BMDesigner - An interesting software tool based on the business model canvas

An interesting software tool is being developed by Boris Fritscher, a Graduate Assistant and PhD Student at the University of Lausanne. It is based on the business model canvas, developed by Alexander Osterwalder an author and advisor on Business Model Innovation. Based on the design so far the intentions seem to be to build a Wikipedia for business models, by providing a useful tool for users to explore, design and innovate on business models.

10 Tips on Business Model Innovation

How can we start innovating on our business model?

Business Model Innovations have redesigned entire industries and there are many stories on how companies by providing something different, in a different way or to a different customer segment completely change the rules of the game.

There are many ways to explore and analyze markets and the different components of the business model to identify opportunities for innovation. Here are 10 tips on how you can approach business model innovation:

1. Create a common understanding of the existing business model

This might seem obvious but in many organizations the knowledge about how the company operates is widely distributed in the organization. A good idea is to bring together key people from different parts of the organization who understands different parts of the existing business model and the underlying reasons for why things are the way they are. Is it because it always has been in that way? Is it because it was the easiest way to do it at the time the decision was made? A great way to create a common understanding is to visualize the business model by drawing boxes on a whiteboard, using the business model canvas, or as I sometimes do; list business model components in Excel using a projector to facilitate collaboration.

2. Create a common understanding of what is core in the business model

Focusing on what a business does best is often argued the easiest and most efficient way for companies to grow and be profitable. Understanding customers' perspectives and their perception of value is fundamental to identify what is core. Perhaps it’s not what you deliver but how you deliver it, that makes people buy? - Perhaps you should deliver something else as well given your good way of delivering things? - Perhaps it’s not the gadget you sell as such, but the software interface that people like? - Could other gadget manufacturers need your better software interfaces? - Perhaps the reason someone wants to collaborate with you is because your customer relationship and contracts with a certain organization? - Could other companies be interested to get access to the same organization? Read more about identifying the core in a business model here.

3. Identify interrelationship between the different business model components

Discovering real and perceived relationships and interdependencies between different components is important to understand underlying reasons for why things are the way they are. Identifying perceived relationships is also a good way to find underlying assumptions that might be wrong. What are the underlying assets enabling key activities? For what parts of the value proposition are partners and external actors necessary? How do the customer segments affect the choice of customer relationships and delivery methods?

4. Identify drivers of change and trends affecting existing business model

Why do you need to reinvent your business model? Is it because of low cost competition? Niche actors? New actors? New technology? Changing customer behavior? Changing partner behavior? Identifying the drivers of change and trends affecting the existing business model will turn your focus to the most crucial components of your business model.

5. Analyze strengths, weaknesses, opportunities and threats

The SWOT analysis is simple yet a powerful tool to create a common understanding of the current situation and to summarize the findings from the steps above. It is often illuminating to point out what needs to be done and to put weaknesses and threats into perspective. Use precise and verifiable statements rather than lose assumptions or opinions, and prioritize to spend your time on the most significant factors. The SWOT analysis can also be used on the business models of competitors or other external actors to find new ways to compete or collaborate.

6. Analyze theoretical ideal situation and contradictions for each business model component

By exploring what would be the theoretical ideal situation for each business model component you can create out-of-the-box-ideas without being locked into existing solutions. In doing so you can also find the constraints of a business model: why can't we provide this for free? Why not instantly? Why not exactly the way the customer wants it? With the ideal situation identified, the next step is to work backwards to something that is achievable by decreasing benefits and/or increasing costs and harms.

7. Analyze external alternatives that could take each business model component closer to the ideal situation

With a rigorous SWOT analysis and Ideality analysis you are well equipped to analyze how external actors could fill in the gaps you have identified. What if X delivered this instead? What if we replaced some of our existing assets or activities with external ones at lower cost or better performance? What if we created a low cost version? A digital version?

8. Analyze what would happen if applying principles for innovation

You can use the 40 principles for innovation, based on TRIZ adjusted for business problems, to explore "what if" questions for each business component (see example in the business model innovation matrix). What if we took away something? (principle 2), turned something the other way around? (13), did something slightly less or slightly more? (16) etc. Exploring 40 principles on several different business model components is an extensive work and I find two approaches helpful; either have a session on one business model component and apply the different principles, or take a few principles and apply them on all business model components.

9. Decide on ways to explore alternative business models with limited risk

The development of a successful business model is often the result of lots of learning from lots of failures, so it is important to find ways to fail fast and cheap without destroying existing business models. To avoid failing in front of your existing customers and partners, common methods are to set up separate working groups within or outside the company and use closed focus groups, advisory boards, release limited beta versions or try out new business models in limited geographic areas.

