Business Model Canvas 2.0

The Business Model Canvas, as described in Business Model Generation by Osterwalder and Pigneur (2010), is quickly becoming the dominant business model framework (see here for an overview of different frameworks). While the Business Model Canvas is a useful and easy-to-use tool for generating business models, it has certain limitations that I think need to be addressed in the future.

Below is my ‘wish list’ with what I consider the three major areas for improvement.

1. Moving from a product logic to a service logic
2. Moving from firm focus with partnering to constellation focus with networking
3. Moving from a static approach to a dynamic approach

I will address each of these areas in future posts.

Business model archetypes

How familiar are you with different business model archetypes or patterns, such as the 'free' model? Do you always start with a blank sheet when designing a new canvas or would/should you reuse existing models? Or when you analyse an exiting model, would/should you look at what is unique or what it has in common with other models?

Whatever your approach, it is good to be familiar with the individual archetypes that have been identified so far and the classifications (in the form of lists or typologies) used to describe multiple archetypes. Most of this started with trying to describe and understand different e-business models, for example Timmers (1998), Rappa (2000) and Weill & Vitale (2001). Later the specific focus on e-business models became less, although many of the newer models are still associated with the Internet as driver or enabler. Osterwalder & Pigneur (2010) and Johnson (2010) are examples of newer lists that are not e-business focussed.

Next to presenting different lists or typologies and their underlying criteria, some authors also address the application of business model archetypes for business model design and management via, for example,business model composition (Weill & Vitale, 2001), business model decision-making (Morris et al.,2005) and business model maturity (Chesbrough, 2006).

For a more detailed description and discussion see the whitepaper ‘Understanding business models.'

The impact of software-as-a-service on business models of leading software vendors

One of the prominent topics in Business Service Management is business models for (new) services. Business models are useful for service management and engineering as they provide a broader and more holistic perspective on services. Business models are particularly relevant for service innovation as this requires paying attention to the business models that make new services viable and business model innovation can drive the innovation of new and established services. Before we can have a look at business models for services, we first need to understand what business models are. This is not straight-forward as business models are still not well comprehended and the knowledge about business models is fragmented over different disciplines, such as information systems, strategy, innovation, and entrepreneurship. This whitepaper, ‘Understanding business models,’ introduces readers to business models.

This whitepaper contributes to enhancing the understanding of business models, in particular the conceptualisation of business models by discussing and integrating business model definitions, frameworks and archetypes from different disciplines. After reading this whitepaper, the reader will have a well-developed understanding about what business models are and how the concept is sometimes interpreted and used in different ways. It will help the reader in assessing their own understanding of business models and that and of others. This will contribute to a better and more beneficial use of business models, an increase in shared understanding, and making it easier to work with business model techniques and tools.

See here for more information.

A business model approach for moving tele-monitoring and tele-treatment from promise to practice

The availability of new information and communication technologies creates opportunities for new, mobile tele-health services. While many promising tele-health projects deliver working R&D prototypes, they often do not result in actual deployment. We aim to identify critical issues than can increase our understanding and enhance the viability of the mobile tele-health services beyond the R&D phase by developing a business model. The present study describes the systematic development and evaluation of a service-oriented business model for tele-monitoring and -treatment of chronic lower back pain patients based on a mobile technology prototype. We address challenges of multi-sector collaboration and disruptive innovation.

See here for more information.

Business model frameworks

How familiar are you with different business model frameworks? What framework will suit your needs best?

Selecting the right framework may depend upon, amongst others, the purpose (e.g. communication, brainstorming, business plan, system development), the setting (e.g. start-up or established company, organization or network, social or technical) and the type of support required (e.g. modelling language, visualisation, templates, tool support, etc.).

