Business Model Designer From Sticky Note To Screen Interaction

Last Friday I was part of the committee for a Masters Thesis defense on business model design at the HEC Business School in Lausanne, Switzerland. Boris Fritscher, whom I previously mentioned on this blog, defended his thesis "Business Model Designer From Sticky Note To Screen Interaction". For his dissertation Boris developed a web-based business model design tool under the guidance of Professor Yves Pigneur, my co-author for an upcoming book on business model innovation.

Boris did an outstanding job combining business relevance with software development. You can check out his presentation and thesis below or on his website. You can also look into a non-interactive demo of his business model design tool. It allows capturing, storing and designing business models (read about it in the dissertation). Boris is not yet opening up the tool to the public, though many readers of my blog have already asked me for access. If we show him how much we want/need this tool he will hopefully change his mind and allow some testers access to an alpha/beta version. Isn't it, Boris ;-) So post a comment to this blog if you think this is relevant!

Have a look at Boris' thesis. It is really interesting and I believe it points us to the future of business model innovation: one where paper based brainstorming is combined and complemented with the advantages of computer aided business model design.

And here the slides Boris presented during his thesis defense:

Web-based Business Model Innovation Software and Working on the Wall

Boris Fritscher, a brilliant masters student of HEC business school in Lausanne, Switzerland, has picked up on using software to sketch out business models under the guidance of my co-author, Professor Yves Pigneur.

Yesterday he showcased the tool to me and Patrick van der Pijl, producer of my business model book. Boris built a web-based tool that allows the design and description of business models. But Boris didn't keep it there. He extended the tool to allow designing business models live on a projected image on the wall (see picture where Boris works on a business model). How cool is that?

The tool, which is a research project, is still in private beta. We are currently exploring how it can most easily be used to build a database of interesting and innovative business models on the book chunk platform.

I think there is quite some potential in software-based business modeling. Two IBMers, Norbert Herman and Sergey Trikhachev are also working on a tool based on my method. They built a Visio-based tool and are extending it to include business model simulation capacities

Previously I called this Computer Aided Business Model Design (CABMoD), referring to Computer Aided Design (CAD) in Engineering and Architecture. I believe it has similar potential in business...

Google Book Search - first issue of my new business model innovation example series

During my d"aily lecture of the Financial Times I usually put on my "business model glasses" when it comes to the business section. Every week there are some very exciting examples of business model innovation. I decided to not only share these examples in my workshops, but also on my blog - hence the new "business model innovation example series"...

Enjoy the first issue on a deal that Google struck last week:

Design Thinking & Techniques

I’m just back from a 2-day business model workshop I gave in Medellin, Colombia, with a local telecommunications company. For the first time I really elaborated a bit more on the design-thinking component of sound business model development. I pointed out that business people must display a particular design attitude and use design techniques in order to come up with good new business models.

The participants of the workshop, mainly from engineering backgrounds, responded really well to this message. They seemed to enjoy the co-creation, visual working on the wall, etc., which I got them to do during the break-out sessions.
Here some of the designer’s technique’s that I highlighted for use in business contexts:

  • Observation of clients to understand them, identify needs and design a corresponding business model
  • Co-creation with clients and among multi-disciplinary teams within companies to integrate different perspectives
  • Brainstorming and ideation to achieve break-throughs and come up with new business models
  • Visualization to connect concepts, foster joint understanding and run focused meetings
  • Prototyping to explore several ideas simultaneously and test business models

Initially, I wanted to show the participants the famous IDEO video where they design a new shopping cart in order to illustrate the above design techniques and design attitude. However, since the DVD I had was broken, I had to find some other videos on the Web or from my video library.

After some searching, I finally decided to show two excerpts from “Managing as Designing” from the Weatherhead School of Management. They highlight some interesting thinking on the relationship between design & business. I also showed a very short excerpt (because the whole thing would have scared them) from Philippe Starck’s talk at TED to show that design is not about making “nice” products, but about creating value for the user of a product. Philippe Starck, as many of you certainly now, is a celebrated star designer…

After these thoughts on design I would also like to stress how impressed I was by the workshop participants and the city of Medellin in general. Formerly known as a hub for narco-traffic the city has completely transformed over the past years. There is beautiful architecture everywhere and the economy is booming. Definitely a place I will enjoy to come back to. This is certainly also related to the outstanding hospitality I enjoyed by the persons who invited me.

