Long Tail Business Models

In today's blogpost I'm sharing a couple of reflections on long tail business models. It is be part of the upcoming book in a section that illustrates some popular management theories & concepts through the business model canvas.

Enjoy the slides:

Long Tail Business Models
View SlideShare presentation or Upload your own. (tags: innovation design)

you can download the slides on slideshare.net:
http://www.slideshare.net/Alex.Osterwalder/long-tail-business-models-presentation/

Up-coming Business Model Innovation Workshops & Events

The next few weeks and months I will give some open workshops and will be participating in a couple of events. It would be a pleasure to meet you there! Besides that I am doing a series of private events for corporations (don't forget you can hire me ;-)

Open Workshops

  • 24 Sept. 2008: Amsterdam, Netherlands. Venue: ULURU. Business Model Design & Innovation Workshop (sign-up / few seats remaining)
  • 10 Oct. 2008: New York, US. Venue: Center for Architecture (sign-up)
  • 29 Oct. 2008: Amsterdam, Netherlands. Venue: ULURU. Business Model Design & Innovation Workshop (sign-up)
  • 8. Oct. 2008: Toronto, Canada. Venue: Rotman School of Management. Business Model Design & Innovation Workshop (sign-up) & separate 1h conference talk (sign-up)
  • Nov. 2008: Kigali, Rwanda (to be confirmed).
  • Nov. 2008: Cape Town, South Africa (to be confirmed).

Talks@Events

  • 10. Sept. 2008: Utrecht, Netherlands: Media Congress (web)
  • 11 Sept. 2008: Dublin, Irleland: Innovation Forum 2008 (web)
  • 16 Oct. 2008: León, Mexico: Innovation Event Tecnológico de Monterrey

Unfortunately, I am not present in Asia in the next couple of months. Maybe a local entrepreneur with a strong network sees this as an opportunity to invite me there...

East African Business Summit – Business Model Session

The last two days I had the great pleasure to speak about business model innovation at the East African Business Summit, a gathering of over 150 CEOs from the region. It is not everyday that I speak alongside Professor Michael Porter and a head of state, President Museveni (hopefully that will become more frequent).

Slides I presented at the event, unfortunately without the animations... (or pdf download):

The most important thing I retain from this event is that East Africa features many remarkable business leaders, whom I had the opportunity to talk to extensively. Remarkable, because these CEOs and entrepreneurs are successfully building and growing businesses in a business environment that lacks the very things many of us can take for granted: sound infrastructures, reliable legal systems and relatively accountable politicians.

Of course I also retain the tremendous interest of the participants in my session on “Competitiveness Through Business Model Innovation”. It is becoming clearer and clearer to me what CEOs and entrepreneurs around the world find interesting in my business model canvas approach to describing business models. Here a couple of points:

  • The ability to describe the business logic of a company on one page: none of the individual elements of the business model canvas are new to business people. But the simple and yet holistic look at a business on a single page is surprisingly new to most of them.
  • Customer centricity as a business model kernel: the ability to understand the relationships between customer segments and all other business model building blocks has attracted a lot of attention. Apparently, few other approaches allow for this as straightforwardly as the business model canvas.
  • The (physical) visualization of the entire business model to foster sounder discussions: In all my workshops I now print out large posters with the 9 building blocks of the business model canvas [link]. Then I get participants to stick post-it notes on these posters to either describe their existing business model or more interestingly, a possible future business model. Experience shows that this process is extremely efficient and also very focused.
  • An approach that allows to easily think out-of-the-box: It seems that the business model canvas combined with the poster-based approach makes it easy for people to sketch-out and explore new ideas.

The East African Business Summit, which took place in Kampala, Uganda, was a very inspiring event in many ways. As some of you know, I have a very personal relationship to Africa, because my wife who grew up in Switzerland, comes from Guinea Bissau - a tiny country on Africa’s west coast.

For me the Summit was inspiring because it is contributing to changing (East) Africa’s image in the world. It showcased the dynamism and experience of business leaders who are overcoming difficult obstacles every day. The summit shows that East Africa is a place of opportunities, where growth rates are very real despite the various macro issues that hold back foreign direct investment (FDI). If the region can tackle some of the most urgent infrastructure and governance issues there seems to be a sound basis for long-term growth.

One thing I sincerely hope will change rapidly is that the voice of business leaders should be better heard and taken into account more seriously. After all it is the companies that contribute to long-term wealth creation and better living conditions. Unfortunately, the state still seems “almighty” in many East African countries (for various historical reasons). This is not to say that the state doesn’t’ have a role to play – the contrary. Yet, it’s role should be the one of an enabler of wealth creation…

Finally, I would like to thank Michael Mithika of J.M. Mantle for his trust in my competencies and for convincing the Summit conveners to invite me.

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.

Applying Business Model Thinking

The last 2 weeks I had a couple of interesting meetings in Amsterdam and Zurich with business people who apply business model thinking in very different domains. These meetings are part of my quest to understand how people use the concept of business models (BM). It was also a pleasure to see how three of the five use my business model canvas (9 building block approach) to fit their professional needs.

What I take away from these meetings is that business model thinking in general is continuing to gain pace and will soon play a more dominant role in business thinking. Here some brief insights into how business model thinking was applied by the persons I met:

Gert Steens (Oblonski): spotting differentiators among BMs

Gert is an experienced investment professional with his own firm who uses the business model canvas to spot differences among companies in the same industry. He uses our structured approach to describing business models as a tool for comparison.