Below you find a list of some of the more well-known and published frameworks:

• The Business Model Canvas (Osterwalder & Pigneur)
• The Four-Box Business Model (Johnson)
• The STOF model (Bouwman, De Vos & Haaker)
• Business Model Schematics (Weill & Vitale)
• Technology/market mediation (Chesbrough & Rosenbloom)
• Entrepreneur’s business model (Morris, Schindehutte & Allen)
• e3-value (Gordijn & Akkerman)

For a more detailed description and discussion see the whitepaper ‘Understanding business models.'.

A business model definition

A business model describes the value logic of an organization in terms of how it creates and captures customer value (Fielt, 2011).

The definition is related to Osterwalder and Pigneur (2010), but with 'customer' value and without 'delivering' value. The definition is well aligned with Chesbrough (2006), Johnson (2010), and Teece (2010).

While most authors are not very explicit about what they mean with value, most definitions seem to refer to mean 'customer value' (i.e. value for the customer). We excluded 'delivering' value from the definition as we see delivering value as part of creating value. Customer value implies use value, which cannot be created without being delivered.

We see the identification of the different elements of a business model, such as the value proposition, resources or revenues, not as part of the business model definition, but as part of the business model framework. A framework operationalizes the definition and makes it more concrete and specific. This creates some flexibility as there can be multiple, different specific frameworks while adhering to a single, generic definition. This caters for the use of the concept for multiple purposes and in different contexts, and the development of the concept over time.

While the business model has a specific organization as its focus, we want to make explicit that often this focal organization operates in an organizational network and that the organizational network can play a prominent role in creating and capturing value. If this is the case then the network will be included in the business model. However, the network will still be from the perspective of the focal organization.

An organization can have multiple business models, either in time (sequentially) or at the same time (simultaneously). While outside the scope of the current discussion, this requires understanding of synergies and conflicts between business models and creates a need for business model portfolio management and business model lifecycle management.

We also leave open the possibility that the organization is a profit or non-profit organization. Capturing value will often be about financial revenue models that contribute to the monetary bottom-line of the organization. However, we do not want to exclude a broader perspective than profitability including also social responsibility and environmental sustainability.

See the 'Understanding business models' whitepaper (pdf here) for more information.

References

Chesbrough, H. (2006). Open business models: How to thrive in the new innovation landscape. Boston, MA: Harvard Business School Press.
Fielt, E. (2011). Understanding business models (Business Service Management whitepaper volume 3). Brisbane, Australia: Smart Services CRC. Available via: http://eprints.qut.edu.au/41609/
Johnson, M. W. (2010). Seizing the white space: Business model innovation for growth and renewal. Boston, MA: Harvard Business Press.
Osterwalder, A., & Pigneur, Y. (2010). Business model generation: A handbook for visionaries, game changers, and challengers: (self-published).
Teece, D. J. (2010). Business Models, Business Strategy and Innovation. Long Range Planning, 43(2-3), 172-194.

Alternative Business Model Canvas templates – The two-sided business model

I have been exploring the use of the BMG Business Model Canvas and possible alternative canvas templates that do not change the core concepts or the language of Business Model Generation (BMG) (Osterwalder and Pigneur, 2010). A first experiment with respect to co-creation can he found here and a second experiment with (service) bundling can be found here.

One of the patterns in the BMG book is the multi-sided platform, The core idea is that there are distinct types of customers, e.g. eBay has buyers and sellers. Note that this should not be confused with differentiating between different customer segments. Because the value proposition, channels, relationships and customer segments can be quite different per group, it may sometimes be useful to use a canvas that more explicitly differentiated between different groups. This is most easily for two-sided markets (a specific type of multi-sided platform), like eBay, where there will be two different customers groups. Two examples of an alternative canvas templates are provided below.




See here for more information on different approaches to business models.

What do we mean with business model?

While the growing attention for business models and business model innovation is a positive development, it also stresses the need for better understanding what we mean with the business model concept. This is not straight-forward as business models are still not well comprehended and the knowledge about business models is fragmented over different disciplines, such as information systems, strategy, innovation, and entrepreneurship. We need to further develop our conceptualisation of business models by discussing and synthesising business model definitions, frameworks and archetypes from different disciplines.

