Book Review - Business Model Generation

Book Title: Business Model Generation
ISBN: 0470876417
Author: Alexander Osterwalder & Yves Pigneur

Review
The book, written by Alexander Osterwalder and Yves Pigneur, co-created by 470 practitioners, is an innovating book in its content and its design that totally contrasts with the business litterature books.
The book presents a business model framework called the Canvas, based on nine building blocks that describe the business model as a complete model with its interfaces and inteconnections with each others:

1. Customer Value Proposition
2. Sales Channels
3. Sales Relationships
4. Customer Segments
5. Revenue Streams
6. Key Resources
7. Key Activities
8. Key Partners
9. Cost Structure

The business model canvas describes the rationale of how an organization creates, delivers, and captures value. It has created a shared language for describing, visualizing, and assessing business models.

The book contains a list of popular business model patterns including concepts from popular management litterature such as Unbundling Business Models, The Long Tail, Multi-Sided Platforms, FREE as a Business Model and Open Business Models.

The book contains also an exhaustive and interesting chapter on Business model design, using concepts such as customer insights, ideation, visual thinking, prototyping, storytelling and scenarios.
An attempt is done to corellate business model design using the canvas and blue ocean strategy, taking as an example the famous blue ocean strategy example of le cirque du soleil.

Design process
A long chapter is dedicated to Business model design process, which includes a 5 step process:
(see my detailed post)

1. Mobilize
2. Understand
3. Design
4. Implement
5. Manage

Visual thinking
The book focuses also a lot on the visual thinking, the analogies to architecture (Guggenheim museum) and design, using concepts such as ideation, prototyping and storytelling. Designing a business model should be a team work and the best way to do it, is to print out the canvas on a large surface, plot it on a wall and let people jointly sketch out or use post-it notes to discuss and analyze business models.

Interesting cases
The book contains many interesting cases from companies such as Lulu.com Lego, Google, Nintendo Wii, Apple, Skype, Rega, Gillette, Procter & Gamble, and Innocentive. It uses the business model canvas to explain the rationale of each company's business model.

Conclusion
It's a very good boek. Easy to read. Visual. Useful for practitioners and novices in business model development.
The Canvas and the methodology explained are powerful, visual tools for success.

Case study: Blue Ocean Strategy - Nintendo Wii

Nintendo’s successful Wii game console is an example of a multi-sided platform business model pattern.

Let's look at how Nintendo differentiated itself from competitors Sony and Microsoft XBOX from the standpoint of Blue Ocean Strategy.

Compared to SONY Playstation and Microsoft XBOX, Nintendo pursued a fundamentally different strategy and business model with Wii. The heart of Nintendo strategy was the assumption that consoles do not necessarily require leading-edge power and performance. This was a radical stance in an industry that traditionally competed on technological performance, graphic quality, and game realism: factors valued primarily by die-hard gaming fans. Nintendo shifted its focus to providing a new form of player interaction targeted at a wider demographic than the traditional avid game audience.

With the Wii Nintendo brought to market a console that technologically underperformed rival console, but boosted the fun factor with new motion technology.Players could control the game through a controller simply through physical movement.

The Wii was an immediate success with casual gamers and outsold its rivals focused on traditional market of “hardcore”.

Nintendo new business model has the following characteristics: A shift from “hardcore” to casual gamers, which allowed the company to reduce console performance and add a new element of motion control that created more fun; elimination of state-of-the-art chip development and increased of use of off-the-shelf components; reducing cost and allowing lower console prices; elimination of console subsidies resulting in profit on each console sold.

Recently, Microsoft XBOX has released a motion controlled device, the Kinetic. The device added to the XBOX, and the game will be controlled by the gamers body...

references: businessmodelalchemist, Alex Osterwalder

What Enterprises need to know about Cloud Computing?

What is Cloud Computing?  “Cloud computing is on-demand access to virtualized IT resources that are housed outside of your own data center, shared by others, simple to use, paid for via subscription, and accessed over the Web.”

Benefits

Enterprises are turning to cloud computing for the following reasons:

• Convenience: for fast procurement of on-demand IT services available on a self service basis from a variety of networked devices. Faster time to market.
• Adaptation/Elasticity: through the ability to mix and match IT services and increase or decrease their use as required.
• Innovation: cloud computing makes it easier to try new things while taking fewer risks via a PAYG business model (utility computing).
• Simplicity: cloud computing short-circuits IT complexity by reducing significant elements of the IT stack to standardized commodity services.
• Lower costs: from economies of scale based on IT resource pooling coupled with the PAYG business model to using these resources.
• Cost transparency/awareness: the ability to understand, measure, and manage who is using which IT resources at what cost for billing, planning, and optimization purposes.
• QoS: enterprises expect public and private cloud IT resources to be more reliable, available, scalable, and secure than traditional ones.

Definitions

Private Cloud

Due to the limitations in terms of security and bandwidth, and the constraints in terms of application design and functionality of the various types of public cloud, some enterprise choose to keep their data center in their own premises and use similar cloud best practices. This means that enterprise take the capex burdon.

Public Cloud

Open Internet capabilities with data centers & services available over the internet.

Hybrid Cloud

A mix configuration of the other cloud flavors.

IaaS

Raw infrastructure, such as servers and storage, is provided from the vendor premises directly as an on-demand service: Amazon Web Services,…

PaaS

Development platforms hosted by the vendor, allowing developers to simply code and deploy without directly interacting with underlying infrastructure: Google AppEngine, Microsoft Azure, Force.com…

SaaS

Complete application systems delivered over the Internet on some form of "on-demand" billing system: Salesforce.com, Google Apps…

Strategy, how?

