vested interests from undermining the

ill•, Incl udes defining nil

IHnny legal structure!,, 1p, nnd so forth. The I III~ S

1).1

plan and itemized

uncertainties. This

IIH JChanisms to quickly

successful implementation of a new business model. Working from the Established Company Perspective

Proactively managing "roadblocks" The single element that

most increases the likelihood of a new business model's

• Old versus new business model A third element is creating the right organizational structure

for your new business model (see Managing Multiple Business Models, p. 232). Should it be a standalone entity or a business unit within the parent organization? Will it draw on resources

success is in place long before actual implementation. By this

shared with an existing business model? Will it inherit the parent's organizational culture?

we are referring to the participation of people from throughout

• Communication campaign Finally, conduct a highly visible, multi-channel internal commu-

the organization during the Mobilization, Understanding, and

nication campaign announcing the new business model. This will help you counter "fear of the

Design phases. Such a participatory approach will have already

new" in your organization. As outlined earlier, stories and visualizations are powerful, engaging

established buy-in and uncovered obstacles before the imple-

tools that help people understand the logic of and rationale for the new business model.

257

·· --o-

...

..,....,_,_

flO!- - ·

_ ...... cuor-••- .. . - ......--c ·-1111

..... -·-··-• ,...,.,..u-

........... -~

Manage

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aa.&.-C OOI- .

c _ . ,.... ,,~,..,..

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Adapt and modify the business model in response to market reaction Tlv·-..-'s 258

• Scan the environment • Continuously assess your business model

• Long-term perspective • Proactiveness

• Becoming a victim of your own success, failing to adapt

• Governance of business models

• Rejuvenate or rethink your model

At least one person on the organizational strategy team-if not a n!IW

'ydc management, we all need to start thll1~ 111i

team-should be assigned responsibility for business models and

III II' current cash-generating business

their long-term evolution. Consider organizing regular workshops will!

lor tomorrow's marketplace.

m o dl1 1 ~ w

cross-functional teams to evaluate your business model. This will h(lll' you judge whether a model needs minor adjustments or a compl et

!loll disrupted the PC industry wh en It 111111111111

overhaul.

lormat and direct online sales. Over tho ynlll •, lully that it established itself as th e indut,\ 1V I

• Align business models throughout the enterprise • Manage synergies or conflicts between models

Ideally, improving and rethinking the organization 's business model

lnlled to fully rethink its once disrup tive 1111 ~1111

should be eve ry employee's obsession rather than something that

I he industry landscape has changed,

preoccupies only top management. With the Business Model Canvas you now have a formidable tool w ith which to make business models

0!111 11~1 1 In a commoditized PC market, w hile ~rnw ll1 oll lsewhere, lie outside its reach .

clear to everybody throughout the enterprise. New business model For successful organizations, creating a new business model or

ideas often emerge from unlikely places within an organization. 1

Working from the Established Comprmy 1'111

rethinking an existing one is not a one-time exercise. It's an activity

Business Model Go'J'ernance CO t1Hldi ' t 1·~'

that continues beyond implementation. The Manage phase includes

Proactive response to market evolutions is also increasingly important

continuously assessing the model and scanning the environment

Consider man aging a "portfolio" of business models. We live in the

model governance" authority to h t'1P 11111

to understand how it might be affected by external factors over the

business model generation, a time when the shelf life of successful

models across the enterprise. Thl ~ Hl'lllll'

long term.

business models is shrinking quickly. As with traditional product life-

orchestrate business models, engn!{\1Hlitl

____,_ ------1 -_

.,.

~-- ~

1 1~ ~-'""•' · ~

- ·

.....

i"I::.-t __ I

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~~~"j

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,_..... _,.

vation or redesign projects, and track the overall evolution of the organization's business mod-

our curre nt cash-generating business models with growth models

els. It should also manage the "master" business model that describes the entire organization. This master template could serve as the starting point for each business model project within the organization. The master business model would also help different functional groups, such

Dell disrupted the PC industry when it introduced the bu ild-to-order format and direct online sales. Over the years, Del l grew so success-

business models

l~ i-:

cycle management, we all need to start thinking about replacing for tomorrow's marketplace.

1m1•• Model Ca nvas

INFORMED DESIGN

"--& -

I. This will holp

r a complet

JJtrect rons

as operations, manufacturing, or sales align with the organization's overarching goals. Manage synergies and conflicts One of the business model governance authority's main tasks

fully that it established itself as the industry leader. But the company

would be to align business models with each other to exploit synergies and avoid or manage

fa iled to fully ret hi nk its once disrupt ive business model. Now that

conflicts. A Canvas document describing each business model in the organization would help

the industry landscape has changed, Dell risks remaining stuck

illuminate the big picture and achieve better alignment.

in a commoditized PC market, while growth and profits, generated elsewhere, lie outside its reach.

il11slness model

Business model portfolio Successful, established companies should proactively manage a

"portfolio" of business models. Many formerly successful companies in the music, newspaper, and automotive industries failed to proactively examine their business models and slid into crisis as a result. A promising approach to avoiding this fate is to develop a portfolio of business

Working from the Established Company Perspective

Business Model Governance Consider establishing a "business

. We live in the 1/ 11 of successfu l lill ltl l product life-

models whereby cash-generating businesses finance business model experiments for the future. A beginner's mindset Maintaining a beginner's mindset helps keep us from becoming victims

model governance" authority to help better manage business

of our own successes. We all need to constantly scan the landscape and continuously assess our

models across the enterprise. This group's role would be to

own business models. Take a fresh look at your model regularly. You may need to overhaul a

orchestrate business models, engage stakeholders, launch inno-

successful model sooner than you thought.

259

WHAT ELSE?

