... where visionaries, game changers, and challengers discuss business models
Like most of you, I like business models and the business model canvas a lot. I teach it to entrepreneurs and managers and it is very useful for them. Yet, we also should not forget that any tool or framework has its limitations and shortcomings and that we always should look for ways to improve them. This also applies to the business model canvas.
Recently I wrote two blogs on my own website about three shortcomings that I recognize. These are shortcomings that do not only apply to the canvas, but also to the notion of a business model itself:
1: The business model canvas excludes an organization’s strategic purpose
2: The business model canvas excludes a notion of competition
3: The business model canvas mixes levels of abstraction
Rather than copying these blogs here in full, I'd like to invite you to engage in a discussion - either here or on my website - about possible shortcomings of the business model notion and the canvas and ways to overcome them.
Here are my own attempts:
This is the blog about the shortcomings of the business model canvas
and this is the blog about an alternative value model canvas that addresses these shortcomings.
Thanks and I am looking forward to see your views on this.
I've just started looking at the Business Model Canvas as a tool, still working my way through the book. I don't think I'd class this as a short coming and many people will, no doubt, disagree with me but the first thing that struck me looking at the canvas is that it's back to front.
Most people (certainly most people in Northern Europe and North America) read left to right, even pictures (I discovered on a photography course) we process left to right. In the template canvas the customer is on the right and is therefore at the 'end' of the plan. The 'beginning' is with the key partners and the focal company on the left. This seems to me to imply that customers are driven by the products and services available to them. This is further re-enforced by the fact that there are two arrows pointing to the customer (Channels and Relationship) but none pointing back. It's a one way street, products and services pushed towards the customer. Maybe this works for other people but it niggles with me. This might be because I work in a consultancy type environment where we offer and range of different services and work tends to be in response to a a customer pull, if they are pulling for a service we don't have the skills to provide then we find someone (an individual we hire or another company we partner with) who does have those skills.
Barring any didcovery to the contrary I think in adapting the canvas for my use I'd look to switch left and right around (put Customers on the left) and change the direction of the Relationship arrow to indicate that they communicate their needs to us via our realtionship (which, if they are a new customer, may be a relationship we have with with another customer who has recommended us) and we endevour to deliver a service to resolve that need.
As I said, I'm just getting started. Looking forward to learning more.
Hi Stephen, thanks for the reply. Most people that I know who use the canvas tend to use it from right to left - despite reading from left to right. If you look in the canvas poster, you can see this is also how some of the questions are formulated: 'What value do we deliver to the customer' (which assumes a customer has already been chosen), 'What key activities/resources do our value propositions require' (which assumes the value proposition comes before defining the activities/resources).
I think the main point is that you can use it both ways and that finding out which way is most suitable for you(r) business is one of the key questions to answer before using the canvas - or perhaps you want to experiment and do both.
My most recent post on my own website discusses this in more detail (http://kraaijenbrink.com/2012/07/three-strategies-to-use-the-value-...)
I have been using the Business Model Generation book to guide my work with entrepreneurs and managers over the past couple of years. Some of them have echoed your concern about the absence of external factors (e.g., competitors) in the canvas. However, I appreciate the fact that the current version of the business model canvas helps to focus attention on the elements of value creation (business strategy) that are under a company's control. Later sections of the book do a great job of exploring many facets of the external environment using tools and frameworks (industry analysis, macro and micro economics, etc.) and illustrating how those external conditions can influence and are influenced by nine building blocks of the canvas. I highly recommend that strategists use the business model canvas as constructed by the team of 470 strategists from around the world and also utilize other aspects of the book that bring in competitors, key trends, etc.
I don't quite understand your point about mixing levels of abstraction, especially if you consider that all of the building blocks of the business model canvas are internal factors. I disagree with your suggestion to combine channels and customer relationships into one building block because doing so muddies the point that how companies define the needs of each customer segment should lead to distinct choices about what types of relationships, communication and distribution channels will best meet the needs of each segment. In my opinion, many companies fail to capture optimal levels of value because they do not break down these customer-oriented building blocks in sufficient detail.