Here is roughly how it works: Gert first sketches out the business model of a company he potentially wants to invest in. Then he sketches out its competitors to compare if there are similarities or differences. It allows him to search for distinct strategic differentiators that give a company a competitive advantage.

I’m sure we will have the pleasure to hear more about Gert’s approach personally in the near future.

Bas van Oosterhout (Capgemini): aligning project porfolios with BMs

Bas
is an innovation consultant Capgemini, who applies the business model canvas within an overall approach at his firm. He applies it to help companies align and strengthen their portfolio of projects with their overall business model.

Marcel Jaeggi (BCG): scanning the competitive landscape of BMs

Marcel is a strategy consultant at the Boston Consulting Group (BCG) who is starting to look at business models in private banking for his PhD dissertation. He is aiming at describing the business models of a large number of private banks in order to classify them among groups. This will give Bas a small number of private banking business model types, which he will then assess based on a number of industry trends.

Edward Giesen (IBM): types of BM innovation

Edward is one of the business model thought leaders at IBM. The company emphasizes business model innovation since their 2006 and 2008 Global CEO Study showed how high the topic is on CEOs’ agendas. IBM distinguishes between three types of business model innovations, which are innovation in industry models, in revenue models and in enterprise models. Unfortunately, IBM’s business model innovation process does not seem publicly accessible.

Patrick Stähler: the BM change process

Patrick is an entrepreneur who already wrote about business models 10 years ago when he worked on his PhD dissertation on the topic. Just like myself, Patrick is currently working on a book on business models, which I am sure he will present on this blog. Patrick’s focus will very much be on the change process. In this regard Patrick made a very interesting comment. In our discussion he pointed out that business model innovation is very much about “un-learning”. In order to do things in new ways, we have to be able to forget the old ways of doing things. This applies for the customer side just as much as for the company side.

"The Wall is the Desk of the Future"

Last Friday I ran a workshop on business model innovation with the management of one of the 5 regions of a top Swiss bank. In the break-out session the bankers split into groups and were supposed to work on huge posters to sketch-out the business model of an innovative bank. That is when I realized how uncommon it still is for executives to think visually and use the wall/poster as a visual thinking aid.

They had lively discussions around their table, but it needed some stimulation from my side to get them to use the posters. I insisted on this because I think visualization of business issues is increasingly a requirement to tackle the complex problems of our time.

Understanding not only the issues, but also the links between issues is a must in today's complex world. Yet, this is very difficult to achieve without a visual aid. That is where the wall is very helpful and gives all participants of a meeting a common reference point... When Dave Gray, CEO of XPLANE, was visiting us in Geneva he said one thing that I don't stop quoting:

"the wall is the desk of the future"

Have a glance at some images I put together in a Power Point presentation illustrating the above quote:

Video: Business Model Innovation in Private Banking

This week I participated in a high-level panel on strategic and operational private banking models in the 21st century in Zurich Switzerland. I talked about business model innovation in private banking (not meaning the innovative financial products that provoked the current financial turmoil, of course).

Enjoy the video:

You can check out the videos of the other panelists on www.privatebankinginnovation.com.

Conference Talk: Innovating the Business Model (Dublin, Ireland)

I will be speaking at the "Innovating the Business Model" conference organized by Enterprise Ireland, tomorrow, Wednesday 24th of October.

I'm quite excited to be the closing speaker of the conference, since the opening speaker is Professor Henry Chesbrough, author of the books "Open Business Models" and "Open Innovation". I had a chance to meet Henry this evening and he is a really great guy. It's wonderful to meet one of the mentors of the open enterprise concept which we apply day after day at our consulting firm Arvetica.

So in the spirit of open knowledge, please find below the set of slides that I will be presenting tomorrow:

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Course (in German) on Modeling Business Models - Day 1 of 4 half-days

Last Saturday I started teaching a Masters class on "Modeling Business Models" at the Lucerne University of Applied Sciences and Arts (Hochschule für Wirtschaft HSW Luzern). It was the first half day in a series of 4 half day lectures. (NOTE: The course and all the following slides are in German).

The lecture is designed as an extension to a previous course which the class had on the topic of business process management. To me this is a perfect fit, because I see the modeling of business models as the next step after the wave of business process modeling that we now more or less master in most companies. I hope the students will like it...

Here the slides I used during class:

Here the group work the class will pursue during the next few lectures and which will count 50% of the final evaluation:

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Conference Talk on Business Model Design and Innovation

Last month I spoke about business models and innovation in Melbourne at an event for business people hosted by La Trobe University. During the trip to Australia through Dubai I realized at how many places I would still like to speak. Top on my list are Dubai, India and China. Maybe that is to come when the topic becomes more popular in management circles and business literature.

You can find a video capture of the event in Melbourne with about 120 people of regional industry below:

Interested organizations can contact me at alex@arvetica.com

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Workshop on Business Models in Australia

I was invited to Australia by La Trobe University to give a talk to business people in Melbourne on the topic of business models. The talk took place within the context of a research program I am involved in.

Below you can find the slides of the 40 minutes talk. I included some new and interesting examples, which I prepared explicitly for this presentation. To get a good viewing of the animated slides you must download the slides first rather than just view them (download here from Slideshare.net)

I'm in Melbourne until the 2nd if somebody wants to meet me there. Despite a full agenda, I'm sure I can get a free slot for a chat.

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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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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