I tried to contribute to this development by the whitepaper ‘Understanding business models.' After reading this whitepaper, the reader will have a well-developed understanding about what business models are and how the concept is sometimes interpreted and used in different ways. It will help the reader in assessing their own understanding of business models and that and of others. This will contribute to a better and more beneficial use of business models, an increase in shared understanding, and making it easier to work with business model techniques and tools.

Why is business model innovation challenging?

Business model innovation is challenging because it is a form of innovation that has not been often explicitly recognized and presents significant challenges for organizations.

‘When executives think of innovation, they all too often neglect the proper analysis and development of business models which can translate technical success into commercial success’ (Teece, 2010).

Chesbrough and Rosenbloom (2002) warn that the current business model as dominant logic can hinder organizations in defining new business models because ‘the choice of business constrains other choices, filtering out certain possibilities, even as other prospects are logically reinforced.’ In line with this, Zott and Amit (2007) state that more established firms may be more constrained by path dependencies and inertia than more entrepreneurial firms.

According to Johnson et al. (2008) companies are confronted with two challenges. Firstly, there is a lack of understanding into the dynamics and process of business model development in general. Secondly, most companies do not understand their existing business model well enough to determine when they can leverage it and when a new model is required.

References

Chesbrough, H., & Rosenbloom, R. S. (2002). The role of the business model in capturing value from innovation: Evidence from Xerox Corporation's technology spin-off companies. Industrial and Corporate Change, 11(3), 529-555.

Johnson, M. W., Christensen, C. M., & Kagermann, H. (2008). Reinventing your business model. Harvard Business Review, 86(12), 50-59.

Teece, D. J. (2010). Business Models, Business Strategy and Innovation. Long Range Planning, 43(2-3), 172-194.

Zott, C., & Amit, R. (2007). Business Model Design and the Performance of Entrepreneurial Firms. Organization Science, 18(2), 181–199.

Service-oriented business models: A holistic perspective

The Business model Canvas below illustrates effectively that when we think about service-orientation from a business model perspective, we have a more broader view than just the service offering itself.

Alternative Business Model Canvas templates – The Bundling Business model

I have been exploring the use of the BMG Business Model Canvas and possible alternative canvas templates that do not change the core concepts or the language of Business Model Generation (Osterwalder and Pigneur, 2010). A first experiment with respect to co-creation can he found here.

My second experiment is the use of the template for (service) bundling, where two core services (can also be applied to products) are sold as one package to the customer. For simplicity I focus on pure bundling where the customer only has the option to buy the package, not separate services in the package. Below you find two simplified business model canvasses, one that stays within the existing template and one with an alternative template.

The first, traditional canvas seems to be most useful when although the two bundled services are separate, the activities, resources and partners for those services still overlap. The second, alternative canvas seems to be most useful that when the two bundled services are really independent of each other with separate activities, resources and partners.

Service-oriented business models: Service as process

This post is part of a series that explores service-oriented business models based on different perspectives on service. In a previous post we discussed the service as product perspective. In this post we address the service as process perspective.

Subsequent to the service product approach and the IHIP characteristics, many newer definitions emphasise services as processes and focus more on the interactions between the customer and provider and the role of the customer as co-producer. Grönroos (2007) and Johnston and Clark (2004) stress state that, from the customers’ perspective, service is the combination of the customers’ direct experience of the service process and their perception of the outcome of that process. Grönroos (2006) defines service as ‘a process consisting of a series of more or less intangible activities, that normally, but not necessarily, take place in interactions between the customer and service employees and/or physical resources or goods and/or systems of the service provider, which are provided as solutions to customer problems.’ Teboul (2006) differentiates between processes in the front-stage (service) where the interaction with the customer takes place, and processes in the back-stage (production).