I also encourage strategists to keep Key Partners in the model (contrary to your suggestion) - this is another area that entrepreneurs need to keep in the forefront as they figure out the best ways to create value for current and future customers. Firms of all sizes can capture tremendous synergies by being more strategic in choosing partners based on how they can help the focal firm deliver value to its most important customers. Entrepreneurs are notorious for wanting to "do everything themselves," which fails to make the best use of their limited resources and also misses important opportunities for innovation, cost savings and new revenue streams. Medium and large-sized businesses can also create tremendous value through the careful selection of partners who provide resources or value creation activities that are too expensive for the focal firm to master on its own.
Lastly, I think your point about the omission of the company's strategic purpose in the business model canvas is a good one. However, when I use the business model canvas in my work, I ask entrepreneurs and managers to think about the company's (or business unit's) values and purpose as the "mortar" that holds the other building blocks together. It is impossible to discuss how the nine elements of the canvas fit together without also talking about the values and purpose that make a firm or business unit unique. I think creating a separate building block called values or strategic purpose, fails to capture the power and importance of those elements as the thread that should link together every other decision that is made about value creation.
Thanks for your thought-provoking post, both here and on your blog. I am looking forward to reading what others think about the question and value model you proposed.
Hi Jude, thanks for your extensive reply. I don't think this is the time yet to respond from my side on the points where we seem to disagree - I'd rather wait and see how others think about possible shortcomings of the canvas.
Just one point of apparent confusion that I'd like to clarify. Regarding 'key partners', I couldn't agree more with you and I observe the same as you: entrepreneurs like to do it themselves but would do a much better job when finding key partners (that's one of the reason why we stimulate them in our incubation program to assess their own capabilities and limitations and look for partners). Key partners, therefore are an essential element, also of my canvas (upper left part). If I have somehow suggested otherwise, my apologies.
Jeroen - I think your decision to let others weigh in on the discussion is a great idea. I looked back at your post regarding the Value Canvas and now see that you did include Key Partners in the upper left - sorry about that. I think my brain grabbed onto your statement in item #3 of that blog post in which you said to put key partners to the side. I missed the part where you re-inserted partners a bit later in your post. Once again, my apologies for overlooking partners in your revised model.
I've systematically examined both the prospects and limitations of the Business Model Canvas. The shortcomings of the Business Model Canvas can be considered in three categories.
1. Limitations of TOPICS of the Business Model Canvas
2. Limitations of GRAPHIC LAYOUT (CANVAS) of the Business Model Canvas
3. Limitation of BODY OF KNOWLEDGE & COMPLEMENTARITY of the Business Model Canvas
In the book, "Business Model Generation", it is stated that "A business model describes the rationale of how an organization creates, delivers, and captures value." In general, there are four types of value (needs, jobs-to-be-done, or results): physical value, intellectual value, emotional (social) value, and spiritual value. However, the Business Model Canvas focuses only on physical value and in particular, profitability which is covered by the building blocks of "Cost Structure" and "Revenue Streams." Intellectual, emotional, and spiritual value are ignored on the the Business Model Canvas. Recent thinking on value takes a broader approach such as in Michael Porter's concept of Shared Value. Rather than the narrow concepts of "Cost" and "Revenue", the Business Model Canvas should focus on the generic concepts of "Pain" and "Delight"; Value is the ratio of Delight to Pain. It's important to note that Cost and Revenue are particular instances of Pain and Delight respectively. The Customer Value Proposition also relates to a particular type and level of value. At higher levels of value, we may consider core purpose, values, vision, and mission.
If we take the above definition of a business model, then the topics of the Business Model Canvas do not comprehensively describe "how an organization creates, delivers, and captures value." How an organization captures value is strongly determined by competitive forces as well as other external forces. However, the Business Model Canvas neither includes Competitive Forces nor External Factors such as Government and Trends. These are serious theoretical flaws of the Business Model Canvas especially when presenting the Business Model Canvas of an enterprise. In short, the 9 building blocks of the Business Model Canvas describe necessary but not sufficient building blocks that determine value or profitability of a business in an ecosystem. The Business Model Environment (BME) should be a permanent block of the Business Model Canvas, which at the moment reflects a Newtonian (mechanical) approach to business modeling.