What is a Business Model?

Update: Based on the overwhelming interest this post got, I updated and republished the version from 2005

A business model is nothing else than a representation of how an organization makes (or intends to make) money. This can be nicely described through the 9 building blocks illustrated in the graphic below, which we call "business model canvas".

Insight: In addition to this post check out the business model design template

The business model topic is very popular among business people today because in various industries we can see a proliferation of new and innovative business models (i.e. new ways of making money). In several industries new business models are threatening or even replacing established companies and conventional ways of doing business. Just have a look at the music or airline industry.

Hence, the interest in business models comes from two opposing sides:

  • Established companies have to find new and innovative business models to compete against growing competition and to fend off insurgents
  • Entrepreneurs want to find new and innovative business models to carve out their space in the marketplace

Within this context the business model concept is a particularly helpful unit of strategic analysis tailored to today's competitive business environment. It helps executives as well as entrepreneurs increase their capacity to manage continuous change and constantly adapt to rapidly changing business environments by injecting new ideas into their business model.

But what actually is a business model?

In management meetings the question of what a business model is (even what “our” business model is) often remains relatively vague. The main reason for this is because business people have an intuitive understanding of business models. Normal, since the business model is about how an organization makes money, which is a manger’s job after all. However, there is often a lack of a more precise and shared understanding of what a business model is. Yet, such a common understanding is required if we want to have high quality discussions of one’s business model and make important business model decisions.

Therefore we have come up with the 9 building block approach to describing business models. It has the characteristics of any other type of model (e.g. in architecture or engineering).

Like other models it is a simplified description and representation of a complex real world object. It describes the original in a way that we understand its essence without having to deal with all its characteristics and complexities. In the same line of thought we can define a business model as a simplified description of how a company does business and makes money without having to go into the complex details of all its strategy, processes, units, rules, hierarchies, workflows, and systems.

Based on an extensive literature research and real-world experience we define a business model as consisting of 9 building blocks that constitute the business model canvas (readers of this blog will realize that this is an updated and slightly adapted version of the model):

  1. The value proposition of what is offered to the market;
  2. The segment(s) of clients that are addressed by the value proposition;
  3. The communication and distribution channels to reach clients and offer them the value proposition;
  4. The relationships established with clients;
  5. The key resources needed to make the business model possible;
  6. The key activities necessary to implement the business model;
  7. The key partners and their motivations to participate in the business model;
  8. The revenue streams generated by the business model (constituting the revenue model);
  9. The cost structure resulting from the business model.

Origins of the term business model

The term business model became popular only in the late 90s, which, personally I think is related to the rapid erosion of prices in the IT and telecom industry. The roots of my assumption lie in Transaction Cost Economics (TCE). Because it became so cheap to process, store and share information across business units and other companies all the way to the customer, many new ways of doing business became possible: Value chains were broken up and reconfigured; Innovative information-rich or -enriched products and services appeared; New distribution channels emerged; More customers were reached.

Ultimately this lead to globalization and increased competition, but, as described above, it also led to new ways of doing business. In other words, today there is a larger variety of how companies can make money: this means new in terms of what they do, how they do it and for whom they do it...

For managers and executives this means that they have a whole new range of possibilities to design their businesses. This results in innovative and competing business models in the same industries. Before, it used to be sufficient to say in what industry you where in, for somebody to understand what your company was doing. All players had more or less the same business model. Today it is not sufficient to choose a lucrative industry, but you must also design a competitive business model. In addition, increased competition and rapid copying of successful business models forces all players to continuously innovate and adapt their business model to gain and/or sustain a competitive edge.

Companies that thoroughly understand their business model and know how the building blocks relate to each other will be able to constantly rethink and redesign these blocks and their relationship to innovate before their business model is copied.

Business Models & Innovation

The term business model is also closely related to innovation. As I mentioned, the business model concept is related to a whole new range of business design opportunities. There are examples of business model innovations in each of the 9 building blocks described. The most obvious is innovating in the value proposition. When mobile phones appeared in the market they offered a different value proposition than fixed line phones. In the early days of the Internet popular indexes like Yahoo! helped people find information on the Web. Regarding target customer segments, low-cost airlines like EasyJet have brought flying to the masses. Dell became really successful by exploring the web as a distribution channel. Gillette has made a fortune by establishing a continuous relationship with customers based on its disposable razors. Apple resurged based on its core capacity of bringing design to computers and electronic gadgets. Cisco became famous for its capacity of configuring activities in new and innovative supply chains. Intel thrived for its capacity to get partners to build on its processing platform. Google tapped in an innovative revenue streams by linking highly specific search results and content with text ads. Wal-Mart became dominant by its ability to slash cost throughout its business model.

