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.

An Extended Business Model Canvas for Co-Creation and Partnering

The Business Model Canvas, as described in Business Model Generation by Osterwalder and Pigneur (2010), presents an easy and very general usable business model framework. I have been working on the idea that it may be required to sometimes innovate the Business Model Canvas itself to describe or discover new business models based on different kinds of value creation or capture logic.

Up till now I have mainly focussed on extending the Business Model Canvas, not on radically changing it. I tried to do it in such a way that these alternative canvasses do not change the core concepts or the language of Business Model Generation. I have been using the examples of partnering (see here) and co-creation (see here).

However, I was not very happy with the resulting templates as they miss the elegance of the original. So I started redesigning the alternative templates to come up with an extended template that is more closely aligned with the original, but still has the additional elements for focussing on co-creation and/or partnering. The result is the Extended Business Model Canvas for Co-Creation and Partnering as presented in the figure below.

Alternative business model canvasses: A Partnering Canvas example

In an earlier post I discussed the need to sometimes innovate the business model canvas itself to describe or discover new business models and introduced a Co-Creation Business Model Canvas as example. In this post I will introduce another variety targeted at the Key Partners. Note that these alternatives do not change the core concepts or the language of Business Model Generation as introduced by Osterwalder and Pigneur (2010) nor do they replace the basic template. I see them as complementary; they can be used to highlight different value creation approaches when needed.

The Partnering Business Model Canvas is extended with the activities, resources and cost structure of the Key Partners. I adapted the template as shown in the figure below. In addition, there is also the option to also add partner relationships and channels if this is required. However, this may blow up the canvas too much, making it less easy to understand and communicate.

I see two reasons for the use of this alternative canvas. Firstly, in some business models the business network is very prominent and some of the key resources are owned by the partners or some of the key activities are performed by partners. In particular in business models where the core organization manages the customer relationships and coordinates the value creation but is not so much involved in the supply chain.

Secondly, the (out)sourcing decision is often a very important decision in the business model influencing creating and capturing value (e.g. IMB outsourced the PC operating system to Microsoft). By making the activities and resources of providers more explicit, it becomes more prominent what would be the specific activities and resources of providers that could or should (not) be outsourced.

Increasing interest in business model innovation

According to a recent survey amongst HBR readers, business model reinvention/innovation is the most pressing concern. A HBR interview on business model innovation with Rita McGrath, Columbia Business School professor, is available as HBR IdeaCast.

One of the topics discussed is the drivers of the increasing interest in business model innovation. According to McGrath there are three major drivers: (1) the increasing speed of everything and the need to be looking for the next big thing (2) intra-industry competition (e.g. electronic gadgets as Christmas gift instead of handbags) requiring companies to rethink their offerings, and (3) the disruptions caused by new business models that create better and more complete customer experiences (instead of just selling products) and that have an increasing number of revenue streams.

McGrath goes into more detail by discussing three signs/stages one should be looking for to know that your business model is overdue: (1) early evidence that gets dismissed or denied (e.g. the gap between your product and the innovations in the market) (2) customers start voicing that alternatives become increasingly acceptable and (3) it hits the financial performance and KPIs.

McGrath mentions three reasons why evidence is often ignored or dismissed: (1) the faith (?) in the assumptions of the current model made by the people in power in the organization (they are not motivated to undermine their own power basis) (2) the evidence is often provided by people who are not central to the strategy process or are seen as not credible (3) either it is threatening or the current business model is so successful that there is a complacency reaction and they feel they do not need to do anything.

McGrath also discusses the relation between business model innovation and change and the investment models and markets.

Finally, McGrath addresses the business model definition, which should include two key dimensions: (1) what are you selling (i.e. the unit of business) and (2) what are the web of activities you are involved in that show up as key metrics that drive performance.