Prototyping is potentially the most important part of the book and tools provided. My reasoning is based upon the stress and resistance that established organizations are facing in the process of innovating their own business models. Therefore a very potent strategy is prototyping-in order to create buy-in processes needed. Terje Sand, Norway

260

Typically when an organization looks at improving their business model, it is as a result of gaps. Visualizing your current business model can demonstrate the logical gaps that exist and make them tangible as action items. Ravila White, United States

In established companies, there are often ample physical "product ideas" that never get serious consideration because they don't immediately fit the prevailing business model.

A business model is the

Gert Steens, Netherlands

of the company (actual or prospc< llv.• 1 A business plan is the "guidelineilllilu· action" or the"full story."

Do not get too attached to the first idea or implementation.

Fernando Saenz-Marrero, Spa ill

Build in feedback loops and monitor early warning signals to explicitly cha llenge your original concept and be willing and able to completely change it if required. Erwin Fielt, Australia

The freemium business model as the reverse of insurance-insightful! Makes me want to turn other models upside down' Victor Lombardi, United States

"CORE CONTENT" or the

"SHORT STORY"

When I work with non-profits the 111 •,1 thing I tell themis that they in facl lhiV• a"business" (model) in that they 11111'•1 create and capture value. whether ll hli value comes from donations, subscrlp lions, and so on. Kim Korn, United States

n •llll' lhing to map out a , 11 .,\111'~~ Model Canvas. But for lllliP, abusiness model that in ·••II h ,1 breakthrough innovation. 11h lu•lplul to use tools used to uttlll' breakthrough innovation in 1ilu•llndustries, such as in design. 11~ 11 l)i Resto, United States

Karl Burrow, Japan

If solvl

~ltlvind uses the Freemium Business

hlll\l dl'

MtidPilo enable FREE eye surgery hu lhc poor in India. Business model 1111111valion can really make a difference!

pro\J\1

\w lers Sundelin, Sweden

rei \1 \11 isP,('\1 w\1 01

I fi nd that although 1nost managers

Begin with the end in mind while taking the end client perspective.

lhalll111V1 1 II'·' USOI PXPI'i\1'111 ICWYI'ill'• l li. \b\y (1\\l •i \\VI rir'ik V /11/11

11nderstand strategy

mocl i s IIH tool l

c o ncepts, they

C0\1 \1

have a tough time

illi\)\ 1

a pplying these

\WW

c oncepts at their

N11/rlll

\e ve\ of the o rganization. llowever, discussions about business models connect the high-level concepts to day-to-day decisionmaking. It's a great middle ground. Bill Welte r, United States

l'li lill\1 ol\11 111\1 11 111\1111

ll~jl\il\ 1

(IIIII !VI IIIIW

11111'•11 ll lltll 111\1•~\1

/l11/i

It's one thing to map out a Business Model Canvas. But for creating a business model that in itself is a breakthrough innovation, it is helpful to use tools used to create breakthrough innovation in other industries, such as in design. Ellen Di Resta, United States

(dl lild/ 01J)I O~Jli'I / /Vt•J 1•, l/11• "guld0ihll•iolll l1 "/iii/ •,IIJiy,"

Aravind uses the Freemium Business Model to enable FREE eye surgery for the poor in India. Business model innovation can really make a difference!

wil l! 11011 profit~ lhc lh•,/ I/<. 1/i,i[llicy in fac l/idVI• 11 1111 /1•/) lnlhallhcy IIIII'• / ill il l' Vd luc, whclllCI li1111

Anders Sundelin, Sweden

rip lflt•tl Stol es

with the mind l·aking cl client ,rtive. lrllltltl

•

I find that although most managers understand strategy concepts, they have a tough time applying these concepts at their level of the organization. However, discussionsabout business models connect the high-level concepts to day-to-day decisionmaking. It'sagreat middleground. Bill Welter, United States

Personas, Scenarios, Visualization, Empathy maps, and so on are techniques that I have used since the late 1990s in user experience typeprojects. In the last few years I have seenthat they areincredibly effective at a strategy/business level. Eirik V Johnsen, Norway

YOU R

BUSINESS

MODEL IS NOT YOUR

If solving humanity's current problems requires rethinking how value is generated and for whom, then business model innovation is the premier tool to organize, communicate, and implement that new thinking. Nabil Harfoush, Canada

I'm interested in hearing how people are integrating technology ideas into their models using the Canvas. We've explored adding it as a separate layer (above or below financial) but have now settled on integrating it as notes on each of the 9 key areas. From this we then step back and develop a separate integrated technology plan. Rob Manson, Australia

Many of my clientsdo not have a holistic view of their business model and tend to focus on trying to address theimmediate problem. The Business Model Canvas provides a framework that helps clarify the why, who, what, when, where, and how. Patrick van Abbema, Canada

BUSINESS It's a method of inquiry to help you understand what to do next. Testing and iteration is key. Matthew Milan, Canada

Multi-sided platforms are actually rather easy at the business mode/ level; the difficulty comes in execution: attracting the "subsidized side," pricing on both sides, vertical or horizontal integration, how to change the business model in step with the size of the market on each side. Ham pus Jakobsson, Sweden

BUSINESS MODEL INNOVATION COM Bl N ES creativity WITH A structured approach-THE BEST OF BOTH WORLDS . Ziv Baida, Netherlands

I love the idea of using these tools to design businesses and to tinker under the hood of the engine of an organization. Michael Anton Dila, Canada

We have been working too long and too hard for companies with bad or improper business models. Lytto n He, China

The termbusiness model is thrown around a lot and more frequently than not to mean an incomplete understanding of what makes a business a business (mostly just the financial/revenue aspect). Livia Labate, United States

Business model innovation isone of the

LEAST USED & MOST POWERFUL waysto create sustainableprofit growth, economic development and create new 'markets' and 'industries'. Deborah Mills-Scofield, United States

There arethousands of business models to be investigated and many thousands of people who are interested in them. Steven Devijver, Belgium

Simplicity is very important to explain the patternsand to trigger the nonprofessional's involvement in business innovation. Gertjan Verstoep, Netherlands