For conference or workshop engagements on the topic of business models, please contact me at alex@businessmodeldesign.com and consult my speaker's profile (pdf)

Business Model Innovation Book (book structure prototype)

The reflections on our book on business model innovation are advancing daily. Yves Pigneur, my co-author, and I have come up with a first rough prototype book structure. We will refine our thinking this Friday and we are, of course, curious to hear your feedback.

You can check out the structure in the slidecast below. It gives you an idea where we are heading, though this first draft structure only sketches out the rough outlines.

To listen to and visualize the slidecast, please hit the play button. All the rest is automatic.

I'm looking forward to your first feedbacks...

Online Seminar : Introduction to Business Model Design & Innovation

Date: June 26, 17 :00 CET (Geneva, Berlin, Paris, Madrid)
Price: 150.- USD
Presenter: Dr. Alexander Osterwalder
Duration: 1 hour and question & answer

Are you interested in business models and business model innovation? Do you wonder how this topic will impact you, your company and your competitive environment in the future? Then you should participate in this web seminar. It will introduce you to the fundamentals of business model thinking – a topic that is still too often poorly defined.

In this web seminar you will learn why business model thinking is so important today. You will see how innovative business models are disrupting the airline and music industry. This is likely to challenge you to reflect on the consequences for your own company and industry. To facilitate this reflection we will learn how to use the Business Model Canvas. This approach will allow you to easily sketch out your own and your competitors’ business models. Throughout the web seminar we will use interesting and innovative cases from various industries to get a better grasp on the topic of business model innovation.

Key take-away of the web seminar - you will:

  • sense why it is indispensable for you to start thinking in terms of business models in today’s competitive landscape
  • learn how you can describe your own business model based on the intuitive and pragmatic business model canvas
  • understand what business model innovation is about and how it differs from other types of innovations (e.g. product or process innovation)
  • learn about interesting and innovative cases of business model innovation

Who should participate?

Managers, entrepreneurs, intrapreneurs, business strategists, consultants, academics, venture capitalists.

Caveat

In this introductory seminar we will not go into depth regarding the business model innovation process inside companies. This particular topic is reserved for a future seminar focusing on just that. Similarly, we will not go into depth as to business model assessment, which is also reserved for a future seminar. However, we strongly recommend that people interested in the special-topic seminars scheduled at a later date, follow the introductory web seminar.

General Information

The web seminar will consist of a one hour lecture by Dr. Alexander Osterwalder based on a set of PowerPoint slides. It will be followed by a question and answer session. Within 24 hours of your online registration and payment you will receive an url by email that will allow you to access the web seminar. You will receive a reminder email the day prior to the event including the url that gives you access to the web seminar. The session will run on the webex platform by Cisco.

Cancellation Policy

For cancellations received more than 48 hours prior to the start of the seminar, we will deduct a US$50 administrative fee and refund or credit the remaining fee. There will be no refund or credit for cancellations received less than 48 hours prior to the start of the online seminar. All cancellations or substitutions must be received in writing.

4 Questions for Roger Martin

Today I came across this quite interesting video interview with Roger Martin (hat tip to Ralf Beuker), dean of the Rotman School of Management. What you must know (if you don't already) is that the Rotman School is very design oriented and aims at bringing design to business.

Enjoy the video where Roger talks about the design & business overlap:

I very much apply what Roger says in my consulting work and I also taught it in my last workshops in Mexico.

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Draft Presentation: Competitive Advantage through Business Model Design and Innovation

I just finished a draft presentation for a workshop on the topic "Competitive Advantage through Business Model Design and Innovation". I'm facilitating the workshop next June with about 100 executives in Guadalajara, Mexico. The workshop is hosted by the Tecnologico de Monterrey (ITESM). Your input regarding the slides is most welcome:

At the end I'm going to add some slides on the blue ocean strategy concept by Kim & Mauborgne, as an example of value proposition design...

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Space as an Instrument for Business Model Innovation

At Arvetica we find that space is very important to foster creativity. This is the reason why we have brainstorming rooms with whiteboards and flipcharts, but also a "living room" area to get inspired. I rarely find such spaces in other places, which is sometimes limiting when working at our clients' premises.

