New Problems, Same Old Tools
There are a broad range of tools that companies use to create and execute strategy: from SWOT analysis to PEST models, from Porter’s 5 Forces to the Balanced Scorecard. They are all helpful in their own way, but the tools have not kept pace with today’s dynamic market. Consumers and customers need to be at the center of the equation, digital is everywhere, and data analytics are combined with AI to make sense of volumes of data.
How do the tools of yesterday keep up with the business challenges of today and tomorrow? We begin with one of today’s most commonly used tools, the Business Model Canvas (BMC).
The Business Model Canvas
The Business Model Canvas, introduced by Alexander Osterwalder in Business Model Generation, is a visual representation of a business model. The BMC has endured because it is simple to complete, to understand, and to communicate.
Traditional Business Model Canvas.
The model includes nine components, which together are lauded for providing a holistic view of the business:
- Customer Segments: Who are our most important customers / groups of customers?
- Value Propositions: What benefit are we delivering to customers?
- Channels: How do we deliver our product to each customer segment?
- Customer Relationships: How do we interact with each customer segment?
- Revenue Streams: What are our customers willing to pay for?
- Key Activities: What unique items does our business do to meet our value proposition?
- Key Resources: What do we need to deliver on key activities and meet the value proposition?
- Key Partnerships: What can others do so that we can focus on our key activities?
- Cost Structure: What are our most significant expenditures?
Benefits of the Business Model Canvas
The BMC continues to be one of the most popular strategy tools and has a wide number of benefits. The largest of these benefits include:
- Simplicity: The BMC is easy to understand and use. The headings are self-explanatory, and the flow is straightforward.
- Workshop-ability: The model is perfect for a workshop setting. Create a large poster, hand out sticky notes, and get started. It doesn’t take long before everyone is pitching in and bringing the BMC to life.
- Shareability: Pass the BMC to a colleague, and they will immediately get the idea of the team’s output.
- Visuals: The visual representation makes scenarios easy to consider. The tool also does a good job of visually breaking down the relationships among the major components of a business.
Drawbacks of the Business Model Canvas
- Oversimplicity: Simplicity is a double-edged sword with this tool. Easy to use also means not so helpful when you get into the details. Interestingly, the BMC has spawned many versions and sub-canvases to help dive into the next level of analysis.
- Internally Focused: The BMC is truly an internal view of the business. Sure, the model includes customers and customer segments, but from the view of team members. Outside factors such as Political, Economic, Social, and Technological (PEST) have a huge impact on the business model’s eventual success or failure.
- No Distinct Problem Statement: Finding a true problem to solve is the core to a new or innovative business model. However, the problem is missing from the BMC. As a result, some strategists have included the problem as part of the “Value Proposition” section.
- Objectives Limited to Profit: The BMC shows an opportunity for financial success in terms of profit in the “Revenue Streams” and “Cost Structure” sections. However, other key business outcomes are not accounted for, such as patient outcomes for a non-profit hospital or corporate responsibility goals.
- Missing Broader Stakeholders and Competitors: Suppliers are included, but other stakeholders such as shareholders, the community, government, and employees are also critical. A “Competitors” section is also a very common addition. Understanding how other companies address the same or similar value proposition is valuable in determining if the business model is viable.
- Missing Key Performance Indicators (KPIs): Every business model has metrics that are the most critical indicators of success. KPIs should drive action and results, and it is smart to think about them from the beginning to keep focus on the end goal.
Taking the Next Step with Your BMC
Depending on your stated purpose, the BMC can be incremented or combined with other tools to become even more valuable. Incorporating a “Customer Problem” section and making it your starting point, or at least making it part of the “Value Proposition” section, is critical for any BMC. The example below also adds a “KPI” section which is very impactful. Of course, strategists should add other relevant sections to their model as needed, such as competitors and stakeholders, to increase the tool’s value.
Enhanced Business Model Canvas.