10. Track progress and unexpected customer or partner behavior

When tracking the progress of a new business model it is important to not focus blindly on parameters such as costs and revenues, but to identify existing, expected or unexpected customer or partner behavior and iterate the business model.

In retrospect most business models seem obvious but at the time it's not always that clear. To quote an article in Business Week from 2000 "But how will Google ever make money? There's the rub. The company's adamant refusal to use banner or other graphical ads eliminates what is the most lucrative income stream for rival search engines."

Further reading:

Table of contents

Tools for Business Model Innovation:

Business Model Innovation Matrix

The Business Model Canvas

What elements are core?

The Value Proposition Explorer

Ideality as an innovation tool

The Business Model Canvas - A Powerful Tool

Alex Osterwalder, an author, speaker and consultant on business model innovation has developed a powerful tool to describe business models in a structured, simplified and understandable way. This was, together with an overview and synthesis of existing literature about business models, perhaps the main contribution with his dissertation on business models in 2004. It is also the basis for the beautiful book he is currently finalizing on the subject.

Creating a common understanding

A very valid point Osterwalder makes, that also Linder and Cantrall made in 2000, when discussing the confusion related to the concept of business models, is that many people speak about business models when they only mean parts of a business model. By having a common understanding, and a visual representation, the users of the canvas can easily separate what parts are being discussed and relate it to the overall picture.

9 elements mentioned by at least two other authors

There are many different opinions among business practitioners and academics on how to define the term business model and what elements to include. Osterwalder's business model canvas is a very good attempt to compile the different existing models and he describes the different elements that he believes should be included in detail in his dissertation. He constructed his nine elements of the business model from the different business model building blocks that had been mentioned by at least two other authors prior to his work. The result is a business model canvas with 9 different business model elements.

Business model design template: Nine building blocks and their relationships, Osterwalder 2004

Visual thinking

What makes the business model canvas a really powerful tool is that it gives a simplified overview and helps people visualize and communicate their ideas. In his workshops Osterwalder often puts the canvas on the wall and have his participants draw their own business model.

Slide from this presentation

My take on the business model canvas

I sometimes get the question how I relate to Osterwalders's business model canvas and what I think of it. And the answer to that is that I find the canvas very helpful and a powerful tool to discuss most business models. I often use it, explicitly or implicitly, to get a quick and structured picture of a business model.

However, businesses, due to the development in ICT, increasingly work in partnerships, offer joint value propositions, use standardization, offer platforms for others to build applications on, build multi-channel and multi-owned distribution networks, profit from diversified and shared revenue streams etc. This increased complexity, with value chains replaced by complex value networks, has made me believe that value propositions can not only be directed towards customers but to partners, suppliers, communities, etc. Why should they collaborate with you? What are their needs? What do you bring to the table? Read more about value propositions here

Also, with my background as a management consultant in IA/IP strategies, I often see and design business models where the control mechanisms for sustainability are crucial to understand the business model. A simplified version is the razor-and-blade model: without patents someone else would provide the blade for much lower price destroying the business model. A complex version is the positioning of technology and IP portfolios in collaborative R&D and standardization activities. And the use of control mechanisms is not only towards customers, but towards suppliers, partners, competitors etc. Read more about control mechanisms here

Also, as with the element “customer relationships” I would perhaps include a “partner relationships” as it can vary from loose supplier relationships to strategic alliances, joint ventures etc.

Finally I often find it useful to turn the model around starting with the customer or stakeholder far to the left and ask "who could we potentially provide value for?, what are their needs?" then look at what internal and external assets and capabilities that could be used, combined or developed into value propositions.

It’s a great tool and for those of you interested to know more check out the book chunk project.

The Business Model Innovation Matrix

A systematic approach to identify Business Model Innovation opportunities is to identify the different parameters that can be innovated upon, and the different principles for innovation.

The Business Model Innovation Matrix is based on 40 principles to solve complex problems that were originally developed for technical inventions and published 1969 in the book Algorithm of Inventing, by Genrich Altshuller. The principles were a result of an analysis of 200000 inventions and has become a cornerstone in TRIZ. Now 40 years later the principles has been further developed based on the results of analyzing close to three million inventive solutions in science, arts, politics, engineering and business.

The Business Model Innovation Matrix consists of the 40 principles on the vertical axis and the business model components and the horizontal axis. As there is no dominant and widely accepted definition of the term business model I use the components below to explain the framework. If you prefer another business model template, with other components, you can of course apply the principles of innovation on that model.

