Business Model Canvas was developed by Alexander Osterwalder and Yves Pigner. It is a strategic management tool which describes how the company understand customers needs, how it converts resources into results. Business Model Canvas depends on the balanced system of indices proposed by Kaplan and Norton in 1992. Balanced system of indices proposed that for the sustained function of the business, there needs to be balance between finance, business process, people, training and development. Business Model Canvas is a tool for corporate and financial management of the company, and it contains nine units ( Dudin, Kutsuri, Fedorova, Dzusova, & Namitulina, 2015).
Business Model Canvas assists in the design of companies’ business models. It has nine basic building blocks and helps to understand the business logic of how company intends to make money. The nine basic building blocks in the Business Model Canvas represents the four main areas of business: Customers, offer, infrastructure and financial viability. Nine building blocks of Business model canvas are described below ( Barnes, Blake, & Pinder, 2009):
Customer: Profitable customer is required to continue the business operation. Company need to find out who are their real customers. Customer segments may require distinct offering from the company because of their distinct needs. Separate customer segments may require unique relationship, distinct distribution channel and the profit share from each segment can be different.
Value Proposition: It means value offered to the customer because value proposition can function only in the value focused organization. Value focus is a mindset and attitudes towards clients-organization relationships. Inside out (persuading clients to buy what the organization decides they should buy based on ease and the convenience of the organization) and Outside-in (supplying goods or services by the company based on what the customer say they want). Inside-out and outside-in approach fails to create win-win situation for both parties. Value proposition means business creating value for the customers and for themselves through the collaborative relations with the clients and company. Therefore, value proposition is not only what you do but it is the value experience that company deliver ( Barnes, Blake, & Pinder, 2009). For example, the experience of the customer using the firm’s product or service over its competitors.
Channels: This is one of the building blocks of business model canvas. Channels helps company to communicate to the customers. Company communicate with customers using direct channels such as sales force, online sales, company’s stores and by using indirect channels such as partners store, partner owned websites, wholesalers, etc. Company must be able to find right balance between the channels to create customer satisfaction. Providing great customer experience is a way to maximize company’s revenues. Direct or indirect channel has five channel phases. Direct Channel and indirect channel cover some or all of these 5 Channel phases.
Customer Relationship: Different customer segments may require different types of interaction. Customer relationship are driven by the Key performance indicator and metrics such as customer acquisition, customer retention, upselling, Share of Wallet etc(Osterwalder & Pigneur, 2010).
Key Resources: Key resources make the business model works. Key resources are determined by the value propositions of the company. Financial flow in the company occurs when company can sell the product in demand. The resources in the company must be able to address the change in customer’s needs. Key resources include people, tangible and intangible assets. Company need to find the right way to obtain resources. The resources can be built internally, borrow from other by alliance or contract or buy other company or their resources(Osterwalder & Pigneur, 2010).
Key Activities: Key activities depends on the business model of the company. Key activities of the company can be production, problem solving and platform/networks. Company decide which activities to perform in house and which to outsource based on the field of their specialization, their goals, markets and so on (Osterwalder & Pigneur, 2010).
Key Partnership: Partnership helps company to get required resources, simplified operations, get quick access to customers, learn new skills, acquired knowledge etc. Company undergo strategic alliance to cooperate with non-competitors, strategic partnerships between competitors, joint ventures to develop new businesses and buyer-supplier relationships to ensure reliable supplies. Companies are motivated for partnership to acquire resources, reduce risk, ensure growth and optimize their business model (Osterwalder & Pigneur, 2010).
Revenue Streams and Cost Structure: Financial management is one of the important characteristics of the sustained growth and development of any company. Financial strategy includes sets of budgets for operation, investments and financial activities. Operating budget is the flows of receipts and expenditures caused by current business transactions for prospective budgeting period. Investment budget gives the idea of assets forming a part of resource base and financial budget of an enterprise systematizes and regulates the balance of inflow and outflow of money by analyzing the floating funds and current engagements of an enterprise in the ratio necessary for financial stability during the budget period ( Dudin, Kutsuri, Fedorova, Dzusova, & Namitulina, 2015).
Revenue Streams: Revenue Streams is one of the building blocks in Business Model Canvas and it represents the cash a company generates from each Customer Segment. Cost is deducted from revenue to give total earning by the company. Different ways to generate revenue streams are assets sale, usage fee, subscription fee, renting/leasing, licensing, brokerage fee, advertising etc(Osterwalder & Pigneur, 2010).
Cost Structure: Business model of the company can be cost-driven, value-driven or the combination of both. There are fixed and variable cost associated with business operations. Company enjoys cost advantages with the economies of scale and also due to economies of scope (Osterwalder & Pigneur, 2010).
References
Dudin, M. N., Kutsuri, G. N., Fedorova, I. J., Dzusova, S. S., & Namitulina, A. Z. (2015). The Innovative Business Model Canvas in the System of Effective Budgeting . Asian Social Science,Vol. 11, No. 7, 290-296.
Barnes, C., Blake, H., & Pinder, D. (2009). Creating and Delivering Your Value Proposition: Managing Customer Experience. Great Britain and United States: Kogan Page Limited.
Osterwalder, A., & Pigneur, Y. (2010). Business Model Generation. New Jersey: John Wiley & Sons, Inc.
About Writer
She is a graduate Master in International Business at University of Nice, France. She is a student of research based Master in Migration Studies.
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