A Practical Guide to Business Modeling
Business Model Canvas — the WHAT, the HOW & the
WHY
The Business Model Canvas represents a valuable framework which is used by
many small and big organizations all over the globe. With its flexible yet simple
application, it has helped many companies to improve existing businesses, create
new ones, and develop better strategies for the future.
When we work with clients, whether it is building up on and developing existing
ideas, or completely innovating a business model, the canvas is one of the most
used tools here at LHBS. Interestingly enough, despite most managers being aware
of the canvas and with the vast amount of information about business modeling
online — many organizations still struggle and encounter difficulties in applying
the Business Model Canvas to their company.
In order to give a simpler framework to the process, I wanted to explain the most
important aspects about the what, the how and the why of business modeling. If
you are more ‘the visual type’ of person, you can also click through the Slideshare
presentation, giving you a brief overview of all essentials.
THE WHAT
A business model is a holistic and systematic approach to define, create and
analyse a business or idea.
In general, there are several ways of defining your business. However, the
Business Model Canvas offers one of the most holistic approaches that creates a
system out of the most essential aspects of your business and shows the
interdependency and relevance of each building block. A business model helps you
to answer the most important questions about your business (e.g. Who is the
customer? What is the value? How does it make money? Who and what does it
need for realization? etc.)
In general, there are different forms and frameworks for business models. I
personally find the Business Model Canvas by Alexander Osterwalder, the most
useful one. Its simple design empowers businesses and entrepreneurs to create,
visualize and test business ideas without being too complex.
It consists of 9 building blocks, divided into 2 sides. On the right side, you can find
all important aspects related to the customer, displaying the value offered to the
target group. Whereas on the left-side the back-end is being defined, showing all
efforts how to reach the customer and deliver the value. Both sides mirror and
complement each other to create an interconnected system out of all building
blocks.
THE HOW
In general, a business model assists throughout the entire phase — from the very
early stage of idea generation, up to the last part including the execution and roll
out.
1. Define: helps to define & assess the current business model or idea
2. Discover: helps you to identify ‘white spaces’ for growth & innovation opportunities
3. Develop: helps you to generate valuable, new ideas & business models
4. Deliver: helps you to test developed ideas & business models
Being such a versatile tool, the business model can be used on various levels of
your organization — from an overall industry model to a single company, as well
business units or even single products or services.
Most often entrepreneurs use the canvas to develop an entirely new business or to
create a new product/service within the existing business model.
However, a business model is also a management tool that serves as a valuable
tactical layer and intermediary between the overall strategy and the hands-on
business process. With the help of the business model, the highly aggregated and
often abstract information of a strategy can be translated into a more tactical level.
It also works vice-versa, converting the operational information of the business
level to a useful basis for strategic guidelines. Furthermore, it can assist the
organization in decision making and managing change, planning as well as
implementation.
With so many usage advantages, it is easy to see why the business model is an easy
yet highly appreciated tool that gives a systematic overview of the most important
aspects of the business or an idea. It has a huge value when it comes to
communicating an idea or the core of a business to stakeholders. Additionally, it
has proven to be especially helpful not only to transform key elements of the
business, but also to invent completely new ways of doing business.
THE WHY
Business Model has various valuable uses cases, here are the ones that I found
most interesting.
A business model helps you to define your idea and
align all stakeholders.
The Business Model Canvas is an easy tool to define the key parameters of your
business idea. Once it is filled out, it represents a practical way to communicate
most important information to your stakeholders and also serves well to align the
goals with your team members.
Since all the core aspects of a business can be seen on one page, it also helps
people to see the big picture of a business idea — which is a crucial basis for
jumpstarting the innovation process and further development.
A Business Model helps you to create the right ideas.
My experience working with business modeling has shown me that many people
use a business plan to describe their potential idea. Although a business plan is a
great tool to understand the details of an idea it unfortunately, limits the general
overview, without giving the reader the key business aspects — which leads to the
idea being judged upon these single or isolated aspects. The bigger picture, and
more importantly, the connection between all the core aspects, seems to be lacking.
“It’s said that no business plan survives its first
contact with customers. As soon as it’s out there, the
first thing you want to do is burn it, and you feel like
you wasted all this time.” Osterwalder
In my opinion, the strongest advantage of the business model is that it allows to
put the business idea into a holistic system that is interconnected, at the same time
showing the interdependencies between the core parameters at one view. The right
side represents the customer side and how to sustain the value & customer (value
caption) and the left side shows how the value is created (value creation) with all
the efficiency & logic behind.
All of this allows the business ideas to be rapidly tested and examined by checking
if all of the boxes work in harmony and support each other.
A Business Model helps you to innovate.
In a highly fluctuant and constantly evolving world CEO’s see innovation as the
most important aspect for their business in order to survive and grow in a complex
environment
Interestingly enough, the approach towards innovation has certainly evolved over
the last decades. Increasingly, organizations realized that the huge potential of
innovation goes beyond merely improving and adapting new features and functions
of products. Innovation is considered by far more powerful when developing and
disrupting the system around the product (the production, the promotion, the
provided service, the finances etc.).
As the Global IBM CEO Study revealed, ‘business model innovators’ outperform
traditional innovators (product, service, market, operations innovations) by
showing a 5 times higher growth.
Abusiness model helps you to define & assess the current business model in order
to identify ‘white spaces’ for growth and innovation opportunities. By using the
Business Model Canvas as an idea template, new ideas can be easily tested and
alternative business models rapidly prototyped. So, go ahead and create exciting
new products and business models — just do not forget to team up and check the
ideas with your target audience and stakeholders before the roll out.
This article was first published at: http://www.lhbs.com/news/2015/11/17/a-
practical-guide-to-business-modelling and co-created with Stefan Erschwendner.
Tamara Stix
Nov 20, 2015 ·
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