Often discussions on Business Model Innovation are limited to the improvement of value propositions. By creating the matrix with the 8 parameters presented below and the 40 Principles of Innovation I have 320 unique areas to generate ideas for Business Model Innovation.

Business Model Components

• Value recipient - Who are we providing value for?
• Value Proposition - What values are we providing?
• Delivery - How are the values delivered?
• Assets, Capabilities & Activities - What internal and external assets, capabilities and activities are needed?
• External Relationships - What forms of external relationships are needed?
• Control Mechanisms - How is the value creation and extraction controlled?
• Benefit and Revenue Model - How are benefits and revenues generated?
• Costs and Harms - What are the costs and harms?

Some combinations of principles and business model components are easier than others and I will exemplify with Principle 1 applied on each of the components presented above.

Using 1 of 40 principles for Business Model Innovation

When using Principle 1 - Segmentation the objective is to divide the business model parameter into independent parts, make the system or objects easy to disassemble or increase the degree of fragmentation or segmentation.

Value recipient

• Can we segment the value recipients into micro-niches?
• Can we go from mass market to mass customization?
• Can we provide value for sub-groups of the value recipient?

Example: Spreadshirt

Design and sell your own t-shirts with a free online shop

Value Proposition

• Can we unbundle value propositions into different parts or modules?
• Can we move from one service level to several different service levels?

Example: RyanAir

You get nothing but the seat in the basic value proposition

Delivery

• Can we deliver the value proposition in parts?
• Can the value recipient be part of the assembly?

Example: IKEA

Providing disassembled furniture for the user to assemble

Assets, Capabilities & Activities

• Can we unbundle important assets, capabilities or activities into several smaller ones?
• Can we more effectively use the unbundled resources?
• Can we improve deployment of individual skills?
• Can we use flexible systems to respond to individual conditions?

Example: P&G

Providing technology and IP to its competitor Clorox instead of launching competing product

External Relationships

• Can we go from one large partnership to several smaller ones?
• Can we go from one organization to a franchise concept?

Example: McDonalds

Probably the world's most famous franchise

Control Mechanisms

• Can we control the value proposition by controlling parts of the value creation or value extraction?
• Can we control the value proposition by controlling the underlying assets, capabilities or activities?

Example: Myriad Genetics

Controlling underlying databases and patents

Benefit and Revenue Model

• Can we divide the object for transaction into smaller parts?
• Can we divide the payments into smaller payments?

Example: American Express

One of the first to create a worldwide credit card network

Costs and Harms

• Can we use temporary workers for the value proposition?
• Can we use short term contracts with external actors?
• Can we distribute costs and harms by diversification?

Example: Goldcorp

The famous GoldCorp Challenge

Further Reading:

• 10 Tips on Business Model Innovation
• 40 Principles for Business Model Innovation
• What is a value proposition

Further External Reading:

• Hands on Systematic Innovation(2004) by Darrell Mann
• Insourcing Innovation: How to Achieve Competitive Excellence Using TRIZ(2007) by David Silverstein, Neil DeCarlo, and Michael Slocum.

Business Model Innovation using Ideality

Ideality is a simple yet powerful tool to generate new ideas for business models. It is a tool that instead of starting from current business model and current value propositions, starts from the theoretical ideal situation. The theoretical ideal situation can be defined as all potential benefits at no costs or other harms. Using Ideality helps you look at the constraints of a business model and creates out of the box ideas. The most common approach is to apply Ideality on value propositions and analyze the ideal value proposition from the value recipients’ perspective. However, Ideality can be used as a tool to improve all business model components.

• Value recipient - Who would be the ideal customer and other value recipients?
• Value Proposition - What would be the ideal value proposition?
• Delivery - How would the values ideally be delivered?
• Assets, Capabilities & Activities - What internal and external assets, capabilities and activities would be ideal?
• External Relationships - What external relationships would be ideal?
• Control Mechanisms - What would be the ideal way to protect value and profits?
• Benefit and Revenue Model - What would be the ideal benefits, and revenue model?
• Costs and Risks - What are all costs and risks that theoretically could be removed?

Ideal for who?

What is ideal for one stakeholder is often not ideal for another. Customers want perfect products and services for free, not to be in a lock-in and get the value delivered instantly while the suppliers want to provide better-than-competition products and services, and make a profit from it. By mapping out what would be ideal for the different stakeholders, contradictions and constraints can be identified. To solve contradictions is a classical way to improve business models. Below an example looking at the value proposition from the customer perspective.

Working backwards

With the ideal situation identified, the next step is to work backwards to something that is achievable. This is carried out by a systematically decreasing benefits and/or increasing costs and harms.

