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This article describes Business Model Canvas (BMC), developed by Alexander Osterwalder and Yves Pigneur in a practical way. After reading you will understand the basics of this powerful strategy tool.
What is the Business Model Canvas (BMC)?
The Business Model Canvas or BMC model is a graphic representation of a number of variables that show the values of an organization.
The Business Model Canvas can be deployed as a strategy tool for the development of a new organization. Furthermore, it also analyses the (business) situation of an existing business.
The Business Model Canvas was developed by the Swiss business model guru Alexander Osterwalder and management Information Systems professor Yves Pigneur.
They defined nine categories for the Business Model Canvas which they refer to as the building blocks of an organization.
The building block are:
- Key partners
- Key activities
- Key resources
- Value propositions
- Customer relationships
- Customer segments
- Cost structure
- Revenue streams
The performance of an existing organization can easily be improved using the Business Model Canvas. All company aspects are made clear at a glance because of the visual aspect.
By looking at the developments per category, an organization can fine-tune its value proposition and structurally improve its strategy.
When setting up a new company clear decisions can be made in advance using the Business Model Canvas.
1. Key partners
For both start-up organizations and existing organizations it may be important to create alliances with partners. For instance when fighting the competition and combining knowledge and specialization.
Essential information will be acquired by knowing in advance which partners may constitute a valuable relationship.
2. Key activities
By having a good knowledge of the core activities of a company, a good understanding of the value proposition of the organization will be obtained.
It is not just about production, but also about a problem-solving approach, networking and the quality of the product and/or service.
When the organization knows what the added value for the customer is, a better relationship may develop with existing customers, which may be helpful in the canvassing of new customers therefore, and which makes it easier to keep the competition at bay.
3. Key resources
Resources are means that a company needs to perform. They can be categorized as physical, intellectual, financial or human resources.
Physical resources may include assets such as business equipment. Intellectual resources include among other things knowledge, brands and patents.
The financial resources are related to funds flow and sources of income and human resources comprises the staffing aspect.
4. Value propositions
The value proposition is about the core of a company’s right to exist, it meets the customer’s need.
How does an organization distinguish itself from the competition?
This distinction focuses on quantity such as price, service, speed and delivery conditions on the one hand, and on the other hand it also focuses on quality including design, brand status and customer experience and satisfaction.
5. Customer relationships
It is essential to interact with customers. The broader the customer base the more important it is to divide your customers into different target groups.
Each customer group has specific needs. By anticipating the customer needs, the organization invests in different customers.
A good service will ensure good and stable customer relationships that will be ensured in the future.
An organization deals with communications, distribution and sales channels. It is not just about customer contact and the way in which an organization communicates with their customers.
The purchase location and the delivery of the product and/or services provided are decisive elements in this.
Channels to customers have five different stages: awareness of the product, purchase, delivery, evaluation& satisfaction and after sales.
In order to make good use of the channels and to reach as many customers as possible, it is advisable to combine off-line (shops) and online (web shops) channels.
7. Customer segments
As organizations often provide services to more than one customer group, it is sensible to divide them into customer segments.
By identifying the specific needs and requirements of each group and which value they attach to this, products and services can be better geared towards these needs and requirements.
This will lead to greater customer satisfaction, which in turn will contribute to a good value proposition.
8. Cost structure
By gaining an insight into cost structure, an organization will know what the minimum turnover must be to make a profit.
The cost structure considers economies of scale, constant and variable costs and profit advantages.
When it is obvious that more investments must be made than the organization is generating in revenue, the costs will have to be adjusted. Often an organization will opt for deleting a number of key resources.
9. Revenue streams
In addition to the cost structure, the revenue streams will provide a clear insight into the revenue model of an organization.
For example, how many customers does an organization need on an annual basis to generate a profit? How much revenue does it need to break even?
The revenue streams are cost drivers. In addition to the revenue from the sale of goods, subscription fees, lease income, licensing, sponsoring and advertising may also be an option.
The power of brainstorming sessions
All members of the management team can make excellent contributions to the business model canvas.
By fleshing out the business model canvas on large sheet of paper, the members can enjoy brainstorming sessions with each other, think about the categories and voice their opinions.
This will create a good and objective image of the organization and any new ideas can be discussed immediately and possibly be developed concretely.
It’s Your Turn
What do you think? Is the Business Model Canvas applicable in today’s modern economy and business? Do you recognize the practical explanation or do you have more suggestions? What are your success factors for good business model canvas management?
Share your experience and knowledge in the comments box below.
- Osterwalder, A. (2004). The business model ontology: A proposition in a design science approach.
- Osterwalder, A., & Pigneur, Y. (2013). Designing business models and similar strategic objects: the contribution of IS. Journal of the Association for Information Systems, 14(5), 237-244.
- Osterwalder, A., & Pigneur, Y. (2010). Business model generation: a handbook for visionaries, game changers and challengers. John Wiley & Sons.
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