In an earlier blog post, we introduced the Business Model Canvas (Osterwalder, 2009) as a useful tool for describing how a business captures, creates and delivers value. In this blog, we will elaborate on Business Models, introducing the subject of Business Model Analysis. We will present several possible analytical techniques, using the case of Nextpresso, a virtual coffee-cup company.
Business Model Analysis
Analyzing your business model can help to determine whether a venture is, or will be, viable and valuable. After completing a Business Model Canvas for a current or future business model, designers often ask the following questions:
- Where are our revenues coming from?
- What value is delivered to which markets?
- What costs are involved in delivering that value?
- Are our perceived key activities and key resources as important for gaining revenue as we think they are?
- If we change our model in a specific way, what are the effects?
This requires insight into several elements of the business model, attributes of these elements and the relations between different elements. Analyzing these elements will provide the foundation for business model change and innovation in an organization. You can analyze a business model from several different perspectives. In our example, each possibility is analyzed from a different perspective, and answers a specific question.
Case and tool introduction
Using the Nextpresso example, we will present different possibilities for analysis on the Business Model Canvas. To provide some context, the Nextpresso machines brew espresso from coffee capsules, a type of pre-apportioned single-use aluminium container of roasted coffee in a variety of flavours. Nextpresso initially operates in the Dutch coffee market and intends to “cuppify” the traditional coffee world from there.
Using a tool for Business Modelling is useful since the model is created and stored in a central place, reducing the risk of miscommunication and maximizing the effect of collaboration. Furthermore, communication is made easier through publication functions (html, word, pdf-posters), making the business model more accessible. Needless to say, this is quite important for models that describe how your company creates value. Especially in the case of Business Model Analysis, tooling can help identifying strengths and weaknesses through relating building blocks, and providing insight in cash flows by calculations. Finally, tools help you to work your way “downstream” from your high level business model, to more detailed implementation views e.g. process models, customer journey maps and enterprise architecture models.
Business Model Canvas for ‘Nextpresso’
The Canvas below presents the current business model of Nextpresso. Nextpresso provides “Great espresso experiences at home and at the office”.
Comparison of business models
If we enter a new market, how will this affect our revenues? If we stop providing certain services, will we decrease our costs? Why is our competitor’s model more successful than ours? Comparing different business models is useful in addressing such questions. The Nextpresso case provides a good example of such an analysis:
The Canvas represents the business model of Nextpresso according to the situation before the value proposition ‘Great espresso experience at the office’ was added. At first Nextpresso provided machines and cups for households only. You can see the differences in Customer Segments, Channels, Customer Relationships and Revenue Streams. When elements from the other business model are removed, these elements should be indicated in red. By knowing these differences, Nextpresso can calculate the differences in revenues and costs before and after this change. In the next example, we will present an example of calculating these costs and revenues.
Typical usage of business model comparison addresses questions regarding GAP-analyses (difference between as-is and to-be models), analyses on optional changes to a business model and comparison of alternative business models for the future. (Note: the feature to compare business models canvasses is available on BiZZdesign Enterprise Studio).
Analyzing Revenues and costs
What value do we deliver to which markets and what costs are involved in delivering that value? Where are our revenues coming from? What prices generate what sort of revenues? The ‘Costs and revenues’ function provides a useful way of addressing these questions. Organizations get a simple and clear view of the size of the markets they operate in, revenues per revenue stream and costs per cost structure.
For an overview of revenues and costs, specific information per Cost Structure and Revenue Stream serves as input:
Analyzing the customer relations
In the Nextpresso case, management might ask: Do we have different operating concepts for our segments ‘Households’, ‘Office users’ and ‘Companies’? Why? How many? An answer can be found by using the Customer Relations Landscape Map in Enterprise Studio:
Analyzing the channels
This Channels Landscape Map may be extended by mapping the Channels on different phases a customer is in (e.g. orientation, comparison, purchase, usage, complaint)
Presenting your business model
Communication to various stakeholders in your organization requires view mechanisms and various presentation options. BiZZdesign Architect provides many presentation options which we will discuss in a next posting.
Conclusions and next steps
We described types of analysis and we zoomed in on analysing the Business Model Canvas. Analysis of business models answers the question why and how a venture is, or will be, viable and valuable. Based on questions that represent perspectives on analyzing business models, the Nextpresso case shows different possibilities for conducting analysis. Tooling is a useful aid in business model analyses, making calculations and communication easy. Feel free to share in your thoughts and suggestions on alternative analyzes from your practice.
More about BiZZdesign’s Business Model Management services and a reference to recent webinars on this subject can be found here.