Further reading

Business Model Innovation

Business Model Innovation Matrix

Value Proposition Explorer

Business Model Innovation

Business Model Innovation is a hot topic today. In its bi-annual CEO study, IBM concluded in 2008 after interviewing 1130 CEOs in 40 countries across 32 industries, that two thirds of the companies are implementing extensive innovations in their companies, especially around their business models.

In the last decade new technology has enabled close to zero cost of reproduction, storage and delivery of everything that can be made digital. It has enabled business model transparency, ways to interact and communicate with external actors, and tools to collaborate and globally distribute innovation and value creation. The increased transparency together with a cultural change, forces companies to not only focus on increasingly demanding customers, but on all affected stakeholders. Companies are bombarded by change, and business models need to be adjusted for companies to keep up. Important to keep in mind is that business models change but economic laws do not. For tips on how to approach business model innovation read 10 Tips on Business Model Innovation.

Three tools for Business Model Innovation

The Business Model Innovation Matrix
The matrix, that has recieved some great attention, consists of 40 principles developed to solve complex inventive problems on the vertical axis, and 8 business model components on the horizontal axis generating 320 areas for Business Model Innovation.

The Value Proposition Hierarchy Explorer
The basic idea underlying the tool is to identify assets and capabilities that are really valuable and identify how value could be created by combining own and external assets and capabilities into new value propositions.

Business Model Innovation using Ideality
Ideality is a simple yet powerful tool to generate new ideas for business models. It is a tool that instead of starting from current business model and current value propositions, starts from the theoretical ideal situation.

40 Principles for Business Model Innovation

The 40 principles for innovation, based on TRIZ adjusted for business problems, is the result of an analysis of close to three million successful inventive solutions from areas such as science, arts, politics, engineering and business. The principles, presented with some general business examples in the book Hands on Systematic Innovation(2004) by Darrell Mann, are good to use in brainstorming sessions on how to innovate business models and value propositions. All principles are of course not applicable to all situations, and there is some overlap between some of the principles. I use the different principles, together with the different business model components to generate 320 unique areas in The Business Model Innovation Matrix.



If this is too much for you, a short and simplified version with 4 inventive principles, presented in the book Blue Ocean Strategy(2005) by W Chan Kim and Renée Mauborgne, is presented in the end.



Principle 1. Segmentation

• Divide a system or object into independent parts
• Make a system or object easy to disassemble
• Increase the degree of fragmentation or segmentation

Principle 2. Taking out

• Separate an interfering part of property from a system or object, or single out the only necessary part (or property)

Principle 3. Local Quality

• Change the structure of an object or system from uniform to non-uniform, change an external environment (or external influence) from uniform to non-uniform.
• Make each part of an object or system function in conditions most suitable for its operation.
• Make each part of an object or system fulfill a different and useful function

Principle 4. Asymmetry

• Change the form of system or object from symmetrical to asymmetrical
• If a system or object is asymmetrical, change its degree of asymmetry

Principle 5. Merging

• Bring closer together or merge identical or similar systems or objects, assemble identical or similar parts to perform parallel operations
• Make operations contiguous or parallel; bring them together in time

Principle 6. Universality

• Make an object or structure perform multiple functions; eliminate the need for other parts

Principle 7. Nested Doll

• Place one system or object inside another; place each, in turn, inside the other parts
• Make one thing pass through another

Principle 8. Counter-Balance

• To compensate for the tendency of a system or object to deviate from a desired path merge it with others that provide a re-stabilizing effect
• To compensate for the deviation tendency of a system or object, make it interact with global/macro-scale phenomena

Principle 9. Prior Counter-Action

• If it will be necessary to perform an action with both harmful and useful effects, this action could be replaced with anti-actions to control harmful effects in advance
• Create beforehand stresses in a system or object that will oppose known undesirable working stresses later on

Principle 10. Prior Action

• Perform the required change of a system or object (either fully or partially) before it is needed
• Pre-arrange elements such that they can come into action from the most convenient place and without losing time for their delivery

Principle 11. Prior Cushioning

• Prepare emergency means beforehand to compensate for the possible problems that might occur later

Principle 12. Remove Tension

• Where harmful tensions may exist, create conditions to compensate, reduce or eliminate them

Principle 13. The Other Way Around

• Invent the action(s) used to solve a problem
• Make movable parts (or the external environment) fixed, and fixed parts movable
• Turn the system, object or process upside down

Principle 14. Curvature

• Turn flat or straight things into curved ones
• Go from linear to rotary motion