261

•

We hope wc'VI' •.l1

challengers c.111 I we've providl'd v• the dynamic. <~PPH new models. B111 1 topics, each ol wl

UtLOO

The first exa111111 drive busin<'''" 111 The second '•ll~\ leverage th(' P•ll'l of busineso:. rnorl business nwd• I arise when ilnpl organization•. I model and II ,,1

We hope we've shown you how visionaries, game changers, and challengers can tackle the vital issue of business models. We hope we've provided you with the language, the tools and techniques, and the dynamic approach needed to design innovative and competitive new models. But much remains to be said. So here we touch on five topics, each of which might well merit its own book. The first examines business models beyond profit: how the Canvas can drive business model innovation in the public and non-profit sectors. The second suggests how computer-aided business model design might leverage the paper-based approach and allow for complex manipulation of business model elements. The third discusses the relationship between business models and business plans. The fourth addresses issues that arise when implementing business models in either new or existing organizations. The final topic examines how to better achieve business model and IT alignment.

Villagers in BtiiiUinilt•llt to afford phono~. "' ' '' partnered w/1'11 (/l r lltl ~' micro finance /n ~ ll/ 11 / /1 11 women w/tllnl/l illlllllll

Beyond-Profit Business Models The application of the Canvas is in no way limited to for-profit corporations. You can easily apply the technique to non-profit organiza-

its efforts to end poverty and social injustice. Th ird parties rarely

tions, charities, public sector entities, and for-profit social ventures.

expect to receive direct econom ic benefit s from the exchange, unllk

Every organ ization has a bus iness model, even if the word "business" is not used as a descriptor. To survive, every organization that creates and delivers va lue must generate enough revenue to cover its

mobile phono~. // 1•• w•;

donors to Oxfam, a large U.K. non-profit orga ni zatio n, help fi nan c(•

services In t/11111 v/1/riUI earned in conw, 11111/ IIt their social lltlill

advertisers- who are players in fo r-profit business models wh ich also featu re third party financing. One risk of the t hi rd-party enterprise model is that va lue creatl011

expenses. Hence it has a business model. The difference is merely a

incentives can become misa ligned. The th ird-party finance r becom1 •

matter of focus: the for-profit business's goal is to maximize earnings,

the main "customer," so to speak, whi le the rec ipient becomes a

whi le the organizations discussed in the following pages have strong

mere rece iver. Since the very existence of the ent erprise depends 011

non-financ ial m issions focused on ecology, social causes, and public

contribut ions, the incent ive to create va lue for donors may be stron

service mandates. We find useful entrepreneur Tim Clark's suggestion

ger than t he incentive to create value for rec ipients.

Ki>

INCOMI

OPP ORTUN t ~ V NETWORK

CONSORTIUM

MOiliLG \ COMMUNICA, 1ti N\

(TEL ENOR)

that the term "enterprise model" be applied to such organizations. We distingu ish between two categories of beyond-profit mode ls:

are bad and rec ipient -funded business models are good. Conven-

third -party funded enterprise models (e.g. ph ilanthropy, char it ies,

t ional businesslike selling of products and services doesn't always

government) and so-called triple bottom line business models with a

work: education, hea lthcare, and utili ty services are clear examples.

strong ecological and/or social m ission ("triple bottom li ne" refers to

There are no simple answers to t he questions ra ised by t hi rd-pa rty

the practice of accounting for environmental and socia l, as well as finan-

financed enterprise models and the resu lt ing ri sks of m isa ligned

cia l, costs). It is mainly the source of revenue that distinguishes these

incentives. We must explore wh ich models make sense, then strive

two, but as a direct consequence they have two very different business

to des ign optima l so lutions.

model patterns and drivers. Many organi zat ions are experiment ing with blending the two models in order to exploit the best of both.

Third-Party Funded Models In this type of enterprise model, the product or service recipient is not the payer. Products and services are paid for by a th ird party, which m ight be a donor or the publ ic sector. The t hird party pays t he organization to fulfi ll a mission, wh ich may be of a social, ecological, or public service nature. For example, government (and ind irectly, taxpayers) pays schools to deliver education services. Likewise,

U"M~ VII I ~

Al l th is is not to say that third-party funded enterprise models (

264

(II

:cR

MISSION

cs "DONOR"

· ~ ·m·r

.·T: iCH·· · · .

'----:------DONATION

- -- - - c -_j

\R'/,

'/, NETWORK

mrial and environmental costs

!.liM

Villagers in Bangladesh were too poor to afford phones, so Grameenphone partnered with Grameen Bank, the microfinance institution, to provide focal women with microfoans to purchase mobile phones. The women sold calling services in their villages, repaid the loans, earned income, and thereby improved their social status.

loii ilta tion, help finance

It!, l'hlrd parties rarely IIIII th e exchange, unlikn

lnoss models w hich

In/I s that va lue creat ion

Triple Bottom Line Business Models

)trll ty financer becom e~ 111 lplent

Earlier we shared the story of how Iqbal Quadir, an in vestment

becomes a

banker in New York, set out to build Grameenphone. His goa l was to

nlorp ri se depends on INCOM E OPPORTUN ITY

:CH..

\ _.

~----··..