When Is Cloud Computing A Fit For The Enterprise?

A couple of conditions need to be met before an enterprise decides to implement cloud strategy:

• Applications & processes have highly variable demand
• Internal data center limits are being reached
• Existing hardware has reached end of service life
• Speed of provisioning is constraining business execution
• Enterprise Datacenter no longer provides competitive advantage

How to proceed? How to make a decision? There is no clear cut answer or methodology, so you have to go back to the fundamentals of Business strategy; I recommend two methods:

Mix-Marketing 7C's Compass Model of Shimizu:

and the Enterprise Analysis 7S's from McKinsey:

Case study: How to Increase Market Share with Innovative Customer Value Proposition?

How to increase my market share and create new revenue streams? This is a question that keeps many CxO awake! And I believe the answer is not simple.

Telco Market– In the very competitive Telecom Market, The operators are facing price erosion and revenue decline in their traditional voice business, due to, the emerging over-the-top players offering free of charge voice service over the Internet on one hand, and the change in consumer behavior adopting  new communications means on the other hand. This challenging market situation has pushed many operators to think about innovative solutions to address and fight this new threat.

I highlight below the successful case of Optimus, a Mobile operator in Portugal. I also include their Business Model in Alex’s Canvas format.

Company- Optimus Portugal is an operator in Portugal’s mobile marketplace. As an innovative challenger, it is compelled to think outside the box in attempting to capture new customers as it competes with incumbent market leader TMN and Vodafone.

Objective- Optimus wanted to increase both its brand attractiveness and its market share within the youth segment. The goal was to address the unique requirements of the market with an innovative offering in terms of pricing, devices and social community.

Customer Value Proposition- The solution, which the company calls TAG, bundles a consumer’s mobile and fixed Internet services on the same mobile number for a single monthly fee. The TAG concept was launched – a holistic value proposition with dedicated pricing and services, targeting the teenagers segment, see Optimus TAG.

The Value Proposition comprises Voice calls among TAG members are free of charge, and TAG users receive truly converged communications. Everything the TAG subscriber can do on the mobile is accessible via the PC: voice calls, SMS, MMS, video calls, instant messenger, voice mail with the same look and feel and the same user experience. At the same time Optimus builds up a new TAG community, in fact a new Social Network, within the offering. This allows Optimus to move in the value chain and compete with the emerging Over-The-Top players (see Figure 1).

Figure 1

Customer Segment- Teen, Youth and early adopters market segment.

Sales Channels- Optimus has been using a “guerilla marketing” campaign to attract this customer segments. The service was sold on the Internet, in Kiosks, in Disco’s, Cafes, and close to schools and university sites.

The Business Model Canvas looks as follows:

Optimus TAG - Business Model Canvas

Result- A year and a half after launch, Optimus was able to completely change the game in the Portuguese market. It developed converged fixed-mobile voice/messaging/social experience targeted directly at the teen market. The innovative combination of services and rate plan made the difference.

The TAG results have exceeded all Optimus’ internal expectations:

• 60 percent of all registered users access the service daily.
• Increased Network Utilization
• Increased number of subscriptions and customers
• Creation of a new community owned by Optimus
• And a new way of communicating on the mobile network: PC-based Communication.

Optimus success in the teen market has led to a decision to roll out similar services for its entire user community, including enterprise customers.

References:

Optimus TAG website

http://www.ericsson.com/

The Empathy Map, a tool for Customer Profiling

An important element for successful Sales people is the process of understanding their customer profile. Who is buying from you and why? What makes this customer want to buy from you, and not from competitors? When does this customer buy from you?
To answer all these questions is very important, in a way that it helps you to think, and rethink your sales strategies.
Therefore, it is often times useful to define the character profile of your customer; be it a CEO, CMO, or any executive. A proper description of your buyer persona (your customer) includes everything from their needs, motivations, concerns and goals; anything that influences how they think about you or your product.

When you have described one or more buyer personas for your company, it really helps you with:

• Sharpening your strategy
• Changing the state of play accordingly
• Addressing in a beter way your customer
• Understanding your customer thinking
• Defining the right strategy during the commercial negociations
• Building attractive value propositions

A good way to gain insight into the mind of your customer can be attained by using the “Empathy Map”.
This tool is developed by visual thinking company XPLANE.
The map below helps you understand why your customer would like to do business with you.

Walk through the following six elements for your own customer to understand how you can best fulfill his or her needs.

1. THINK and FEEL

• What is important to the customer? What is he/she sensitive for?
• What are his/her hopes, dreams, fears?

2. SEE

• What does the customer’s environment look like?

3. HEAR

• What opinions influence the customer?

4. SAY and DO

• What are your customer beliefs? Where they spend their time?
• Who are her/his friends?

5. PAINS

• What obstacles or challenges does your customer face?

6. GAINS

• What does he/she hope to achieve, and how might he/she measure success?

The Empathy Map is both a framework and a technique, and it’s typically developed collaboratively by a diverse team by placing sticky notes on a wall and sketching out the different aspects of a buyer persona profile.

Finally, The Empathy Map is a simple and easy way to gain deeper insight into your customers.

See also Alex Osterwalder blog The Power of Immersion and Visual Thinking.

About-Me

"Change is the process by which the future invades our lives"
Alvin Toffler

This is my personal blog where I explore issues around business models and open innovation with the objectives to:

Establish a blog with news, and commentary on business models and innovation

Present interesting publications and review books

Discuss business models and open innovation

You are welcome to leave a comment or drop a mail.