Last Friday, however, I found such a space, which was perfectly designed for creativity. After a morning meeting at the college of management at the Swiss Federal Institute of Technology, Lausanne (EPFL), I decided to stay on the campus. At the architectural school I found a beautiful working spot, which you can see on the above photo.

It's an open space in the middle of the hallway of a relatively frequented building. There's a set of colorfull sofas and a large whiteboard (!). It feels like an open invitation to any person or group to sit down and get creative. The whiteboard is the perfect support to explain things visually and illustrate ideas on the wall. The electricity plug and WiFi allows you to pump information from the Internet. I realized how rarely I see such places at the companies I visit and wonder how many ideas get lost as a consequence...

This is probably particularly crucial when it comes to more strategic themes and ideas that are relegated to closed meeting rooms. Hasn't everybody of us experienced that the most interesting ideas come in a relaxed atmosphere. So maybe space is an instrument to help design the most innovative and effective business models...

Worth a thought?

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Nintendo's Blue Ocean Strategy: Wii

As many of you know, the video gaming market is a multi-billion dollar business. Video consoles, which is a big chunk of that market, are currently dominated by two giants: Sony with its Playstation (PS1&2 and soon PS3) and Microsoft with its Xbox (Xbox and Xbox360). Nintendo, however, a distant third actor is raising eyebrows with its recent introduction of the Wii. This is particularly interesting from a strategy point of view because it's a wonderful example of a so-called blue ocean strategy (a concept introduced by Kim & Mauborgne which I mentioned here and here). The graphic below (done with the following Blue Ocean Excel template) illustrates Nintendo's Wii strategy and is almost self-explanatory...

The graphic illustrates the attributes of Sony's, Microsoft's and Nintendo's latest consoles. What does it show? Jeremy Fain from the Tech IT Easy blog puts it nicely:

Wii doesn’t intend to be a best-of-breed videogame console. Nintendo is trying to bring non core gamers back to gaming [..] with the Wii. Wii won’t equal video game but Wii aims at meaning fun. Nintendo focuses on the consumer’s feeling rather than its product. (-> read post...)

The attributes in the graphic show that Nintendo is competing on completely different terms than Sony and Microsoft. The Wii is cheap, has no Hard Disk, no DVD, no Dolby 5.1, weak connectivity, comparatively low processor speed, but blows minds away with its innovative motion control stick (check out the demo video below). The stick integrates the movements of a player directly into the video game (think tennis, golf, sword fights, ...). With this feature Nintendo opens up the console world to a completely new public of untapped non-gamers...

All of the above describes nothing else than the characteristics of a blue ocean strategy:

  • A strong value innovation for (many new) customers (i.e. motion stick)
  • Cost reduction by eliminating features (i.e. no HD, no DVD, no Dolby 5.1, low processor speed)

These two characteristics defy the conventional wisdom that you should either go for cost leadership or differentiation but not for both (remember Michael Porter...). In Kim & Mauborgne's terms this means that while Microsoft's Xbox and Sony's PS3 are fighting each other fiercly in a red ocean (i.e. the existing market), Nintendo's Wii is calmly sailing in the blue ocean it created for itself (i.e. a new market)... By the way, Switzerland is not innocent as to the creation of this blue ocean: An Italy-based division of STMicroelectronics, which is headquartered in Geneva, Switzerland, has put forward to Nintendo the integration of motion sensors into their consoles.

Finally, if your unfamiliar with Nintendo Wii's (amazing) motion control, check out this video:

Disclosure: I haven't thoroughly assessed the detailed product specs of the three consoles. Gamers might want to correct my graphic ;-)

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What is a business model?

Update: Business Model Innovation Book. We are currently writing a groundbreaking book on business model innovation (publication: June 2009). You can get special privileges and participate in the innovative business model of our book project on our book chunk platform

Update: Based on the overwhelming interest this post got, I updated the version from 2005

A business model is nothing else than a representation of how an organization makes (or intends to make) money. This can be nicely described through the 9 building blocks illustrated in the graphic below, which we call "business model canvas".

Insight: In addition to this post check out the business model design template

The business model topic is very popular among business people today because in various industries we can see a proliferation of new and innovative business models (i.e. new ways of making money). In several industries new business models are threatening or even replacing established companies and conventional ways of doing business. Just have a look at the music or airline industry.