.. ~

V IL LAGE PHONE LADIES

MOB ILE \ :' JI4'VI 1 LL AGERS COMMUNICATI ON\ GRAMEEN B A ;/I / K \ :

" ' LLAGE PHONE

~ LAD IES

: :

11 0 good. Conven COMMUNICATION IN COME

111 o clea r exa mples.

til •tod by th ird-party

Banglad esh. Grameenphone eventually provided over 200,000

socia l status, connected 60,000 villages to a mobile phone network, reached 100 million peop le, turned a profit, and became t he Bangla-

social and environmental costs

deshi government's biggest taxpayer.

f misaligned 11 •,onse, the n

rural areas of hi s home country of Bangladesh. He achieved hi s aim w ith a for-profit model that had a profound, positive impact on rural

women in rural areas w ith income-earning opportun ities, raised the ir

t)~ doesn't always

provide universal access to telecommunications services in remote,

To accommodate triple bottom line business models, we can

strive

extend the Canvas with Blocks illustrating two outcomes: (1) the social and environmental costs of a business model ( i.e. its negative impact), and (2) the social and environmenta l benefits of a bu siness model ( i.e. its positi ve impact) . Ju st as earnings are increased by minimi zing financial costs and maximizing income, the trip le bottom Grameenphone went beyond establishing near universal access to telephone service and earning a profit. It also had substantial social impact by providing "village phone ladies" with earning opportunities and improved social status.

line model seeks to minimize negative social and environmenta l impacts and max imize the posi ti ve.

Computer-Aided Business Model Design LAD's Influence Past, Present and Futurt

Improving t he process

1\n example fro m the field of archi tocltlll l 1 ~ It

Mike, a senior business analyst with a large financial group, wraps up the first of a two-day workshop he is facilitating with a group of 24

I lilt power of co mputer-a ided design. in l ilu iiJIIIl

execut ives. He collect s the business model prototypes and ideas that

I tllnp ute r- A ided Design (CAD) syst emR•tl i11\ tltl

participants sketched on large Canvas posters and hurries to his office.

111 ordab le and slow ly were adopted by Utt li\l t11l

There, Mike and his team enter the ideas into a collaborative

liltide it mu ch ea si er and ch eaper for arcltll1111 ~ I

computer-aided business model design program to further develop

!lltlnsionalmodels and prototy pes. They il tlllifl \11

the prototypes. Other business analysts working overseas add

IIIIProved coll aborati on, simul at ion, and

resource and activity cost estimates, as well as calculations of

lt ii C practices, Cumbersome manual lan k~, ••lit II

potential Revenue Streams. The software then spits out four different

litH and blu eprint sh aring, were eli mln atml, 111111

financial scenarios, with business model data and prototype diagrams

opportun ity, such as ra pid visual 3-D ox plrll til\111

for each plotted on large posters. The following morning Mike pres-

111~en ed up. Today paper-based sketching !II HI I

ents the results to the executives, who have gathered for the second

llolch method ret aining its ow n stren!{li1 '• tllld II

each prototype. This scenario doesn't yet describe reality, but that is changing

Scratching t he Surface: a Prototype

1 ould make many t asks easier and qulckut,

will\

The Business Model Toolbox makes the creation, storage, manip-

rapidly. A Business Model Canvas printed on a large poster and a big

ulation, tracking, and communication of business models far easier.

box of Post-it notes will always be a very powerful tool for triggering

The toolbox also supports collaborative work on business models

creativity and generating innovative business model ideas. However,

for geographically disparate teams. With this software our aim is

we extended this paper-based approach with the help of the

to bring the same compute r support to business models than what

computer, the Internet. and the iPad. Turning a prototype business

we take for granted when we design, simulate, and build airplanes or

Paper-based

• Paper or post er-based Ca nvn •a and used ju st about anywh OII Paper an d poster-based Co tlVII MIIMilll

Ill

1)1)

model into a spreadsheet is time-consuming, and each change to the

develop software across continents. Inventing innovative business

prototype usually requires a manual modification of the spreadsheet.

models certainly requires human creativity, but computer-aided sys-

Therefore we developed the Business Model Toolbox, Web and iPad -

tems can help us manipulate business models in more sophisticated

based platform that combines the speed of a napkin sketch with the

and complex ways.

smarts of a spreadsheet.

In t he realm of business models, too, 1111111 11

day of their workshop to discuss the pot ential risks and rewards of

266

i ll l ll t~ l pi

....Illc

Ill

> 'tl

no need to lea rn a speci fic CCl ltljilllill • Very intuiti ve and engaging ill fllllll\1 Fosters creati vity, spurs ldou tlllll Wllttl

:£

•

Try our prototype of computer aided business model editor free

at www.businessmodeltoolbox.com

bu si ness models • Collaborative"brainsto rmlnH Hll•- 111111

'8:: <(

•

Napki n sketches to draw, ut lil lll ~ l rll l

bu sin ess model ideas Co llaborative assessm ent <J IItti ~ llli

CAD's Influence Past, Present and Future An example from the field of architecture is helpful in illu strating the powe r of computer-aided design. In the 1980s so-called Computer-Aided Design (CAD) systems started becoming more

unseen opportunity. At the least, CAD systems could help visualize, store, manipulate, track, annotate, and communicate business models just as the Business Model Toolbox does. More complex functions could involve manipulating layers or

affordable and slowly were adopted by architectural firms. CAD

business model versions, or moving business model elements

made it much easier and cheaper for architects to create threedi-

dynamica lly and evaluating the impact in rea l-time. Systems might

mensionalmodels and prototypes. They brought speed, integration,

facilitate business model critiquing, provide a repository of business

improved collaboration, simulation, and better planning to architec-

model patterns and off-the-shelf building blocks,simulate models,

ture practices, Cumbersome manual tasks, such as constant redraw-

or integrate with other enterprise systems (e.g. ERP or business

ing and blueprint sharing, were eliminated, and a w hole new world of

process management).

opportunity, such as rapid visual 3-D exploration and prototyping,

Computer-ai ded business model design systems like the Business

ope ned up. Today paper-based sketching and CAD happily co-exist,

Model Too lbox will likely evolve in step with interface improvements.

each method retaining its own strengths and weak nesses.

Manipulating business models on wa ll-sized touch screens wo uld

In the realm of business models, too, computer-aided systems could make many tasks easier and quicker, whi le revealing as-yet

Paper-based

bring computer-aided design closer to the intuitive paper-based approach and improve usabi lity.

