Business Model Canvas vs. Four-Box Framework

It is surprising that Johnson in developing and presenting the four-box business model framework does not make the connection with earlier business model frameworks, in particular the business model canvas with its four pillars and nine building blocks, which was already widely published in Osterwalder’s earlier work.

Here I will focus on comparing the elements of the two models without making too much of a judgement. Next to these differences in elements, the business model canvas makes the use of a graphical template which is not the case for the four-box framework. For a more extensive review of Johnson's book 'Seizing the White Space' I refer to Anders Sundelin's review on his Business Model Database blog, which also includes an interesting comment of Johnson.

A preliminary comparison of the elements of the two models shows that they overlap substantially. I have identified five main differences so far:

1. The most prominent difference seems to be that that the four-box framework does not have a separate customer box as the canvas has a customer pillar, but includes this to some extent in the value proposition box, where customer segments are identified based on the job-to-be-done and the offering also include the access, which relates to the channels.
2. The value proposition box also includes a financial aspect in terms of the payment scheme, which is in the revenue stream building block of the canvas.
3. The profit formula box is more extensive than the financial pillar of the canvas including two key metrics: target unit margin and resource velocity. Whether or not this should be positioned in the business model or in the financial analysis of a more elaborated and detailed business plan following the business model, will depend upon the purpose and situation when using the models.
4. The same can be said about the business rules, behavioural norms and success metrics, which Johnson discusses as part of the processes box and also as connection to the day-to-day operations.
5. While the business model canvas has key partnerships as one of its nine building blocks, the four-box framework puts it under key resources and does not distinguish it as an explicit business model element.

Understanding and defining the value proposition

One of the most important elements of the business model is the value proposition. But while we intuitively all know what it means, writing it down for a concrete case can be a challenging and confusing exercise. So I decided to do some research to get some advice and ideas on this. Surprisingly, while value propositions are widely discussed, I found it hard to find literature discussing more in depth what a value proposition actually is. Most interestingly, the most prominent hit is Kaplan and Norton from the Balanced Scorecard.

According to Kaplan and Norton (2000) the customer value proposition describes ‘the unique mix of product and service attributes, customer relations, and corporate image that a company offers.’ It defines how the organization can differentiate itself from competitors to establish and develop relationships with its target customers. Kaplan and Norton argue that a value proposition is critical for linking the internal organization to improved customer outcomes. They differentiate between three types of differentiators based on the value disciplines of Treacy and Wiersema(1993): operational excellence, customer intimacy, and product leadership.

Anderson, Narus and Van Rossum (2006) state that when value propositions are properly constructed, ‘they force companies to rigorously focus on what their offerings are really worth to their customers’. This will also enable companies to make smarter choices about where to allocate their scarce resources in developing new offerings. Anderson et al. discuss a classification of three types to sort the value elements of a company’s offering: points of parity, points of difference, and points of contention. They have identified the three ways in which companies use the term ‘value proposition’: all benefits, favourable points of difference, and resonating focus. In the first approach companies simply list all the benefits the target customers receive from the company’s offering. In the second approach the company explicitly recognize that the customer has an alternative and they list all favourable points of difference that the company’s offering has relative to the next best alternative. In the third approach the company shows a full understanding of the critical issues of their customers who are often managers with ever-increasing levels of responsibility and pressured for time. The company makes their offering superior on a few elements that matter most to target customers and convey this in a communicative and evidence-based way.

Anderson, J. C., Narus, J. C., & Van Rossum, W. (2006). Customer value proposition in business markets. Harvard Business Review, 84(3), 91-99.
Kaplan, R. S., & Norton, D. P. (2000). Having Trouble with Your Strategy? Then Map It. Harvard Business Review, 78(5), 167-176.
Treacy, M. E., & Wiersema, F. D. (1993). Customer Intimacy and Other Value Disciplines. Harvard Business Review, 71(1).

Business model shift or drift?

It has been recognized that business models need to be adaptive and may change incrementally or radically, in particular in the early stages of a new venture, and need to be transformed when faced with disruptive innovations or changes in the environment.

However, how would one differentiate between the need to change the business model and the fact that often events take their own way and start drifting? And how to make a choice between sticking to the initial model or committing yourself to the new emerging model?

For example, in my work with a start-up company developing a potentially very innovative product, they need to do consulting to keep a cash flow. This consultancy is very successful but also time consuming, keeping then away from making major progress with their product. Should they maybe become a consultancy company?

In this area we can probably learn from strategic management, so a quick check of Wikipedia brings us to ‘strategic change’. Relevant concepts discussed there are ‘strategic drift’, a gradual change that occurs so subtly that it is not noticed until it is too late (Handy, 1989) and ‘strategic inflection point,’ a time in the life of a business when its fundamentals are about to change (Grove, 1999).

However, while this literature and the cases may give us some insight on how business model transformation for more established companies, it seems less suited for the more entrepreneurial start-up companies who operate much more in a greenfield scenario and have to deal with the fact that there is no proven, established business model to start with.

Here are some initial thought that may be considered in making a choice for a business model or business model change in a start-up scenario when it is it is hard to predict which business model is better in terms of profit or success and when you have to decide whether you should stick to your initial business model or commit yourself to a new business model.

First think about consistency (and synergy). Are the elements of the business model consistent with each other. Do they fit together and if possible reinforce each other so that they create synergies. This follows the age-old credo that the whole is more than the parts. [updated 15 October 2010]

Second think about scalability: Choose the one that has the biggest potential in terms of what can happen if it really takes off. In the previous example, it is the product model that can turn the start-up into a large company much faster than the consultancy model.

Third think about flexibility. Choose the business model that still keeps the most options open and is most easy to adapt until you know more about your customers, see also Osterwalder’s post on customer development.

Fourth think about innovativity. Choose the business model that differs most from existing business models, in particular if you need to differentiate yourself or what you want to achieve or offer is very different from the existing situation.

Fifth think about simplicity. Choose the business model that is the most straight forward. Complexity will follow automatically when you start going into the implementation details.

Sixth think about repeatability. Will it be possible to turn the business model into a formula that can be repeated. This makes it possible to grow outside of the current product/market combination. It may even be possible to enter completely unrelated industries where the same business model can be applied. [updated 15 October 2010]