Frequently, the service encounter is the service from the customer’s point of view (Bitner, Booms, & Tetreault, 1990). This makes it the moment of truth for the provider. While some service marketing use a broad definition for service encounter encompassing any interaction element (e.g., Shostack, 1985), many focused on the personal interactions between customers and employees in the service encounters (e.g., Bitner et al., 1990). However, nowadays this ‘high-touch, low-tech’ paradigm is expanded to include technology-based (enabling employees) and technology-supported (enabling customers) services (Bitner, Brown, & Meuter, 2000). The service as process perspective also has a strong relation with the customer relation as the provider-customer interaction offers opportunities for building a relationship, even in a single encounter (C. Grönroos, 2007).

For business models based on the service as process, the Value Proposition is more targeted at the interaction as perceived by the customer, for example, the service quality and the customer experience. This has also a strong relation with the Key Activities and Key Resources of the core organization, as these have to be targeted at delivering the Value Proposition. The Key Activities and Key Resources are also affected by the role of the customer as co-producer. This means taking into account the Activities and Resources of the Customer Segments and the opportunities and challenges that come with this kind of customer involvement. Moreover, because of the role of the service encounter and the customer relationship in the service as process perspective, the Channels and Relationship elements will also be important for business models based on this perspective.

According to Grönroos (2007) the basic service package (as discussed in the service as product above) is not the same as the service offering from the customer’s viewpoint. The service package considers primarily what the customer receives from a service in terms of outcome related features. However, it neglects how the customer receives the service in terms of process related features. The latter should be seen as an integral part of total service offering. Grönroos refers to the ‘augmented service offering’, which includes next to the outcome features (i.e. the service package consisting of core, enabling and enhancing services), three process related features: accessibility of the service, interactions with the service organization, and customer participation. This augmented service offering can the starting point for a business model pattern that provides an integrated approach to service-oriented business models with respect to the outcome and process features of a service offering.

In addition, the different aspects of service as a process in relation to the business model framework, customer experience, customer relationship and co-production, can also be used as service-oriented business model patterns. For example, a customer experience pattern can support in envisioning a business model for an online service where the value proposition is based on, or enhanced by, the experience, design-based activities and resources that enable developing and delivering this experience, and, if possible, a revenue model based on or levering the experience (e.g. using freenium). A well-known example on an organization having a strong customer experience pattern in its business models is Apple.

Moreover, the growing importance of the Internet has opened up new opportunities and requires rethinking traditional service logic based on the ‘high-touch, low-tech’ paradigm. In particular we see a growing rise of the technology-enabled self-service model at the expensive of the traditional, people-focussed full service model. However, there may also be a rise in new, technology-enabled full service model, as the SaaS example introduced earlier.

References

Bitner, M. J., Booms, B. H., & Tetreault, M. S. (1990). The Service Encounter: Diagnosing Favorable and Unfavorable Incidents. Journal of Marketing, 54(1), 71-84.
Bitner, M. J., Brown, S. W., & Meuter, M. L. (2000). Technology Infusion in Service Encounters. Journal of the Academy of Marketing Science, 28(1), 138-149.
Grönroos, C. (2006). Adopting a service logic for marketing. Marketing Theory, 6(3), 317-333.
Grönroos, C. (2007). Service Management and Marketing: Customer Management in Service Competition (3 ed.). Chichester, UK: Wiley.
Johnston, R., & Clark, G. (2004). Service Operations Management (2 ed.). Harlow, UK: Prentice Hall.
Shostack, G. L. (1985). Planning the Service Encounter. In J. A. Czepiel, M. R. Solomon & C. F. Surprenant (Eds.), The Service Encounter: Managing employee/customer interaction in service businesses (pp. 243-254). Lexington, MA: Lexington Books.
Teboul, J. (2006). Service is front-stage. New York: Palgrave Macmillan.

Service-oriented business models: Service as a non-product offering

This post is part of a series that explores service-oriented business models based on different perspectives on service.