Computer-aided

Paper or poster-based Canvases can be easily created

Easy to create, store, manipulate, and track business models

Ill

and used just about anywhere

...

Paper and poster-based Canvases impose few barriers: no need to learn a specific computer application

• Enable remote co ll aboration • Quick, comprehensive financial, other simulations

Very intuitive and engaging in group settings

systems, business model database, pattern ideas,

Fosters creativity, spurs ideation when used on large surfaces

control mechanisms)

Ill

c 0

;; Rl

• Napkin sketches to draw, understand, or explain business models

ii.

• Collaborative brainstorming sessions to develop business model ideas

• Collaborative assessment of business models

Provide business model design guidance (critiquing

Collaborative busin ess model design with remote teams Complex manipulations of business models (navigation, business model layers, merging models) Deep, comprehensive analysis

267

Business Models and Business Plans The purpose of a business plan is to describe and communicate a

Financial Analysis

for-profit or non -profit project and how it can be implemented, either

This is traditionally an important business plan component th tl l

inside or outside an organ ization. The motivat ion behind the busi-

attracts much attention. You can make pro form a ca lcul ation s IJw·•'"

ness plan may be to "sell" a project. either to potential investors or

on your Canvas Building Blocks and estimate how many cust 0111111

internal organizationa l stakeholders. A business plan may also serve

can be acqu ired. Include elements such as breakeven ana lysi s, btl it

as an implementation guide.

scenarios, and operating costs. The Canvas can also help with Cl ljlil ·•l

In fact, the work you may have done designing and thinking

spend ing calculat ions and other impl ementation cost estimate•,

through your own business model is the perfect basis for writing a

Total cost, revenue, and cash flow projections determine your fu111l

strong business plan. We suggest giving business plans a five-section

ing requirements.

structure: The Team, The Business Model, Financial Ana lysis, External Environment. Implementation Roadmap, and Risk Analysis.

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268

The Team

positioned with respect to the external environm ent. Th e four exter1111l

One business plan elem ent t hat vent ure capitalists particularly

forces covered earlier (seep. 201) provide the basis for this descrip·

emphasize is the management team. Is the team experienced, knowl-

tion . Summarize your business model's competitive advantages.

11111111

edgeable, and connected enough to accomplish what they propose? Do the members have successful track records? High light why yo ur

Implementation Roadmap

team is the right one to successfully build and execute the business

This sect ion shows the reader what it will take to impl ement your

model you propose.

business model and how you w ill do it. Include a summary of all

II II VI

proj ects and the overarching milestones. Outline the implementati011

The Business Model

agenda with a project roadmap that includes Gantt charts. Projects

Thi s sect ion showcases the attractiveness of the business model.

can be derived directly from your Canvas.

htllll

Use the Canvas to provide readers with an immediate visua l portrait of your model. Ideally, illustrate t he elements w ith drawings. Then,

Risk Analysis

describe the Value Proposition, show evidence of customer need,

In closing, describe limiting factors and obstacles, as we ll as critical

and explain how you w ill reach the market. Use stories. Highlight th e

success factors. These can be derived from a SWOT ana lysis of your

attractiveness of your target segments to pique the reader's interest.

business model (seep. 216).

Finall y, describe the Key Resources and Activit ies needed to bui ld and execute the business model.

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THE TEAM

• Ma nagement Profile

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• Why We Are a Win ning Team

THE BUSINESS MODEL

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How Our Business Model Works Value Proposition Target Markets M arketing Plan Key Resources and Activ ities FINANCIAL ANALYSIS

Brea keve n A nalys is Sales Scenari os and Projections

financia l spreadsheets

Capita l Spending Operating Costs Funding Requi rements EXTERNAL ENVIRONMENT

Th e Economy

environmental analysis

Market Ana lysis and Key Trends Competitor Analysis

Compet iti ve Adva ntages of Our Busine ss Model

l implementation roadmap

IMPLEMENTATION ROADMAP

Proj ects

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Milestones Road map

RISK ANALYSIS

SWOT and uncertainty analysis ll t i i Y•• I ~

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Limiting Factors and Obstacles Critical Success Factors Specific Ri sks and Countermeasures

CONCLUSION ANNEXES

Implementing Business Models in Organizations We've laid out the fundamentals of business model innovation,

Processes

explained the dynamics of different patterns, and outlined tech-

Each business model demands different processes. Operations

niques for inventing and designing models. Naturally there is much

run under a low-cost business model should be lean and highly

more to say about the implementation that is critical to a business

automated. If the model calls for selling high-value machines, quall ly

model's success.

processes must be exceptionally rigorous.

Skills/mlndlllt

We've already addressed the question of how to manage multiple business models (see p. 232). Now let's turn to another aspect of

Rewards

implementation: turning your business model into a sustainable

Different business models require different reward systems. A rewatd

enterprise, or implementing it in an existing organization. To illus-

system must use appropriate incentives to motivate workers to do

trate, we've combined the Canvas with Jay Galbraith's Star Model to

the right things. Does your model require a direct sales force to

suggest aspects of organizational design you may want to consider

acquire new customers? Then your reward system should be highl y

when executing a business model.

performance oriented. Does your model depend heavily on custom er

Galbraith specifies five areas that should be aligned in an organi-

satisfaction? Then your reward system must reflect that commitm en l

zation : Strategy, Structure, Processes, Rewards, and People. We place the business model in the middle of the star as a "center of gravity" that holds the five areas together.

People Certain business models call for people with particular mindsets. For example, some business models call for particularly entrepreneurial

Strategy

mechanisms to bring products and services to market. Such model s

Strategy drives the business model. Do you want to grow 20 percent

must give employees significant leeway, which means hiring proac路

in new market segments? Then that should be reflected in your

tive, but dependable, free-thinkers.

business model in terms of new Customer Segments, Channels, or Key Activities.

