Business Model Generation

A Handbook for Visionaries, Game Changers, and Challengers

Alexander Osterwalder, Yves Pigneur

• Publisher: Wiley
• Year: 2013
• ISBN:
  9781118656402
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Business Model Generation is a handbook for visionaries, game changers, and challengers striving to defy outmoded business models and design tomorrow's enterprises. If your organization needs to adapt to harsh new realities, but you don't yet have a strategy that will get you out in front of your competitors, you need Business Model Generation.

Co-created by 470 "Business Model Canvas" practitioners from 45 countries, the book features a beautiful, highly visual, 4-color design that takes powerful strategic ideas and tools, and makes them easy to implement in your organization. It explains the most common Business Model patterns, based on concepts from leading business thinkers, and helps you reinterpret them for your own context. You will learn how to systematically understand, design, and implement a game-changing business model--or analyze and renovate an old one. Along the way, you'll understand at a much deeper level your customers, distribution channels, partners, revenue streams, costs, and your core value proposition.

Business Model Generation features practical innovation techniques used today by leading consultants and companies worldwide, including 3M, Ericsson, Capgemini, Deloitte, and others. Designed for doers, it is for those ready to abandon outmoded thinking and embrace new models of value creation: for executives, consultants, entrepreneurs, and leaders of all organizations. If you're ready to change the rules, you belong to "the business model generation!"

Section 1
Canvas

The Business Model Canvas

A shared language for describing, visualizing, assessing, and changing business models

Chapter Contents

1. Definition of a Business Model
2. The 9 Building Blocks
3. The Business Model Canvas Template

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Def_Business Model

A business model describes the rationale of how an organization creates, delivers, and captures value

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The starting point for any good discussion, meeting, or workshop on business model innovation should be a shared understanding of what a business model actually is. We need a business model concept that everybody understands: one that facilitates description and discussion. We need to start from the same point and talk about the same thing. The challenge is that the concept must be simple, relevant, and intuitively understandable, while not oversimplifying the complexities of how enterprises function.

In the following pages we offer a concept that allows you to describe and think through the business model of your organization, your competitors, or any other enterprise. This concept has been applied and tested around the world and is already used in organizations such as IBM, Ericsson, Deloitte, the Public Works and Government Services of Canada, and many more.

This concept can become a shared language that allows you to easily describe and manipulate business models to create new strategic alternatives. Without such a shared language it is difficult to systematically challenge assumptions about one’s business model and innovate successfully.

We believe a business model can best be described through nine basic building blocks that show the logic of how a company intends to make money. The nine blocks cover the four main areas of a business: customers, offer, infrastructure, and financial viability. The business model is like a blueprint for a strategy to be implemented through organizational structures, processes, and systems.

The 9 Building Blocks

CS Customer Segments

An organization serves one or several Customer Segments.

VP Value Propositions

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

CH Channels

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

CR Customer Relationships

Customer relationships are established and maintained with each Customer Segment.

R$ Revenue Streams

Revenue streams result from value propositions successfully offered to customers.

KR Key Resources

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

KA Key Activities

. . . by performing a number of Key Activities.

KP Key Partnerships

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

C$ Cost Structure

The business model elements result in the cost structure.

9
C$ Cost Structure

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.

What are the most important costs inherent in our business model? Which Key Resources are most expensive? Which Key Activities are most expensive?

Naturally enough, costs should be minimized in every business model. But low Cost Structures are more important to some business models than to others. Therefore it can be useful to distinguish between two broad classes of business model Cost Structures: cost-driven and value-driven (many business models fall in between these two extremes):

Cost-driven

Cost-driven business models focus on minimizing costs wherever possible. This approach aims at creating and maintaining the leanest possible Cost Structure, using low price Value Propositions, maximum automation, and extensive outsourcing. No frills airlines, such as Southwest, easyJet, and Ryanair typify cost-driven business models.

Value-driven

Some companies are less concerned with the cost implications of a particular business model design, and instead focus on value creation. Premium Value Propositions and a high degree of personalized service usually characterize value-driven business models. Luxury hotels, with their lavish facilities and exclusive services, fall into this category.

Cost Structures can have the following characteristics:

Fixed costs

Costs that remain the same despite the volume of goods or services produced. Examples include salaries, rents, and physical manufacturing facilities. Some businesses, such as manufacturing companies, are characterized by a high proportion of fixed costs.

Variable costs

Costs that vary proportionally with the volume of goods or services produced. Some businesses, such as music festivals, are characterized by a high proportion of variable costs.

Economies of scale

Cost advantages that a business enjoys as its output expands. Larger companies, for instance, benefit from lower bulk purchase rates. This and other factors cause average cost per unit to fall as output rises.

Economies of scope

Cost advantage...