Principle 15. Dynamization

• Allow or design the characteristics of a system, object, external environment, or process to change to be optimal or to find an optimal operating condition
• Divide a system or object into parts capable of movement relative to each other
• If a system, object or process is rigid or inflexible, make it movable or adaptive

Principle 16. Slightly Less/Slightly More

• If 100 percent of an objective is hard to achieve using a given solution method then, by using slighly less or slightly more of the same method, the problem may be considerable easier to solve

Principle 17. Another Dimension

• If a system or object uses only one or two dimensions; make use of the unused dimensions
• Use a multi-storey arrangement instead of a single-storey arrangement
• Tilt or re-orient the system or object, lay it on its side
• Use another side of a given system or object

Principle 18. Resonance

• Find and use the resonant frequency of a system or object

Principle 19. Periodic Action

• Instead of continuous action, use periodic or changing actions
• If an action is already periodic, change the periodic magnitude or frequency
• Use pauses between actions to perform a different action

Principle 20. Continuity of Useful Action

• Make parts of a system or object work at optimal conditions continuously
• Eliminate all idle or intermittent actions or work

Principle 21. Hurrying

• Conduct a process, or certain stages (e.g. destructible, harmful or hazardous operations) at high speed

Principle 22. Turn Lemons into Lemonade

• Use harmful factors to achieve a positive effect
• Eliminate the primary harmful action by adding it to another harmful action to resolve a problem
• Amplify a harmful factor to such a degree that it is no longer harmful

Principle 23. Feedback

• Introduce feedback to improve a process or action
• If feedback is already used, change its magnitude or influence

Principle 24. Intermediary

• Use an intermediary carrier article or intermediary process
• Merge one system or object temporarily with another which can be easily removed

Principle 25. Self-service

• Make a system or object serve itself by performing auxiliary helpful functions
• Use waste or lost resources, energy, or substances

Principle 26. Copying

• Instead of an unavailable, expensive, or vulnerable object, use simpler and inexpensive copies
• Replace a system, object, or process with optical or virtual copies
• If copies are already used, move to an out of the ordinary illumination and viewing perspective

Principle 27. Cheap Disposable

• Replace an expensive system or object with a multiple of inexpensive alternatives, comprising certain less-important qualities

Principle 28. Another Sense

• Replace or supplement one sensory means with another (visible, touch, acoustic, taste or smell)

Principle 29. Fluidity

• Make solid things into fluid things

Principle 30. Thin and Flexible

• Use thin and flexible structures instead of large, three-dimensional ones
• Isolate a system or object from a potentially harmful environment using thin and flexible structures

Principle 31. Holes

• Add holes to a system or object
• If a system or object already has holes, use them to introduce a useful substance or function

Principle 32. Color Changes

• Change the colour of an object or its external environment
• Change the transparency of a system, object or an external environment

Principle 33. Homogeneity

• Make systems or object interact with others of a similar form or with similar properties

Principle 34. Discarding and Recovering

• Make portions of a system or object that have fulfilled their functions go away or modify them directly during an operation
• Conversely, restore consumable parts of a system or object directly in operation

Principle 35. Parameter Changes

• Change an object's physical state
• Change the concentration or consistency
• Change the degree of flexibility
• Change emotional and other parameters

Principle 36. Paradigm Shift

• Use phenomena occurring during disruptive shifts in an economy

Principle 37. Relative Change

• Use the relative difference that exist in an object or system to do something useful
• Make different parts of a system act differently in response to changes

Principle 38. Enriched Atmosphere

• Replace a normal atmosphere with an enriched one
• Expose a highly enriched atmosphere with one containing potentially unstable elements

Principle 39. Calm Atmosphere

• Replace a normal environment with an inert one
• Add neutral parts or elements to a system or object

Principle 40. Composite Structures

• Change from uniform to composite structures, be aware of and utilize combinations of different skills and capabilities

A short version on inventive principles

A short version with 4 inventive principles is presented in the book Blue Ocean Strategy (2005) called the four actions framework:

• Eliminate - which of the factors that the industry takes for granted should be eliminated
• Reduce - which factors should be reduced well below the industry's standard?
• Create - Which factors should be created that the industry has never offered?
• Raise - Which factors should be raised well above the industry's standard?

Further reading:

The Business Model Innovation Matrix

What is a value proposition?

The Value Proposition Hierarchy Explorer



Further external reading:

Hands on Systematic Innovation: For Business and Management

by Darrell Mann

Blue Ocean Strategy

by W.Chan Kim and Renée Mauborgne

Books on TRIZ at Amazon