Structure The characteristics of a business model determine the optimal organizational structure for its execution. Does your busin ess model call for a highly centralized or decentralized organizational structure? If you will implement the model in an established business, should the new operation be integrated or spun off (see p. 233)?

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What are your strategic goals? How do they drive the business model?

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Skills/mindset What kinds of people with what skiffs does your business model require? What type of mindset is needed?

:KP

Power What type of organizational structure does your business model require?

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Information

What reward system does your business model require? How can you motivate your people?

What information flows, processes, and workflows does your business model require?

Aligning IT wit h Business Aligning information systems and business goals is fundamental

Authors Weill and Vitale propose another interesting way to

to the success of an enterprise. Chief executives officers ask their

explore IT alignment. They pair categories of IT infrastructure servl '

chief information officers (CIOs), Do we have the right IT? How do

with business models. We ill and Vitale propose align ing business

we know? How can we best align our business w ith our technology

models with application infrastructure, communications manage-

systems?

ment, data management, IT management, security, IT architecturo,

Information technology research and advisory firm Gartner highlights this issue in a report cal led "Getting the Right IT: Using Business Models." Gartner asserts that the Business Model Canvas

and education. On the opposite page we've brought these eleme nts together in

is a powerful tool that helps CIOs quickly grasp how a business

a graph ic to help you pose some fundamental questions regarding

works without getting bogged down in operational detai ls. Gartner

business and IT alignment.

recommends that CIOs use the Business Model Canvas to align IT

strategy

and key business processes. This helps them align business and IT

business model

decisions without diving too deeply into tactical issues. We find it useful to pair the Canvas with an Enterprise Archi-

272

channel management, IT research and development, and IT trainii1H

tecture approach. Many of the various Enterprise Architecture concepts describe the enterprise from three perspectives: the business perspective, the applications perspective, and the technology perspective. We recommend using the Canvas to guide the business perspective, then align the business with the appli cations and technology perspectives. In the application perspective, you describe the portfolio of appl icat ions that leverage aspects of your business model (e.g. recommendation systems, supply chain management application s, etc.) and you describe all the business model's information requirements (e.g. custome r profi les, warehousing, etc.). In the technology perspective you describe the technology infrastructure that drives your business model (e.g. server farms, data storage systems, etc.) .

operational models

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strategy business model operational models

How can IT support the processes and

Where in my business model does

workflows required by my business

security play an important role and

models?

how does that influence my IT?

What informationÂˇ do I need to capture, Do I need to invest in IT training store, share, and manage to improve my and education to leverage my busin ess business model?

model?

How does my application portfolio

Could in vestments in IT research

leverage the specific dynamics of

and development improve my business

my business model?

model in the future?

How will IT architecture, standards, and interface choices limit or leverage my business model? Which technology infrastructure is required and cruc ial to the success of my busi ness model (e.g. server farm s, commu nicat ions, and so on)?

CONTEXT

274

WHERE DID THIS BOOK COME FROM? "~

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2004: Alexander Osterwalder completes a Ph.D. dissertation on the topic of business model innovation with Professor Yves Pigneur at HEC Lausanne, Switzerland. Fast forward. 2006: The approach outlined in the dissertation starts being applied around the world based on Alexander's business model blog, notably in companies such as 3M, Ericsson, Deloitte, and Telenor. During a workshop in the Netherlands Patrick van der Pijl asks "why is there no

book accompanying the method?" Alexander and Yves take up thechallenge. But how does one stand

out in a market where countless strategy and management books are published every year?

INNOVATING

MADE lN.

KEYAUDIENC

and THE MODEL visionary game changing ... Alexander and Yves decide they can't credibly write a book about entrepreneurs I business model innovation withconsultants I out an innovative business model. Theyditch publishers and launch the executives

Wrllten: Lausanne, CH Iluslgned: London, UK I 11ited: Portland, USA l11iotographed: Toronto, CA PIeduced: Amsterdam, NL I vents: Amsterdam &Toronto

Hub, an onlineplatformto share their writings from day one. Anybody with an interest in the topic can join the platformfor afee (initially U.S. $24, which isgradually raised to U.S. $243 to keep the platform exclusive). That this and other innovative Revenue Streams financethe book production in advance itself isan innovation as well. It breaks the format of conventional strategy and management books in order to create more value for readers: it is co-created highly visual, and complemented by exercises and workshop tips.

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Written: lausanne, CH Designed: london, UK Edited: Portland, USA Photographed: Toronto, CA Produced: Amsterdam, Nl Events: Amsterdam & Toronto

PROCESS

The core team, consisting of Alexander, Yves, and Patrick start the project with a number of meetings to sketch out the business model of th e book. The Hub is launched to co-create the book with business model innovation practitioners throughout the world. Creative Director Alan Smith of The Movement hears about the project and puts his company behind it. Finally,

Hub member Tim Clark joins the core team after recognizing the need for an editor. The group is completed by JAM, a company that uses visual thinking to solve business problems. An engagement cycle is started to pump fresh "chunks" of conten t out to the Hub community for feedback and contribu tions. The writing of the book becomes completely transparent. Content, design, illustrations, and structure are constantly shared and thoroughly commented upon by Hub members worldwide. The core team responds to every comment and integrates the feedback back into the book and design. A "soft launch" of the book is organized in Amsterdam, Netherlands, so members of the Hub can meet in person and share their experiences with business model innovation. Sketching out participant business models with JAM becomes the

core exercise of the day. Two hundred special limited edition prototypes of the (unfinished) book go to prin t and a video of the writing process is produced by Fisheye Media. After several more iterations the first print run is produced.

