Business Model Generation

It is unlikely that the competitive advantage of any business will last forever. Accordingly, you need to know exactly how your business is positioned and how it fits with the context and environment. In order to facilitate such a regular strategic review, there is a very good business model “generator” which has been developed through collaborative efforts and published in a book called “Business Model Generation” by Alexander Osterwalder and Yves Pigneur (John Wiley & Sons, 2010). It gives a brilliantly concise overview of a business so that you can build your own model to see where and how you are adding value; and in so doing consider where you might need to best focus your efforts, both now and in the future.

Here’s the business model generator along with further considerations below (“et alors”)

Business Model Generation

As illustrated below, the pro-forma is in 9 parts surrounding the key “value proposition”. On the right is the customer whose interface with the value proposition is the “customer relationships” and the “channels”. These are related to the revenue streams. On the left are the “key partners” who are connected to the value proposition through “key activities” and “key resources”. These are related to the cost structure.

Key Partners	Key Activities	Value Proposition		Customer Relationships	Customer Segments
	Key Resources			Channels
Cost Structure			Revenue Streams

Here’s the various sections in detail:

Value proposition

This is why customers come to you. Create value by inventing something new; improve your product’s “performance”; or “differentiate” your offer to specific needs.

Customer segments

This is all about positioning. “Mass” markets and “niche” markets require different approaches, while “segmented” customer bases share similarities, but with differing needs.

Channels

Select the best “customer touch points” to communicate value and to distribute and sell your products and services. What is the channel e.g. internet, B2B2C, B2G, wholesale…?

Customer relationships

Establish different ways to serve distinct market segments: is the focus on mass produced commodities or on personalized service?

Revenue streams

Capturing income, each type of revenue stream may demand a different “pricing mechanism,” either a “fixed” price or a “dynamic,” negotiated price.

Key partnerships

Consider supplier links, “coopetition”, joint ventures and “strategic alliances”; along with outsourcing and subcontracting.

Key resources

Assets are “physical, financial, intellectual or human” depending on what the business is. Remember that key resources may be “owned or leased”.

Key activities

What do you actually do to capture the profit? Produce an item, provide services/solutions, manage processes?

Cost structure

“Cost-driven” or “value-driven”?  Outlays represent “fixed and variable” expenses. Consider economies of scale and “scope” from large-scale production and distribution.

Et alors

The idea is that using this template you can see where your business model adds value and also where it might not add value. Such a review applied to a private banking business might (for example) highlight that customer relationships are the most “value added” part of the value proposition which therefore need to be focused on; whereas operations could be outsourced.

The model can also be used to compare your business to that of competitors to see where there might be an opportunity or a threat. It might also assist a review of the possible temporary nature of your current “value-add”. This might highlight other parts of your business that could add value in future or even right now (eg. UPS with their offer to manage other companies’ logistics).

The key is as the authors say “virtually all business models eventually become obsolete, so proactive companies actively conceive and pursue new models. One side benefit of continual business-model design and redesign is a healthy lack of respect for long-held assumptions.” Each of the 9 sections of your business model is subject to continual repair and renewal! Keep reviewing!