Monday, April 02, 2018

Business Model Canvas by Alexander Osterwalder

The book "Business Model Generation" was written by Alexander Osterwalder and Yves Pigneur with the participation of 470 practitioners from 45 countries the objective of which is to come up with simple, relevant, and intuitively understandable representation of how a business works.

The model is suppose to become a shared language among those who wish to create new strategic alternatives.

This common language is suppose to allow us to challenge our assumptions about the four main areas of a business: customers, offer, infrastructure, and financial viability.

From these four main areas of business, the Business Model introduced by Dr. Osterwalder and Dr. Pigneur, can best be demonstrated via the nine basic building blocks that presents how a company makes money.

These building blocks are: key partners, key activities, key resources, value proposition, customer relationships, channels, customer segments, cost structure and revenue streams.

Under infrastructure are three (3) building blocks: key partners, key activities and key resources.

Key Activities
These are the most critical activities that will deliver your enterprise's value proposition. 

The things you need to do to move assets so you can deliver value to your customers.

Key Resources
The resources you need to create value for your customer.

These are the assets deployed to support the business and make enterprise sustainable.

Partner Network
The necessary relationships you create and nurture between you and your suppliers to maximize gains from activities and reduce risks.

These relationships enable you to focus on your core activity.

Relationships include strategic alliances created between competitors and non-competitors such as joint ventures, cooperative alliances, etc.

Under the area of offering is your value proposition.

According to Alexander Osterwalder, your enterprise's value proposition is what distinguishes you from your competitor.

Value proposition is achieved through design, branding, status, price, risk reduction, convenience, usability, newness, customization, performance, etc.

The area of business that helps you focus on Customers are customer relationships,  channels, and customer segments.

Customer Relationships
Customer Relationships are driven by the business need to acquire customers, to retain them, and the expedient goal of generating more sales from each customer from each distinct group.

Customer Segments
According to the book "Business Model Generation", customer groups represent separate segments if

• Their needs require and justify a distinct offer
• They are reached through different Distribution Channels
• They require different types of relationships
• They have substantially different profitabilities
• They are willing to pay for different aspects of the offer

Customer segments can be Mass Market, Niche Market, Segmented, Diversified, and Multi sided Platform/Market.

According to Dr. Osterwalder, channels have five (5) distinct phases: awareness, evaluation, purchase, delivery and after sales.

In Awareness, we ask ourselves the question "How do we raise awareness about our company’s products and services?"

In the Evaluation phase we need to help customers evaluate our organization’s Value Proposition.

When we get to the Purchase phase we seek out ways to allow customers to purchase specific products and services.

The question of how to deliver a Value Proposition to customers is the focus of the Delivery phase.

Once we have delivered our value proposition, we are now in the After-Sales phase where we figure out how to provide post-purchase customer support.

Finances always come in two (2) dimensions: The cost structure in one hand and the revenue stream on the other.

The business must determine where its revenue stream is coming from.

Will revenues come from transactions resulting from one-time customer payments or is from recurring revenues coming from ongoing payments?

An enterprise can generate revenues from sale of assets, usage fee, subscription fees, lending, renting leasing, licensing, brokerage fee  or advertising.

The cost structure describes cost that your enterprise incurs when it operates a business model.

You must understand how to distinguish between cost-driven and value-driven structure.

Are you leaning towards simple reduction of cost to deliver value or are you focus more on the creation of value instead of minimizing cost?

Business Model Generation is a concept that entrepreneurs can use to get an insight of their existing business and to create an enterprise the way they want it.

You can read this exciting possibilities in the book.

The book by Dr. Alexander Osterwalder and Yves Pigneur is available from Amazon Books.

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