In a previous blog post, I discussed the notion of strategic issues and the need to reconcile them in order to define ones strategy. In this post I will talk about the business model canvas (based on the excellent book by Alexander Osterwalder) as a tool which helps to (a) communicate about strategic choices, (b) analyze ones business model, and (c) consolidate the results of various analyses such as SWOT, value chain analysis, or Blue Ocean analysis.
The business model canvas
The business model canvas is a pre-structured canvas with 9 basic building blocks, as outlined in the figure below.
The business model canvas can be used in a wide variety of organizations and situations. The benefits vary from organization to organization, but include such things as: (a) having a single-page view of the organizations business model, (b) demystifying the field of strategic management, (c) solid tools for linking strategies at different levels of [multi-business] organizations, (d) speeding up the development of periodic strategic plans at [semi-]governmental organizations, et cetera. In other words, they range from improved communication to analysis and execution.
Strategic issues and the business model canvas
The canvas provides an integrated and holistic view of the business model of organizations. Since the business model can be seen as the result of strategizing, it provides a good starting point to document, analyze, and develop strategies. To see how this works, I will consider two of the strategic issues:
- The issue of competitive advantage: The two schools of thought with respect to this issue are “inside out thinking” and “outside in thinking”.
- For an analysis of the former, one would typically start at the left side of the canvas: what are our key partners/resources/activities. From there we move to the right, and work out the value proposition that will allow us to be successful, and finally the market segment where we can make this happen.
- For the latter, the argument is exactly the other way around: we start by selecting an attractive market (for example after conducting a blue ocean type analysis) and work our way back to the value proposition and required infrastructure of the organization.
- With respect to multi-business organizations, the issue that must be solved revolves around the question: strive for synergies, or market responsiveness of each business:
- Start by drawing a canvas for each of the indivudal business units.
- Compare the canvasses, and search for synergies using the canvas to get a sense of the value of the synergy perspective (i.e. on the “left” to get synergies at the resource/activity level, or on the “right” to get synergies at the value proposition level).
- Analyze the strategic environment for each of the businesses (again, one could use the blue ocean approach, or use Porter’s 5-forces / the PEST model) to get a sense of the value of the responsiveness perspective.
- Compare, discuss, and make a choice!
Mapping strategic models on the canvas
In my experience, strategists tend to use a wide variety of tools and methods to get their job done. The question is: how can (results of) these tools and models be integrated, and how does that align with the business model canvas?
The answer to this question is easier than you might think. These tools are used to generate strategic options and the canvas can be used to map out their impact, interdependence and so on. The following figure illustrates the general line of thinking:
In this setup, strategists can use as many tools as they like to try and find the best future course of action for the organization. Strategic options result from each of these analyses. For example, insights gained from a SWOT analysis + confrontation matrix may lead to the insight that a weakness (little staff for active marketing) can be cancelled out by an opportunity (use social media to empower other staff and build a strong reputation). This insight may be combined with results from a 5-forces analysis that shows that competition is struggling with a relatively old staff, few of whom manage to engage customers directly using modern communication techniques. In this case, the two options strengthen each other (which is a good thing). The opposite is also possible, which should be a “red flag”, leading to further investigation.
The canvas is an indispensable tool for strategists. It provides a focal point for various strategic analyses. The next post in this series zooms in on execution, and implementing the business model canvas.