Early service definitions are influenced by a strong need to differentiate services from products as market offering. This resulted in defining services based upon the ‘IHIP’ characteristics for services: Intangibility, Heterogeneity (or non-standardisation), Inseparability (of production and consumption), and Perishability (or exclusion from inventory) (Zeithaml, Parasuraman, & Berry, 1985). However, nowadays this approach is heavily criticized because it provides a contra-view of service (e.g. as non-goods), overly emphasizing the view of the provider (Vargo & Lusch, 2004), and it does not capture the essence of services; in particular their process and interactive nature (Edvardsson, Gustafsson, & Roos, 2005). Moreover, goods and services should not be seen as two extremes, it is more a continuum comprising a range of hybrid offerings (Shostack, 1977).

Service as a specific kind of (non-product) market offering is important because it directly relates to the Value Proposition, the core of the business model. It will affect the other elements, such as the Revenue Streams, for example, it may come with a subscription fee. The IHIP characteristics can also be assessed in terms of their impact on the business model and its elements. In addition to the Value Proposition there will be other specific relations with elements, for example, intangibility will affect the Relationship and Channels and the inseparability will affect the Costs (e.g. it is harder to synchronize supply and demand). This has similarities with many traditional publications about strategy and management in service organizations addressing the impact of the IHIP characteristics on managerial and organizational elements (e.g., Bowen & Ford, 2002).

Service as a non-product offering would mean that there are two archetypical business models: product models and service (non-product) models. These should be seen as extremes on a continuum where different combinations of product and service are possible, maybe giving rise to other, hybrid business models based upon specific kinds of combinations, e.g. a ‘core product with added value services’ model. This also opens up opportunities for business innovation with respect to transforming products into services (‘servitization’) and the industrialization of services (‘productization’). A business model perspective is important here as these kind of radical business innovations affect the whole business model, not just the market offering, as for example the ‘Power by the Hour’ model Roll Royce uses for its aircraft engines and the ‘Care for Life’ model KONE uses for its elevators. In the IT industry we see servitization in the rise of ‘as-a-Service’ business models addressing the delivery of IT services over the Internet, such as ‘Software-as-aService’ (SaaS). The idea of SaaS is that that instead of buying the software as a product and deploying it yourself, the user can use the software on demand via the Internet, for example CRM software form Salesforce. With service as market offering, there is also the option of bundling services, i.e. offering and selling services as a package. A common example of a service bundle model can be seen in the telecommunication where a triple play offer includes telephone, TV and Internet.

References

Bowen, J., & Ford, R. C. (2002). Managing service organizations - Does having a “thing” make a difference? Journal of Management, 28(3), 447–469.
Edvardsson, B., Gustafsson, A., & Roos, I. (2005). Service portraits in service research: a critical review. International Journal of Service Industry Management, 16(1), 107-121.
Shostack, G. L. (1977). Breaking free from product marketing. Journal of Marketing, 41(2), 73-80.
Vargo, S. L., & Lusch, R. F. (2004). The Four Service Marketing Myths: Remnants of a Goods-Based, Manufacturing Model. Journal of Service Research, 6(4), 324-335.
Zeithaml, V. A., Parasuraman, A., & Berry, L. L. (1985). Problems and Strategies in Services Marketing. Journal of Marketing, 49(2), 33-46.

Different perspectives on service-oriented business models

For some time I have been interested in business models for services and service innovation (see also here) and service-oriented business models (see also here and here). However, understanding the business models of services requires first understanding what services are and there is little agreement on that in literature. Based on an extensive exploration of service marketing and, to a lesser extent, service operations literature, I came to the following five perspectives on service:

1. Service as non-product offering
2. Service as process
3. Service as benefits
4. Service as capabilities
5. Service as value logic

In the following weeks I will be posting on an exploration of service-oriented business models based on these perspectives. For each perspective I will explore firstly how they affect the different building blocks of the The Business Model Canvas, as described in Business Model Generation by Osterwalder and Pigneur (2010). Secondly, I will try to identify different business model patterns related to that perspective.