Hence, the interest in business models comes from two opposing sides:

  • Established companies have to find new and innovative business models to compete against growing competition and to fend off insurgents
  • Entrepreneurs want to find new and innovative business models to carve out their space in the marketplace

Within this context the business model concept is a particularly helpful unit of strategic analysis tailored to today's competitive business environment. It helps executives as well as entrepreneurs increase their capacity to manage continuous change and constantly adapt to rapidly changing business environments by injecting new ideas into their business model.

But what actually is a business model?

In management meetings the question of what a business model is (even what “our” business model is) often remains relatively vague. The main reason for this is because business people have an intuitive understanding of business models. Normal, since the business model is about how an organization makes money, which is a manger’s job after all. However, there is often a lack of a more precise and shared understanding of what a business model is. Yet, such a common understanding is required if we want to have high quality discussions of one’s business model and make important business model decisions.

Therefore we have come up with the 9 building block approach to describing business models. It has the characteristics of any other type of model (e.g. in architecture or engineering).

Like other models it is a simplified description and representation of a complex real world object. It describes the original in a way that we understand its essence without having to deal with all its characteristics and complexities. In the same line of thought we can define a business model as a simplified description of how a company does business and makes money without having to go into the complex details of all its strategy, processes, units, rules, hierarchies, workflows, and systems.

Based on an extensive literature research and real-world experience we define a business model as consisting of 9 building blocks that constitute the business model canvas (readers of this blog will realize that this is an updated and slightly adapted version of the model):

  1. The value proposition of what is offered to the market;
  2. The segment(s) of clients that are addressed by the value proposition;
  3. The communication and distribution channels to reach clients and offer them the value proposition;
  4. The relationships established with clients;
  5. The key resources needed to make the business model possible;
  6. The key activities necessary to implement the business model;
  7. The key partners and their motivations to participate in the business model;
  8. The revenue streams generated by the business model (constituting the revenue model);
  9. The cost structure resulting from the business model.

Origins of the term business model

The term business model became popular only in the late 90s, which, personally I think is related to the rapid erosion of prices in the IT and telecom industry. The roots of my assumption lie in Transaction Cost Economics (TCE). Because it became so cheap to process, store and share information across business units and other companies all the way to the customer, many new ways of doing business became possible: Value chains were broken up and reconfigured; Innovative information-rich or -enriched products and services appeared; New distribution channels emerged; More customers were reached.

Ultimately this lead to globalization and increased competition, but, as described above, it also led to new ways of doing business. In other words, today there is a larger variety of how companies can make money: this means new in terms of what they do, how they do it and for whom they do it...

For managers and executives this means that they have a whole new range of possibilities to design their businesses. This results in innovative and competing business models in the same industries. Before, it used to be sufficient to say in what industry you where in, for somebody to understand what your company was doing. All players had more or less the same business model. Today it is not sufficient to choose a lucrative industry, but you must also design a competitive business model. In addition, increased competition and rapid copying of successful business models forces all players to continuously innovate and adapt their business model to gain and/or sustain a competitive edge.

Companies that thoroughly understand their business model and know how the building blocks relate to each other will be able to constantly rethink and redesign these blocks and their relationship to innovate before their business model is copied.

Business Models & Innovation

The term business model is also closely related to innovation. As I mentioned, the business model concept is related to a whole new range of business design opportunities. There are examples of business model innovations in each of the 9 building blocks described. The most obvious is innovating in the value proposition. When mobile phones appeared in the market they offered a different value proposition than fixed line phones. In the early days of the Internet popular indexes like Yahoo! helped people find information on the Web. Regarding target customer segments, low-cost airlines like EasyJet have brought flying to the masses. Dell became really successful by exploring the web as a distribution channel. Gillette has made a fortune by establishing a continuous relationship with customers based on its disposable razors. Apple resurged based on its core capacity of bringingdesign to computers and electronic gadgets. Cisco became famous for its capacity of configuring activities in new and innovative supply chains. Intel thrived for its capacity to get partners to build on its processing platform. Google tapped in an innovative revenue streams by linking highly specific search results and content with text ads. Wal-Mart became dominant by its ability to slash cost throughout its business model.

For conference or workshop engagements on the topic of business models, please contact me at alex@businessmodeldesign.com and ask for a speaker's profile