The qualities of business models: Thinking about “...ilities”

Most people will be familiar with the ...ilities that IDEO uses for design thinking: desirability, feasibility, viability. In a previous post about the strategic change of business models, I discussed synergy, scalability, flexibility, innovativity, simplicity, and repeatability.

In their recent work (The Invincible Company), Osterwalder and Pigneur position IDEO's ...ilities on their Business Model Canvas and add adaptability to include factors from the business environment. Here I like to present some initial ideas that follow and extend the ideas from Osterwalder and Pigneur.

As presented in the picture below, the basic positioning by Osterwalder and Pigneur is followed, except that their viability (‘earning enough money’) is replaced by profitability (which more directly expresses the monetary focus).

In my perspective, viability is central and is firstly related to the value proposition. The value proposition is often seen as the key element or core component of a business model. As such it seems evident that a key concern should be whether the value proposition is viable or not.

Secondly, viability is also determined by a holistic perspective on the business model (the sum is more than the parts, how do the components fit together). As such, it also brings desirability, feasibility, and profitability together and can be seen as their ‘sweetspot.’

Thirdly, viability is also determined by how the business model fits in its business environment (adaptability) and institutional environment (legitimability). The latter deals with the broader values, logic and rules of social structures that influence stability (and change) in social life.

Repainting the business model canvas for peer-to-peer sharing and collaborative consumption

Sharing Economy businesses have become very popular recently but there is little guidance available on how to develop the respective business models. We faced this problem during a consortium research project for developing a service for electric vehicle charging that adopts the paradigm of Peer-to-Peer Sharing and Collaborative Consumption (P2P SCC)— a specific branch of the Sharing Economy. 

We use Action Design Research (ADR) to develop an adapted version of the Business Model Canvas that is specifically tailored to the needs of P2P SCC business model development. The adapted canvas is then applied to develop a business model for the proposed service. 

The learnings from the development process are formalized into a set of generally applicable guidelines for the development of P2P SCC business models. The resulting guidelines and the adapted canvas provide guidance for both researchers and practitioners who want to either develop new or analyze existing P2P SCC business models.

See here for more information.

Conceptualising Business Models: Definitions, Frameworks and Classifications

The business model concept is gaining traction in different disciplines but is still criticized for being fuzzy and vague and lacking consensus on its definition and compositional elements. In this paper we set out to advance our understanding of the business model concept by addressing three areas of foundational research: business model definitions, business model elements, and business model archetypes. 

We define a business model as a representation of the value logic of an organization in terms of how it creates and captures customer value. This abstract and generic definition is made more specific and operational by the compositional elements that need to address the customer, value proposition, organizational architecture (firm and network level) and economics dimensions. Business model archetypes complement the definition and elements by providing a more concrete and empirical understanding of the business model concept. 

The main contributions of this paper are (1) explicitly including the customer value concept in the business model definition and focusing on value creation, (2) presenting four core dimensions that business model elements need to cover, (3) arguing for flexibility by adapting and extending business model elements to cater for different purposes and contexts (e.g. technology, innovation, strategy) (4) stressing a more systematic approach to business model archetypes by using business model elements for their description, and (5) suggesting to use business model archetype research for the empirical exploration and testing of business model elements and their relationships.

See here for more information.

Business Model Canvas or Business Model thinking?

The Business Model Canvas presents us with a great tool for the design and innovation of business models. As with every specific approach or tool, the Canvas can also bias or blind us. This can be caused by the features of the tool itself as well as from the way in which the tool is (wrongly) used.

As with every solution for solving a problem, the features of the Business Model Canvas are determined by the framing and scoping of the problem. This means that compared to other business model frameworks and tools, the Business Model Canvas has certain strengths and weaknesses (see also my discussion on different frameworks here). For example, some of specific areas where the Business Model Canvas could fall short in are related to business networks, service logic and business dynamics.

Another potential hazard with using the Business Model Canvas is that its use gets reduced to just filling out the individual building blocks. This will not provide a holistic perspective on value creation as it omits the relationships between the building blocks, e.g. Dell could offer direct sales because they targeted corporate customers going for a repeat purchase. Moreover, every business model has an underlying rational or story.  This is easily missed when one limits oneself to the individual building blocks. The idea behind Southwest Airlines' business model can be described as making flying an alternative for taking a bus or car.

So while the Business Model Canvas can be very useful for supporting the design and innovation of business models, we should not fall into the trap that we therefore assume that we do not need to also think more broadly about the logic for creating and capturing customer value.

A simple Business Model Canvas example – The library

Looking for a simple example to learn and teach the Business model Canvas that is not too MBA like? Why not take something familiar like a library? Easy to map out but still very insightful. See the example I included below (as far as I remember it from when I was a kid in the Netherlands).

There are lots of ways to extent this. When you want to explore the commercial side, compare it with a book shop example. Or when you want to discuss the impact of technology, discuss how an e-book library would look like.

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.

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.

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.

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.

To what extent is the Business Model Canvas constraining? A Co-Creation Canvas example

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. However, a question that rises is will (should) each business model fit into this template? Is it sometimes required to innovate the template itself to describe or discover new business models?

An example that I used for experimenting with an alternative template is (service) co-creation. Simply stated, the idea of co-creation is that the separation between a producer and consumer becomes less strict. It is not the producer any more who is the only active party while the consumer is passive. This means that the consumer brings in resources and performs activities to create value together with the producer and has associated costs. To reflect this in the business model canvas, I adapted the template as shown in the figure below.

In a more general sense, we now work with a multi-level business model framework. At the higher level the core value logic is reflected in the specification of the template (for example, the template for co-creation in the figure below). At a lower level the value logic is reflected in the description in the template (which has not been added to the template in the figure below).