A business model outlining and explaining how an organization creates, delivers, and captures value is used to launch new ideas or readjust the practices of an existing company. A comprehensive business model encourages strategic thinking and holistic design.
In Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers, Alexander Osterwalder and Yves Pigneur describe the importance of developing and revisiting an organization’s business models.
They assert that to stay healthy, you should continually reassess your business model’s current viability and future promise. The modeling process is improved when it is performed on a recurring basis and there is an honest and comprehensive vetting of ideas.
Because almost all business models eventually become obsolete, proactive companies actively conceive and pursue new models. Doing this helps business leaders question long-held assumptions and make better decisions for their companies.
To define a business model, the authors outline nine interrelated parts that cover a company’s customers, offer, infrastructure, and financial viability. For a thorough approach to new ideas or new ways of doing business, ample time and energy must be given to examining each component.
Customer segments – Identify one or more types of customers. Mass markets and niche markets require different approaches. Your organization may have multi-sided platforms in which you sell different services to two or more different groups of customers.
Value propositions – Determine which benefits lead customers to your company rather than to your competitors. Your organization may offer something new, perform better, or be designed to meet specific needs. Capture that information succinctly.
Channels – Select the best customer touch points to communicate value and to distribute and sell your products and services, such as the Internet, retail locations, and wholesalers. Determine channels that best let customers experience, assess, and buy what you’re selling.
Customer relationships – Determine how to serve different market segments in different, but complementary, ways (e.g., providing personal services along with automated or self service).
Revenue streams – Consider various income flows such as sales, rentals, licenses, or subscriptions. Each type of revenue stream may require its own pricing mechanism, such as fixed or variable pricing or volume incentives.
Key resources – Name the key resources your organization owns or leases. They may be physical (e.g., a physical plant), financial (e.g., credit lines), intellectual (e.g., intellectual property), or human (e.g., executive and creative talent).
Key activities – Identify the critical tasks your company performs that engage customers and drive revenue. These tasks can involve production, marketing and sales, consulting, or managing.
Key partnerships – Consider forming supplier links, joint ventures, and strategic alliances with other entities. These tactical partnerships or “co-petition” can expand or protect your market share, lessen risk, and provide savings. Also, consider outsourcing or subcontracting those non-critical functions that can be performed as well or more cost-effectively by others, which can help your organization reduce costs or gain access to vital resources.
Cost structure – Determine your cost structure, whether it is cost-driven or value-driven. Determine fixed, semi-variable, and variable expenses, and whether your company can pursue economies from large-scale production and distribution.
In defining these components in a business-modeling process, keep these tips in mind:
- Prepare an agenda and structure for the business-modeling session in advance and remain focused on the problem or opportunity.
- Think visually. Capture ideas in a few words or sketch them. Don’t get hung up on details; just focus on the abstract design.
- Consider the effect of the four external forces on your problem or opportunity: competitive pressures, customer demands, industry trends, and macroeconomic conditions.
- Consider using a SWOT analysis to examine your company’s strengths, weaknesses, threats and opportunities within each of the nine elements. This technique can reveal the current condition of a business model, and predict changes in the future as opportunities and threats arise.
- Remember that each element is subject to repair or renewal.
- Remain patient so you can counter obstacles in each phase of the design process. Avoid committing to one particular design too early, and make sure team members are sufficiently comfortable to express bold ideas.
Enfocus Requirements Suite™ can help companies develop and continually revisit their business models. The software features online training, presentations, practices aids, templates, and visualization tools, along with “community” interaction with business analysis experts. The tool empowers stakeholders to participate in requirements development and project success, as well as in the creation and revising of business models.