TOOLS USED

THE NUMBERS

STRATEGY:

• Environmental Scanning • Business Model Canvas • Customer Empathy Map CONTENT AND R&D:

• Customer Insights • Case Studies OPEN PROCESS:

• Online Platform • Co-Creation • Access to Unfinished Work • Commenting & Feedback DESIGN:

• Open Design Process • Moodboards • Paper Mockups • Visualization • Illustration • Photography

years of research and practice

470 co-authors

19 book chunks

8 prototypes

1,360 comments

45 countries

137,757 views of method online before book publishing

13.18 GB of content

200 28,456 copies of a messed up test print

77 fo rum discussions

287 Skype calls

Post-it'M notes used

4,000+ hours of work

521 photos

275

REFERENCES

MARKET RESPON

Boland, Richard Jr., and Collopy, Fred. Managing as Designing.

Markides, Constantinos C. Game-Changing Strategies. How to

Stanford: Stanford Business Books. 2004.

Create New Market Space in Established Industries by Breaking the

Buxton, Bill. Sketching User Experience, Getting the Design Right and the Right Design. New York: Elsevier. 2007.

Denning, Stephen. The Leader's Guide to Storytelling: Mastering the Art and Discipline of Business Narrative.

San Francisco: Jossey-Bass. 2005.

Rules. San Francisco: Jossey-Bass. 2008.

!"he market response to Business M otli •l r "'" xtremely gratifying. The first print r1111 1d '•

Med ina, John. Brain Rules: 12 Principles for Surviving and Thriving

out in two mo nths, with no marketln}-•, 11111\

at Work, Home, and School. Seattle: Pear Press. 2009.

support of a traditional publisher. N1•w•. o~ l •

Moggridge, Bill. Designing interactions. Cambridge: M IT Press. 2007.

xclusively by word-of-mouth, blog!,, W••l • rwitte r. Most gratifying of all, loca il11i'l' l1 11

O'Reilly, Charles A., Ill, and Michael L. Tushman. "The

Hub followers got together to di sCU'•'• illl'•li

Ga lbraith, Jay R. Designing Complex Organizations. Reading:

Ambidextrous Organization." Harvard Business Review 82,

Uon 's content, formed spontaneously Willi•

Addison Wesley. 1973.

no. 4 (April 2004) 74-81.

Goodwin, Kim. Designing for the Digital Age: How to Create

Pil lkah n, Ulf. Using Trends and Scenarios as Tools for Strategy

Human-Centered Products and Services. New York: John Wiley &

Development. New York: John Wiley & Sons, Inc. 2008.

Sons, Inc. 2009. Harrison, Sam. ldeaspotting: How to Find Your Next Great Idea. Cinc innati: How Books. 2006.

276 Heath, Ch ip, and Heath, Dan. Made to Stick. Why Some Ideas Survive and Others Die. New York: Random House. 2007.

Hunter, Richard, and McDonald, Mark, "Getting the Right IT: Using Business Models." Gartner EXP C/0 Signature report, October 2007. Kelley, Tom, et. al. The Art of Innovation: Lessons in Creativity from IDEO, America's Leading Design Firm. New York: Broadway

Business. 2001. Ke lley, Tom. The Ten Faces of Innovation : Strategies for Heightening Creativity. New York: Profile Business. 2008.

Kim, W. Chan, and Mauborgne, Renee. Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant. Boston: Harvard Business Sc hoo l Press. 2005 .

Pink, Dani el H. A Whole New Mind: Why Right-Brainers Will Rule the Future. New York: Riverhead Trade. 2006.

Porter, Michael. Competitive Strategy: Techniques for Analyzing Industries and Competitors. New York: Free Press. 1980.

Roam, Dan. The Back of the Napkin. Solving Problems and Selling Ideas with Pictures. New York: Portfolio Hardcover. 2008.

Schrage, Michael. Serious Play How the World's Best Companies Simulate to Innovate. Boston: Harvard Business

School Press. 1999. Schwartz, Peter. The Art of the Long View: Planning for the Future in an Uncertain World. New York: Currency Doubleday. 1996.

Stabell, Charles and Fje ldstad, 0ystein, "Configuring Value for Competitive Advantage: on Chain, Shops, and Networks," Strategic Management Journal, no.19, 1998: 413-437.

Weill, Peter, and Vitale, Michael. Place to Space: Migrating to Ebusiness Models. Boston: Harvard Business School Press . 2001.

#BMGEN @business_design Three steps to effective use of "Business Model Generation": 1) Buy book 2) Test live 3) Be amazed ;-) http//bitly/OzZhO

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MARKET RESPONSE The market response to Business Model Generation has been

Still quiet in the house this sunday morning. Enjoying a cappuccino and reading Business Model Generation. @hvandenbergh

extremel y gratifyi ng. The fi rst print run of 5,000 books sold out in two months, with no marketing budget and without t he su pport of a trad itional publisher. News about t he book spread exc lusively by word -of-mouth, blogs, Web sites, e-mail, and Twitter. Most gratifying of all, loca l meetups, w here reade rs and Hub followers got together to discuss Business Model Generation's content, for med spontaneously worldwid e.

of Business Model Generation - looks to be asbeautifully made as it is useful. Congratsl @francoisnel

I have a dilemma now: to catch up on class reading or have fun with Business Model Generation by @business_design... @vshamanov

@business_design I am BLOWN AWAYby the stuff I've learned from #bmgenll I can't thank you guys enough for writing it! @wi/1_/am

Just got my copy of Business Model Generation by @business_design designed by @thinksmith Even more beautiful than I imagined #bmgen @remarkk

#BMGEN @business_design Three steps to effective use of "Business Model Generation": 1) Buy book 2) Test live 3) Be amazed;-) http://bitly/OzZhO

Is reading Business Model Generation ... Thisis perhaps theneatest and most innovative book I have ever readI @jhemlig

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@bgi/ham

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Osterwalder and Yves Pigneur: mngt book in a long time

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giddy as alittle kid. just received my copy of Business Model Generation http://tinyurl.com/1847fj awesome book design. @santiago_rdm

Got my hands on the #bmgen book a few days ago, very nice! Great job, @business_design, @thinksmith et all @evangineer

It was so amazing to experience 40+ people all embracing business model gen thinking in Toronto #bmgento - this city is exploding! @davidfeldt

Production and Logistics

Differentiation

Community

Buyers

Anything beyond content creation is outsourced to readily available service providers.

