For many executives, business model generation is a difficult but necessary activity, to be endured on rare occasions. Typically the only times business models would be generated would be when the business started, when significant change is anticipated (i.e. the sale of some subset of the business), or when refinancing is required. These models were created using massive spreadsheets with several poorly documented assumptions. They often did not provide a holistic view of the business and focussed primarily on the numbers specific to one aspect of the business.
Business Model Generation, written and collaborated on by a team of over 470 practitioners, takes a fresh approach to the activity of business modeling. The book proposes the use of a “Business Model Canvas” which provides a simple but holistic view of a business and its value chain. This business model canvas template asks the reader to consider all aspects of all of the following areas:
- Key Activities (KA)
- Key Partners (KP)
- Key Resources (KR)
- Cost Structure (CS)
- Customer Relationships (CR)
- Customer Segments (CS)
- Value Propositions (VP)
- Channels (CH)
- Revenue Streams (RS)
The book then covers common patterns and techniques for quickly producing useful business case canvases; canvases that contain sufficient information to be useful by management. Finally, the book looks at the use of these canvases in making strategic decisions and using them as a process for ongoing strategic planning. This idea of a process for continually evaluating strategy is one that is becoming more and more important as the pace of business change becomes faster and faster.
The Big Idea
Business Models as a Tool for Evaluating Possible Change
"Mapping an existing business model is one thing; designing a new and innovative business model is another. What’s needed is a creative process for generating a large number of business model ideas and successfully isolating the best ones."
It is hard to find an expert that is stating, these days, that the pace of change of business is slowing. It is generally accepted that the pace of change is accelerating and many experts expect that this will continue to be the case for the foreseeable future. Things like advancements in technology, communications, and transport logistics are all key contributors. The Internet, including various social media sites, have allowed for collaboration and advancement of ideas at a pace never seen before. All of this places greater and greater pressure on businesses to advance to meet the new needs, demands and pressures of the changing economy. Strategic planning becomes hugely challenging at times like this.
Traditional strategic planning cycles, which take a great deal of time and documentation provided by planning members who are also busy with the regular day-to-day aspects of their jobs, are becoming less and less relevant in this fast-moving environment. What is needed is a tool to quickly capture sufficient relevant information about a business change to evaluate the impact to the business that would be implied. The Business Plan Canvas template (below; click to enlarge) is an excellent example of a tool that gives a quick but holistic overview of a proposed change, along with predicted outcomes. By using this template, the business management team can quickly look at one or more change alternatives to effectively evaluate the best course of action to take. The patterns can be used for looking at ‘out of the box’ alternatives when looking at how to successfully evolve a business. Great business models explaining these examples help see when and how they can be effectively applied. Business can quickly build plans for effecting the required change, based on the Business Model Canvas.
While these tools can be used reactively in order to determine what best to do in reaction to something that has happened in the business environment, more importantly, the book suggests that the same tools and techniques can be used proactively to create strategic plans with sufficient flexibility to be resilient to most change through consistent re-evaluation.
Insight #1
Using Business Models to Evaluate Alternate Strategies
"A competitive business that makes sense in today’s environment might be outdated or obsolete tomorrow… Of course we can’t be certain of the future… We can, however, develop a number of hypotheses about the future to serve as guidelines for designing tomorrow’s business models."
There may be two, three, or four (or even more) possible future paths for a given business at a given point in time. When a simple yet relevant business model is created for each possible path, each can be compared for relative value and likelihood of success. Of course, traditional long-cycle business model documents make this an onerous task, not likely to be pursued.
This allows the business to strategically evaluate options and choose the path that is best suited to their future success. Options can include status quo type answers to the change required, or it can also include more ‘out of the box’ type solutions based on patterns (see insight #2) or by the thinking of members of the planning team. Continuous use of models to evaluate future business paths result in a strategic plan for the business that is based on business model generation. This is the process of going from reactive planning to truly strategic thinking, to begin anticipating appropriate change before external forces demand change of you. This allows for a more nimble planning cycle which gives more time to be spent on the creative process part of strategic planning, rather than on the administrative and documentation side of the process.
Insight #2
Business Model Generation as an Ongoing Process
"In today’s climate, it’s best to assume that most business models, even successful ones, will have a short lifespan."
Imagine a business environment where tools were in place to easily discuss business models in a holistic manner without an onerous amount of effort to create the model. Suddenly you are looking at an environment where it is easier to talk strategy. That ease with which strategy can be discussed creates an environment where it simply makes sense to discuss strategy and strategic changes routinely. It quickly and organically becomes part of the process of doing business. It becomes hard to imagine a world where there isn’t a process in place to evolve strategy on a regular basis. A business operating in this manner is well poised to deal with the increasing change of pace we are all dealing with.
The book takes the reader through the process of making business model generation a regular management activity. The proposed process consists of:
- Mobilizing the team appropriate to generate the appropriate business model
- Understand the business opportunity to be modelled
- Design an appropriate business model
- Implement the changes to the business that the model dictates
- Manage the business based on the new model, complete with feedback measurements to evaluate the success of the model.
Once this process is embraced, it becomes easy for the business to do strategic analysis of their potentials to land on an optimized strategic plan which they can realistically execute.
Business Model Generation provides insight and motivation to not just embrace creating a business model but, by using their tools and techniques, use business models to design strategies for business. Once the business embraces the concept of business modeling, the book takes the reader through the rationalization for embracing business modeling as a continuous process. This book provides valuable material for making business modeling a practical part of managing business for success.