Another category of shortcoming of the Business Model Canvas is with regard to its graphic layout which is user unfriendly, non-intuitive, complex, and hard to remember. I appreciate the logic of the Business Model Canvas which is non-linear. However, its logic can be simplified by arranging the 9 blocks in a linear cause-and-effect pattern such as in 9 'swimlanes.'
A linear pattern of building blocks would facilitate further analysis of business models such as in benchmarking, comparative analysis, and innovation of business models. Carrying out the aforementioned analysis using the current layout of the Business Model Canvas results in featuring only a limited number of business models. A linear 'swimlane' format theoretically allows an infinite number of business models to be presented on a single Business Model Canvas or Directory. Also, business model disruption as well as the emergence of Blue Ocean Strategy can be simply illustrated. In addition, business models can be more easily tracked and updated. With the current format of the Business Model Canvas, every comprehensive update essentially requires use of a new sheet of Business Model Canvas. Finally, unlike in the non-linear format of the Business Model Canvas, process diagrams can be easily drawn using swimlanes of building blocks just as in the methodology of Six Sigma (cf. SIPOC diagramming).
Looking through feedback from users, I see people asking about how to integrate the Business Model Canvas with Strategic Management tools such as the Balanced Scorecard, Strategy Map, Value Chain, Five Forces, and Value Stream Mapping. The common defense is to say that the Business Model Canvas focuses on documenting a business model and was not designed to perform the functions of the aforementioned tools. I find that response grossly inadequate. If a business model is an abstraction of a business, then one should be able to directly apply the many tools and analyses of Strategic Management. After all, a business model - as an abstract representation of a business ecosystem - should be multifunctional. The non-linear and complex layout of the Business Model Canvas is one reason why people find it difficult to visually layer or integrate other tools of Strategic Management with the Business Model Canvas.
So, how can the Business Model Canvas be improved? The Business Model Canvas is being established as a brand. Consequently, it is stuck in its current description of 9 building blocks and non-linear layout. I don't expect any change to be made to the number and description of the building blocks as well as its visual layout. For people, who desire to go beyond what the Business Model Canvas offers, there is the "Business DNA Model." The Business DNA Model, which is my invention and based on 20 years of post-doctoral research, takes a broader approach to business modeling. The Business DNA Model eliminates all of the above shortcomings of the Business Model Canvas.
A unique aspect of the Business DNA Model is that it provides a common language and dashboard for all tools of Strategic Management including the Business Model Canvas. Tools such as the Balanced Scorecard, Strategy Map, Value Chain, and Five Forces as well as the Business Model Canvas can directly be translated to the universal framework of the Business DNA Model. Conseqently, one can apply the existing body of knowledge in Strategic Management and related disciplines such as Living System Theory to deeply understanding, improving, and innovating on a documented business model. The operational framework of the Business DNA Model is Business Model Project Management (BMPM).
For more details on the Business DNA Model as well as Business Model Project Management (BMPM), see the presentation below.
As the presentation features the business model of Apple's iPod, which is also in the format of a Business Model Canvas in the book, "Business Model Generation," similarities and differences can be observed between the tools of the Business DNA Model and the Business Model Canvas. I may be biased, but I consider the Business DNA Model vastly superior to the Business Model Canvas. What do you think?
I look forward to hearing your feedback.
Dear Rod, thanks for your extensive reply. It seems that you are even substantially more critical towards the canvas than I am. We share some criticisms, especially regarding your point 1 (primarily its narrow definition of value - which applies to much of the strategy literature anyway) .
I am not sure whether I agree with your second point - my experience is that the graphical layout is one of its strengths and reasons for its success (besides of extensive and smart marketing), but of course improvements are possible. A side-by-side test of the various layouts would be useful here.
Regarding complementarity to other strategy tools, I don't think there is a particular reason to assume that all should be complementary. In fact, I think there is probably too much complementarity and similarity in current strategy tools - with the risk of becoming a dogma, as if strategy is what these tools reflect. For the sake of stimulating debate, I would even like to see tools that are incommensurable with the existing ones - I am primarily taking an academic perspective here. My additional critique to the canvas could perhaps even be that it is too similar to existing tools in its underlying assumptions (money making as the ultimate goal) and resulting elements to pay attention to (resources, customers, revenues, costs, ...).
Thanks for sharing your alternative 'Business DNA Model' and I am looking forward to the opinion of others.