An entirely different format, business model, and story for the book makes it stand out in a crowded market.

The book is co-created with practitioners from around the world who feel ownership thanks to attribution as contributing co-authors.

Paying customers are not only readet;, but co-creators and companies that Wll/11 customized books for their employees and clients.

CONTENT PRODUCTION

~IVP BUSINESSMODELHUB .COM

HUB MANAGEMENT GUERRILLA MARKETING AND WORD-OF-MOUTH THE MOVEMENT (DESIGN)

VISUAL, PRACTICAL, AND BEAUTIFUL HANDBOOK FOR BUSINESS MODEL INNOVATORS

1:(]6tS'fteS-A:tw NING PLATFORM

AMAZON.COM 3RD PARTY LOGISTICS COMPANY

PUBLISIIERS

CO-CREATION OF A POTENTIAL BESTSELLER PERSONALIZED BOOKS FOR COMPANIES AND THEIR CUSTOMERS

BUSINESS MODEL EVENT, AMSTERDAM

HUB MEMBERS

ENTREPRENEURS, EXECUTIVES, CONSULTANTS, ACADEMICS

WORD路OF路MOUTH

BLOG AND VISIBILITY ON THE WEB

(1) BUSINESSMODEL

BUSINESS MODEL HUB

(2) AMAZON.COM

POWERFUL METHODOLOGY

VISIONARIES, GAME CHANGERS, AND CHALLENGERS

COMPANIES

GENERATION.COM

(3) BOOK STORES INTER ME OtA'fH')'III-

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HUB MEMBERSH I P FEES DESIGN ADVANCE & POST-PUBLICATION SALES CONTENT PRODUCTION

FREE

GIVE AWAY CANVAS SECTION

PRINTING FEES FOR CUSTOMIZED VERSIONS DISTRIBUTION ROYALTIES FROM PUBLISHERS

THE CANVAS OF

BUSINESS MODEL GENERATION

Reach

Revenues

A mix of direct and indirect Channels and a phased approach optimizes reach and margins. The story of the book lends itself well to viral marketing and word-ofmouth promotion.

The book was financed through advance sales and fees paid by co-creators. Additional revenues come from customized versions for companies and their clients.

Alex Osterwalder, Author Dr. Osterwalder is an author, speaker, and adviser on the topic of business model innovation. His practical approach to designing innovative business models, developed together with Dr. Yves Pigneur, is practiced in multiple industries throughout the world by companies including 3M Ericsson, Capgemini, Deloitte, Telenor, and many others. Previously he helped build and sell a strategic consulting firm, participated in the development of a Thailand-based global nonprofit organization combating HIV/ AIDSand malaria, and did research at the University of Lausanne, Switzerland.

Yves Pigneur, Co-Author Dr. Pigneur has been a Professor of Management Information Systems at the University of Lausanne since 1984, and has held visiting professorships at Georgia State University in Atlanta and at the University of British Columbia in Vancouver. He has served as the principal investigator for many research projects involving information system design, requirements engineering, information technology management innovation, and e-business.

Alan Smith, Creative Director Alan is a big scale thinker who loves the detailsjust as much. He's a co-founder at the aptly named change agency: The Movement. There he works with inspired clients to blend community knowledge, business logic, and design thinking. The resulting strategy, communications, and interactive projects feel like artifacts from the future but always connect to the people of today. Why7 Because he designs like he gives a damn-every project, every day.

Tim Clark, Editor and Contributing Co-Author Ateacher, writer, and speaker inthefield of entrepreneurship, Tim'sperspective is informed by his experience founding and selling amarketing research consultancy that served firmssuch as Amazon.com, Bertelsmann, General Motors, LVMH, and PeopleSoft. Business model thinking is key to his Entrepreneurship for Everyone approach to personal and professional learning, and central to his doctoral work on international business model portability. Business Model Generation is hisfourth book.

Patrick van der Pijl, Producer /1 /Hough advance

rrcators. 1111 {rom custom-

111

/1111'S and their

Patrick van der Pijl is thefounder of Business Models, Inc., an international business model consultancy. Patrick helps organizations, entrepreneurs, and management teams discover new ways of doing business by envisioning, evaluating, and implementing new business models. Patrick helps clients succeed through intensive , workshops, training courses, and coaching.

is a practir:a/, inspiring handbook for anyone striving to improve a business model- or craft a new one.

.Business Model Generation

CHANGE THE WAY YOU THINK ABOUT BUSINESS MODELS

Business Model Generation w ill teach yo u powerful an路d practical innovation techniques used today by leadi ng companies worldwide. You will learn how to systeniatica.lly und er~tand,

design, and implement a new business

model ::___ or analyze and renovate an old one. CO-CREATED BY

470

STRATEGY PRACTITIONERS

Business Model Generation practices w hat it preaches. Coauthored by 470 Business Model Canvas practitioners from forty-five countries, the book was financed and produced independently of the traditional publishing industry. It features a tightly integrated, visual, li e-flat design that enables immediate hands-on use. DESIGNED FOR DOERS

Disruptive new business models are emblematic of our generation. Yet they remain poorly understood, even as they transform competitive landscapes across industries. Business Model Generation offers you powerful, simple, tested tools for understanding, designing, reworking, and implementing business models.

Business Model Generation is for those ready to abandon outmoded thinking and embrace new, innovati ve models of value creation: executives, consultants, entrepreneurs- and leaders of all organizations.

$34.95 USA/$41.95 CAN

Subscribe to our free Business eNewsletter at 路 wi ley.comfenews letters

ISBN 978 - 0 -4 70 - 87641 - 1 53495

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~WILEY wiley.com

9117804 70118('6411